Washington D.C. (June 3, 2022) - The staff of the Division of Corporation Finance (CorpFin) of the U.S. Securities and Exchange Commission (SEC) recently released a Sample Letter indicating that companies subject to federal securities disclosure requirements may have obligations related to the conflict in Ukraine, regardless of whether they are directly subject to U.S. sanctions against Russia. Consequently, even non-U.S. companies, including those outside the direct reach of the sanctions, may now have certain disclosure requirements with respect to dealings with Russia, Belarus, and Ukraine.
While guidance issued by CorpFin staff is not mandatory, the suggestions set forth within the Sample Letter generally apply to public and other reporting companies that must disclose material facts or risks in connection with (i) the registration of their securities under the U.S. Securities Act of 1933, as amended, and the rules promulgated thereunder (the Securities Act); (ii) the filing of any periodic reports pursuant to the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the Exchange Act); or (iii) the submission or filing of any other report, statement, or filing with the SEC. Thus, unlike U.S. sanctions laws, which impose restraints or restrictions primarily on U.S. persons, the SEC disclosure obligations may apply Ukraine-related requirements on both U.S. and non-U.S. entities alike.
The Sample Letter suggests that companies should consider the following factors to determine whether a disclosure should be made, to the extent material or otherwise required to be disclosed: (i) direct or indirect exposure to Russia, Belarus, or Ukraine through operations, investments, and sanctions or other legal or regulatory requirements; (ii) direct or indirect reliance on goods or services from Russia, Ukraine, or countries supporting Russia; (iii) actual or potential supply chain disruptions related to the conflict in Ukraine; or (iv) business relationships or assets in Russia, Belarus, or Ukraine. Further, the Sample Letter notes that these companies may have additional obligations regarding any material changes in assets, exchange rates, or contracts caused by the Russia-Ukraine conflict, and that CorpFin may send companies comment letters based on these same factors when reviewing regular filings made under the Securities Act or the Exchange Act. Finally, the Sample Letter suggests material disclosures related to: (i) currency limitations, capital controls, payment of taxes, asset sales, and nationalization in Russia, Belarus, or Ukraine; and (ii) new or potential cyber-attacks by state actors or others.
Given the broad scope and content of the Sample Letter's suggested disclosures, companies may trigger Ukraine-related federal disclosure obligations even if not directly subject to U.S. sanctions laws or other Ukraine-related regulations. As such, businesses should ensure that they are doing their due diligence in complying with Ukraine-related SEC disclosure obligations and other federal requirements.
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