US embassy cable - 05PARIS7031

UNCLAS PARIS 007031 
 
SIPDIS 
 
PASS SEC FOR SBOONE 
PASS FEDERAL RESERVE 
STATE FOR EB AND EUR/WE 
TREASURY FOR DO/IM MSOBEL AND LHULL 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
LABOR FOR ILAB 
USDOC FOR 4212/MAC/EUR/OEURA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, FR 
SUBJECT: CNIL TALKS TO UNBLOCK SOX 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET 
 
1. (SBU) SUMMARY: We met with CNIL to discuss its opposition 
to listed companies' whistleblower provisions, as required 
by Sarbanes Oxley Section 301.  CNIL says it has developed 
guiding principles to resolve the conflict of law, which it 
soon will share informally with interested parties.  END 
SUMMARY. 
 
BACKGROUND 
---------- 
2.  (U) The French National Commission on Information and 
Liberty (CNIL), a French agency set up to guard civil 
liberties, issued two decisions in May 2005 that prevent 
firms, listed in US markets but doing business in France, 
from complying with Sarbanes Oxley (SOX) Section 301.  That 
section requires audit committees of publicly traded 
companies to establish procedures for confidential, 
anonymous submission by employees of concerns regarding 
questionable accounting or auditing matters (e.g., 
whistleblower systems, or "hotlines").  We are aware that US 
Securities and Exchange Commission (SEC) staff members have 
been in direct contact with CNIL to find a solution. 
 
3. (SBU) A number of representatives of US-listed firms have 
contacted us to discuss the conundrum, how to go about 
designing a solution, and how to propose any solution 
without risking CNIL sanctions (which include both civil and 
criminal penalties).  Issues identified include the extent 
of CNIL jurisdiction, other financial reporting obligations, 
good faith requirements, the practicality of anonymity 
issues in small offices or worksites, and labor law issues 
including union views.  Companies represented in such 
discussions have included Coca-Cola, the Walt Disney 
Company, Johnson & Johnson, along with a number of other 
firms' local attorneys. 
 
4.  (SBU) We met with Christophe Pallez, CNIL Secretary 
General, and with Clarisse Girot, head of international and 
European Affairs at CNIL, on October 13, to present local 
firms' concerns, express our interest in furthering 
corporate governance principles, and explore possible 
solutions to the firms' hesitation on presenting proposals. 
Pallez said the CNIL has received many inquiries about its 
decisions, and has been working with other French Ministries 
to determine the parameters of a possible compromise.  CNIL 
has been preparing a draft document with guiding principles, 
which it will finish in the next few days.  It will then 
consult with interested parties, informally by circulating 
the draft, before presenting the document to the 
Commissioners for their approval in a few weeks.  The 
substance of the proposal is to carve out whistleblowing 
systems for strictly accounting and auditing matters, 
leaving other issues to be governed by current French law 
(which prevents anonymous accusations and transmission of 
data containing such accusations).  Pallez promised to 
provide us the draft as well.  He mentioned CNIL's 
participation in European Commission Article 29 Working 
Group, arguing that the French effort there is designed to 
harmonize 25 possibly different approaches to the data 
privacy issues presented by ethical hotlines.  Girot stated 
she is preparing a working paper for presentation to the 
next meeting in November. 
 
5. (SBU) COMMENT: Once we get a copy of the CNIL draft, we 
will share it with the representatives of the firms who have 
contacted us, to see if it is both responsive and 
practicable.  If that is the case, it could help lessen the 
impact of the French effort to block SOX throughout the EU. 
STAPLETON#