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Specific inquiries addressed in the investigation related essentially to the adequacy of the present requirements of Section 13(d) and 14(a) under the Securities Exchange Act of 1934 and the rules and regulations thereunder as discussed elsewhere in this memorandum. However, the results of this investigation could influence or form the basis of recommendations for both legislation and rule changes which could affect disclosure and reporting requirements under all of the various statutes administered by the Commission.

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One of the general areas addressed in the investigation is the meaning and scope of the term "beneficial owner. This term is not presently defined in either the Securities Act or the Securities Exchange Act or in the rules thereunder for purposes of registration statements, periodic reports, or proxy materials although the term is defined for certain limited purposes under Section 16(a) of the Securities Exchange Act. Under this general "beneficial ownership" inquiry, specific attention should be devoted to the question of whether the Commission should adopt special rules or procedures relating to persons subject to jurisdictions whose laws permit or require bank secrecy procedures and/or bearer shares. In areas involving foreign ownership of debt securities of U.S. entities there does not appear to be any pressing need for information in addition to that already required in order for the SEC to perform its statutory function and to exercise its responsibilities.

2. Filing requirements are under review from time to time and those deemed superfluous for agency needs are eliminated. In the Investment Management Regulation Division, there is currently a committee to reform investment company and investment adviser filing requirements.

3. Reference is made to the Section I,B.1. of this memorandum concerning the public fact-finding investigation into the matter of beneficial ownership, takeovers and acquisitions, citing particular factors which make it difficult to identify the foreign beneficial owner. Some of those factors are use of foreign entities, such as nominees or banks, which are under the constraints of secrecy laws of foreign jurisdictions and the use of bearer shares in these jurisdictions.

Over the years, foreign entities have been a substantial impediment
to the Commission in carrying out its investigative and enforcement
responsibilities in a number of important cases involving apparent
violations of the federal laws. The primary problem encountered when

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foreign entities are utilized is that invariably the Commission lacks the necessary jurisdiction to enable it to ootain significant information, whether by subpoena or otherwise, in order to make a complete investigation. This problem is compounded when the country in which the foreign entity is located has strict secrecy laws.

A growing number of persons desiring to evade U.S. securities laws have now become sophisticated enough to take advantage of foreign secrecy laws in connection with their stock market operations in the United States by channeling their purchase and sale transactions through foreign entities and by collecting the proceeds from their unlawful activities in bank accounts protected by one or more layers of secrecy.

In most such cases the staff is unable to find an informed witness who will confirm the existence of a fraudulent scheme. Accordingly, the basic method by which securities law violations are proved is by tracing the flow of stock from its original issuance through the promoters and their nominees and ultimately to the general public, and then by tracing the proceeds from each sale to the public back to the promoters. When either the distribution of the stock or the transmissions of the proceeds are channeled through foreign entities, particularly those operating in countries with strict secrecy laws, it becomes very difficult, if not impossible, for the staff to acquire competent evidence establishing the identity of the persons who have the ultimate beneficial interests in the securities sold and the proceeds received.

Through the use of foreign entities, perpetrators of fraudulent schemes may not only be able to avoid detection in violating the registration and anti-fraud provisions of the federal securities laws, but may also be able to evade other provisions of those statutes as well, such as the provisions imposing restrictions on short sales of securities.

Some criminal cases in recent years indicate that brokers and other persons in the United States have avoided the margin and other credit restrictions of Regulations G. T and U of the Board of Governors of the Federal Reserve System by conducting their securities transactions through foreign entities, particularly those located in countries where information concerning such transactions is chiclded by strict secrecy laws. See U.S. v. Weisscredit Bank, 325 F. Supp. 1384 (3.D.N.Y. 1971) and U.S. v. Arzi Bank, S.E.C. Lit. Rel. No. 4333. It also appears that those who utilized foreign entities to prevent disclosure of information concerning their illegal securities transactions may also have failed to comply with applicable provisions of the U.S. tax laws.

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4.

Reference is made to Section I, Bl of this memorandum. The results of the public hearing and investigation referred to therein will form the basis for both administrative recommendations through new or revised rules and regulations and legislative proposals.

Subject to varying justification requirements under the statutory
mandates and authority contained in the various statutes administered
by the SEC, it appears that the Commission could revise its various
registration, reporting and proxy regulations, forms and statements
to include, in addition to the identity and address of persons or
entities, disclosures as to the citizenship of such persons or entities.
It appears that such a requirement could be justified under the full
disclosure concepts of the Securities Act and Securities Exchange Act
as well as under the regulatory concepts of the Securities Exchange Act,
the Public Utility Holding Act, the Trust Indenture Act, the Investment
Company Act and the Investment Advisers Act.

Foreign ownership of securities of Ù.S. entities, either in the form of direct foreign governmental ownership or indirectly through foreign governmental influence and/or control over its citizens, could have significant ramifications in terms of the pursuit of foreign national interests. Such ramifications could fall under the full disclosure concepts of the Securities Act and the Securities Exchange Act since they could affect investors' decisions. Except with respect to direct foreign governmental ownership, there appears to be no question that such foreign ownership clearly falls under the regulatory aspects of the statutes administered by the SEC. It is assumed that this "citizenship" requirement does not violate constitutional directives or other federal statutes. With respect to direct foreign governmental ownership, a question arises as to the coverage of certain provisions of the federal securities laws in view of the fact that the definition of the term "person" in the Securities Exchange Act of 1934 does not specifically refer to governments. While the staff believes that the term should be construed as being applicable to governments, any uncertainty in this regard could be remedied by appropriate legislation.

It also appears that some degree of certainty should be attached to the meaning of "beneficial ownership" as used in the various federal securities laws and the rules and regulations thereunder. This probably could be accomplished administratively through rules and regulations under present authority granted to the Commission under the federal statutes.

Securities Exchange Act of 1934, Section 3(-)(9).

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With respect to the SEC's enforcement authority and activities, it
appears that present authority and judicial remedies are sufficient
for the Commission's purposes, subject to the above caveat with regard
to direct foreign governmental ownership. Bilateral or multilateral
treaties such as that recently negotiated with Switzerland should help
improve the effectiveness of the U.S. securities regulations. The only
other possible effective courses of action in the area of foreign
ownership appear to be either outright restriction of any further
foreign ownership of securities of U.S. entities or real estate in
the United States or a screening prior to any such future ownership.
Neither of these courses appears to be politically or economically
warranted or desirable.

C.

Compliance with Existing Laws Restricting Foreign Investment in the U.S.

The SEC does not presently administer any laws restricting or otherwise limiting foreign investment in the United States.

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SECTION II

Supplement to "Reporting Requirements and Dissemination of
Corporate Ownership and Structure'

A Report From the General Accounting Office ("GAO Study")

This Section sets forth certain additional forms and schedules under

the federal securities laws to those cited in the GAO Study.5/ Copies of such additional forms are attached hereto.

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Form S-14, registration statement which may be used in lieu of Form S-1 for the registration of securities to be issued in connection with certain reclassifications, mergers or consolidations and transfers of assets specified in Rule 145 under the Act.

Form S-14, in effect, incorporates and makes applicable the disclosure requirements of Regulations 14A and 14C under the Securities Exchange Act of 1934 with regard to proxy statements used for stockholder meetings involving action on the above indicated transactions. These regulations are discussed below.

B. Securities Exchange Act of 1934

1. Subsections 13(d) and 14(a)

Subsection 13(d) is presently applicable to classes of equity securities which are registered pursuant to Section 12 of the Exchange Act, or which would be required to be registered pursuant to that Section except for a specific statutory exemption for insurance companies, or which have been issued by a closed-end investment company registered under the Investment Company Act of 1940. Generally, Subsection 13(d) requires, subject to certain limited exemptions, that any person (or group of persons) who makes any acquisition of securities which results in that person being the direct or indirect beneficial owner of more than five percent of a class of such securities must, within 10 days after the acquisition, send to the issuer of such securities and to any national securities exchange

5/ "Disclosure of Corporate Ownership", 93rd Congress, 2nd Session, Senate Document No. 93-02, p. 222.

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