For the past several years, the American Law Institute has been preparing a proposed revision of the Restatement (Second) of the Foreign Relations Law of the United States (“Draft Restatement”). This article is a critique from a securities regulation perspective of the Draft Restatement's sections 402, 403, 416, 418, 419, 420 and 431.1 In short, the Draft Restatement departs substantially from existing law. It would add dangerous vagueness and uncertainty to the jurisdictional analysis used to determine whether the United States securities laws will be applied to transnational securities activities. In particular, the complicated balancing inquiry required under the Draft would increase litigation by introducing new issues into the jurisdictional analysis and by removing the certainty created by past court decisions. The Draft would make it substantially more difficult to apply United States securities laws where their application is necessary, appropriate and noncontroversial. In addition, the Draft's restrictions on access to information located abroad could impair effective and even-handed enforcement of the securities laws. The Draft Restatement would also make it more difficult for the Securities and Exchange Commission to take summary action which may be necessary for the protection of securities markets in the United States.
Section 1905 of the American Law Institute's Federal Securities Code (“Code”), by contrast, retains the benefits of current judicial analysis by substantially codifying that reasoning, while eliminating the drawback of its case-by-case development. Although Section 1905 of the Code was drafted in the context of a general revision of the securities laws, it is a more accurate and workable “restatement” of foreign relations law. The Code also furthers the investor protection purposes of the securities laws because it takes a broader view of the appropriate application of United States securities laws than the Draft Restatement.
This article compares and contrasts the analysis used under current law with the analysis that would be used under the Code and under the Draft Restatement. Part I consists of a summary review of current judicial analysis of application of United States law, a comparison of that analysis with that of the Code and the Draft Restatement and illustrations of the differences using five examples. Part II sets forth our principal concerns about the Draft Restatement's approach to application of United States law. Part III critically reviews the Draft's approach to access to information located abroad and the judicial and administrative enforcement mechanisms available to the Commission.
Daniel L. Goelzer, Jacob H. Stillman, Elisse B. Walter, Anne H. Sullivan & Douglas C. Michael, The Draft Restatement: A Critique from a Securities Regulation Perspective, 19 Int'l Law 431 (1985).