While Santa Fe and St. Joe were before the U.S. courts, a 1977 U.S. treaty with Switzerland provided for mutual cooperation on criminal matters. The treaty had taken five years to negotiate and the SEC had participated in these negotiations. The disclosure and cooperation mechanisms of the treaty required that the activity for which cooperation was sought had to constitute a crime in both the United States and Switzerland. This concept is referred to as dual criminality. At the time, Switzerland, like most countries, did not prohibit insider trading. In 1982, in connection with Santa Fe, the Department of Justice, on behalf of the SEC, initiated a request for information under the treaty. Eventually the Swiss Supreme Court denied the SEC's request, finding that insider trading was not punishable under Swiss law.
Although the information that the SEC sought was obtained eventually through other channels, it became obvious to the Swiss government, the Swiss banks, and the SEC that the 1977 treaty did not work in connection with insider trading or most securities law violations. According to Edward Greene, then SEC General Counsel, the U.S. Ambassador to Switzerland intervened, urging the SEC to find another way of interacting with foreign governments "other than simply having assets frozen, and fingers pointed."(79) Such actions both hurt the reputation of Swiss banks and produced delays for the SEC.
Negotiations soon began between the Swiss government, the Swiss Bankers Association, the SEC, the State Department, and the Justice Department. All hoped to enter into a Memorandum of Understanding (MOU) regarding mutual cooperation in investigating insider trading cases specifically involving takeovers. An MOU is a non-binding agreement which sets forth the intent of the parties. Meetings were held in Bern and then in Montreal. These meeting were not always amicable as the Swiss viewed the U.S. as infringing upon its sovereignty and as "export[ing] its notion of securities violations worldwide."(80)
Eventually, Swiss authorities and SEC officials negotiated an MOU that set forth certain procedures for disclosure requests from the SEC. The MOU, which was not binding on Swiss courts, also recognized that insider trading may violate Swiss laws. Importantly, in addition to the MOU, and through a separate convention, the Swiss Bankers Association agreed to have bank clients waive confidentiality and for banks to provide the SEC with information when appropriate SEC requests were made through Swiss government channels. The parties agreed to keep all proceedings under the MOU confidential and the SEC agreed to use the MOU and the 1977 treaty before bringing a motion for disclosure in the U.S. courts.
(79) February 15, 2008 Interview with Edward F. Greene
(80) Interview with Edward Greene by Gregory R. Raifman (Nov. 15, 1982) cited in Gregory R. Raifman, "The Effect of the U.S. Swiss Agreement on Swiss Banking Secrecy and Insider Trading,"15 Law and Policy in International Business.
Daniel Goelzer served on the staff of the SEC from the mid-70’s through 1990. He began his SEC career in 1974 as a staff attorney in the Office of the General Counsel, and rose through the ranks to become the Commission’s General Counsel from 1983 to 1990. He also worked in the Office of the Chairman and was Executive Assistant to both Chairman Harold Williams and Chairman John Shad. After leaving the SEC, he was partner at the law firm of Baker & McKenzie LLP in Washington, DC until his appointment as a founding Board member of the Public Company Accounting Oversight Board (PCAOB) in 2002. He served as PCAOB’s Acting Chairman from 2009 – 2011 and returned to Baker & McKenzie after his PCAOB term ended in 2012. He was one of the founding Trustees of the SEC Historical Society.
Ed Greene served at the SEC from 1978 to 1982, first as director of the Division of Corporation Finance under Chairman Harold Williams, then as General Counsel under Chairman John Shad. He was involved in several ground-breaking projects. As director of Corporation Finance, he led efforts to integrate and improve disclosures around Initial Public Offerings (IPOs), and spearheaded efforts to create faster access to markets for shelf registrations. As general counsel, he negotiated the agency’s first Memorandum of Understanding (MOU), which became a template for future cooperative agreements between governments. Mr. Greene was a founding trustee of the SEC Historical Society.
