Introduction
International law enforcement authorities are increasingly relying on mutual cooperation to obtain evidence or information outside their jurisdictional authority. Conducting joint investigations into prospective securities law violations, spanning countries, is also becoming common practice. This article discusses the scope and powers of the United States Securities and Exchange Commission (“SEC”) to seek/ obtain documents and witness testimonies from an Indian national involved in potential securities law violations abroad, which may have implications in the United States.
The SEC’s Enforcement Division collaborates with foreign law enforcement authorities in matters requiring collection of evidence, beyond the SEC’s jurisdiction. Such arrangements are either crystallised in mutual lateral assistance treaties or a memorandum of understanding that the SEC may have entered into with such other foreign law enforcement authorities. Most multinational matters investigated by the SEC are entangled in a complex array of issues, including jurisdictional challenges, questions of privilege and privacy, and necessitate the coordination with multiple international securities regulators and law enforcement agencies. The SEC, tasked with the enforcement of federal securities laws, deals with such cross-border securities violations by collaborating with international regulators like India’s Securities and Exchange Board of India (“SEBI”). However, the extent of the SEC’s power to summon Indian nationals for giving testimonies needs to be evaluated against intricate jurisdictional issues, international treaties, and the inherent restraints local laws and regulations impose.
The International Organisation of Securities Commissions’ (“IOSCO”) Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (“Enhanced MMOU”)[1] and Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (“MMOU”)[2] facilitate cooperation, coordination and sharing of global information among all international securities regulators.
SEBI became a signatory to the Enhanced MMOU in December 2021[3]. It was preceded by the MMOU to which SEBI was a signatory since 2003. The Enhanced MMOU does not supplant the MMOU, bilateral MOUs, or any other arrangements that exist between both these securities regulators. It, in fact, goes hand-in-hand with the MMOU and other arrangements. The Enhanced MMOU was introduced to expand the range of enforcement powers and safeguard the integrity and stability of markets, protect investors and deter misconduct and fraud.
SEBI and SEC, as signatories to the Enhanced MMOU, have inter-alia committed to provide assistance by requesting information, sharing information from the files, facilitating the freezing or sequestration of funds or assets (where permissible), etc. SEBI and SEC had also entered into a Memorandum of Understanding (“MOU”) on March 06, 1998, for cooperation, consultation, and the provision of Technical Assistance[4].
This article will focus and analyse the framework under the Enhanced MMOU, and the legal limits prescribed under it.
SEC and SEBI’s Cooperation Under the Bilateral MoU
In March 1998, SEBI and the SEC signed a bilateral MOU to foster cooperation in securities enforcement matters. This MOU entails a framework for provision of assistance and procurement of information and evidence, which is outside the jurisdiction of either of the securities regulators thus ensuring enforcement of the laws of the respective securities agencies relating to securities matters. Cooperation from other domestic governmental agencies is also warranted, where necessary, for providing assistance under the MOU. The MOU also promotes SEC’s consultation and advice to SEBI, upon a request by SEBI, with a view to establishing and implementing an ongoing technical assistance program. However, the limitation to the MOU is that the obligations under the MOU do not create any binding international legal obligations.
Analysis of the framework under the Enhanced MMOU
The general principles of mutual assistance and exchange of information and scope of assistance under the Enhanced MMOU are:
Article 2 of the Enhanced MMOU sets guidelines for cooperation and information exchange between authorities to ensure compliance with their respective laws, without creating legally binding obligations and superseding the laws and regulations applicable in the jurisdictions of the respective authority [5].
However, even though the terms of the Enhanced MMOU do not create legally binding obligations or supersede the applicable local laws in the jurisdiction of the respective authorities, Article 2 (1) (b) states that no domestic secrecy or blocking laws or regulations should prevent the collection or provision of information set forth in Article 3(2), and 3(3) as applicable, to the Requesting Authority[6]. This seems contrary to the intent of the framework as mentioned in Article 2 (1) (a). Similarly, under Article 2 (1) (e), the right of a Person[7] to challenge a request is curtailed as only the Authority[8] is allowed to challenge the execution of a request for assistance or suppression or exclusion of any information.
Article 2 (1) (g) enumerates the grounds for denying assistance request, which inter-alia includes:
- the Requested Authority[9] to act in a manner that would violate any local applicable law or regulation;
- where the request is not made in accordance with the provisions of this Enhanced MMOU;
- where the request is made against public or national interest;
- where criminal proceedings have been initiated in the jurisdiction of the Requested Authority, based upon the same facts and against the same Persons, etc.
Denied requests must be explained in writing, in consultation with the Requested and Requesting Authority to facilitate understanding.
The powers available under the Enhanced MMOU inter-alia include ˗ obtaining and providing information from any Persons regarding the matters set forth in the request for assistance, compelling a Person’s physical attendance, compelling that Person’s statement or testimony under oath, freezing assets, obtaining and sharing existing Internet Service Provider (ISP) records and obtaining and sharing existing telephone records. The scope of assistance is not limited to the given matters in the provision[10].
Interpretation of the power to compel attendance for testimony
A Person’s statement or testimony under oath on matters set forth in the request for assistance, should be in accordance with the rights and privileges afforded by the laws and regulations applicable in the jurisdiction of the Requested Authority. Under Article 3(2)(c) of the Enhanced MMOU, a Person can invoke the privilege against self-incrimination and refuse to answer questions. The Enhanced MMOU only empowers a signatory to force the “attendance or appearance” of a Person at the specified location to conduct an interview, but does not require the Person to answer any questions posed as part of such an interview. The lack of appearance by the individual would be a breach of obligation, as elucidated in the Enhanced MMOU, thus allowing the Authorities to impose sanctions. However, sanctions cannot be imposed if an individual chooses not to respond to the questions, despite being present. Thus, the Enhanced MMOU stipulates that the Requested Authority need not necessarily enforce any testimony obligation, which is in conflict with domestically granted protections[11].
Power of SEC to summon an Indian national directly to give a virtual testimony
Indian nationals remain under Indian jurisdiction, meaning that SEBI would typically mediate or look over these SEC requests for virtual testimonies. SEBI’s powers to enter into an arrangement like Enhanced MMOU stems from Section 11(2) (ib) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”). SEBI has the power to call for information, from, or furnish information to, other authorities, whether in India or outside India, having functions similar to those of the Board, in matters relating to the prevention or detection of violations in respect of securities laws.
While undertaking any investigation or inquiry, SEBI has the power to call for information and records from any person, including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act, which, in its opinion, shall be relevant to the investigation or inquiry by the Board in respect of any transaction in securities. While exercising the above powers, SEBI has been vested with the same powers as that of civil court, under the Code of Civil Procedure, 1908, while trying a suit in respect of (i) discovery and production of books of account and other documents; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person; and (iv) inspection of any book, or register, or other document or record of the company; (v) issuing commissions for the examination of witnesses or documents.
The powers of SEBI to act as a civil court does not extend when it is exercising its powers as stipulated under Section 11(2) (ib), wherein it has been empowered to provide information to the SEC/ other Authorities. Since SEBI does not have the power to summon and enforce the attendance of persons and examine them on oath, when complying with a request under the Enhanced MMOU or MOU, any request from the SEC/ other Authority to SEBI, which seeks examination of persons on oath is subject to challenge, as Enhanced MMOU cannot override local laws and should be in accordance with them. Furthermore, the provisions of the Enhanced MMOU clarify that any information collection must align with the Requested Authority’s legal protocols[12].
To obtain testimony from Indian nationals, requests may be executed by the Indian Courts, which would apply the Indian legal safeguards while conducting such testimony. India is a signatory to the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters, 1970 (“Evidence Convention”)[13]. The Evidence Convention governs the field of obtaining evidence from a witness, in civil or commercial matters, residing in India, basis a request from a foreign court. The Evidence Convention came into force for India on April 8, 2007. The implementation of Evidence Convention into the municipal laws of India is through Section 78 and Order 26, Rule 19 to 22 of the Civil Procedure Code, 1908 (“CPC”).
Under the Evidence Convention, the Ministry of Law & Justice and the High Courts in all States and Union Territories within India will undertake to receive the letters of request coming from a judicial authority of another contracting state. Typically, letters of request are received by the relevant High Courts in which the witness is residing. In case the witness resides in a city where the High Court is not situated, in such cases, then the High Court may transfer the petition to the relevant District Court for the purposes of execution of letters of request.
For executing the letters of requests, petitions are filed in the relevant High Courts under the provisions of Section 78 and Order XXVI Rule 19 to 22 of CPC. Foreign courts also have the power to transmit the letters of requests to the Ministry of Law & Justice, however, it is usually more time consuming. The High Courts while executing the letters of requests generally appoint court commissioners, who take on record the evidence that are to be obtained from the witnesses, covering both oral and documentary evidence.
Conclusion:
The SEC’s ability to call Indian nationals for testimony is primarily channelled through the SEBI’s facilitative role under the Enhanced MMOU and the MOU. While the SEC has broad investigative powers in the United States, its reach in foreign jurisdictions, including India, is constrained by local laws and is also subject to challenge. Any compelled testimony or evidence gathering must be managed by SEBI and must comply with the Indian legal standards. Therefore, SEBI retains discretion in executing SEC requests, ensuring Indian jurisdictional integrity.
[1] Text of the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (iosco.org)
[3] SEBI | SEBI signs IOSCO’s Enhanced Multilateral MoU (EMMoU)
[5] Article 2 (1)(a) of the Enhanced MMOU.
[6] “Requesting Authority” means an Authority making a request for assistance under the Enhanced MMOU.
[7] “Person” means a natural or legal person or other entity including, but not limited to a corporation, a partnership or other arrangement such as a trust.
[8] “Authority” or “Authorities” means, respectively, a regulator or regulators listed in Appendix A.1 or A.2 of Enhanced MMOU.
[9] “Requested Authority” means an Authority to whom a request for assistance is made under the Enhanced MMOU.
[10] Article 3(2) of the Enhanced MMOU.
[11] EMMoU Frequently Asked Questions
[12] Article 5(2) – Unless otherwise provided for under the Laws and Regulations of the Requested Authority, the Requesting and Requested Authorities will discuss the procedures and the persons responsible for the taking or receiving of Information requested under the Enhanced MMOU. Information will otherwise be gathered in accordance with the procedures applicable in the jurisdiction of the Requested Authority and by persons designated by the Requested Authority. Both Authorities will discuss any particular legal requirements and/or impediments in their respective jurisdictions.
