Long arm of American law may extend to British and other foreign executives

British company heads may be glancing across the Atlantic and shaking their heads with sympathy for their peers in America, who now face the prospect of imprisonment and giant fines if they fail to comply with strict new anti-fraud laws passed in the wake of recent scandals.

British company heads may be glancing across the Atlantic and shaking their heads with sympathy for their peers in America, who now face the prospect of imprisonment and giant fines if they fail to comply with strict new anti-fraud laws passed in the wake of recent scandals.

Some, however, are belatedly thinking: poor us too. Lawyers are frantically warning companies in Britain and elsewhere in the world that have secondary share listings on the US exchanges that they have reasons to fear too. The rules – or some of them – apply to them also.

Just how much of the so-called Sarbanes-Oxley Act, signed into law by President George Bush last month, will apply to non-US companies with ADR listings in New York is still the subject of debate. There is confusion, in part because the US regulatory bodies, mainly the Securities and Exchange Commission, have yet to offer clarification. Some governments and the European Commission are also vowing to challenge the extra-territorial impact of the law.

For now, it appears that these companies – such as BP and GlaxoSmithKline – will have to abide at least by a provision requiring chief executives personally to certify that their financial filings are honest and complete.

More importantly, failure to comply could entail the same degree of punishment as for their American counterparts, never mind that their home address may be Woking rather than Milwaukee. "The Act does not distinguish between US and non-US issuers," confirmed Alex Cohen, a securities lawyer with the law firm Latham and Watkins.

A mistatement of company numbers could mean forfeiture by a chief executive of bonuses and profits from share sales in that year. Willful misrepresentation could entail $5m (£3m) in fines and up to 20 years behind bars.