Narciso Muñoz Comisión Nacional de Valores República Argentina www.cnv.gov.ar

1. LATIN AMERICAN CORPORATE GOVERNANCE ROUNDTABLE OECD World Bank International Finance Corporation Santiago de Chile May, 2003 CORPORATE GOVERNANCE ENFORCEMENT IN ARGENTINA Narciso Muñoz Comisión Nacional de Valores República Argentina www.cnv.gov.ar

2. AGENDA A) The CNV´s legal framework: Highlights of recent improvements B) Enforcement faculties & activities (2002) ANNEX: Sarbanes-Oxley Act and CNV´s goals: Comparison

3. THE CNV´S LEGAL FRAMEWORK HIGHLIGHTS OF RECENT IMPROVEMENTS

4. THE CNV´s LEGAL FRAMEWORK:HIGHLIGHTS OF RECENT IMPROVEMENTS • Concepts as “control”, “privileged information”, etc. are legally defined • Conducts against transparency are also legally defined: • Use of privileged information, market manipulation and fraud , misleading or false prospect information, etc. • External Auditors shall be appointed by shareholders’ meeting and must be independent. Independence is defined • Enhanced conflict solving mechanisms are established • Compulsory arbitration for issuers and optional for investors • Regulation of appraisal rights and squeeze-out procedures are set: • Take over bids are compulsory for listed firms • Buy out bids of minority shareholders´ stakes for listed companies turning unlisted are compulsory • Establishes the right to buy residual stakes for majority shareholders, and right to sell for shareholders of residual stakes, at a fair price • The Audit Committee (except for SME) is created for listed Companies (At least 3 members, al least 2 of them -the majority, always- independent)

5. ENFORCEMENT FACULTIES & ACTIVITIES (2002)

6. ENFORCEMENT FACULTIES & ACTIVITIES (2002) • ENFORCEMENT FACULTIES OF THE CNV • The CNV supervises all corporations and persons involved in any capacity in the public offering & trading of securities, futures & options, such as: • Securities and Futures exchanges & OTC markets • Listed companies • Brokers • Depository Houses, including the authorization to establish themselves • Corporate Bonds issues & its issuers • Risk rating agencies • Mutual Funds • Public Trusts • SELF REGULATION • Argentine market supervision is based on the SELF REGULATION principle • AUTHORIZATION • The CNV must authorize the Public Offer of any issue of securities, EXCEPT GOVERNMENT BONDS

7. ENFORCEMENT FACULTIES & ACTIVITIES (2002) • POLICEPOWERS The CNV exercises police powers controlling the enforcement of the legal regulations –latu sensu- statutory & regulatory In the process of any investigation it is empowered to request from any personnel of the Company any type of information or documents it may consider necessary for its purpose The CNV may: 1) Declare irregular & ineffective the acts of subjects under supervision 2) Suspend preventively the P.O. or the trading of securities, futures, options etc. 3) Temporarily interrupt Public Offers, trading of securities, futures & options if relevant information concerning these instruments has not been released in due time or if any other extraordinary circumstance arises

8. ENFORCEMENT FACULTIES & ACTIVITIES (2002) • ENFORCEMENTPROCEDURES (# of cases) • Denunciation / Market monitoring (28) • Assignment of an investigator • Determination of complementary measures • Evidence collection • Legal opinion • RESOLUTION BY THE BOARD: options • Warning (24) • Rejection of the claim • Starting of administrative Process (22) • Findings of the Administrative Process (24) • Legal opinion (24) • RESOLUTION BY THE BOARD: Sanctions

9. ENFORCEMENT FACULTIES & ACTIVITIES (2002) • SANCTIONS • Admonition (5) • Fine (to members of Board) (143) • Suspension • Delisting (1) • 5 year ban to offenders to act as Directors, Officers, Auditors, Managers of Mutual Funds or Trusts, Risk Rating Agents, or in any other activity under the surveillance of the CNV • LEGAL PROCEDURES • Start judicial procedures • Denounce criminal activities • Be plaintiff in judicial procedures • Request to the judge the suspension of Board of Directors, the intervention of the administrative structures and the dissolution of the company • Concerning Legal Procedures the CNV is mostly involved in the defense of appealed sanctions, 66 cases in 2002 and iniciated 3 judicial claims in the same period

10. ANNEX SARBANES - OXLEY ACT AND CNV´s GOALS: COMPARISON

11. SARBANES - OXLEY CEO & CFO certification of Company reports Prohibition of loans to insiders CNV - STANDARD SETTERS PROPOSAL Idem S-O but only certification of the top executive Stock options are discouraged, if used must be included as expenses in the balance sheet Loans to management, if given under off market conditions, must be approved by the Audit Committee and informed to the Stock Exchange SARBANES - OXLEY ACT AND CNV´s GOALS: COMPARISON Management Responsabilities Management Compensation

12. SARBANES - OXLEY Creation of PCAOB Establish criteria of independence of external auditors Previous approval of special services by the Audit Committee CNV - STANDARD SETTERS PROPOSAL Not considered Strengthening of the independence of the external auditors Previous approval of special services by the Audit Committee Rotation of the Audit partner every 5 years SARBANES - OXLEY ACT AND CNV´s GOALS: COMPARISON Registration of Accounting Firms External Auditors

13. SARBANES - OXLEY Suggests inclusion of a financial expert (or to state the reason why not) Strengthening of the chinese walls Yes CNV - STANDARD SETTERS PROPOSAL One member CPA Not considered Yes SARBANES - OXLEY ACT AND CNV´s GOALS: COMPARISON Audit Committee Research Analysts Code of Ethics for Senior Financial Officers

14. SARBANES - OXLEY Doesn't exist in the U.S.A. legislation Annual financial statement must include a disclosure of Management´s Assessment of Internal Controls CNV - STANDARD SETTERS PROPOSAL Its members must be lawyers or CPA. Proposed: one must be lawyer, one must be CPA Compulsory: Internal Control Manual or Internal Audit Department SARBANES - OXLEY ACT AND CNV´s GOALS: COMPARISON Board Overseeing Commission Internal Control

15. LATIN AMERICAN CORPORATE GOVERNANCE ROUNDTABLE OECD World Bank International Finance Corporation Santiago de Chile May, 2003 CORPORATE GOVERNANCE ENFORCEMENT IN ARGENTINA Narciso Muñoz Comisión Nacional de Valores República Argentina www.cnv.gov.ar