Appendix A REPORTING REQUIREMENTS AND DISSEMINATION OF INFORMATION ON CORPORATE OWNERSHIP AND STRUCTURE A Report From the General Accounting Office to Senator Metcalf, March 1973 FEBRUARY 9, 1973. Mr. ELMER B. STAATS, Such legislation is before the Government Operations Committee this session. It is my desire to start now to prepare certain data on Federal policy and procedures which will be useful in the consideration of this legislation. My request is that your Office provide me with information related to the following subject areas with respect to each of seven regulatory agencies; Federal Power Commission, Federal Communications Commission, Civil Aeronautics Board, Federal Trade Commission, Interstate Commerce Commission, Securities and Exchange Commission and Federal Maritime Commission: respect to the subject matter referred to in (1), (2), (3) and (4) above. This requested information has been the subject of informal discussions between my staff and your staff over the past 2 months. I have, therefore, made every effort to limit the scope of the request to that which is reasonable and obtainable within a limited period of time. I ask that the requested information be submitted by 15 March. If you have any questions with respect to the subject matter of my request or as to its time schedule, please get in touch with my executive secretary, Vic Reinemer or counsel, Win Turner, at 180-2651. I would appreciate your timely cooperation on this request because of the possibility of early hearings on the legislation. There is no need for you to obtain agency comments on this matter. Very truly yours, (1) All laws, rules, regulations or other procedures of the agency that require information as to the proprietary (voting) ownership of a corporation or firm, including Hon. LEE MEtcalf, whether proprietary or trustee owners must report those who control 1 percent or more of the stock. (2) All laws, rules, regulations or other procedures of the agency that require information as to subsidiaries of such corporation, parents of such corporation or any other company or firm having control over the subject corporation. For purposes of this request, the definitions of "subsidiary", "parent" and "control" are set forth in the attached bill. (3) All laws, rules, regulations or other procedures of the agency that require information as to officers or directors of the corporation or firm, its parent or subsidiary, who are also officers or directors of other corporations or firms. (4) All laws, rules, regulations or other procedures of the agency that require information as to the long-term and short-term debt of a corporation or firm. (5) The extent to which such laws, rules, regulations or procedures are being enforced, responded to or are otherwise effective or ineffective. (6) The extent to which such information is available to the public and the cost of duplication to a person requesting such information. (7) A description of those laws, rules, regulations or procedures which have been recommended by the agency or any of its members, during the past 10 years, with U.S. Senate. LEE METCalf. COMPTROLLER GENERAL OF THE UNITED STATES, Washington, D.C., April 10, 1973. DEAR SENATOR METCALF: In accordance with your letter of February 9, 1973, the General Accounting Office has identified the reporting requirements imposed on regulated companies by Federal regulatory agencies with respect to stock ownership, control, diversification, debts, and officers. The seven regulatory agencies have broad authority to obtain whatever information they deem necessary to carry out their statutory responsibilities. This information is obtained through formal proceedings on a case-by-case basis, in periodic reports from regulated companies, and in numerous applications requiring agency approval. Taken as a whole, the seven agencies receive a vast number of reports and applications many of which contain information on the subject area of your request. We reviewed the content of these reports and applications, as well as applicable legislation, and the agencies' rules and regulations, to identify the pertinent information regularly received by the agencies. The information obtained by us was provided to Mr. Vic Reinemer of your staff on March 26, 1973. In your letter you inquired as to whether the laws and agency regulations were effective and whether they were being enforced. It appears from our examination of a With the exception of the Federal Trade Commission, each of the regulatory agencies regularly receive information on the ownership of regulated companies. However, the specific reporting requirements of the agencies vary considerably. Some agencies require regulated companies to submit information on a certain number of the largest stockholders, while others require information on all stockholders owning more than a given percentage of a company's stock. In evaluating the effectiveness of the agencies' ownership reporting regulations, we initially concerned ourselves with the question of whether the use of nominees by stockholders could impair the data received by the agencies. Nominees are entities generally created for the sole purpose of representing persons or organizations that (1) hold stock in trust for others and either vote the stock at their discretion or as directed by the trust beneficiary, and/or (2) own and vote stock for their own account. Although the stock is held in the name of the nominees, the stock, including the way the stock is voted at stockholders meetings, is controlled by the person or organization that the nominee represents or by the trust beneficiary. We examined a limited number of reports and applications requiring ownership information. It appeared that for large regulated companies the names of nominees are often shown in lieu of the names of stock owners. The presence of nominees in the ownership data was confirmed by officials of each of the agencies who told us that the companies were not in a position to know who the stock owners were. The officials stated that the companies could only report the names of the stockholders of record, which include nominees. Using the nominee list published by the American Society of Corporate Secretaries we were able to identify the person or organization the nominees represented. For example, the 1972 annual report submitted to the Interstate Commerce Commission by one of the country's largest railroads included 24 nominees among the list of the 30 largest stockholders. The 24 nominees represented 2 insurance companies and 12 banks. However, since the banks regularly hold stock both for their own account and in trust for others, it cannot be ascertained from the annual report who owns and/or votes the stock held in the nominees' names. Assuming that the purpose of the agencies' ownership reporting requirements is to identify the organizations and persons that control regulated companies through stock ownership and particularly through the right to vote the stock, it appears that, in addition to the information received from regulated companies, the agencies would have to obtain information from (1) stockholders holding stock in their own name, (2) those holding stock as trustees or in some other fiduciary capacity, and (3) trust beneficiaries in order to identify who owns and who votes the stock. In this connection, the Civil Aeronautics Board (CAB) has gone further than the other regulatory agencies in requiring information from these parties. In essence, CAB requires: Regulated companies to submit annually the names of persons owning more than 5 percent of any class of stock. Persons owning more than 5 percent of a company's stock to report their holdings annually and to identify who had the power to vote the stock, and the name of the trustee if the stock was held in trust. Trustees owning more than 5 percent of the stock to report annually (1) the identity of each beneficial owner and the stock held for each, (2) the stock held for the trustee's own account, and (3) who had the power to vote the stock held by the trustee. In addition, CAB requires banks and stockbrokers to report quarterly (1) the stock held as trustee and the number of accounts for which the stock is held, (2) the names of the nominees holding the stock, and (3) the identity of any person whose account contains 1 percent or more of any class of a regulated company's stock and the person who had the power to vote the shares. We trust that the foregoing information and the data previously provided to your staff is satisfactory to your needs. As you requested, we did not submit the information developed by us to the regulatory agencies for comment. Sincerely yours, ELMER B. STAats, Comptroller General of the United States. REPORTING REQUIREMENTS OF SEVEN FEDERAL REGULATORY COMMISSIONS WITH RESPECT TO STOCK OWNERSHIP, CONTROL, DIVERSIFICATION, DEBT AND OFFICERS CIVIL AERONAUTICS BOARD The Civil Aeronautics Board (CAB) regulates the economic aspects of air carriers' domestic and international operations with the objective of developing an adequate air transportation system for the United States. The basic legislative authority for all reporting requirements imposed on air carriers by CAB is contained in sections 204 (a) and 407 (a) of the Federal Aviation Act of 1958 (49 U.S.C. 1324 (a) and 49 U.S.C. 1377(a)). Section 204 (a) states that CAB is empowered to perform such acts, to conduct such investigations, to issue and amend such orders, and to make and amend such general or special rules, regulations and procedure, pursuant to and consistent with the provisions of the Act, as it shall deem necessary to carry out the provisions of, and to exercise and perform its powers and duties under the Act. Section 407 (a) states that CAB is empowered to require annual, monthly, periodical and special reports from any air carrier; to prescribe the manner and form in which such reports shall be made; and to require from any air carrier specific answers to all questions upon which CAB may deem information to be necessary. In addition, CAB may require any air carrier to file with it a copy of each or any contract, agreement, understanding, or arrangement, between such air carrier and any other carrier or person. These sections of the Act are augumented by other specific reporting requirements. The information received by CAB is discussed below in the same sequence as the information requested in Senator Metcalf's letter of February 9, 1973 except for the evaluation of the enforcement and effectiveness of the rules and regulations which will be covered in the Reports Submitted By CARRIERS Section 407(b) of the Federal Aviation Act of 1958 (49 U.S.C. 1377(b)) states that air carriers must report the names of stockholders holding more than 5 percent of the capital stock or capital, and the name of the person for whose account such stock is held, if other than the holder. Pursuant to this authority, CAB requires that certificated air carriers, air freight forwarders and cooperative shippers associations file reports on proprietary ownership as follows: (1) CAB regulations (14 CFR 241, Sections 26 and 36) require certificated air carriers to submit annual reports that include schedules that show (a) those persons holding more than 5 percent of the capital stock or capital and the percentage held, and (b) those persons holding more than 5 percent of any options to purchase securities from the air carrier. (2) CAB regulations (14 CFR 244, Subpart B) require air freight forwarders to submit annual reports that include schedules that show (a) persons holding more than 5 percent of the capital stock or capital of the carrier and the percentage held, and (b) persons holding more than 5 percent of any options to purchase securities from the carrier. (3) CAB regulations require cooperative shippers associations to submit an annual report (CAB Form 244A) that shows the names of persons holding more than 5 percent of the outstanding capital stock or other interest related to control of the association. REPORTS SUBmitted by StoCKHOLDERS CAB regulations (14 CFR 245) require persons owning either beneficially or as a trustee, more than 5 percent of any class of the capital stock or capital of an air carrier to report such holdings to CAB annually. No specific format for the reports have been prescribed by CAB. However, the regulations require that the reports disclose the number and class of shares owned and information as to the persons who possess or exercise the right to vote, sell, prevent sale, or otherwise dispose of the reported stock. If the person reporting is the beneficial owner, he must provide information on each person who was a trustee of any of his shares during the preceding year. If the person reporting is a trustee, he must provide information on each individual beneficial owner of any shares. In addition, if the person reporting is itself a corporation, information is required on each person holding more than 5 percent of the beneficial or record ownership of any class of the capital stock of the reporting corporation. CAB regulations (14 CFR 245.14) imposes special reporting requirements on banks and stockbrokers. A bank or broker that holds as trustee more than 5 percent of any class of the capital stock or capital of an air carrier must file a quarterly report with CAB. The contents of the report must include: The number of accounts for which the bank or broker holds the stock; 1 See p. 197. The name and address of each person holding shares as nominee for the bank or broker and the number and class of shares held by the nominee; Information as to any account for which the bank or broker, as trustee, holds shares amounting to 1 percent or more of any class of the capital stock of the air carrier. In addition to the annual reports mentioned above, ownership information is required from certain classes of carriers in their applications for operating authority as follows: (1) Section 402 of the Act (49 U.S.C. 1372) states that no foreign air carrier can engage in air transportation involving the United States unless there is in force a permit issued by CAB authorizing such operation. The section also contains certain procedures regarding the application for the permit. In this connection CAB regulations (14 CFR 211.5(a)) require that applications for permits by foreign air carriers contain the percentage of direct and indirect beneficial and nonbeneficial interest in the carrier held by each government and aggregate of nationals of carrier's citizenship. Further, if the applicant is owned or each government, other than the government of the controlled by the government, the application must show the extent of such governmental ownership or control. No specific form has been prescribed for use by foreign air carriers applying for permits. (2) Pursuant to section 416 of the Act (49 U.S.C. 1386), CAB regulations (14 CFR 296.2 and 297.2) established a classification of indirect air carriers. Indirect air carriers include air freight forwarders, international air freight forwarders and cooperative shippers' associations. Applications of persons desiring to operate as an air freight forwarder are made on CAB Form 351 which requires information on holders of more than 5 percent of the outstanding stock. 2. Information on Subsidiaries, Parents or Any Other Company or Firm Having Control Over Subject Corporation Section 407 (b) of the Federal Aviation Act of 1958 (49 U.S.C. 1377(b)) states that each air carrier must submit an annual report describing the shares of stock or other interest in persons other than itself held by such air carrier, or for its account. Pursuant to this authority, CAB regulations require certificated air carriers and air freight forwarders to file reports on subsidiary, parent and other control as follows: (1) CAB regulations (14 CFR 241, Sections 23 and 33) require certificated air carriers to submit with their annual reports a schedule showing the carriers' investments in subsidiary companies, investments in other associated companies and investments in other than associated companies. Also, if the reporting air carrier is not the holder of record, it must provide the name and address of persons in whose name the interest is held. (2) CAB regulations (14 CFR 241, Section 23) require certain certificated carriers to submit quarterly a schedule showing the balances in various asset and liability accounts with subsidiaries, associated companies and nontransport divisions. The asset accounts are notes and accounts receivable, advances, investments and undistributed earnings. The liability accounts are notes and accounts payable and advances. (3) CAB regulations (14 CFR 244, Subpart B) require air freight forwarders to submit with its annual report a schedule showing the forwarder's investments in other companies. Information must be submitted on each secutity owned by the air carrier, and, if the reporting freight forwarder is not the holder of record, it must provide the name and address of the persons in whose name the interest is held. Under the authority of section 407 of the Act (49 U.S.C. 1377), CAB regulations (14 CFR 246) require that every affiliate of an air carrier submit an annual report showing the following: The names and addresses of each of its stockholders or members holding more than 5 percent of the entire capital stock or capital of such affiliate, together with the name and address of any person for whose account such stock is held, if other than the holder; A description of the shares of stock or other interests held by the affiliate, or for its account, in any common carrier, air carrier, foreign air carrier, or any person engaged in any phase of aeronautics; A description of the shares of stock or other interests held by the affiliate or for its account in any person whose principal business, in purpose or in fact, is the holding of stock in, or control of, common carriers, air carriers, foreign air carriers, or persons engaged in any phase of aeronautics. The regulation defines an affiliate of an air carrier as a person who has direct or indirect control over such air carrier. A person is deemed to control the carrier if he owns, directly or indirectly, 10 percent or more of the outstand ing issued capital stock of an air carrier. CAB has not prescribed any specific form for use in filing the annual report. In addition to the reports required above, CAB requires certain applications and reports to be filed in order to perform its other statutory responsibilities. These responsibilities and applications are described as follows: (1) Pursuant to section 408 of the Act (49 U.S.C. 1378) certain acts related to consolidation, merger and acquisition of control are unlawful unless approved by CAB. Applications for CAB approval under this section, together with any relevant information, are filed in an individual docket. The processing of the application is handled pursuant to CAB regulations (14 CFR 302). Also, public hearings may be held in connection with the application. Neither the law nor CAB regulations spell out exactly what information is required to be filed with the application, but we were informed that it may contain information of the applicant's affiliation with other air carriers. (2) Section 401 of the Act (49 U.S.C. 1371) states that every air carrier is required to have a certificate issued by CAB authorizing such air carrier to engage in air transportation. Pursuant to CAB regulations (14 CFR 201.4), an application for a certificate must contain the name and type of business of any affiliate, subsidiary, or principal stockholder of the applicant engaged in any form of transportation as a common carrier or engaged in any phase of aeronautical activity. This application does not require the information in any specific form. (3) CAB regulations (14 CFR 296.42 and 297.32), issued pursuant to section 416 of the Act (49 U.S.C. 1386), require air freight forwarders to obtain operating authority from CAB. The application is made on CAB Form 351 which requires information on all companies which hold an ownership or stock interest in the applicant or in which the applicant is an owner or stockholder. In addition, the application requests an organizational chart of inter-company ownership and interlocking relationships, annotated to show percentages of stock holdings, officers, directors, members, partners and owners in each company. (4) Sections 403 and 404 of the Act (49 U.S.C. 1373 and 1374) provide authority for CAB regulations (14 CFR 223.7) which require that before issuing any pass for free or reduced-rate transportation to directors, officers, employees, or members of their immediate families, of any of its affiliates, each carrier shall file with CAB a list containing all of such carrier's affiliates and showing the exact relationship of each such affiliate to such carrier with respect to control and principal business. No specific format is prescribed by CAB regulations for filing this information. 3. Information on Officers and Directors Section 407 (c) of the Federal Aviation Act of 1958 (49 U.S.C. 1377 (c)) states that each officer and director of an air carrier shall annually, and at such other times as CAB shall require, report the shares of stock or other interests held by him in any air carrier. In accordance with this authority, CAB regulations (14 CFR 245, Subpart A) require each officer and each director of each air carrier to submit to the CAB annually a description of the shares of stock or other interests held by him in any carrier; any person engaged in any phase of aeronautics; any common carrier; or any person whose principal business is the holding of stock in, or control of, air carriers, other persons engaged in any phase of aeronautics, or common carriers. Air taxi operators, study group charterers and inclusive tour operators are exempt from this requirement. In addition to the reports submitted by the officers and directors, the air carriers are required to report information on officers and directors pursuant to section 407(a) of the Act (49 U.S.C. 1377 (a)). In accordance with this authority, CAB regulations (14 CFR 241, Sections 26 and 36) require certificated air carriers to submit an annual report showing the officers, directors, or management personnel receiving $20,000 or more per annum including their name, address and securities owned. In addition, CAB regulations (14 CFR 244, Subpart B) require air freight forwarders and international air freight forwarders to submit an annual report showing the reporting carrier's officers and directors including their names, titles, salaries and securities held in the air carriers. certain interlocking relationships are unlawful unless Section 409 of the Act (49 U.S.C. 1379) states that approved by CAB. Applications for CAB approval under this section are handled in a manner similar to applications for approval of consolidation and mergers. The application and any relevant information are filed in an individual docket. Neither the law nor CAB's regulations spell out exactly what information is required to be filed cation undoubtedly results in the docket disclosing inforwith the application. However, the subject of the applimation on the applicant's officers and directors. 4. Information as to Long-Term and Short-Term Debt Pursuant to authority contained in section 407 (a) of the Act (49 U.S.C. 1377(a)), CAB regulations (14 CFR 241, Sections 23 and 33) require certificated air carriers to submit an annual report on long-term and short-term non-trade debt. The report contains information on each issue of long-term debt and short-term debt (other than |