CASE 8.4
REPUBLIC OF THE SUDAN
Synopsis
Since the 8th century, the large central African country of Sudan has been a battleground
between Christian and Muslim fundamentalists. The country has been ruled since 1989 by Omar
Hassan al-Bashir. [Note: as pointed out in the case epilogue, southern Sudan seceded and became
the Republic of South Sudan in July 2011.] Allegedly, al-Bashir’s government has perpetrated
atrocities on a massive scale in Sudan. As many as two million citizens of southern Sudan and the
large western region of the country known as Darfur may have perished under al–Bashir’s regime.
Another four million Sudanese have been displaced under that regime. The atrocities in Sudan
resulted in the U.S. State Department placing that nation on its list of state sponsors of terrorism
(SSTs) and in President Clinton imposing a broad trade embargo on the country.
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Republic of the Sudan—Key Facts
1. The Republic of Sudan is among those countries identified by the U.S. State Department as a
state sponsor of terrorism (SST).
2. In 2004, the U.S. House recommended that SEC registrants be required to disclose any business
3. The SEC established the Office of Global Security Risk to monitor SEC registrants’ compliance
with the new SST disclosure policy.
5. Companies with links to SSTs were included on a list posted by the SEC to a Web page on the
EDGAR website.
7. A common criticism of the SST disclosure policy was that other SEC registrants engaging in
questionable activities were not being “singled out” by the federal agency.
8. A focal issue of the controversy stemming from the SST disclosure policy was whether the
10. In late 2007, the SEC issued a “request for comment” asking whether SST-related financial
disclosures should be highlighted for the benefit of the investing public; responses to the request for
comment were largely opposed to such a disclosure policy.
398 Case 8.4 Republic of the Sudan
Instructional Objectives
1. To examine an important financial reporting issue in the current global economy, namely, the
disclosure of reporting entities’ links to state sponsors of terrorism (SSTs).
Suggestions for Use
Since September 2001, terrorism has been a major concern, if not preoccupation, of U.S.
citizens, politicians, and government officials. No doubt, your students will be aware of the
terrorism phenomenon and the impact that it has had on our nation, which should heighten their
interest in this case. Surprisingly, the SEC’s effort to contribute to the “war against terrorism”—the
Suggested Solutions to Case Questions
1. These questions may trigger unruly debates between and among your students. Of course, the
2. The catch phrase most commonly associated with the SEC’s overall role in the U.S. economy is
“full and fair disclosure.” Since its inception, the watchdog agency for the capital markets has
focused on ensuring that registrants disclose all “material” information to investors, lenders, and
other interested third parties. For the most part, the agency has not attempted to identify disclosures
Case 8.4 Republic of the Sudan 399
students on the issue of whether the SEC should invoke a “hands–off” or a “hands–on” philosophy to
regulating the financial reporting function. To prompt a lively discussion, ask individual students to
defend their positions.
3. Ironically, the SEC does not have its own “materiality standard.” Instead, the SEC invokes the
following definition of materiality applied by the U.S. Supreme Court: “Information is material if
there is a substantial likelihood that a reasonable investor would consider the information in making
an investment decision or if the information would significantly alter the total mix of available
information.” PCAOB Auditing Standard No. 11, “Consideration of Materiality in Planning and
“The amount or amounts set by the auditor at less than materiality for the financial statements as
a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the financial statements as a whole. If
applicable, performance materiality also refers to the amount or amounts set by the auditor at
less than the materiality level or levels for particular classes of transactions, account balances, or
disclosures. Performance materiality is to be distinguished from tolerable misstatement.”
[AU-C 320.09]