[Congressional Record Volume 148, Number 92 (Wednesday, July 10, 2002)]
[Senate]
[Pages S6524-S6560]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT OF 2002
The PRESIDING OFFICER. Under the previous order, the Senate will
resume consideration of S. 2673, which the clerk will report by title.
The assistant legislative clerk read as follows:
A bill (S. 2673) to improve quality and transparency in
financial reporting and independent audits and accounting
services for public companies, to create a Public Company
Accounting Oversight Board, to enhance the standard setting
process for accounting practices, to strengthen the
independence of firms that audit public companies, to
increase corporate responsibility and the usefulness of
corporate financial disclosure, to protect the objectivity
and independence of securities analysts, to improve
Securities and Exchange Commission resources and oversight,
and for other purposes.
Pending:
Daschle (for Leahy) amendment No. 4174, to provide for
criminal prosecution of persons who alter or destroy evidence
in certain Federal investigations or defraud investors of
publicly traded securities.
Gramm (for McConnell) amendment No. 4175 (to amendment No.
4174), to provide for certification of financial reports by
labor organizations to improve quality and transparency in
financial reporting and independent audits and accounting
services for labor organizations.
Miller amendment 4176, to amend the Internal Revenue Code
of 1986 to require the signing of corporate tax returns by
the chief executive officer of the corporation.
The PRESIDING OFFICER. The Senator from Minnesota.
Mr. WELLSTONE. Mr. President, I ask unanimous consent to be added as
a cosponsor of the Leahy amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. WELLSTONE. Mr. President, I wanted to come out here on the floor
and thank Senator Sarbanes for his leadership in putting together a
piece of legislation that deals with structural reform of corporate
governance and auditing independence.
I also think what the chairman didn't do is very important. Senator
Sarbanes didn't just call for a roundup of the usual suspects but for
the prosecution of the worst offenders who deliberately have enriched
themselves at the expense of the employees, investors, and creditors,
and then try to claim that it is the end of the matter. This bill does
hold bad actors accountable for their fraud and deception. And it is
probably going to be stronger by the time it leaves the Senate Chamber.
The legislation goes much further, and it should because the problem
goes
[[Page S6525]]
much deeper. We are faced with much more than just the wrongdoing of
individual executives. We are faced with a crisis in confidence in
America's capital markets and in American business.
These corporate insider scandals are threatening the economic
security of families all across Minnesota, North Dakota, New Jersey,
Maryland, and all across the country. It is heartbreaking. You have
people who have taken their savings and put them into stock. This is
what was going to be their resources to help send their kids to college
or to meet other family needs. The value of that has eroded.
Other people have 401(k) plans and are counting on that for
retirement security. The value of that has eroded.
But I think the other big issue is really important, which is above
and beyond hundreds of billions of dollars wiped out. That is what has
happened already. You do not have investor confidence. Without investor
confidence, we will not have the economic recovery that we need. Jobs
aren't being created. Frankly, this affects all of us.
It is this last problem on which I want to focus. I see my colleague
from New Jersey who knows much more about finance than I do.
There is a business cycle. Some years are good and some years are
bad. Sometimes companies do well and sometimes companies don't do well.
Sometimes people invest more and sometimes they invest less. That is
the risk they take.
If the only problem was that executives at Enron were corrupt and
their business failed--all of which is true--or WorldCom officers were
fudging the books and the company really wasn't all that profitable--
which is true--and that a lot of businesses, such as Global Crossing--
what they were doing, to be blunt, was just fake--which is true--even
with all of that, I don't think we would be out here on the floor with
this legislation.
In other words, if the story was only that a bunch of companies did
badly, lost money, went bankrupt, and a whole lot of other people were
hurt, frankly, I still don't think we would feel this sense of urgency.
But that is not the end of the story.
The reason we need this legislation goes way beyond Enron and
WorldCom. It is not just because of Global Crossing. It is not just
because of MicroStrategy. We need this legislation, and it ought not be
cluttered with extraneous amendments, or with delay, because the
American investing public has lost its confidence in this corporate
system.
I want to emphasize this point because I think some colleagues--some,
not all of my colleagues--on the other side of the aisle don't seem to
get it. I hate to say it, but I don't think the President or the
administration gets what this is really about.
Again, the President yesterday basically focused on a handful of
corporate executives who deliberately misled investors. He talked about
a few bad apples. It goes much deeper than that.
Listen to the words of some other members of the administration, such
as Donald Evans, Secretary of Commerce, who 2 days ago said:
The system has not failed us, but a few have failed the
system.
The President said the same thing yesterday.
Treasury Secretary O'Neil said last year that Enron's collapse was
``capitalism working.'' Now, if these individuals didn't have
substantial responsibility for the economy, then their comments would
be comical. I guess if we asked these guys about Watergate, they would
say it was just a burglary. But we are dealing with more structural and
deeper issues.
The crisis is a crisis in faith. Investors who thought that if a
corporation was doing badly and making poor decisions it would show up
on their financial reports now have found out that is not the case. By
the way, we should not be shocked by this. In fact, this should be old
news to us.
Almost 2 years ago, the then-Chairman of the SEC, Arthur Levitt,
approached many of us--I remember the discussion with him in my
office--and he said: ``Paul, we are on the brink of a crisis in
accounting.''
What Levitt was saying is, I want to put into effect a rule which is
basically going to say that the Andersens of this world cannot be
pulling in all these luxurious contracts and money for their internal
auditing and all the rest, because once they get all the money, they
are going to be reluctant to bite the hand that feeds them. Secondly,
they will be put in a position of auditing their own auditing. That is
a conflict of interest, and the consequences of it could be tragic for
a lot of innocent people.
Arthur Levitt was right. Of the decisions I have made in the Senate,
one of the best decisions I ever made was 2 years ago in writing a
strong letter of support for the then-Chair of the SEC for what he was
trying to do. The auditors haven't done a good job because they have
been too close to the firms that they were supposed to be auditing.
That is what Arthur Levitt was talking about. He fought for greater
auditor independence. His solution looked a lot like what is in this
bill.
I am glad I supported his reform. That was a pretty lonely position
back then for Chairman Levitt. I am glad the Sarbanes bill is going to
get a lot more support. I believe it is going to pass overwhelmingly.
The Sarbanes bill does a number of different things. No. 1, at the
core of this crisis is the need to have auditor independence. That is
part of what the Sarbanes bill is all about. One hundred years ago, we
had politicians and business leaders who were willing to take on
entrenched corporate interests that were stifling competition--sound
familiar--that were bilking customers and bilking consumers and that
basically were enslaving their workers. We are dealing with similar
kinds of issues now.
We are now in a new century. This is going to be a real interesting
case study--I was a political science teacher--as to whether or not the
Senate and the Congress and this administration will, in fact, be there
for strong reform.
The other part of this legislation which is also important is to hold
the corporate insiders accountable for their abusive actions. That is
why I am so supportive of the Leahy amendment.
If you ask people in any coffee shop in Minnesota, should there be
criminal penalties for altering the documents, such as a 10-year
felony, they will say, absolutely. If you ask people in Minnesota,
should there be whistleblower protection for employees of public
companies who actually blow the whistle on these kinds of abuses of
power and corruption, people in Minnesota say, absolutely. If you ask,
should there be criminal penalties for securities fraud, create a new
10-year felony for defrauding shareholders of a publicly traded
company, people in Minnesota will answer, absolutely.
The President spoke yesterday, and the problem is, he did not call
for enough resources. He has a lot of tough rhetoric, but then when you
look at what is behind the rhetoric you don't see the resources the SEC
needs for the oversight. You don't see an oversight board that is set
up, as the Sarbanes bill does, with authority and independence. Most
importantly, from the President we don't get any proposals that insist
on auditor independence.
If we have learned one thing, it is that Chairman Levitt was right.
Two years ago, Arthur Levitt tried to warn all of us. All of these big
companies, accounting companies and all these other people who are tied
into this finance, some of the biggest investors, frankly, in politics
in the country--I know of no other way to say it--all lobbied hard.
Arthur Levitt was clobbered by a whole bunch of people, but he was
right. Now we have a chance to do the right thing.
If you were to go back over the last decade, we have passed too much
legislation that has taken away some of the individual investor rights,
that has made it harder for us to have Government oversight, that
refused to look at these blatant conflict of interest situations. As a
result of that, we have these corporate insider scandals.
I will say one more time, it is heartbreaking, hundreds of billions
of dollars have been lost. It is heartbreaking to see what this has
done to people's savings who invested in stock. It is heartbreaking to
see what it has done to 401(k) plans, heartbreaking to see the ways in
which families are terrified in Minnesota and around the country. Most
fundamental of all is, we don't have investor confidence any longer.
I say to my colleague from Maryland, the best thing he did, above and
beyond
[[Page S6526]]
this bill, is he didn't just say, let's go after a few bad apples. He
didn't just say that. That would be the end of it. He has dealt with
the underlying structural issues so we can prevent this from happening
again.
I am extremely proud to support this bill. I can think of some zinger
amendments. When I think of these guys who got the golden parachutes, I
am amazed. Look at WorldCom.
Mr. SARBANES. Will the Senator yield for a moment?
Mr. WELLSTONE. I will just finish one quick point.
With WorldCom, you are looking at a situation where at the very
time--the same old story--they are getting employees to do away with
defined benefit packages and then they put their employees in 401(k)s,
cheerleading the 401(k)s, while they are doing that, they are dumping
their stock. They got out with golden parachutes, all this money. It is
outrageous what has happened at the individual abuse level.
It is much deeper than the wrongdoing of these individual corporate
chieftains and governance. It gets to the structural issues. That is
what is so important about this bill.
Mr. SARBANES. If the Senator will yield, I thank him for that
observation because he is absolutely on point. The bad apples ought to
be punished. There is no question about it. They ought to be punished
severely. But it is very clear, as this issue has unfolded, that we
need to make structural changes. We need to change the system so that
the so-called gatekeepers are doing the job they are supposed to be
doing. That has not been happening. That is why we need to remove these
conflicts of interest on the part of auditors who are also consultants
for the same company, collecting huge fees. And they are supposed to
come in as outside auditors and be very tough on the company, which at
the same time is giving them large fees for consultancy.
The Senator is absolutely on point. We have to put in place a
framework, a system which tightens up and begins to screen out these
things.
Furthermore, if you go after the bad apples, fine; but the damage has
already been done, as the Senator just observed, for instance, WorldCom
and the collapse of the whole pension program and pension provisions.
Punishing a bad apple may have something of a deterrent effect, but
there is nothing like putting a system into place that gives a
heightened assurance that you are going to be accountable. That is what
investors are looking for.
Mr. WELLSTONE. One more minute. What I said earlier, the problem with
rounding up the usual suspects is quite often you then say that is the
end of the matter. That is why the President's proposals yesterday come
in for strong constructive criticism.
The story in the Post today in the business section is another
outrageous example of what happened. WorldCom swallows MCI and tells
the MCI employees they don't have a defined benefit any longer and puts
them on the 401(k), cheerleads them on to put the investment into the
company, cooks the books, and doesn't give them any accurate
information on what happened to them. Now what happens to all these MCI
employees? They don't have any of the savings any longer.
So do you know what. We have to hold these people accountable,
absolutely, but at the same time don't let anybody--people in
Minnesota--get away with saying it is a few bad apples and that is all
we are going to deal with. No. We are going to deal with the conflict
of interest and we are going to have structural reforms. We are going
to have oversight. We are going to protect consumers, the little
people, and give the business community more confidence so they do the
investing in the economy. That is what is at stake with this
legislation.
I yield the floor.
Mr. SARBANES. Mr. President, I ask unanimous consent that following
Senator McCain, who will speak later, Senator Corzine be recognized to
speak for up to 15 minutes.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
Amendment No. 4175
The PRESIDING OFFICER (Mr. Reed). Under the previous order, the
Senator from Kentucky is recognized for up to 30 minutes.
Mr. McCONNELL. Mr. President, I wish to take the opportunity now to
describe in detail the amendment currently pending before us, that
which I was unable to do yesterday.
There are two fundamental points to the amendment. What it seeks to
do is require independent audits of union funds which, of course, are
raised from union members in the vast majority of our States. You don't
have a choice; you must belong to a union, and those dues are taken. So
we have mandatory auditing of those funds to ensure they are being
accurately accounted for, civil penalties for violating those auditing
requirements, and, third--this is all the amendment is about, these
three points--the president and the secretary of the union must certify
as to the accuracy of the audit.
We are talking about guaranteeing the integrity of the funds raised
from union members. The reason we require corporations to file
financial statements is so corporate shareholders know how their money
is being spent. As a second layer of protection for shareholders, we
also require those financial statements to be independently audited.
Why? So investors know that information filed is actually correct, so
they know it is not just the creative writing of a crooked bookkeeper
or a corrupt executive.
We take this independent audit requirement, or this second layer,
very seriously--so seriously, in fact, that we are creating a third
layer in the Sarbanes bill, an entirely new audit oversight board to
better police these required audits for the benefit of corporate
shareholders.
This third layer is a good idea, especially given today's stories of
corporate fraud, deception, and outright theft that we all cite as the
real motivation behind the underlying bill. My colleagues have cited
the well-publicized financial failures and the endless corporate
scandals and the need to hold corporate crooks accountable. I could not
agree more. But we also have union corruption, union greed, union
scandals.
My amendment will give American workers the assurances that their
labor unions' books have been independently audited--the same second
layer of protection we have given to corporate shareholders since 1933.
Unions already have to file financial statements. They do so with the
Department of Labor on a form called the LM-2. Why? For the same reason
corporations do: So American workers, the card-carrying, dues-paying
union workers can see where their money goes. But we don't currently
require independent audits of union financial statements. Unlike the
corporate shareholder, the rank-and-file American worker has no earthly
idea if the financial information they rely on is correct--no idea at
all. So why shouldn't the American steelworker or longshoreman be
entitled to the same assurances as the corporate shareholder who has
recklessly overinvested in a bundle of Internet stocks? Isn't the
workers' money just as hard earned and deserving of protection--maybe
even more so?
I cannot imagine that anyone in this body would argue that American
workers do not suffer from the same type of greed and corruption that
plagues our corporate and accounting culture, nor can I imagine that as
a result of these scandals anybody in this body believes that American
workers do not deserve the very same assurances that their unions'
financial statements are correct.
But just in case, let me read for my colleagues a few recent accounts
of union corruption. I am going to read quite a few, and I will do so
for a specific reason--so nobody can stand up and say that greed and
corruption only affects corporate shareholders, so no one can say the
only stories here are Enron and WorldCom, and so no one can stand up
and say we are wasting time by trying to protect the American workers
from being cheated out of their money.
We have all heard of Arthur Andersen, but has anybody heard of Thomas
Havey? That is the accounting firm where a partner confessed last month
to helping a bookkeeper conceal her embezzlement of hundreds of
thousands of dollars from a worker training fund of the International
Association of Iron Workers.
Yesterday, a colleague of mine said that the problem at Global
Crossing
[[Page S6527]]
had nothing to do with labor unions. Maybe he hasn't heard of ULLICO.
That is the multibillion-dollar insurance company owned primarily by
unions and their members' pension funds that invested $7.6 million in
Global Crossing. Apparently, ULLICO directors received a sweetheart
stock investment deal that allowed them to make millions on the sale of
the stock. All the while, union pension funds, however, suffered the
fate of Global Crossing.
There is plenty more, beginning with a couple of stories I briefly
mentioned yesterday. An accountant with the National Association of
Letter Carriers embezzled more than $3.2 million from union funds over
an 8-year period to buy 8 cars, 2 boats, 3 jet skis, a riding mower,
and 105 collectible dolls.
A former official of the Laborers' Union District Council in Oregon,
Idaho, and Wyoming is in jail for accepting hundreds of thousands of
dollars in kickbacks for directing money into a Ponzi-like investment
scheme that defrauded Oregon labor unions of $355 million.
A former business manager and financial secretary of the
International Association of Heat and Frost Insulators and Asbestos
Workers Local 87 was indicted by the U.S. attorney for the Western
District of Texas for embezzling tens of thousands of dollars in union
funds.
Mr. President, a comptroller of the American Federation of State,
County and Municipal Employees, Council 71 of New Jersey, was sentenced
to 13 months in prison and fined for embezzling tens of thousands of
dollars from the union.
A trustee of Glass, Molders, Pottery, Plastics & Allied Workers
International Union Local 63B, headquartered in Minneapolis, was
charged with forgery and embezzlement in connection with the theft of
thousands of dollars from the union.
Fourteen officers and members of Local 91 of the Laborers
International Union in Niagara Falls were arrested on charges of labor
racketeering, extortion, assault, vandalism, and bombing a dissenting
union member's home and stabbing a worker.
A former business manager of IBEW Local 16 in Evansville, IN, was
indicted for diverting union dues checks to his personal bank account.
A Federal grand jury recently indicted an ex-business manager of the
United Association of Plumbers and Pipefitters Local 15 in Minneapolis
in connection with the theft of tens of thousands of dollars from the
union.
A former officer of United Food and Commercial Workers Local 1288, in
Fresno, CA, was sentenced to 18 months in prison for embezzling almost
$300,000 from the union's credit union.
An ex-business manager and financial secretary of the United Union of
Roofers, Waterproofers and Allied Workers Local 86, in Columbus, OH,
was sentenced to 21 months in prison for embezzling $130,000 from the
union to pay his gambling debts.
An ex-president of the American Postal Workers Union Local 1616, in
Roanoke Rapids, NC, was indicted for embezzling thousands in union
funds and making false entries in union records.
Laborers International Union of North America Local 2, in Chicago,
which recently came out of Federal trusteeship imposed because of its
close ties to organized crime, failed an oversight audit and is again
having significant accounting and bookkeeping problems.
An ex-secretary-treasurer of the American Postal Workers Union Local
761 in Las Vegas and ex-treasurer of the Postal Workers Nevada State
Association pled guilty to embezzling $200,000 in union funds.
Two former officers of Steelworkers Local 9339 in Virginia and a
former administrator of the local union's disaster relief fund were
indicted for conspiracy to embezzle union funds and make false
recordkeeping entries.
A grand jury is investigating claims that a local United Auto Workers
Union ended an 87-day strike against General Motors only after union
officials received phony overtime payments and jobs for their
relatives. Union members have also filed civil suits to recover over
half a billion dollars--half a billion dollars--from alleged self-
dealers.
My good friend, the senior Senator from Texas, always says you cannot
argue about facts. Facts are a powerful thing. These are the cold hard
facts of union corruption. Just like Enron, just like WorldCom, just
like Global Crossing, these are the cold hard facts, and there are
plenty more of these facts.
I have a stack of papers filled with what is called a union
corruption update. If you look at this stack, this is just for the year
2002. This stack is just for the year 2002--this whole stack--and 2002
is only half over. It is compiled by the National Legal Policy Center.
The Department of Labor's Office of Labor Management Standards reports
12 new indictments and 11 convictions of union fraud per month over the
last 4 years.
Let's go over that one more time. DOL's Office of Labor Management
Standards reports 12 new indictments and 11 convictions of union fraud
per month over the last 4 years. This is a serious problem, and the
Senate should not let whatever allegiance some Members may have to the
leaders of organized labor affect their concern about the workers
themselves, and that is what this amendment is about: Providing the
same protection for union members that we insist on providing for
investors in corporations.
We have a choice before us. Who should bear the cost of union
corruption against the rank-and-file, dues-paying American workers? The
unions, the perpetrators of much of this fraud, by bearing an
incremental cost of an audit that will help prevent future workers from
being cheated out of their money? Or the workers, whose money will
continue to be embezzled, concealed? And if we do not provide them with
minimal assurances of an independent audit, it will go on and on.
To me, this choice is identical--absolutely identical--to the choice
in the Sarbanes bill. Who should bear the cost of the corporate and
accounting corruption against shareholders, the corporations and
accountants, obviously, through improved oversight, enforcement, and
corporate responsibility or the investing public whose stock holdings
will continue to be embezzled, concealed, if we do not provide them a
new accounting oversight board?
Choosing the unions over the workers in this case is no different
than siding with the accountants and corporate executives who quietly
oppose the Sarbanes bill.
Mr. President, about the complaints I have heard of the burdens and
costs associated with this bill. It would not surprise me if the
leaders of organized labor have been on the phone calling particularly
our Democratic colleagues over the last 24 hours concerned about the
burdens and costs associated with this bill.
First of all, I find it absolutely astounding, given the
pervasiveness of union corruption, that some of our colleagues are
worried about the incremental cost of stopping that corruption, the
cost of giving union workers the same quality assurance answers that we
are prepared to give corporate shareholders in the underlying bill.
I do not hear any complaints about the cost of a new accounting
oversight board or the cost of corporate responsibility or enhanced
disclosure requirements in the Sarbanes bill. Why not? Because the
accountants and executives are the ones responsible for the fraud and
deception of investors. But for some reason, when it comes to unions,
some of our colleagues speak less about the cost to the workers being
ripped off and more about the burdens this amendment will place on
unions whose officials are responsible for the greed and corruption
documented in the binder I just held up a few minutes ago which
represented only half of the year 2002.
We hear that unions are saddled with too many requirements on their
financial statements. I am not concerned with the quantity of
disclosure requirements. I am only concerned about the quality of that
disclosure, specifically whether the information is accurate and
certified as such for the benefit of the dues-paying American union
workers.
We hear that we do not need audits. Some have said we do not need
audits because the Department of Labor can conduct enforcement audits,
if necessary. Well, let's play with that logic a little. If that is the
case, we do not need public corporations to be audited either. Let's
get the SEC to conduct
[[Page S6528]]
enforcement audits. Could you imagine the uproar if someone suggested
that? And no one has.
Think about the message this would send to American workers that it
is not worth requiring your union to assure you that your money is
going where they say it is; just take a number and hope the Department
conducts an audit of your union.
At any rate, the Department, as most Federal agencies, needs more
money to conduct the few enforcement audits that they conduct. The
Deputy Secretary of the Department of Labor testified recently that the
number of departmental audits has fallen from 1,583 in 1984 to a mere
238 last year, and the President has requested an additional $3.4
million and 40 new staff positions to combat union fraud.
We hear that audits will be too expensive. Here is an easy tip for
union officials to save money: Stop stealing it. That is a good way to
save money. My amendment only requires audits to any union that already
bears the cost of filing financial disclosure statements. In other
words, this would apply only to unions that already have to file
financial disclosure statements. That is unions with receipts topping
$200,000 annually. It goes to my original point. If you have to file an
annual report, it ought to be verified as accurate.
We hear that smaller unions will be hit hardest by having to conduct
an audit. Well, there is no national one-rate plan for audits of which
I am aware. As any professional service, the rates are proportional to
the size and scope of the client. Obviously, a union with $500,000 is
not going to pay in audit fees what a $60 million corporation pays for
an audit.
Let me close this part of my remarks with a simple suggestion for my
colleagues who have been tricked into worrying about the cost this
amendment would impose on unions. Just imagine this: the cost to
American workers of not requiring audits. Let us think about the cost
to American workers of not requiring audits: More embezzlement, more
crooked bookkeeping, more abuse and concealment of workers' hard-earned
money.
We do not need more embezzlement, more crooked bookkeeping, and more
concealment of workers' hard-earned money. We have a choice. We can
extend to American workers the same financial protection afforded
corporate shareholders, or we can extend to unions the ability to
continue to pilfer and profit off the workers' money. That is the
choice.
How much time do I have remaining?
The PRESIDING OFFICER. The Senator from Kentucky has 8 minutes 30
seconds remaining.
Mr. McCONNELL. I know the Senator from Arizona has been waiting
patiently. I would like to reserve my 8 minutes because I am not clear
how long this debate is going to go on. We do not have a time agreement
yet for a vote. Is that correct? I guess I am asking my friend from
Maryland what his plans are for the disposition of the McConnell
amendment.
Mr. SARBANES. If the Senator will yield, we have people lined up to
speak once the Senator has concluded, Senator McCain and then Senator
Corzine. After that, I anticipate then dealing with the McConnell
amendment.
Mr. McCONNELL. So is it the plan of the Senator from Maryland to have
a vote sometime in the next hour or so?
Mr. SARBANES. I would anticipate a vote in relation to the McConnell
amendment--well, we have 30 minutes.
Mr. McCONNELL. Could we do this, then? I ask unanimous consent that I
have 2 minutes prior to the vote to sum up what I think this amendment
is about.
Mr. SARBANES. I certainly think that could be done. I intend to speak
to it for a few minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. McCONNELL. Therefore, I yield the floor.
Amendment No. 4174
The PRESIDING OFFICER. Under the previous order, the Senator from
Arizona is recognized for up to 15 minutes.
The Senator from Arizona.
Mr. McCAIN. Mr. President, for the benefit of the managers, I do not
intend to consume all 15 minutes.
I rise in strong support of the underlying Leahy amendment, and I
hope we can dispose of that amendment within a reasonable length of
time and move on to other changes that need to be made to this very
important legislation.
Our publicly owned companies are an essential component to the
economic health of our country. As we have seen over the past few
months, the continued lapses of our corporate leaders, whether they are
ethical, criminal or just plain ignorant, have a significant, sometimes
crippling, effect on the welfare of our nation. We must make some
fundamental changes in the current system of corporate oversight to
protect Americans from avarice, greed, ignorance and criminal behavior.
Now is the time for Congress to restore investor confidence and take
the necessary action to protect the interests of the public
shareholders and place those interests above the personal interests of
those entrusted with managing and advising those companies. The
deterioration of the checks and balances that safeguard the public
against corporate abuses must be reversed.
We have to address the shortcomings in Federal law and send the
message that prosecutors now have the tools to incarcerate persons who
defraud investors or alter or destroy evidence in certain Federal
investigations. This amendment is a step in the right direction. It
creates two new criminal states that would clarify current criminal
laws relating to the destruction or fabrication of evidence and the
preservation of financial and audit records. The Enron debacle clearly
indicated that there were gaping holes in the current framework. There
will be a 10 year criminal penalty for the destruction or creation of
evidence with the intent to obstruct a federal investigation. There
will be a new 5 year criminal penalty for the willful failure to
preserve, for a minimum of five years, audit papers of companies that
issue securities.
The amendment also provides for the review and enhancement of
criminal penalties in cases involving obstruction of justice and
serious fraud cases. All of these actions are necessary to deter future
criminal action. Until somebody responsible goes to jail for a
significant amount of time, I am not sure that these people are going
to get the message. Defrauding the shareholder has to carry a
meaningful penalty. Corporate decision-makers can make millions, tens
of millions, even hundreds of millions of dollars by cheating
investors. A relatively small fine or short prison term is not a
deterrent; it's a slap on the wrist. The threat of real time in jail is
a deterrent that will make people pay attention.
This amendment also creates a new securities fraud offense. The
provision makes it easier, in a limited class of cases, to prove
securities fraud. Currently prosecutors are forced to resort to a
patchwork of technical offenses and regulations that criminalize
particular violations of securities law, or to treat the cases as
generic mail or wire fraud that results in a five-year maximum penalty.
This new provision would criminalize any scheme or artifice to defraud
persons in connection with securities of publicly traded companies or
to obtain their money or property. This new ten-year felony is
comparable to existing bank and health care fraud statutes. To those
who would say that it's hard to define a scheme or artifice to defraud,
I would say that full and honest disclosure of material dealings and
accounting treatments is the best way for the officers who run
America's corporations to protect themselves and those who invest in
their companies. There are plenty of felony laws on the books that
provide long prison terms for crimes that cause less damage than the
losses to shareholders in Enron or WorldCom.
It is important to emphasize that when criminal charges are pursued,
it is not necessarily the firm that should be charged but the
individuals at the helm of the corporate ship who should be prosecuted.
If they are the ones making the decisions out of self-interest, they
are the ones that should be held accountable. I also believe that we
must protect the ``corporate whistleblower'' from being punished for
having the moral courage to break the corporate code of silence. This
amendment does that.
This amendment also extends the current statute of limitations for
matters concerning securities fraud, deceit or manipulation. The
current statute
[[Page S6529]]
of limitations for securities fraud cases is short given the complexity
of many of these matters, and defrauded investors may be wrongly
stopped short in their attempts to recoup their losses under current
law. The existing statute of limitations for most securities fraud
cases is one year after he fraud was discovered but no more than three
years from the date of the fraud regardless of when it was discovered.
Because this statute of limitations is so short, the worst offenders
may avoid accountability and be rewarded if they can successfully cover
up their misconduct for merely three years. The more complex the case,
the easier it will be for these wrongdoers to get away with fraud.
According to at least one state Attorney General, the current short
statute of limitations has forced some states to forgo claims against
Enron based on alleged securities fraud in 1997 and 1998.
This situation essentially encourages offenders to attempt to cover
up their misdeeds however they can, including by using questionable
accounting procedures and financial shell games. Furthermore, in some
cases, the facts of a case simply do not come to light until years
after the fraud. If a person does not and cannot know they have been
defrauded, it is unfair to bar them from the courthouse. We need to
recognize the sophistication and complexity of modern-day schemes
designed to defraud investors. The Leahy amendment does this.
Finally, this provision amends the federal bankruptcy code to prevent
the corporate wrongdoer, the CEO or CFO, from sheltering their assets
under the umbrella of bankruptcy and protecting them from judgments and
settlements arising from federal and state securities law violations.
Too many of these highly paid corporate officers are using bankruptcy
laws to protect their assets while maintaining their high-rise
penthouses and ski chalets. It is time to force accountability and
punish the person, not the institution, who is not willing to abide by
the moral and legal codes that accompany leadership and public trust.
I hope we will have an early and overwhelming vote in favor of the
Leahy amendment.
I yield the floor.
Mr. SARBANES. Mr. President, so Members may have a sense of what the
program is in the short term, I will propound a unanimous consent
request and I hope it will be accepted and then we can move forward.
I ask unanimous consent that following Senator Corzine, there be 15
minutes allotted to Senator Gramm, 5 minutes allotted to Senator
McConnell, 10 minutes to myself as the manager of the bill--or up to
these amounts of time; hopefully, they won't all be used--and at the
conclusion thereof, there be a vote on or in relation to the McConnell
amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Under the previous order, the Senator from New Jersey is recognized
for up to 10 minutes.
Mr. CORZINE. Mr. President, today I rise to speak on both the
amendment proposed by Senator Leahy and also to the underlying bill
which I feel quite strongly about.
I am quite pleased to support Senator Leahy's amendment. It creates
tough new securities fraud penalties and punishes corporate wrongdoers
we have just heard the Senator from Arizona speak to. It is a
meaningful and appropriate response to the kind of corruption we have
seen and makes sure that punishment meets the nature of the act. It
also protects corporate whistleblowers, prohibits corporate executives
who violate securities laws from hiding behind the bankruptcy code.
In summary, this is more than mere lip service with regard to
enforcement and punishment of corporate fraud. It is real reform. It is
real response as a methodology to deter criminal conduct. It will go a
long way toward providing incentives that are necessary to protect
investors and pensioners and others who operate in the marketplace, in
contrast to strong rhetoric from some with regard to what we need to do
about punishment but not putting reality into place to deal with the
issues. I am proud to cosponsor the Leahy amendment, and I urge all
colleagues to do so as well.
Mr. President, we need to speak clearly and directly in the Senate
about restoring and sustaining the trust in America's capital markets,
trust in America's economic security going forward. For several days
leading up to yesterday morning's Presidential speech on Wall Street,
there was a buzz of anticipation that we would see a real embracing of
change. Some went so far as to suggest the President's speech might
lead to a Roosevelt moment, an embrace, a change in policy, a change in
direction, maybe counterintuitive to the history of the man because it
was in the Nation's best interests.
In retrospect, it is safe to say, while the President's speech was
good with respect to rhetoric, it was hardly Rooseveltian or a Ruthian
moment in the home of the New York Yankees. Unfortunately, it was far
from a home run, in my view, and did emphasize rhetoric as a substitute
for reform. Its lack of specifics or detail I found unfortunate.
It is not to say that the President's speech did not include some
important themes, or, by the way, embrace an initiative that is quite
important; that is, the corporate fraud task force in the Justice
Department which will be a strong step in carrying out pursuit of
wrongdoers.
However, stating the commitment of his administration pursuing these
folks, while an important message, needs to be more substantive. We
need specific undertakings to protect investors and shareholders. It
was what the President did not say in terms of offering specifics,
particularly specifics with regard to structural changes that will
solve the problems, deal with the problems, provide checks and balances
to the problems that we have seen from the Enrons, WorldComs, Global
Crossings, et cetera. That is why the speech fell short of what many
expected.
The best way, in my view, the President could have accomplished that
simple important message would have been to acknowledge the
comprehensive structural reform that needs to be put in place and is
expressed most clearly, most effectively, by the legislation we are
considering on this floor right now, the Public Company Accounting
Reform and Investor Protection Act.
The Sarbanes bill, the bill we are talking about on this floor,
comprehensively reforms our accounting profession. It is detailed, it
is specific, and it is quite a strong element with regard to accounting
professionals' responsibilities. It enhances corporate accountability,
improves transparency of corporate financial statements, truly
strengthens the ability of the SEC to operate as an enforcement agency,
and as a regulatory agency to a significant degree. In combination, all
those factors together will go a long way to restore investor
confidence in American capital markets and, more importantly, restore
faith in our economic system.
I think this is the direction it should take. But before I discuss
the merits of the legislation in specific, I take a moment to pay
tribute to the leadership of the distinguished chairman of the Banking
Committee, Senator Sarbanes. In shepherding this bipartisan legislation
to the floor of the Senate, he has really done an outstanding job of
bringing together a lot of disparate views on a very difficult and
complex problem, synthesized into a terrific response to a real
problem.
I see Senator Enzi in the Chamber. I also congratulate him for his
help in making sure we have a bipartisan effort in this process. His
contributions have been enormous. There are a number of people on staff
who I think have done a terrific job to make sure this happens.
But Paul Sarbanes, chairman of the Banking Committee, has done an
incredible job, a thorough job, making sure we have measured, balanced,
deliberate steps to be taken to meet a crisis of confidence. I think
the American people will be grateful that we have responded in a proper
way. It has been a privilege for me to work with all my colleagues in
the Banking Committee, but particularly the chairman. Particularly as a
freshman, I learned so much of how this legislative process works.
I must say, after 30 years in business, working my way up, the 10
days of hearings we had with respect to this particular subject, with
exhaustive testimony, thoughtful testimony provided from a large range
of perspectives, was
[[Page S6530]]
one of the best graduate seminars I have ever had in business. I hope
actually somebody will take the time to try to publish these, and they
will be used as an example both of how the legislative process should
work but also how the structure and nature of public policy debates
with regard to business policy will occur. It is extraordinary. I think
it forms an enormously positive foundation for the kind of thoughtful
legislation the chairman has brought to bear.
With that as backdrop, we all know that there are serious problems in
our system. The list of companies involved is way too long and way too
important--many of them supposed models of the new economy. But I want
to move a little bit away from just some of the simple concepts we talk
about, the most headlined, the name concepts or companies, to focus on
the fact that we are going to have almost 300 restatements of earnings
this year, this year in our economy--300 restatements. There have been
almost 1,100 restatements since 1997 of company earnings reports. This
is a problem.
It is not just the individual headline companies, it is the fact that
this is going on every day in our marketplace. It is no wonder that
investors--institutional, retail, foreign, pensioners--do not have a
sense of where we should be or how they should make their commitments
to markets. That is because they cannot trust the numbers. There have
been broken retirement dreams, lost jobs, and companies shut down. This
really needs to change.
Roughly 10 percent of major companies--of the 12,000 actively traded
companies, almost 10 percent of them have had statements of change in
the last 4 years. That is just bad. That is why investors worldwide
have developed some skepticism about our markets. Some might even say
that is why our dollar has depreciated as sharply as it has in the last
2 or 3 months. Confidence is shaken--it is real.
American financial markets have been a tremendous engine for economic
growth. We have had a highly efficient capital market, and that has
fueled our economy. We need to act.
While the depth and breadth of efficiency of our markets is still
substantial, if we continue to have this kind of erosion of confidence,
we are going to be missing one of the important drivers of America's
great success in leadership in the world. While I will not go through
every detail of this bill, if we do not come up with a strong oversight
of our accounting industry, make sure the information that people make
their decisions and take their decisions to the marketplace with is
sound and secure, then we will not have those strong capital markets
and strong economy. I think we can all agree upon that, in the nature
of a bipartisan initiative, to make sure we are moving in the right
direction.
I hope we can focus on the reality that some of the conflicts of
interest that exist in our practices in the accounting world have been
part of the cause and the focus. Some of the conflicts of interest in
the investment banking business, the world I came from, with regard to
our analysts, have undermined our security with regard to how people
analyze and understand where companies fit.
Other issues that need to be dealt with are the ``revolving doors''--
executives from accounting firms going to companies they worked for--
and the lack of independence of audit committees. All of these factors
underlie a growing public distrust in the corporate financial
information. It really needs to be acted upon.
While these things are real, I think we need structural response. We
cannot just identify a few bad apples. This is more than that.
Remember: 1,100 corporate restatements in the last 4 years. There is a
structural problem, a systemic problem that is undermining the health
security of our economy. I hope people will realize that in the context
of the kind of debates we are going to have with regard to this bill--
but maybe even more important, when we get into a conference and try to
put it together with the House response, and get it to the President.
Unfortunately, I think the other elements of proposals on the table
just do not meet the kind of standards that the Sarbanes proposal, the
Banking Committee proposal, brings to bear. I hope we will be able to
deal with that going forward.
I would be happy to talk about the specifics as we go forward. I know
others need to get into this aspect. Other than we need to have a real
reform of the accounting industry, we need a strong oversight board. We
need to really deal with the corporate accountability issues, which I
think the Leahy amendment goes a long way to strengthen in this bill.
There are many elements inside it.
We need to give the SEC the kinds of resources so it can actually do
the job it is expected to do. The President talked about giving them
$100 million additional resources. Even the House has talked about $300
million increments. We do not provide for pay parity. There are just so
many weaknesses in some of the proposals that are watered down relative
to what we have on the table before the Senate.
I can only say I hope we can keep this bipartisan effort together
because I think what we need is a final product that will deal with the
reality of the undermining of confidence we have across the board, in a
whole host of ways with regard to our financial markets, with regard to
our accounting statements and with regard to the economy itself. This
is too important to make a political issue. This is one to make sure we
move forward in a way that we secure America's economic future.
The continued vitality of America's markets is at stake. We need to
make this a priority. We need to move quickly. We need to understand it
is systemic, it is not just anecdotal, it is not just a few bad apples.
I think the bill we have on this floor will go a long way. Some of the
amendments that are brought forward can strengthen it.
We need real reform. We need it now. We do not need rhetoric. We need
to be able to restore the confidence the American people want to see,
move away from the era of Enron and WorldCom, and get to an era where
we have markets that are balanced and fair, where they have the checks
and balances in them to give people the confidence that when they make
an investment, that investment is what they thought it was when they
entered into it.
I thank the chairman for an extraordinary effort in bringing together
an exceptional bill. I am proud to be part of this effort. I look
forward to continued debate and hopefully bringing it to the
President's desk as soon as possible.
The PRESIDING OFFICER. The Senator's time has expired.
Mr. SARBANES. Mr. President, I ask unanimous consent to speak for 30
seconds.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SARBANES. Mr. President, I thank the able Senator for his very
kind comments.
I underscore, as I said last night on the floor when Senator Dodd was
here, my deep appreciation for the very positive and constructive
contribution which Senator Dodd and Senator Corzine have made to this
legislation. Early on, they introduced S. 2004, the Dodd-Corzine bill
that formed the basis of a great deal of what is now before the Senate.
I really appreciate the tremendous effort on the part of the two
Senators.
I think it is very important that I make it very clear how much I
appreciate the Senator's continuing, very strong contributions in the
committee and now as we consider this legislation.
The PRESIDING OFFICER. Who yields time?
Mr. SARBANES. Mr. President, I think under the agreement there are 15
minutes allotted to Senator Gramm, 5 minutes to Senator McConnell, and
I have reserved 10 minutes before we go to a vote on or in relation to
the McConnell amendment.
Mr. LEAHY. Mr. President, I ask unanimous consent to proceed for 30
seconds without taking the time reserved for my colleagues.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
The Senator from Vermont is recognized.
Mr. LEAHY. Mr. President, I thank the distinguished Senator from
Arizona, Mr. McCain, for his kind words earlier this morning. He is the
supporter of the Leahy-McCain-Daschle, et al, amendment pending before
the
[[Page S6531]]
body. I will speak further at an appropriate time when I am not
imposing on the time reserved by our colleagues. I wanted to thank
Senator McCain for his support of the amendment and for his kind
remarks.
I yield the floor.
The PRESIDING OFFICER. Who yields time?
The Senator from Kentucky.
Mr. McCONNELL. Mr. President, I believe the Senator from Texas is on
the way. He is not here yet, so I will go ahead with my closing
remarks.
Let me describe again what the McConnell amendment does. It is really
quite simple. I think the first thing to remember is that it doesn't
change in any way the Leahy proposal. It doesn't change in any way the
Sarbanes proposal. It does not alter either of those. This is an
addition to the underlying Sarbanes bill, and to the Leahy amendment,
which I assume is going to be adopted sometime today. This doesn't in
any way detract from the efforts underway to get greater accountability
in corporate America.
The McConnell amendment is about adding to that union accountability
so that rank-and-file union members can be assured--just as
shareholders will now be assured in the underlying bill--that
independent audits are being done. They can be assured that there will
be civil penalties for violating these new auditing standards. They
will be further assured by the fact that the president and the
secretary-treasurers of the unions will have to certify as to the
accuracy of the financial reports for unions just as we are requiring
that for corporate CEOs and CFOs for publicly traded corporations.
We are simply completing the circle of protection for Americans,
whether they be investors in corporations or union members whose dues
are being paid every payday and who have a right to expect that those
funds are going to be treated carefully and correctly.
It has been suggested--I expect it will be suggested again--that this
is going to be expensive for the unions. My amendment has been
carefully crafted to ensure that it does not impose any egregious new
costs, especially on labor. And it only applies to unions with annual
receipts over $200,000.
Why did I pick that number for unions that already file financial
information with the Department of Labor? They are already having to
file. This amendment simply requires that labor organizations with over
$200,000 in annual receipts incur the incremental costs of running
their financial statement and pass an independent audit, and abide by
generally accepted accounting principles. This is a cost borne by any
public company with as little as $1 million in total assets.
The additional costs here only apply to the larger unions that
already have to file with the Department of Labor in any event.
I want to say again that this is the union corruption update. This
massive stack is just for the first half of 2002. There are numerous
examples of the problems about which I have been talking. This stack
here represents just the first half of 2002.
Some will suggest that the examples I have given show how well DOL is
catching and prosecuting union fraud. Unfortunately, that is not the
case. The Department of Labor auditing of unions accounts for just 9
percent of all embezzlement cases. The other 91 percent of embezzlement
comes from other sources. Without a required audit, union officials do
not have to contend with the threat of an annual independent audit
hanging over their heads.
The stories speak for themselves. Union corruption is rampant. It is
absolutely rampant on the local, national, and pension fund levels all
across our country. In the last 2 years, there has been a union
embezzlement or closely related case in 40 out of our 50 States. This
is a huge problem.
With regard to the financial information already required to be
filed, it is not verified by an independent auditor. The current union
filings are not verified by an independent auditor. The independent
audits required in the McConnell amendment will help verify that the
information is indeed accurate. Unions in many instances have not been
complying with the filing requirement.
The PRESIDING OFFICER. The Senator has used 5 minutes.
Mr. McCONNELL. I ask unanimous consent for a couple of more minutes
of Senator Gramm's time.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. McCONNELL. Unions have not been complying with the filing
requirements. Up to 40 percent of unions required to file LM-2 reports
filed late or not at all. The Department of Labor, under current law,
can't even fine these organizations for noncompliance. My amendment
would at least give them the ability to fine these organizations for
noncompliance.
Let me summarize what this is about. We have decided in the Sarbanes
bill and in the Leahy amendment that we want accountability in
corporate America. We want to hold the CEOs and the CFOs responsible.
We want the auditing done accurately. If it is not done accurately,
somebody needs to be held responsible.
Why are we doing that? We are doing that because we want to reassure
the shareholders that somebody is not cooking the books, that we don't
have more WorldComs and Enrons and Global Crossings and the like.
The McConnell amendment seeks to provide those very same protections
to rank-and-file citizens who may or may not be big enough to invest in
the market. But they are investing their dues every week in the
majority of our States where they do not have a choice to not pay their
dues. And they have every right to expect independent audits of their
funds to make sure they are not being stolen and not being misused.
They have every right to expect the presidents of those unions and the
secretary-treasurers of those unions to certify as to the accuracy of
those audits.
That is what this amendment is about. It is about providing the same
fairness to the union member as we provide to the shareholder. Simple
justice. I urge that the McConnell amendment be adopted.
I yield the floor.
The PRESIDING OFFICER (Mr. Johnson). Who yields time?
The Senator from Texas.
Mr. GRAMM. Mr. President, how much time do I have?
The PRESIDING OFFICER. Thirteen minutes.
Mr. GRAMM. Mr. President, first, I thank Senator McConnell. I do not
think anybody who listened to Senator McConnell is going to believe the
assertion that somehow this amendment has nothing to do with the logic
of this bill. You can take a view that business is for real and that
standards should apply there, but organized labor is a different kind
of institution and they should not apply there; but if you are making
that argument, you have to argue it on the basis of politics. You
cannot argue it on the basis of logic. You cannot argue it on the basis
of justice or fairness.
What Senator McConnell has done, it seems to me--and I think it is a
service to the process that he has done it--is that his amendment in no
way changes Senator Leahy's amendment. So whether you are for or
against the Leahy amendment is not a relevant factor in whether you are
for or against Senator McConnell's amendment because he does not change
the Leahy amendment. He simply says, at that moment in history where we
are trying to enhance the quality of financial reporting in corporate
America, to protect the investor and to strengthen the economy, that we
should make the same changes with regard to financial reporting by
labor unions.
There have been several arguments made against this amendment, but I
do not believe any of them hold water, at least in terms of my ability
to understand the amendment and the arguments.
The first argument that has been made is: There are already
requirements that apply to unions, that they have this vast array of
reporting requirements.
The same thing is true with corporate America. If you accept that
argument that there already is a body of law, and if that means that it
should not be improved or strengthened, then what are we doing here?
There are differences over this bill, differences about how the board
should be structured, differences about what the board should decide
and what Congress should decide, but there is no difference over the
issue that we need
[[Page S6532]]
higher standards in accounting. There is no difference over the issue
that people who knowingly violate the law ought to be held accountable.
So to say that unions are subject to requirements is not an argument
that we should not have better requirements, because if it were an
argument, that would be an argument against the bill; and not one
Member of the Senate has bought that argument or made it or believes
it.
The fact that there are requirements today does not mean, in a time
when we are enhancing transparency and efficiency and honesty in
reporting, that we should not improve it for both corporate America and
for organized labor.
The second argument that is made is: Companies are public and unions
are private. Not only is that argument invalid, but unions are more
public than private investments, more public than public companies.
Nobody made anybody invest in WorldCom. Nobody made them do that. But
in some 40 States of the Union you have to pay union dues in order to
work.
I do not think that is right. I think that is fundamentally wrong. I
thank God every day that in Texas we have right-to-work laws that say I
do not have to join a union to earn a livelihood. But in some 40 States
you do.
I think the case is even stronger than the Senator from Kentucky made
because nobody made anybody buy WorldCom, but in some 40 States you
have to pay union dues. Surely, there is a public interest, in a
mandatory institution, in seeing that it keeps straight books.
So this argument that we are talking about, public companies and
private unions, what is private about a union that I have to join in
order to have a job? Nothing is private about that union. It is as
public as something can be public.
It seems to me--and Senator McConnell made the point--nobody made
people invest in WorldCom, but people are forced every day to pay union
dues. Every day they are forced to pay them. So they are as public as
public companies are, I would argue more public, and we have a stronger
interest in protecting that money which was involuntarily taken, it
seems to me, or just as strong an interest in protecting that money
that was involuntarily taken versus money that was voluntarily
invested.
The strongest argument of this amendment--and something that is
absolutely breathtaking to me--is that the annual report that is
required of unions does not have to be certified and prepared by a CPA.
We are going to great lengths in every bill that has been proposed to
set up an independent body to proctor high standards in accounting for
CPAs. Shouldn't a union that is handling my money that they took from
me involuntarily have its books audited by a CPA?
Why is that important? In fact, why do we care about accounting
ethics? We care about them because there is no way the Government has
enough resources to spot audit every company in America. So we have to
rely on the integrity of the CPA. And it is the problem we have with
that today that brings us to the floor of the Senate.
While we are enhancing that integrity through this oversight board,
shouldn't we require organized labor that is taking people's money
involuntarily to have their annual report certified and prepared by a
certified public accountant? How can anybody--how can anybody--argue
against requiring a CPA to do these audits?
You could say the Labor Department ought to go out and audit every
one of these unions. Clearly, they do not have the resources to do it.
The President has asked for more money to do it. I would guess this
Congress will not provide that money. I will be watching the
appropriations to see if they do. But even if they provide it, it is
not enough money to audit every union in America.
What we have to do to bring honesty to union financial reports, as we
bring honesty to corporate reports, is to require a CPA to do the
audit. I can see no logic whatsoever to opposing requiring a CPA to
certify.
Finally, we have gone to great lengths--and I think appropriately--to
require the guy who is drawing the big check, the head man or head
woman, to sign this annual financial statement to put their credibility
on the line and give them nobody to hide behind. Should we not require
the president of the union sign this audited report? And shouldn't the
annual report be done by a certified public accountant?
Now, it is astounding to me--and, boy, it shows you the different
level of enforcement of the law. If anybody does not believe that
politics play a part in law enforcement in America, look at the fact
that was given to us by the Senator from Kentucky, that 34 percent of
unions are out of compliance in terms of filing these reports. Some of
them just don't file the report.
It seems to me if 34 percent of the companies in America didn't file
reports, we would be outraged, and rightly so. In fact, you couldn't
trade your stock on the New York Stock Exchange or the American Stock
Exchange or the Nasdaq because of the enforcement that exists in
private entities.
The McConnell requirement that the reports be filed is
straightforward and reasonable.
I reserve the remainder of my time by simply saying, what harm can
come from requiring unions to have CPAs do these reports? I see good
can come. I can see no possible harm that could come.
Secondly, why not have the union president certify the veracity of
that report just as the corporate president does? Some people say this
is punitive. Some people say this is political. If this were being used
to try to kill the Leahy amendment, you might be able to make that
argument. But this amendment in no way takes away any part of the Leahy
amendment. It simply adds to it that the high standards we set for
corporate America should apply likewise to unions.
I reserve the remainder of my time.
The PRESIDING OFFICER. Who yields time? The Senator from Maryland.
Mr. SARBANES. Could I ask what the time situation is?
The PRESIDING OFFICER. The Senator from Maryland has 10 minutes.
Mr. SARBANES. And how much time is left to the Senator from Texas?
The PRESIDING OFFICER. The Senator from Texas has a minute and a
half.
Mr. SARBANES. Mr. President, it is important, in considering this
amendment, to realize there exists now, under the labor management
reporting and disclosure procedure, extensive and intensive provisions
for reporting by labor organizations, officers, and employees of labor
organizations.
If all of these provisions are not being carried out fully, the
responsibility rests with the Secretary of Labor. The Secretary of
Labor ought to be doing her job. If the Congress is not providing
sufficient resources for that, that is an issue for the Congress. We
ought to address that issue.
This supposed parallelism that is being argued completely misses the
mark in the sense that there is already an existing statutory scheme
covering reporting and disclosure by labor organizations.
I want to go through some of those provisions so Members appreciate
how extensive they are and the amount of review and oversight that now
exists.
I am now reading from the statute:
Every labor organization shall file annually with the
secretary a financial report signed by its president and
treasurer--
So much for this argument about they ought to sign, put their
signature on the report--
or corresponding principal officers containing the following
information in such detail as may be necessary accurately to
disclose its financial condition and operations for its
preceding fiscal year.
Listen to what they have to set out: Assets and liabilities at the
beginning and end of the fiscal year; receipts of any kind and the
sources thereof; salaries, allowances, and other direct or indirect
disbursements, including reimbursed expenses to each officer and also
to each employee who, during the fiscal year, received more than
$10,000 in the aggregate from such labor organization and any other
labor organization.
Ten thousand dollars? Ken Lay of Enron got $177 million. Twenty
executives of Enron got over $3 million in salary. Here we are talking
about a $10,000 figure which they have to report.
I am reading from the statute that governs labor organizations on
their
[[Page S6533]]
reporting and disclosure: Direct and indirect loans made to any
officer, employee, or member which aggregated more than $250 during the
fiscal year, together with a statement of the purpose, security, if
any, and arrangement for repayment. A $250 loan, $250. Bernard Ebbers
of WorldCom got a $366 million loan. This is just to underscore in a
sense the tightness of this framework governing the labor
organizations--a $250 loan. WorldCom executive Ebbers, $366 million?
The Adelphia situation with the Rigas family, $3 billion in loans.
Let's look at the power of the Secretary of Labor to enforce these
requirements: Any person who willfully violates this subchapter shall
be fined not more than $10,000 or imprisoned for not more than 1 year.
Any person who makes a false statement or representation of a material
fact or who knowingly fails to disclose a material fact in any
document, report required under the provisions of this subchapter shall
be fined not more than $10,000 or imprisoned for not more than 1 year.
Any person who makes a false entry or willfully conceals, withholds or
destroys books, records, reports shall be fined not more than $10,000
or imprisoned for not more than 1 year.
``Personal responsibility of individuals required to sign report,'' I
earlier said the president and the treasurer of the labor organization
had to sign the reports. Listen to this:
Each individual required to sign reports under sections 431
and 433 of this title shall be personally responsible for the
filing of such reports and for any statement contained
therein which he knows to be false.
Of course, we have just noted from the previous provisions, that is a
fine and possible imprisonment for up to 1 year. So we have a statutory
scheme in place to control the labor organizations. If it is not fully
adequate, it needs to be addressed in that context. But clearly, it
goes well beyond many of the provisions that apply to corporate
officers. It has been carefully worked out over the years. The Labor-
Management Reporting and Disclosure Act dates from 1959 originally,
with subsequent modifications and adjustments, as we have proceeded.
There is a system in place to govern labor organizations. It has been
asserted: well, the Labor Department has not been able to do everything
it needs to do. That burden is on the Labor Department. In a sense,
what has been raised represents a challenge to the Secretary of Labor.
If, in fact, the Congress hasn't given her adequate resources, that
point needs to be made to the Congress and we need to address that.
But we have established a well-thought-out, comprehensive scheme with
respect to the reporting and disclosure of the labor organizations, and
if they are falling short of the statutory requirements, that needs to
be addressed in the context of the statute.
The Labor Department has enormous authority over the labor
organizations. Make no mistake about it, the powers and the authorities
that reside in the Secretary of Labor and the Department are quite
extensive to deal with the labor organizations. I mentioned only some
of them, including these imprisonment for 1-year provisions.
So I am in opposition to the amendment. I think any shortcomings that
one might perceive need to be addressed in the context of the reporting
and disclosure provisions applicable to labor organizations; and I must
say to you--and the Senator from Kentucky has outlined some of the
problems--the Department needs to come to grips with them and come to
the Congress, if it deems that necessary, to seek an appropriate
congressional response in order to deal with them.
I very much hope my colleagues, when the time comes, will not be
supportive of this amendment. When all time is used, I am prepared to
make a motion with respect to the amendment.
Mr. SPECTER. Mr. President, I am voting against the McConnell
amendment because existing law already accomplishes what he seeks to
do. There exists now under the Labor Management Reporting and
Disclosure Act of 1959 extensive and intensive provisions for reporting
by the President and Treasurer of labor organizations.
Furthermore, the audit requirements of this amendment, which apply to
union filers with receipts of $200,000 or more, impose under regulation
of small entities. Public corporations subject to the SEC typically
have many more assets with initial public offerings are customarily in
the range of $40 million. The annual costs of compliance might exceed
the annual receipts of many filers who would be subjected to these
requirements. To require audits of all unions regardless of size or
complexity of financial reports would cause an unreasonable burden on
many smaller locals who already must file LM-2 reports. Unions with
annual receipts of $200,000 or more covered by the McConnell amendment
come in an extremely wide range of types, sizes, and of performing
services. Of the more than 5,000 labor organizations that currently
meet this criterion and file LM-2 reports, only about 70 are national
or international unions. The rest are locals--largely voluntary
organizations, many with no or few full-time employees. The current
Department of Labor reporting requirements take this ``no one-size-
fits-all'' approach into account and build in some flexibility that the
McConnell amendment does not allow. For example, many smaller locals do
not need to retain outside CPAs because their financial statements are
very simple and consistent from year to year.
The amendment's certification requirements are also redundant. For
more than 40 years, union officers have been required to sign annual
financial reports under penalty of perjury, attesting that the report's
information accurately describes the union's financial condition and
operations.
The PRESIDING OFFICER. The Senator from Texas is recognized.
Mr. GRAMM. Mr. President, let me paraphrase our colleague from
Maryland. The SEC already has power. Let them do their job. We are not
saying that. We are saying they need more power and they need help
doing their job because the job is not getting done.
The same is true for unions. The Senator from Maryland said there is
already a regulatory scheme. There is already a regulatory scheme for
corporate America, but we are saying it is not good enough, not tough
enough, it is not working, and we need to improve it.
The same is true for unions. The president of a corporation already
has to sign an annual report. We are trying to expand that in this
bill. Why not require the president--not other officers, but the
president--to sign the report? I submit that illegality, whether it is
$100 million or $10,000, is still theft. The President has asked us to
bar loans.
The issue here is, should we have the same integrity standards for
unions? I believe the answer is yes.
I yield the remainder of my time.
The PRESIDING OFFICER. The Senator from Texas has 17 seconds and the
Senator from Maryland has 50 seconds.
Mr. McCONNELL. Mr. President, it is true that unions file a lot of
papers. The problem is that accuracy is not required. This requires
certified records--certified by a CPA--and it requires the presidents
and secretaries of their treasuries to certify that the records are
accurate.
Union corruption is a serious problem. This will help correct it. I
urge colleagues to support the amendment.
Mr. SARBANES. Mr. President, I only observe that if they file a false
statement of representation, they can be fined and sent to jail for up
to 1 year. That is a pretty heavy remedy if you stop and think about
it.
Mr. President, I yield back the remainder of my time.
Mr. GRAMM. Mr. President, is any time remaining?
The PRESIDING OFFICER. No time remains.
Mr. SARBANES. Mr. President, I move to table the McConnell amendment,
and I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The question is on agreeing to the motion. The clerk will call the
roll.
The assistant legislative clerk called the roll.
Mr. NICKLES. I announce that the Senator from North Carolina (Mr.
Helms) and the Senator from Ohio (Mr. Voinovich), are necessarily
absent.
I further announce that if present and voting the Senator from North
Carolina (Mr. Helms) would vote ``nay.''
The PRESIDING OFFICER. Are there any other Senators in the Chamber
desiring to vote?
[[Page S6534]]
The result was announced--yeas 55, nays 43, as follows:
[Rollcall Vote No. 168 Leg.]
YEAS--55
Akaka
Baucus
Bayh
Biden
Bingaman
Boxer
Breaux
Byrd
Cantwell
Carnahan
Carper
Chafee
Cleland
Clinton
Conrad
Corzine
Daschle
Dayton
Dodd
Dorgan
Durbin
Edwards
Feingold
Feinstein
Graham
Harkin
Hollings
Inouye
Jeffords
Johnson
Kennedy
Kerry
Kohl
Landrieu
Leahy
Levin
Lieberman
Lincoln
Mikulski
Miller
Murkowski
Murray
Nelson (FL)
Nelson (NE)
Reed
Reid
Rockefeller
Sarbanes
Schumer
Smith (OR)
Specter
Stabenow
Torricelli
Wellstone
Wyden
NAYS--43
Allard
Allen
Bennett
Bond
Brownback
Bunning
Burns
Campbell
Cochran
Collins
Craig
Crapo
DeWine
Domenici
Ensign
Enzi
Fitzgerald
Frist
Gramm
Grassley
Gregg
Hagel
Hatch
Hutchinson
Hutchison
Inhofe
Kyl
Lott
Lugar
McCain
McConnell
Nickles
Roberts
Santorum
Sessions
Shelby
Smith (NH)
Snowe
Stevens
Thomas
Thompson
Thurmond
Warner
NOT VOTING--2
Helms
Voinovich
The motion was agreed to.
Mr. SARBANES. I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Division of Amendment 4174
Mr. GRAMM. Mr. President, I ask for a division of the amendment with
sections 801, 802, and 803 in division 1, section 804 in division 2,
and the remainder of the amendment in division 3.
The PRESIDING OFFICER (Mrs. Carnahan). The amendment is divisible and
is so divided.
Mr. GRAMM. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. SARBANES. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SARBANES. Madam President, I would like to put forward a couple
of inquiries. Could the Senator outline what his division of the
amendment does?
Mr. GRAMM. The amendment was divisible, and my division divided it
into three amendments. The amendment having to do with statute of
limitations in filing a lawsuit is now division 2. So division 1 would
be the pending business, as I understand it. Then division 2, and then
division 3, seriatim, unless there was some other agreement that took
us to another order or other amendments.
Mr. SARBANES. What does division 3 provide for?
Mr. GRAMM. I sent the division to the desk. Basically, division 1 was
everything up to section 804. Then division 2 is 804. And then division
3 is 805 through the end of the bill.
Mr. SARBANES. Did the Senator consider dividing it only for section
804?
Mr. GRAMM. The way it was done, the easiest division was to do it in
three parts.
Mr. SARBANES. It is that division you want a separate vote on, I take
it?
Mr. GRAMM. It is that division on which I want an opportunity for the
Senate to work its will, as well as the others.
Mr. LEAHY. Madam President, if the Senator will yield, there is
another way, of course, for the Senate to work its will. The reason I
mention it, this is a critical part of the legislation. It is nice to
say, and we should say, my cosponsor of the Sarbanes bill, which I
think is superb--we should say we should have better accounting
methods, we should say we should have more accountability, but we have
a lot of these executives who have proven by their past behavior they
are not going to do squat unless they think they are going to go to
jail for what they do.
The Leahy-McCain, et al, amendment makes it very clear that these
people are going to face jail terms if they loot the pension funds, if
they defraud their investors, if they defraud the people of their own
company. And I might suggest if the Senator from Texas agrees, there
ought to be real penalties; let's vote on Leahy-McCain. Let's vote on
it, not divide it up. If he believes there is something he may want to
do better--such as shield some of these people with a shorter statute
of limitations or with a more restrictive statute of limitations--he
has every right to do whatever he wants to shield these people. But
bring it up as a separate amendment and let the Senate vote up or down
on that.
When I look at places such as Washington State alone where the
pension funds of firefighters and police lost $50 million because of
the fraud of the leaders of Enron, I don't feel too sympathetic. We
already have a very short statute of limitations in here anyway. We
ought to at least have that so people might be able to recover some of
the money they have lost, if it is at all possible, instead of just a
few executives going up and building their $50 million mansions and
hiding it there.
There ought to be some way for the people who lost their pensions,
lost their live savings, to get it back. We ought to have criminal
penalties for those who did this in the first place so they end up in
the slammer.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Madam President, a wonderful speech, and it might be
appropriate for another occasion, but what has happened is that a
comprehensive bill has been offered as an amendment to the pending
bill. All I asked for, which every Senator has the right to ask for,
was a division of the question so that the Senate could work its will
on individual parts.
I know of no living person, at least anyone who is in the Senate or
the executive branch of Government--I don't know about the judicial
branch of Government--who is not for the provision related to putting
people in jail for knowing and willful behavior where they violate the
law.
This bill which has been offered, however, has many different
sections. The part I am concerned about has to do with statute of
limitations and the security reform legislation we adopted in 1995.
I remind my colleagues that in 1995 we had these massive strike
lawsuits. One firm filed 80 percent of them. Almost all were settled
out of court. It created an abuse that generated a bipartisan consensus
that something should be done about it.
We passed a law, and then, incredibly, with Democrat support, we
overrode President Clinton's veto of the bill. The only veto override
of the Clinton administration was on this issue.
One of the reforms had to do with shortening the statute of
limitations. I remind my colleagues, this has nothing to do with the
SEC or the Justice Department. We are not shortening their statute of
limitations. In 1995, when we passed this bill with a strong bipartisan
vote, we said: If I want to sue Senator Sarbanes, I have to file the
suit within a year of discovering that I believe I have been wronged,
or I have to file it within 3 years of when I was wronged. That was the
decision we made then.
Now, hidden away in this bill, which has been offered as an
amendment, is a provision that effectively extends that to 5 years.
All my division of the amendment did was to say this ought to be
dealt with separately so that those who are for mandatory prison
sentences for knowing and willful behavior that violates the law can be
for that without being for repealing our Private Securities Litigation
Reform Act. The reason behind the rules of the Senate that give Members
the ability to divide bills goes to exactly the heart of this point;
that is, if someone could take a bill--if someone could take----
Mr. SARBANES. Will the Senator yield on that point?
Mr. GRAMM. Let me just finish my point and I will be happy to yield,
as I try to always do.
Someone could take the securities bill of 1933 and they could put in
it all kinds of things that the vast majority of Members of the Senate
are for, and then they could put one little provision in one line in
that virtually nobody is for, and they could send it as an amendment to
the desk and then we would have no recourse except to vote
[[Page S6535]]
against all the things that we are for in order to vote against the one
little thing that we are against.
It seems to me there is nothing worse in public life than to have
someone attack you for voting against a great big old bill and say:
Well, you were against. It says here motherhood and the flag and
Christmas and Easter--you were against that because you voted against a
bill that busted the budget and bankrupt the public.
So in writing the rules of the Senate, we wrote the rules in such a
way that when someone offered such a bill as an amendment that had
different parts, any Member could ask for a division so it could be
dealt with separately. All I have done is exercise that right.
We now have three amendments pending before the Senate--I guess four,
counting the Miller amendment--but that is all I have done. Two of
these amendments I am supportive of, one of them I am not supportive
of, but that is where we are.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Madam President, let me say, first of all, the Senator
is obviously within his rights to divide the amendment. The Senator
could have offered an amendment striking section 804, which is the
section to which he objects. As I understand it, he approves of the
remainder of the bill. By dividing it, he gains a one-vote advantage
because if he moved to strike and we had a tie vote, he would lose. By
dividing the bill, if there is a tie vote on section 804 the proponents
of that provision lose. So by the division the Senator from Texas has
gained a one-vote step up. I recognize that. That is permitted under
the rules. I am not complaining about it.
I think it is inaccurate to use an example of the whole bill and say
I either have to vote for all of the amendment or none of it because
certainly he hasn't been in that position.
He could have offered an amendment to strike the section--am I right;
804 is the section on which the Senator is focused?
I make the following suggestion in order to try to move matters
forward, if I could have the attention of my colleague.
Why don't we proceed and adopt the two divisions other than 804 right
now and get those taken care of. Then we can address 804, which is the
division to which the Senator objects. We can have an appropriate
debate with respect to that division.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Madam President, we do have someone who wishes to speak. I
am not sure whether it is on one of these sections or not. I am not
ready to do that right now. We may reach a point where I will be ready
to do that, but I am not ready to do that at this point.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Madam President, given that the Senator has indicated
he is supportive of the Leahy amendment--I think he said that on more
than one occasion--except for section 804, what is it that would have
to transpire?
Mr. LEAHY. Madam President, if I might step in for just a moment, if
the Senator from Maryland will not mind?
The PRESIDING OFFICER. The Senator from Vermont.
Mr. LEAHY. I keep hearing this discussion by the senior Senator from
Texas that my bill somehow changed the Securities Litigation Reform
Act. It does not. It does not do that at all. It changes no provision
in it at all.
The PSLRA did not establish the current statute of limitations. It
did not deal with that issue at all. The Leahy bill does not impact on
these provisions. It was a 5-to-4 Supreme Court case that overturned
years of established law to set the current limitation periods in Lampf
v. Gilbertson.
In fact, interestingly enough, former Secretary General Kenneth Starr
and I take the same position on these statutes of limitations. In the
dissent in that case, two of the dissenters, Justices Kennedy and
O'Connor, said the one in three statute of limitation makes the
possibility of injured investors recovering basically a dead letter.
Here are some numbers. Florida lost $335 million because of Enron;
the University of California, $144 million--all the way down to
Vermont; we lost millions of dollars. These are people who would like,
in these kinds of cases, at least to have a statute of limitations such
that we can go after them.
We are not suggesting changing in any way--I want everybody to be
clear on this--we are not suggesting changing the basic standards of
the law on a statute of limitation. We are talking about extending the
time. We are talking about extending the time so it will not be, as the
Supreme Court said, with a short statute of limitations, a dead letter.
We are saying we want enough of a statute of limitation--still very
short but a long enough one so people can recover. We are perfectly
willing to have exactly the same words as the law says now, with the
exception the statute is slightly longer.
I cannot speak for an activist Supreme Court that seems to be
meddling in most of our laws, but their case law, their stare decisis
impacts on every single Federal court in this country--district level,
court of appeals level. So there, with the exact same law, the stare
decisis is Lampf v. Gilbertson. That would be controlling except it
would be a longer statute of limitations.
The Senator from Texas, or anybody else, if they think that statute
of limitations is too long, fine, vote against it. But I am here to try
to protect people and give them an opportunity--when there has been
such enormous fraud and all the pension funds have been lost, and all
the people who have lost their life savings--give them at least some
chance to recover something, especially as the executives of these
companies walk off with tens of millions of dollars. We go two-five
instead of one-three.
It makes sense to me. That was negotiated and voted on in the
Judiciary Committee, and the final bill was passed unanimously.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Madam President, I want to resume my discussion with
the Senator from Texas. I am not going to engage in a substantive
debate with respect to section 804 of the Leahy amendment, which is
division 1 of the divisions the Senator has made.
I want to go back to the prospects of getting division 1 and division
3 accepted, to which the Senator has repeatedly indicated he has no
objection. In fact, as I understand it, he is supportive of it.
I renew my inquiry as to whether we could move ahead and accomplish
that, since in our previous discussions the Senator has indicated
concurrence with the notion that we need to move this legislation
along. I don't understand what the objection would be to doing that.
The Senator has divided the amendments. He has improved his holding
position by doing so with respect to section 804. He has accomplished
that objective under the rules. But as I understood it, he does not
object to all of the matters in division 1 and division 3. I think it
would help move the work along if we could adopt those two divisions,
and then we could address division 2.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Madam President, first of all, let me say as the ranking
member of the committee that I have yet to have an opportunity to offer
an amendment. I only have two amendments I want to offer. No one is
more eager to get this bill to conference where we might come up with
something for which there would be virtually unanimous support. But I
assume at some point during the deliberations we will have votes on
division 1 and division 3. But I would like to have an opportunity to
offer amendments myself.
All I want to do is follow the rules of the Senate.
Let me say that I am concerned, as I listen to colleagues on both
sides of the aisle, that we are going to have a literal blizzard of
amendments not directly related to this bill. I continue to believe
that at some point, in order to finish the bill, we are going to have
to file cloture.
I intend, as I said at the beginning of the debate, to support that
cloture motion. I think someone would have a hard time portraying me as
someone who is slowing down the process when I am ready to vote to
bring debate on this bill to an end and force amendments to be germane
to the bill itself.
My proposal is that we simply go on with the business of the Senate.
I am
[[Page S6536]]
ready to offer an amendment. I am ready to deal with the amendment of
the Senator from Georgia. That amendment is amendable. All of these
amendments are amendable. I suggest we simply proceed, let Members be
recognized, and have those Members move forward.
In light of that, I send an amendment to the desk in the form of a
second-degree amendment to division 1. It is a very short amendment. I
think the best thing to do is to have it read.
Madam President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. REID. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. Madam President, I have spoken to the manager of the bill.
He has indicated he has no problem with someone speaking on the bill as
long as there is no effort to do anything in a parliamentary fashion
because there are negotiations pending at the present time. We
understand that. I ask unanimous consent that the Senator from Illinois
be recognized to speak for purposes of debate only.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. Following his remarks, the quorum call will be
reinstituted.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Illinois.
Mr. DURBIN. I thank my colleague from Nevada as well as the Senator
from Wyoming for allowing me to speak to the bill.
I am happy to be an original cosponsor of this amendment with
Senators Leahy and Daschle. The Public Company Accounting Reform and
Investor Protection Act is a long title, but what it basically seeks to
do is to address what most Americans view as one of the most dangerous
developments in our Nation's economy in the last several years, if not
longer.
When you ask the average American what they think of all this
corporate corruption, all of the disclosures about corporations that
have literally lied to the public, to their shareholders, to their
employees, and to pensioners, people across America say it does not
give them much hope for recovery for our economy. It does not give them
much confidence in terms of investing in the stock market. And it makes
them feel very sad and worried about their own pension and retirement.
We were proud to announce several years ago that almost half of
Americans owned stock. We had developed to that point where the average
person thought owning stock was a normal thing to do.
I grew up in a family with a mother and father who never once
purchased a share of stock until my mother in her later years decided
``to gamble,'' as she called it. But it was unthinkable in their
working years to buy stock. They were working people. They worked for a
railroad. Workers didn't buy stock.
That has changed. More and more people across America buy mutual
funds and stocks, 401(k)s, retirement plans. And why wouldn't they?
Look at what happened over the last 10 years. If you were smart enough
to buy yourself a dart board and put the Wall Street Journal up on it
and throw the dart, just about any stock you hit was going to give you
more money.
People came to realize that. They bought their mutual funds and
stocks and sat back and relaxed and said: This is easy. I will be able
to retire a lot sooner than I ever dreamed, and we have more financial
security in our family than ever before.
Boy, have things changed in the last 2 or 3 years. We have seen a
recession, the economy slow down, and then we watch as day after
painful day reports come of the Dow Jones and the Nasdaq, all the rest
of them, hitting new lows every single day.
It has to do with the state of the economy, the recession, but it has
to do as much with consumer confidence, the belief that you just can't
trust the corporate big boys.
There are too many instances where they decided to cash in with big
stock options and walk away with millions--sometimes hundreds of
millions--of dollars and leave a floundering corporation. They call it
``restatement.'' When I went to grade school, if I tried to tell the
nuns I wanted to restate something I had said, I never got by with it.
I got slapped on the back of the hand with a ruler. They knew it was an
admission that you lied, misrepresented something. Now that is
commonplace when you deal with corporations across America. Every week,
there is some new disclosure.
Senator Leahy, Senator Daschle, and I sat down to say we have to get
to the heart of this issue and try to resolve it, in terms of making
certain there are penalties in place for those who are deceitful,
misleading, lying to the American people about the status of
corporations. From Wall Street to Main Street, confidence has been
shaken. It started off with Enron, the poster child of runaway
corporate greed. Isn't it curious that today, as we debate corporate
corruption, and isn't it an oddity that there is an actress in
Hollywood who is facing possible jail time for shoplifting and she is
facing more time in jail than any officer of the Enron Corporation?
What is wrong with this picture? Somebody who shoplifts might go to
jail, but not the first person has been indicted at Enron, the seventh
largest corporation in America, which goes bankrupt.
We had a series of hearings, and everybody on Capitol Hill was
wringing their hands and calling in the cameras, saying we have to do
something about it. Yet the Department of Justice has yet to indict the
first person at Enron.
So what we are saying with this amendment is that we want to
establish standards and practices so that those who violate the law,
who are guilty of corporate corruption, will pay a price for it, not
just a fine that may be ignored or paid off by the corporation but
more.
In our criminal code, we establish mandatory minimum sentences for
people who are caught with a thimbleful of cocaine. We will put them in
jail, and we won't give the judge any flexibility. They go to jail for
x number of years, no ifs, ands, or buts. But if a person is engaged in
ripping off stockholders of a major corporation, lying about their
books, causing tens of thousands of people to lose their jobs,
jeopardizing the retirement plans of millions of Americans, then,
frankly, we say to them that yours is going to be a much easier
punishment.
What is wrong with this picture? Where are the scales of justice? We
should have known, when you have executives and board members who stand
to gain millions of dollars from acting on insider information in the
corporations they serve, that many would be tempted to do exactly
that--especially when they knew there weren't any cops on the beat to
keep an eye on them--no auditors, accountants, or government agencies.
In the Gingrich revolution that occurred a few years ago, we passed
something called the ``Contract on America.'' One of its provisions
said, we are going to take away the power of individuals to sue
corporations when there has been securities fraud. The argument was
made that there were too many litigious people and greedy lawyers who
were meddling in the corporate business and that we had to really close
the door to that opportunity. Well, that law was enacted. I voted
against it because it took away one more safeguard, one more protection
for the public.
Isn't it coincidental that now we stand here and talk about the
disintegration of corporate confidence? There were fewer people
watching then, and some of these corporate leaders were reaching into
the cookie jar and pulling out with both hands. It happened over and
over again. We should have known that when you condition the salary of
executives on potential gains from how the company's stock prices will
rise--known as options--that would be a temptation to raise the stock
prices artificially, especially when those on the inside knew that, as
the prices would fall, they would already have their money.
We should have known that when you have auditors and accountants
shifting numbers to come up with the right set of bottom-line figures
they need to produce for Wall Street, they would be tempted to do that
even when the audited numbers didn't add up. We should have known that
when you have the smartest lawyers and bankers in the country scheming
all night to come up
[[Page S6537]]
with borderline legal ways to avoid paying taxes through a maze of
fictitious straw companies, they would be tempted to do just that,
especially when they knew Congress wrote the laws with plenty of
loopholes for which their lobbyists paid.
We stand in the Senate and reflect upon the sad state of business in
America, and we have to wonder who is really at fault.
Let me add that the vast majority of business leaders in America are
honest, hard-working people who have taken a risk in our free
enterprise system to produce goods and services of value to our country
and to the world, to create jobs and wealth. They deserve our
admiration and respect. But, clearly, day after day, week after week,
month after month, we read on the front pages of our major newspapers
about the exceptions to what I just said.
Is it the executives who are responsible as the bad actors, or their
accountants, their auditors, their bankers? The answer is all of the
above. Every one of these must face up to their responsibilities.
In due course, I hope we will enact stricter rules for these
corporate players. But we have to accept our responsibility; Government
and Congress has a responsibility.
I salute Senator Sarbanes of Maryland for what he has done with
Senator Enzi in bringing this bill to the floor. There is an effort to
divide up this bill in the hopes of changing a statute of limitations.
Why is a statute of limitations of importance in this debate? It
really defines the reach of the law. If you tell me there is a statute
of limitations that limits the liability of these corporate bad actors,
I can tell you some people are going to get off the hook. The Leahy
amendment to Senator Sarbanes' bill broadens the statute of limitations
so that more wrongdoers will be held accountable; those who have lied,
cheated, and stolen will be held accountable.
The opponents of this approach are now suggesting we need to shorten
the statute of limitations, limit the inquiry and investigation of the
Government, and limit the liability of the bad actors. This is an
answer to the prayers of many corporate big wigs who have ripped off
their stockholders, employees, and pensioners across America.
This suggestion that we would lessen and shorten the statute of
limitations is what they want to hear. Some will now be able to retire
to their mansions, and they will be able to live in the lap of luxury
with the hundreds of millions of dollars they have taken from these
corporations and never be called to answer for their violations of the
law. That is what happens when you shorten a statute of limitations. It
is an answer to the prayer of the corporate big wigs' defense
attorneys. Why in the world would we be doing that?
Why do we want to insulate from liability the very people who are
guilty of wrongdoing? Why would we not support Senator Leahy's
amendment to say that those who have violated the public trust, those
who have lied, misled, and been deceitful should be held accountable
both on a criminal and civil standard?
So I certainly hope that at the end of this debate the Senate, on a
bipartisan basis, will stand by Senator Sarbanes and his bill. I also
hope that when it is all said and done, the underlying amendment I have
offered with Senator Leahy and Senator Daschle will be accepted.
Let me tell you what the amendment does, in brief. It punishes
corporate criminals and creates a 10-year securities fraud felony for
any ``scheme or artifice'' to defraud shareholders, and directs the
U.S. Sentencing Commission to raise penalties in obstruction of justice
cases.
Two, it preserves evidence of fraud, establishes a new felony for
destroying evidence when records are under subpoena. It requires key
financial audit documents to be retained for 5 years, and it creates a
new 5-year felony for intentional destruction of documents.
Do you know what happened? As soon as Enron got in trouble, they
called some of their buddies at Arthur Andersen, and the next thing you
know, the documents are being shredded, evidence is disappearing. This
underlying amendment, the Leahy-Daschle-Durbin amendment, addresses
that specifically.
The third thing is that it protects victims. It creates protections
for corporate whistleblowers. We need them. If insiders don't come
forward, many times you don't know what is happening in large
corporations. It lengthens the statute of limitations to 5 years from
the date of fraud and 2 years from the date of discovery for victims to
bring claims against the corporations. It prevents securities laws
violators from using bankruptcy to shield debts based on fraud
judgments.
What they are trying to do--I see Senator Leahy in the Chamber; he is
the major sponsor of this amendment--is to gut the provision that
extends the statute of limitations and say that these people will not
have to be held accountable for their wrongdoing.
I urge my colleagues in the Senate to resist this effort. We have to
hold these corporate wrongdoers accountable. We should not be party to
any kind of effort to reduce their liability; otherwise, what message
are we sending? Mandatory minimum sentences for a thimbleful of
cocaine, but allowing those guilty of corporate wrongdoing to get off
the hook. What is wrong with this picture of justice?
I urge my colleagues to resist the change in the statute of
limitations, and I yield the floor.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER. The Senator from Texas.
Mr. SARBANES. Madam President, I suggest the absence of a quorum.
Mr. GRAMM. Madam President, was I recognized?
The PRESIDING OFFICER. The Senator from Texas was recognized.
Mr. GRAMM. Madam President, let me answer what has just been said and
straighten out the facts. In 1995, we had a major problem in America in
that we had strike lawsuits being filed against high-tech industries
where one firm filed 80 percent of the cases and settled almost all the
cases out of court.
We had a bipartisan consensus that this represented abuse. So under
the leadership of Senator Dodd, Senator Domenici, and others, we passed
a bill which President Clinton vetoed. We then overrode the veto. An
important part of that reform was to say--and let me make it clear,
this does not have anything to do with committing a crime where you can
be put in jail. It has nothing to do with the SEC's jurisdiction. It
has nothing to do with the Justice Department's jurisdiction. It simply
has to do with my right to file a lawsuit against you and anybody
else's right to file a lawsuit against anybody else.
We had a lot of reforms in that bill. You had to actually have a
client. The lawyer who was the lead lawyer in 80 percent of these cases
said he loved these type lawsuits because he did not have to fool with
a client. In essence, he was suing on behalf of himself. Virtually a
huge percent of the money went to the lawyer filing the suit, not to
the people who supposedly had been harmed.
Part of the reform was to set a statute of limitation that if you
believe I have done something wrong, and you want to sue me for it, you
have 1 year from the time you find it out, or 3 years from when it
happens to file a lawsuit.
When the Senator was talking about letting people off the hook,
surely everybody understands that our system has no ex post facto laws.
So if the provision raising that statute of limitation to 5 years
became law, it would have no effect on anybody who has committed one of
these violations about which we are talking.
Amendment No. 4184 to Division 1 of Amendment No. 4174
Mr. GRAMM. Mr. President, having straightened that out, that is not
even the subject about which we are talking. We now have three
amendments pending, and I send a second-degree amendment to the first
amendment and ask for its immediate consideration.
This is a very short amendment and I ask it be read because the
language of it is so clear that a lot of times we have an amendment,
and what we say does not have much to do with the amendment. I want
people to read the language.
The PRESIDING OFFICER (Mr. Carper). The clerk will report.
The legislative clerk read as follows:
The Senator from Texas [Mr. Gramm], for himself and Mr.
Santorum, proposes an amendment numbered 4184 to division 1
of amendment No. 4174:
[[Page S6538]]
(Purpose: To provide the Board with appropriate flexibility in applying
non-audit services restrictions to small businesses)
At the end of the division, insert the following new
section:
``SEC. . EXEMPTION AUTHORITY.
``(1) Case-by-Case Waivers.--Notwithstanding section 201(b)
of this Act. The Board may, on a case by case basis, exempt
any person, issuer, public accounting firm, or transaction
from the prohibition on the provision of services under
section 10A(g) of the Securities Exchange Act of 1934 (as
added by this section), to the extent that such exemption is
necessary or appropriate in the public interest and is
consistent with the protection of investors, and subject to
review by the Commission in the same manner as for rules of
the Board under section 107.
``(2) Small Business Exemption.--The Board may, by rule
exempt any person, issuer or public accounting firm (or
classes of such persons, issuers or public accounting firms)
from the prohibition on the provision of services under
section 10A(g) of the Securities Exchange Act of 1934 (as
added by this section), based upon the small business nature
of such person, issuer or public accounting firm, taking into
consideration applicable factors such as total asset size,
availability and cost of retaining multiple service
providers, number of public company audits performed, and
such other factors and conditions as the Board deems
appropriate consistent with the purposes of this Act.''.
The PRESIDING OFFICER. The Senator from Nevada.
Mr. REID. Mr. President, I ask unanimous consent that I be allowed to
yield to the Senator from Georgia.
The PRESIDING OFFICER. Without objection, it is so ordered. The
Senator from Georgia.
Amendment No. 4176 Withdrawn
Mr. MILLER. Mr. President, I ask unanimous consent that the Miller
amendment be withdrawn.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The senior assistant bill clerk proceeded to call the roll.
Mr. DASCHLE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Division 1 of Amendment No. 4174 Withdrawn
Mr. DASCHLE. Mr. President, I withdraw Division 1 of the amendment.
The PRESIDING OFFICER. The division is withdrawn.
Division 2 of Amendment No. 4174 Withdrawn
Mr. DASCHLE. I withdraw Division 2 of the amendment.
The PRESIDING OFFICER. The division is withdrawn.
Division 3 of Amendment No. 4174 Withdrawn
Mr. DASCHLE. I withdraw Division 3 of the amendment.
The PRESIDING OFFICER. The division is withdrawn.
Amendment No. 4185
(Purpose: To provide for criminal prosecution of persons who alter or
destroy evidence in certain Federal investigations or defraud investors
of publicly traded securities, and for other purposes.)
Mr. DASCHLE. Mr. President, I send an amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from South Dakota [Mr. Daschle], for Mr. Leahy,
for himself, Mr. McCain, Mr. Daschle, Mr. Durbin, Mr. Harkin,
Mr. Cleland, Mr. Levin, Mr. Kennedy, Mr. Biden, Mr. Feingold,
Mr. Miller, Mr. Edwards, Mrs. Boxer, Mr. Corzine, and Mr.
Kerry, proposes an amendment numbered 4185.
Mr. DASCHLE. Mr. President, I ask unanimous consent that the reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The amendment is printed in today's Record under ``Text of
Amendments.'')
Mr. DASCHLE. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DASCHLE. Mr. President, I ask unanimous consent the order for the
quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DASCHLE. Mr. President, first, let me say that we have had a very
productive period over the last several minutes, and I think we now are
in a position to move to a vote on the Leahy amendment.
Mr. President, I ask unanimous consent that a vote occur on the Leahy
amendment at 3:15 this afternoon, and that there be no amendments
offered prior to the vote.
The PRESIDING OFFICER. Is there objection?
The Chair hears none, and it is so ordered.
Mr. DASCHLE. I thank the Chair.
Mr. LEAHY. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be.
The yeas and nays were ordered.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, first, let me say, I am pleased we have
reached an agreement on the Leahy amendment. This is one of these
little technical things that does not mean much to many people, and it
is one where, in fact, there is a dispute, but we have reached an
agreement that will allow the Leahy amendment to go forward with
certainty on our part that the 2-year statute of limitation is a real
statute of limitation, that we simply change the number and that in the
process, by the way we do it, we do not do anything that would
challenge the current court ruling.
Mr. REID. Will my friend yield for a unanimous consent request?
Mr. GRAMM. I am happy to yield.
Mr. REID. Mr. President, I ask unanimous consent that the time from
now until 3:15 be divided equally between the two managers of the bill.
The PRESIDING OFFICER. Is there objection?
The Chair hears none, and it is so ordered.
Mr. GRAMM. Mr. President, I thank the majority leader for helping us
work this out. I think this will give us the ability now to move
forward. As part of this agreement, we will have cloture filed on the
bill. While that cloture is ripening, we will continue to consider
amendments.
I think this agreement guarantees we will have an opportunity, if not
to finish the bill this week, the opportunity to assure that it would
be finished early next week.
Let me also say, for the record, I would not object to a unanimous
consent request to have the cloture vote today or tomorrow. From my
point of view, we do not need to wait until Friday to have the cloture
vote. I would be willing to ask unanimous consent that it be moved up,
if that were appropriate. I think that is up to the majority leader,
obviously. But from my point of view, we are ready to move and head to
conference with this bill.
This one small part of the Leahy amendment I do not think is prudent
policy, but there is greater certainty about what it means in terms of
the statute of limitations. So I am more satisfied at least in terms of
certainty.
I thank Senator Leahy for working this out. There is no doubt about
the fact that he had the votes if we could have brought it all to a
vote, but I think what we are doing, by working out this simple
compromise, is guaranteeing that we are going to pass this bill in
short order.
I am hopeful in conference we will be able to bring in the changes
the President has proposed. I understand the Republican leader will
offer them as an amendment. I will support them. I hope they are
adopted unanimously.
But in any case, I think this agreement paves the way to guarantee we
will pass this bill, hopefully, this week if not early next week.
Let me say to my colleagues on the Republican side of the aisle, I
intend to vote for cloture. I think this is an important piece of
legislation. I would do important parts of it differently than Senator
Sarbanes, but he is chairman and I am ranking member; and we have been
in the different positions. There is a difference between the two, but
we cannot get a bill which I want unless we go to conference.
The House bill is very different. I think we have an opportunity to
work out a compromise, just as we did on financial services
modernization. Senator Sarbanes opposed it when we dealt with it on the
floor of the Senate, but by the time we came back from conference, we
got 90 votes. My guess is, we will do as well or better on this bill
after going to conference.
So I think we have taken a major step toward moving on. I think it is
important. I think the American people want this bill passed. If we
were willing to move up the cloture vote, which I am willing to do, we
could pass
[[Page S6539]]
it this week. If not, we will pass it next week.
The PRESIDING OFFICER. Who yields time?
Mr. LEAHY. Mr. President, would the distinguished senior Senator from
Maryland yield me, say, 5 minutes?
Mr. SARBANES. Would the Senator mind if I made a very short
statement?
Mr. LEAHY. I would be delighted if the distinguished chairman did.
Mr. SARBANES. Mr. President, I rise to commend the distinguished
Senator from Vermont for the excellent work that he and the Committee
on the Judiciary did with respect to the amendment that is now pending
at the desk.
This amendment will create tough new penalties to punish corporate
fraud. It has very important provisions to protect corporate
whistleblowers. Previously, they have been acting under wire and mail
fraud provisions. And those are not adequate to deal with securities
fraud. The committee recognized that and dealt directly with that
question.
The President is talking about doubling the penalties for wire and
mail fraud, as I understand it, but did not have a proposal to actually
have a securities fraud offense. And that is very important because it
would have been very difficult under those other statutes because they
are not directly focused on securities fraud.
I think the committee has stepped into what was clearly a vacuum and
has filled it in an exceedingly effective and craftsmanlike way.
There are also important provisions in this amendment to prohibit
individuals from destroying documents or falsifying records with the
intent to obstruct or influence a Federal investigation or a matter in
bankruptcy. That is also very important. We have some provisions of
that sort but, once again, they are not fully developed or fully
focused. The committee, again, has applied itself in order to do that
and obviously made a very substantial contribution in that regard.
I also want to touch, very briefly, on the provisions for
whistleblower protection for employees of public companies. The
legislation, as reported out of the Banking Committee, requires audit
committees to have in place procedures to receive and address
complaints regarding accounting and internal control or auditing issues
and to establish procedures for employees' anonymous submissions of
concerns regarding accounting or auditing matters. That was a provision
championed by Senator Stabenow. We were very pleased to adopt it.
But Senator Leahy and his colleagues on the Judiciary Committee have
moved ahead to provide additional protections and remedies for
corporate whistleblowers that I think will help to ensure that
employees will not be punished for taking steps to prevent corporate
malfeasance.
There are a number of other very important provisions in this
legislation of which I am very strongly supportive, but I, in deference
to the limitation on time, will withhold with respect to those.
But, again, I thank the able chairman of the Judiciary Committee and
his colleagues for this very important contribution to the legislation
we are trying to develop.
Let me simply say it is a pleasure, once again, as we did back in the
fall when we did money laundering, to be able to work closely with the
committee in furthering the public interest.
I yield the remainder of my time to the Senator from Vermont.
The PRESIDING OFFICER. Thirteen minutes remain for the majority. The
Senator from Vermont.
Mr. LEAHY. I thank the distinguished Senator from Maryland. I
appreciate his comments also about last fall after the tragedies of
September 11. He and I and our committees worked closely on the
terrorism legislation. Realizing it was more than simply having a
penalty against terrorism, we had to have the tools against terrorism,
and the distinguished senior Senator from Maryland was very helpful in
putting together the money-laundering legislation so we could come out
with a counterterrorism package on which the Senate could vote for 99-
1.
That is what we are trying to do today. I am a proud cosponsor of
Senator Sarbanes' legislation before the body. After years of
experience in this body, I know how helpful it is if you have bills
where the jurisdiction of various aspects may be in different
committees. And considering having turf battles, when you work
together, as we have in the Banking and Judiciary Committees, and
others worked, you usually end up with a better package for the Senate.
The final product becomes better and more complete because of our
joint work. Having served here for a quarter of a century with the
Senator from Maryland, I know such things can be done.
With the members of his committee, he has had to craft a very
complex, worthwhile bill on the issue of how do you account, how do you
keep records, of all the various things to come under the SEC, to come
under the jurisdiction of his committee.
What I am concerned about, from the Judiciary Committee, is, if you
get these people, you get them; that if you have somebody who has gone
and spent all their efforts to defraud their own company and the
pension holders in their company and the investors in their company,
that they not walk off scot-free with their mansions in protected
States and their offshore money.
When you look at what has happened, when you look at the out-and-out
fraud of some of these executives as they have ruined their own
company, actually damaged their own country as well, at the same time
lining their pockets as if anybody could even have pockets as huge as
the amounts of money they have put in, and they walk away scot-free and
they say: This is such a tragedy. I hate to see my company collapse
like that and tens of thousands of people out of work and all those
pensioners gone and all those States defrauded. And I am just going to
have to comfort myself for the rest of my life with my $100 or $200 or
$300 million I have absconded with.
Their comfort might be a little bit less if they find that those same
pension holders and stockholders have the ability to go after the money
they are walking away with, and their comfort might be a little bit
less if instead of a very large mansion they are in a 12-by-12 cell
behind steel doors. Instead of a complacent board of directors, they
may have to be dealing with their fellow inmates who may not take very
kindly to them.
Why do we have to have that kind of a tough law, and why do we have
to have the statute of limitations? Just take a look at this chart.
This is what Enron did. Does this look like a company that wants to be
transparent in their dealings? Does this look like a company that wants
to be on the up and up? These are their off-the-book transactions,
hidden debt, fake profits, inflated stock.
What were some of the companies they were hiding this behind? Here is
one named Ponderosa. If you look at that, you do not know it belongs to
Enron. Or Jedi Capital or Big Doe--that is not D-O-U-G-H--or Sundance
or Little River or Yosemite or OB-1 Holdings or Peregrine or Kenobe. I
guess Kenobe is a different company than OB-1. And we have Braveheart
and Mojave and Chewco and Condor. It seems the only time they had free
between trying to hide the money was going to movies, when you look at
some of the secret partnerships they created here, Jedi II, OB-1,
Kenobe.
My point is, do you think if anybody stumbled across one of these
companies they would think for even 1 minute that it belonged to Enron?
Of course not. If you were the person who was to protect the pension
rights of the employees, do you think if you found Ospry or Zenith or
Egret or Cactus or Big River or Raptor you would think the money that
was being tucked away and hidden in there could actually belong to the
employees of Enron?
But Kenneth Lay comes up here, sidles up to the table where he is
going to be called to testify and says: I wish you could know the whole
story, but not from me. I am taking the fifth.
Well, he has that constitutional right. But he doesn't have a
constitutional right to steal and defraud, and other people like him
don't have the constitutional right to steal and defraud and hide the
money.
This isn't a question of whether they walk away with only $100
million instead of $200 million. It is a question of a middle-age
couple reaching retirement time and having virtually all
[[Page S6540]]
their retirement save Social Security tied up in a pension fund such as
this and seeing it wiped out that day. They are not facing a question
of whether they will have $200 million or $100 million. They are going
to face the question of whether they can even keep their home, whether
they will have the money to visit their grandchildren, or have the
money to take care of their medical needs in their old age. That is
what we are talking about. Or the people who work so hard, show up for
work every single day, help make the fortune for the Ken Lays of the
world, but they suddenly find they can't make the mortgage payment,
they can't make the car payment, they can't pay for their children's
braces. They can't do any of these other things because the big guys
have walked off with all the money.
That is why I wrote the legislation I did. I wrote legislation that
is going to punish criminals. I wrote legislation that will preserve
the evidence of fraud and protect victims.
As one who has prosecuted people, I know nothing focuses their
attention more than knowing they will not go to jail. Suddenly that
overlooked ethics course when they were getting their MBA, or that
overlooked ethics course in the accounting school or law school, they
are going to start looking at it again. If they think, because they can
walk away from this, they will go to jail, they are going to go to
jail. It is not going to be a complacent board of directors they will
deal with. It will be a criminal in the cell next door. That is what
they have to worry about.
These people deserve to go to jail. They have ruined the lives of
thousands of people, good people, hard-working people, honest people.
They have destroyed much of the confidence in Wall Street. They have
destroyed the confidence in people who should be investing.
I am proud to be an American and proud to be in a country such as
ours where you can invest, where people can grow companies, where they
can make money if they do the right thing. But I am not proud of these
kinds of people who destroy that sort of American dream.
The President says he is outraged. I suspect he is. But I am also
outraged. I would hope the President's outrage will go to the point of
supporting this kind of legislation, this kind of legislation which
doesn't just say it is wrong for you to do that, but if you do it, you
are going to go to jail. Those iron bars are going to close.
We have worked hard on this legislation. That is why I compliment the
distinguished senior Senator from Maryland. He and the members of his
committee worked very hard. The people of my staff, including Ed
Pagano, Steve Dettelbach, Jessica Berry, and Bruce Cohen worked so
hard. They brought in people from across the political spectrum,
Republicans and Democrats alike, to join us. I think all of those who
joined it joined in one basic thing. They set aside their philosophical
or partisan differences. They set aside their feelings of party and
said they were overwhelmed with feelings of outrage.
Even in my own little State of Vermont, pension funds were damaged
because of the excesses of Enron. And then we see WorldCom and Tyco and
Xerox, and we say we had better look back 5 years.
That is not the American way. That is the way of some of the most
arrogant, self-centered, spoiled criminals. That is what they are; they
are criminals. They cooked the books in California during an energy
crisis, so millions of people in California paid more for their
electricity. Their arrogance was such that they did not care because
all of those offshore corporations were hiding the money. Lord knows
how much money is still there. You are not going to find out from these
executives because they will take the fifth. They have the
constitutional right to do that, and I will defend that right, as I
will the rights of everybody else. But let us not shed tears for them.
Just as Democrats and Republicans will join in voting for this, I call
on the President and the Attorney General to step forward and say they
support it. And I call on our Justice Department to go forward and find
some of these people not just to say maybe we will find a corporation
guilty of a crime; let's send some of these people to jail for what
they have done. Let's send them to jail, and let's do everything we can
to let the people defrauded by them recover some of their ill-gotten
gains.
I see the Senator from Michigan has taken over the chair. Madam
President, I reserve the remainder of my time.
The PRESIDING OFFICER. The Senator's time has expired.
Mr. LEAHY. I note that the Senator from Michigan is a cosponsor of
this amendment.
The PRESIDING OFFICER. The Senator from Texas is recognized.
Mr. GRAMM. Madam President, I think all time has expired on the
majority side. I think I have about 13 minutes. I have said all I
intended to say. I think we have cleared the way for this bill to be
passed. I want to reiterate that when cloture is filed in a few
minutes, I will be supportive of having that cloture vote earlier than
Friday, which would be the normal time it would ripen. Maybe others
would not be supportive of having the vote, and they are perfectly
within their rights. I think the agreement we worked out has guaranteed
we are going to pass this bill either this week or very early next
week.
The net result is that we can go to conference with the House, and we
will have an opportunity, I believe, to come back with a strong
bipartisan bill. I have to say that I think we have sort of reached the
point where a lot of debate on this issue is more about the next
election than it is about corporate integrity. I wonder if the debate
has not reached the point where we are hurting equity values by making
people fear not only the disease, but the absurd prescription of the
doctor that might come from the Government.
I think the sooner we can finish this bill and go to conference and
come out with a final product so that people know with certainty what
the new rules are and how we are going to go about them, everybody will
benefit. I think the only thing that will be lost by invoking cloture
is that we will have fewer speeches, we will have fewer opportunities
to denounce evil, however we define it, and we will be less likely to
get on the 6 o'clock news; but we will also be less likely to spook the
markets and more likely to get our job done; we will be more likely to
produce a good bill we can all be proud of, not just when we read the
editorial in the Washington Post, but when we submit it all to the
front-porch-of-the-nursing-home test, as to how we feel about it
someday when we are sitting on the front porch of the nursing home.
Mr. HARKIN. Mr. President, our economic system is based on
transparency. Investors need accurate financial information about a
company so that they can make informed investment decisions. They need
information they can trust. Getting honest information requires
accountability and honesty from three entities: corporate executives,
stock brokers, and public auditors. Clearly, we are seeing breakdowns,
if not outright criminality, at all three levels. And it requires
additional accountability at all three levels in order to restore
investor confidence.
First, we must expect that corporations present an honest portrait of
the companies economic health and well-being. Corporate executives who
cooks the books are no different than used car salesmen who roll back
the car odometers, both are engaged in a fraud. They must be held
accountable for their actions and severely punished.
Second, we must expect brokers provide their investors with honest,
accurate, and unbiased advice. I stress unbiased. Unfortunately, many
brokerage firms have a conflict of interest because they bring in
businesses and increase their own profits by pushing bad stocks. One
recent report indicated that 94 percent of Wall Street firms continued
to recommend stocks for companies that went bankrupt this year up to
the very day that companies filed for Chapter 11.
Third, we have to expect that public accounting firms are acting as
watchdogs over corporate financial statements. Yet many of the auditing
firms, not just Arthur Andersen, have had major failures.
Accounting firms gave a clean bill of health to over 93 percent of
publicly traded companies that were subsequently involved in accounting
problems within the year. And 42 percent of publicly traded companies
that filed
[[Page S6541]]
for bankruptcy were given a clean bill of health. Clearly, we need
fundamental reform at all three levels to restore investor confidence
and punish criminal behavior. Some say may say that Enron, Worldcom and
the others are a few bad apples. That ignores the much wider, systemic
problems that now plague corporate America.
Advocating half measures or saying that we do not need to strengthen
the law is like saying that bank robbery should not be severely
punished and banks should not have vaults because most people do not
rob banks. Well, some people do rob banks. And some corporate
executives rip off investors. But they are both criminals and both
should be punished accordingly.
I commend Chairman Sarbanes for his accounting reform bill, S. 2673,
which is an excellent start at providing for stronger rules regarding
accounting procedures. I am also pleased to be an original cosponsor of
Senator Leahy's ``Corporate and Criminal Fraud Accountability Act,''
that is now being offered as an amendment. Will some key executives go
to jail if this amendment passes? If they are guilty of fraud or
destroying evidence of wrong doing, I certainly hope so.
First, the amendment creates a new crime for security fraud and helps
prosecutors punish corporate criminality. This amendment is a lot like
the ``Go to Jail'' card in the board game ``Monopoly.'' It says to
corporate criminals ``go to jail, do not pass go and do not collect
$200.'' The amendment also increases penalties for obstruction of
justice. The people who would shred documents to cover up criminal
behavior are not better than the ``wheel man'' in a robbery. They may
not have pulled the robbery, but the crook cannot getaway without them.
This amendment would make sure the shredders are held accountable as
well.
Incidentally, the amendment also lengthens the statute of limitations
on these crimes and protects corporate whistleblowers. Corporate
criminals should not be allowed to run out the clock and avoid
prosecution. And workers who discover corporate fraud should be
protected just as we protect government whistleblowers. I believe this
amendment will go a long way toward preventing corporate crime and
prosecuting those who would rip off their stock holders and employees.
Restoring confidence and punishing criminal behavior is in everyone's
best interest--honest corporate executives, their employees, investors,
and the public at large. I urge adoption of the amendment and look
forward to seeing it become law.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. SARBANES. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Ms. Stabenow). Without objection, it is so
ordered.
Under the previous order, the question is on agreeing to amendment
No. 4185. The yeas and nays have been ordered. The clerk will call the
roll.
The legislative clerk called the roll.
Mr. NICKLES. I announce that the Senator from North Carolina (Mr.
Helms), the Senator from Ohio (Mr. Voinovich), and the Senator from
Idaho (Mr. Crapo), are necessarily absent.
I further announce that if present and voting the Senator from North
Carolina (Mr. Helms) would vote ``yea.''
The PRESIDING OFFICER. Are there any other Senators in the Chamber
desiring to vote?
The result was announced--yeas 97, nays 0, as follows:
[Rollcall Vote No. 169 Leg.]
YEAS--97
Akaka
Allard
Allen
Baucus
Bayh
Bennett
Biden
Bingaman
Bond
Boxer
Breaux
Brownback
Bunning
Burns
Byrd
Campbell
Cantwell
Carnahan
Carper
Chafee
Cleland
Clinton
Cochran
Collins
Conrad
Corzine
Craig
Daschle
Dayton
DeWine
Dodd
Domenici
Dorgan
Durbin
Edwards
Ensign
Enzi
Feingold
Feinstein
Fitzgerald
Frist
Graham
Gramm
Grassley
Gregg
Hagel
Harkin
Hatch
Hollings
Hutchinson
Hutchison
Inhofe
Inouye
Jeffords
Johnson
Kennedy
Kerry
Kohl
Kyl
Landrieu
Leahy
Levin
Lieberman
Lincoln
Lott
Lugar
McCain
McConnell
Mikulski
Miller
Murkowski
Murray
Nelson (FL)
Nelson (NE)
Nickles
Reed
Reid
Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stabenow
Stevens
Thomas
Thompson
Thurmond
Torricelli
Warner
Wellstone
Wyden
NOT VOTING--3
Crapo
Helms
Voinovich
The amendment (No. 4185) was agreed to.
Mr. DASCHLE. Madam President, I move to reconsider the vote.
Mr. SARBANES. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Amendment No. 4186
Mr. DASCHLE. Madam President, I send an amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from South Dakota [Mr. Daschle], for Mr. Biden
and Mr. Hatch, proposes an amendment numbered 4186.
Mr. DASCHLE. Madam President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To increase criminal penalties relating to conspiracy, mail
fraud, wire fraud, and certain ERISA violations, and for other
purposes)
At the end, add the following:
TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 801 SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE
OR TO DEFRAUD THE UNITED STATES.
Section 371 of title 18, United States Code, is amended by
striking ``If two or more'' and all that follows through
``If, however,'' and inserting the following:
``(a) In General.--If 2 or more persons--
``(1) conspire to commit any offense against the United
States, in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined or imprisoned, or
both, as set forth in the specific substantive offense which
was the object of the conspiracy; or
``(2) conspire to defraud the United States, or any agency
thereof in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined under this title, or
imprisoned not more than 10 years, or both.
``(b) Misdemeanor Offense.--If, however,''.
SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years'';
and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
title.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this title, the growing incidence of
serious fraud offenses which are identified above, and the
need to modify the sentencing guidelines and policy
statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address--
(A) whether the guideline offense levels and enhancements
for violations of the sections amended by this title are
sufficient to deter and punish such offenses, and
specifically, are adequate in view of the statutory increases
in penalties contained in this title; and
[[Page S6542]]
(B) whether a specific offense characteristic should be
added in United States Sentencing Guideline section 2B1.1 in
order to provide for stronger penalties for fraud when the
crime is committed by a corporate officer or director;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify
financial reports
``(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a
written statement by the chairman of the board, chief
executive officer, and chief financial officer (or equivalent
thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify the appropriateness of the financial statements
and disclosures contained in the periodic report or financial
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
``(c) Criminal Penalties.--Notwithstanding any other
provision of law--
``(1) any person who recklessly violates any provision of
this section shall upon conviction be fined not more than
$500,000, or imprisoned not more than 5 years, or both; or
``(2) any person who willfully violates any provision of
this section shall upon conviction be fined not more than
$1,000,000, or imprisoned not more than 10 years, or both.''.
(b) Technical and Conforming Amendment.--The section
analysis for chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1348. Failure of corporate officers to certify financial reports.''.
Mr. DASCHLE. Madam President, I know there are a number of Senators
who wish to be recognized to offer amendments. I think Senator Lott
would like very much to offer an amendment as well. What I would like
to do is to propound a unanimous consent request involving a number of
Senators who have amendments to be offered so they will know the
sequence. I know Senator Edwards has been waiting a long time to offer
an amendment, as well as Senator Levin, Senator Schumer, Senator Gramm,
and Senator McCain. Perhaps in the next couple of minutes we can put
together a unanimous consent request which will sequence these
amendments so Senators will know they are protected and have the
opportunity to then have their amendments called up. I ask that all of
our colleagues work with us over the course of the next few minutes.
I yield the floor to accommodate Senator Lott's interest in offering
his amendment. We will lay aside the Biden amendment temporarily as
that amendment is considered as well.
The PRESIDING OFFICER. The Republican leader.
Mr. LOTT. Madam President, first, I thank Senators Sarbanes, Gramm,
and Leahy for the work they have put into moving through the amendment
on which we just voted. That allows us to move on to other germane or
important amendments that will be offered.
Amendment No. 4188
Madam President, I understand the Biden amendment will be set aside.
So I send to the desk my amendment.
The PRESIDING OFFICER. Without objection, the pending amendment is
set aside, and the clerk will report.
The legislative clerk read as follows:
The Senator from Mississippi [Mr. Lott] proposes an
amendment numbered 4188.
Mr. LOTT. Madam President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To deter fraud and abuse by corporate executives)
At the appropriate place, insert the following:
SEC. . HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 is amended by striking
``five'' and inserting ``ten''.
(b) Wire Fraud.--Section 1343 is amended by striking
``five'' and inserting ``ten''.
SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN
OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code is amended--
(a) by re-designating subsections (c), (d), (e), (f), (g),
(h), and (i) as subsections (d), (e), (f), (g), (h), (i) and
(j);
(b) by inserting after subsection (b) the following new
subsection:
``(c) Whoever corruptly--
``(1) alters, destroys, mutilates or conceals a record,
document or other object, or attempts to do so, with the
intent to impair the object's integrity or availability for
use in an official proceeding; or
``(2) otherwise obstructs, influences, or impedes any
official proceeding, or attempts to do so;
``shall be fined under this title or imprisoned not more than
ten years, or both.''
SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND
EXCHANGE COMMISSION.
(a) In General.--The Securities Exchange Act of 1934 is
amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
3(c)(2)) the following:
``(3) Temporary freeze.--
``(A) Whenever during the course of a lawful investigation
involving possible violations of the federal securities laws
by an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents or
employees, it shall appear to the Commission that it is
likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of the foregoing
persons, the Commission may petition a federal district court
for a temporary order requiring the issuer to escrow, subject
to court supervision, those payments in an interest-bearing
account for 45 days. Such an order shall be entered, if the
court finds that the issuer is likely to make such
extraordinary payments, only after notice and opportunity for
a hearing, unless the court determines that notice and
hearing prior to entry of the order would be impracticable or
contrary to the public interest. A temporary order shall
become effective immediately and shall be served upon the
parties subject to it and, unless set aside, limited or
suspended by court of competent jurisdiction, shall remain
effective and enforceable for 45 days. The period of the
order may be extended by the court upon good cause shown for
not longer than 45 days, provided that the combined period of
the order not exceed 90 days.
``(B) If the individual affected by such order is charged
with violations of the federal securities laws by the
expiration of the 45 days (or the expiration of any extended
period), the escrow would continue, subject to court
approval, until the conclusion of any legal proceedings. The
issuer and the affected director, officer, partner,
controlling person, agent or employee would have the right to
petition the court for review of the order. If the individual
affected by such order is not charged, the escrow will
terminate at the expiration of the 45 days (or the expiration
of any extended period), and the payments (with accrued
interest) returned to the issuer.
(b) Technical Amendment.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
amended by striking ``This'' and inserting ``Paragraph (1) of
this''.
SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) Request for Immediate Consideration by the United
States Sentencing Commission.--Pursuant to its authority
under section 994(p) of title 28, United States Code, and in
accordance with this section, the United States Sentencing
Commission is requested to--
(1) promptly review the sentencing guidelines applicable to
securities and accounting fraud and related offenses;
(2) expeditiously consider promulgation of new sentencing
guidelines or amendments to existing sentencing guidelines to
provide an enhancement for officers or directors of publicly
traded corporations who commit fraud and related offenses;
and
(3) submit to Congress an explanation of actions taken by
the Commission pursuant to paragraph (2) and any additional
policy recommendations the Commission may have for combating
offenses described in paragraph (1).
(b) Other.--In carrying out this section, the Sentencing
Commission is requested to:
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of securities, pension,
and accounting fraud and the need for aggressive and
appropriate law enforcement action to prevent such offenses;
(2) assure reasonable consistency with other relevant
directives and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including circumstances for
which the sentencing guidelines currently provide sentencing
enhancements;
(4) make any necessary conforming changes to the sentencing
guidelines; and
(5) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
(c) Emergency Authority and Deadline for Commission
Action.--The Commission is requested to promulgate the
guidelines or amendments provided for under this section as
soon as practicable, and in any event not later than the 120
days after the date of the
[[Page S6543]]
enactment of this Act, in accordance with the procedures set
forth in section 21(a) of the Sentencing Reform Act of 1987,
as though the authority under that Act had not yet expired.
SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.
(a) In section 21C of the Exchange Act of 1934, add at the
end a new subsection as follows:
``( ) Authority of the Commission To Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 10(b) of this title or
the rules or regulations thereunder from acting as an officer
or director of any issuer that has a class of securities
registered pursuant to section 12 of this title or that is
required to file reports pursuant to section 15(d) of this
title if the person's conduct demonstrates unfitness to serve
as an officer or director of any such issuer.''
(b) In section 8A of the Securities Act add at the end a
new subsection as follows:
``( ) Authority of the Commission To Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 17(a)(1) of this title
from acting as an officer or director of any issuer that has
a class of securities registered pursuant to section 12 of
the Securities Exchange Act of 1934 or that is required to
file reports pursuant to section 15(d) of that Act if the
person's conduct demonstrates unfitness to serve as an
officer or director of any such issuer.''
Amendment No. 4189 to Amendment No. 4188
Mr. GRAMM. Madam President, I send a second-degree amendment to the
desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from Texas [Mr. Gramm] proposes an amendment
numbered 4189 to amendment No. 4188.
Mr. GRAMM. Madam President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To deter fraud and abuse by corporate executives)
Strike all after the first word, and insert the following:
HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 is amended by striking
``five'' and inserting ``ten''.
(b) Wire Fraud.--Section 1343 is amended by striking
``five'' and inserting ``ten''.
SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN
OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code is amended--
(a) by re-designating subsections (c), (d), (e), (f), (g),
(h), and (i) as subsections (d), (e), (f), (g), (h), (i) and
(j);
(b) by inserting after subsection (b) the following new
subsection:
``(c) Whoever corruptly--
``(1) alters, destroys, mutilates or conceals a record,
document or other object, or attempts to do so, with the
intent to impair the object's integrity or availability for
use in an official proceeding; or
``(2) otherwise obstructs, influences, or impedes any
official proceeding, or attempts to do so;
``shall be fined under this title or imprisoned not more than
ten years, or both.''
SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND
EXCHANGE COMMISSION.
(a) In General.--The Securities Exchange Act of 1934 is
amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
3(c)(2)) the following:
``(3) Temporary freeze.--
``(A) Whenever during the course of a lawful investigation
involving possible violations of the federal securities laws
by an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents or
employees, it shall appear to the Commission that it is
likely that the issuer will make extraordinary payments
(whether compensation or otherwise) to any of the foregoing
persons, the Commission may petition a federal district court
for a temporary order requiring the issuer to escrow, subject
to court supervision, those payments in an interest-bearing
account for 45 days. Such an order shall be entered, if the
court finds that the issuer is likely to make such
extraordinary payments, only after notice and opportunity for
a hearing, unless the court determines that notice and
hearing prior to entry of the order would be impracticable or
contrary to the public interest. A temporary order shall
become effective immediately and shall be served upon the
parties subject to it and, unless set aside, limited or
suspended by court of competent jurisdiction, shall remain
effective and enforceable for 45 days. The period of the
order may be extended by the court upon good cause shown for
not longer than 45 days, provided that the combined period of
the order not exceed 90 days.
``(B) If the individual affected by such order is charged
with violations of the federal securities laws by the
expiration of the 45 days (or the expiration of any extended
period), the escrow would continue, subject to court
approval, until the conclusion of any legal proceedings. The
issuer and the affected director, officer, partner,
controlling person, agent or employee would have the right to
petition the court for review of the order. If the individual
affected by such order is not charged, the escrow will
terminate at the expiration of the 46 days (or the expiration
of any extended period), and the payments (with accrued
interest) returned to the issuer.
(b) Technical Amendment.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
amended by striking ``This'' and inserting ``Paragraph (1) of
this''.
SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) Request for Immediate Consideration by the United
States Sentencing Commission.--Pursuant to its authority
under section 994(p) of title 28, United States Code, and in
accordance with this section, the United States Sentencing
Commission is requested to--
(1) promptly review the sentencing guidelines applicable to
securities and accounting fraud and related offenses;
(2) expeditiously consider promulgation of new sentencing
guidelines or amendments to existing sentencing guidelines to
provide an enhancement for officers or directors of publicly
traded corporations who commit fraud and related offenses;
and
(3) submit to Congress an explanation of actions taken by
the Commission pursuant to paragraph (2) and any additional
policy recommendations the Commission may have for combating
offenses described in paragraph (1).
(b) Other.--In carrying out this section, the Sentencing
Commission is requested to:
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of securities, pension,
and accounting fraud and the need for aggressive and
appropriate law enforcement action to prevent such offenses;
(2) assure reasonable consistency with other relevant
directives and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including circumstances for
which the sentencing guidelines currently provide sentencing
enhancements;
(4) make any necessary conforming changes to the sentencing
guidelines; and
(5) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
(c) Emergency Authority and Deadline for Commission
Action.--The Commission is requested to promulgate the
guidelines or amendments provided for under this section as
soon as practicable, and in any event not later than the 120
days after the date of the enactment of this Act, in
accordance with the procedures set forth in section 21(a) of
the Sentencing Reform Act of 1987, as though the authority
under that Act had not yet expired.
SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.
(a) In section 21C of the Exchange Act of 1934, add at the
end a new subsection as follows:
``( ) Authority of the Commission To Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 10(b) of this title or
the rules or regulations thereunder from acting as an officer
or director of any issuer that has a class of securities
registered pursuant to section 12 of this title or that is
required to file reports pursuant to section 15(d) of this
title if the person's conduct demonstrates unfitness to serve
as an officer or director of any such issuer.''
(b) In section 8A of the Securities Act add at the end a
new subsection as follows:
``( ) Authority of the Commission To Prohibit Persons From
Serving as Officers or Directors.--In any cease-and-desist
proceeding under subsection (a), the Commission may issue an
order to prohibit, conditionally or unconditionally, and
permanently or for such period of time as it shall determine,
any person who has violated section 17(a)(1) of this title
from acting as an officer or director of any issuer that has
a class of securities registered pursuant to section 12 of
the Securities Exchange Act of 1934 or that is required to
file reports pursuant to section 15(d) of that Act if the
person's conduct demonstrates unfitness to serve as an
officer or director of any such issuer.''
Mr. DASCHLE. Madam President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DASCHLE. Madam President, I ask unanimous consent the order for
the quorum call be rescinded.
[[Page S6544]]
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 4186, As Modified
Mr. DASCHLE. Madam President, I think we are working through the
number of procedural issues with which we have to deal. I want to make
sure we are in a position to be able to complete that work. So I call
for the regular order.
The PRESIDING OFFICER. Amendment No. 4186 is pending.
Mr. DASCHLE. I modify the original amendment that I offered with the
changes that are at the desk.
The PRESIDING OFFICER. The amendment is so modified.
The amendment, as modified, is as follows:
On page 117 in line 12 strike ``Act'' and insert the
following: Act.
TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 801 SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE
OR TO DEFRAUD THE UNITED STATES.
Section 371 of title 18, United States Code, is amended by
striking ``If two or more'' and all that follows through
``If, however,'' and inserting the following:
``(a) In General.--If 2 or more persons--
``(1) conspire to commit any offense against the United
States, in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined or imprisoned, or
both, as set forth in the specific substantive offense which
was the object of the conspiracy; or
``(2) conspire to defraud the United States, or any agency
thereof in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined under this title, or
imprisoned not more than 10 years, or both.
``(b) Misdemeanor Offense.--If, however,''.
SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years'';
and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
title.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this title, the growing incidence of
serious fraud offenses which are identified above, and the
need to modify the sentencing guidelines and policy
statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address--
(A) whether the guideline offense levels and enhancements
for violations of the sections amended by this title are
sufficient to deter and punish such offenses, and
specifically, are adequate in view of the statutory increases
in penalties contained in this title; and
(B) whether a specific offense characteristic should be
added in United States Sentencing Guideline section 2B1.1 in
order to provide for stronger penalties for fraud when the
crime is committed by a corporate officer or director;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify
financial reports
``(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a
written statement by the chairman of the board, chief
executive officer, and chief financial officer (or equivalent
thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify the appropriateness of the financial statements
and disclosures contained in the periodic report or financial
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
``(c) Criminal Penalties.--Notwithstanding any other
provision of law--
``(1) any person who recklessly violates any provision of
this section shall upon conviction be fined not more than
$500,000, or imprisoned not more than 5 years, or both; or
``(2) any person who willfully violates any provision of
this section shall upon conviction be fined not more than
$1,000,000, or imprisoned not more than 10 years, or both.''.
(b) Technical and Conforming Amendment.--The section
analysis for chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1348. Failure of corporate officers to certify financial reports.''.
Mr. DASCHLE. Madam President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
Amendment No. 4190 To Amendment No. 4186, As Modified
Mr. DASCHLE. Madam President, I send up an amendment in the second
degree.
What we have done now is to assure that both the Biden amendment and
the Lott amendment will have an opportunity to be considered and
debated. I am hoping we might even be able to continue to work to see
if we can have one vote rather than two.
The PRESIDING OFFICER. The clerk will report the amendment.
The legislative clerk read as follows:
The Senator from South Dakota [Mr. Daschle], for Mr. Biden,
proposes an amendment numbered 4190 to amendment No. 4186, as
modified.
The amendment is as follows:
(Purpose: To increase criminal penalties relating to conspiracy, mail
fraud, wire fraud, and certain ERISA violations, and for other
purposes)
Strike all after the first word and insert the following:
VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 801 SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE
OR TO DEFRAUD THE UNITED STATES.
Section 371 of title 18, United States Code, is amended by
striking ``If two or more'' and all that follows through
``If, however,'' and inserting the following:
``(a) In General.--If 2 or more persons--
``(1) conspire to commit any offense against the United
States, in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined or imprisoned, or
both, as set forth in the specific substantive offense which
was the object of the conspiracy; or
``(2) conspire to defraud the United States, or any agency
thereof in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined under this title, or
imprisoned not more than 10 years, or both.
``(b) Misdemeanor Offense.--If, however,''.
SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years'';
and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
[[Page S6545]]
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
title.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this title, the growing incidence of
serious fraud offenses which are identified above, and the
need to modify the sentencing guidelines and policy
statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address--
(A) whether the guideline offense levels and enhancements
for violations of the sections amended by this title are
sufficient to deter and punish such offenses, and
specifically, are adequate in view of the statutory increases
in penalties contained in this title; and
(B) whether a specific offense characteristic should be
added in United States Sentencing Guideline section 2B1.1 in
order to provide for stronger penalties for fraud when the
crime is committed by a corporate officer or director;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify
financial reports
``(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a
written statement by the chairman of the board, chief
executive officer, and chief financial officer (or equivalent
thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify the appropriateness of the financial statements
and disclosures contained in the periodic report or financial
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
``(c) Criminal Penalties.--Notwithstanding any other
provision of law--
``(1) any person who recklessly violates any provision of
this section shall upon conviction be fined not more than
$500,000, or imprisoned not more than 5 years, or both; or
``(2) any person who willfully violates any provision of
this section shall upon conviction be fined not more than
$1,000,000, or imprisoned not more than 10 years, or both.''.
(b) Technical and Conforming Amendment.--The section
analysis for chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1348. Failure of corporate officers to certify financial reports.''.
This section shall take effect one day after date of this
bill's enactment.
Mr. DASCHLE. Madam President, I yield the floor. It is my
understanding Senator Biden and Senator Lott would both like to address
their amendments. I yield for that purpose now.
The PRESIDING OFFICER. The Republican leader.
Amendment No. 4188
Mr. LOTT. Madam President, if I could describe my amendment briefly.
I understand Senator Biden is prepared to do the same thing.
First, I should note, in at least one area they overlap in what they
propose. In some other areas, there are some differences. But I don't
see there are major problems.
Senator Biden's amendment, as I understand it, just from looking at
it quickly, would increase penalties in some areas that are not
included in my amendment. What this amendment would do, though, is
increase penalties for corporate fraud.
Section 1 would increase maximum sentences for fraud. Mail fraud and
wire fraud statutes are often used in criminal cases involving
corporate wrongdoing. So obviously this is an area that is of concern
and needs to be addressed. This section proposes doubling the maximum
prison term for these crimes from 5 years to 10 years by amending 18
U.S.C. sections 1341 and 1343.
The second section would enact stronger laws against document
shredding. Current law prohibits obstruction of justice by a defendant
acting alone, but only if a proceeding is pending and a subpoena has
been issued for the evidence that has been destroyed or altered. Timing
is very important.
Most people understand that shredding documents is a very bad thing
to do. Obviously, you cannot do it if there is something pending or if
there is a subpoena. But as was the case recently, they knew that an
investigation was underway and a subpoena was likely, and the shredding
of documents went forward.
So this section would allow the Government to charge obstruction
against individuals who acted alone, even if the tampering took place
prior to the issuance of a grand jury subpoena. I think this is
something we need to make clear so we do not have a repeat of what we
saw with the Enron matter earlier this year.
Section 3 freezes payments of potential wrongdoers. This section
would allow the SEC, during an investigation, to seek an order in
Federal court imposing a 45-day freeze on extraordinary payments to
corporate executives.
Again, this year we have seen just that sort of thing happening.
While an investigation is underway, basically rewards were given to
these corporate executives. While it would require a court order, there
would be this 45-day freeze.
The targeted payments would be placed in escrow, ensuring that
corporate assets are not improperly taken from an executive's personal
benefit.
If an executive is charged with violations of Federal securities laws
prior to the expiration of the court order, the escrow would continue
until the conclusion of legal proceedings, again, with court approval.
Section 4 involves sentencing guideline enhancements for crimes
committed by corporate officers and directors. This section would
implement President Bush's call on the Sentencing Commission to quickly
adopt the new ``aggravating factor'' to provide stronger penalties for
fraud when the crime is committed by a corporate officer or director.
This ``aggravating factor'' is a term of art used in the law. It would
provide, under this section, stronger penalties for such fraud.
Section 5 would bar corporate officers and directors who engage in
serious misconduct. Under current law, only a Federal court can issue
an order prohibiting a person from acting as an officer or director of
a public company.
The SEC cannot order this remedy in its own administrative cease-and-
desist proceedings, even in a case of securities fraud where the
person's conduct would otherwise meet the standards for imposing such a
bar. This section would grant the SEC the authority to issue such
orders if a person had committed securities law violation and his or
her conduct demonstrated unfitness to serve as an officer or a
director.
These points are all points that were made by the President, asking
that legislation be provided to provide for these additional increases
and strengthening of the law. We have found clearly that in recent
events there has been improper conduct. There have been questionable
accounting procedures, and there has probably been some illegal
conduct. So you can put all the laws in the world on the books, but if
people act in bad faith, violate the law, you can never legislate
morality.
We have also seen that there are some cases where the law had some
loopholes or where it was not timely or where it was not strong enough.
One example, of course, is where there has been shredding. Another
example is the very bad image of corporate executives taking increased
payments, extraordinary payments, while they are being investigated.
You can't have that sort of thing.
I think these are basic things that should be added to this bill. It
would strengthen the bill. I have checked with a number of Senators on
both sides of the aisle. There is general support for this legislation.
I thank Senator Biden for allowing me to make this brief statement
about the amendment. Again, I emphasize that there are some
similarities between this amendment and his amendment, but he does add
additional penalties beyond what is in this proposal. But I did want to
put into the bill what the President specifically recommended.
The PRESIDING OFFICER (Mr. Dayton). The Senator from Delaware.
Mr. BIDEN. Mr. President, this amendment is from Senator Hatch and
[[Page S6546]]
me. He had as much input in this as I had. Let me respond in the spirit
in which I was asked to do this and explain what the Biden-Hatch
amendment does and then yield to my colleague to make any additional
statements.
Based on what Senator Lott has just pointed out, he has indicated
that there are four basic sections to his amendment. On the first one,
doubling the penalties for title 18, sections 1341 and 1343, that is
exactly the same provision that is in the Biden-Hatch bill.
Secondly, making it a crime for document shredding: If I am not
mistaken, that is in the Leahy amendment we just passed and that I
cosponsored, as well as many others.
The third part of the amendment discussed by the Republican leader is
something with which I happen to agree. It is not in either the Leahy
bill just passed or in the Biden-Hatch amendment. That is the 45-day
freeze on corporate executives' extraordinary income based upon the SEC
being able to hold that in escrow and freeze it for 45 days while they
look at it. I, for one, would be willing--I will yield to my colleague
from Utah at the appropriate time--to accept that or join that in our
amendment.
Fourth, the Sentencing Commission provisions that were referred to by
my friend from Mississippi are in the Biden-Hatch bill. There is only
one piece of the legislation of the Senator from Mississippi, as I
understand it, based on the summary, that is not either already passed
or included in Biden-Hatch.
But there are three areas that are not included which we think are
very important. One is in section 2 of our legislation, which relates
to conspiracy. Under title 18, section 371, the maximum penalty for
general conspiracy to commit a crime is 5 years in prison regardless of
whether the penalty for the predicate offense--that is, the thing they
are conspiring to do--is considerably more than 5 years. So what
Senator Hatch and I do is we allow the penalty for conspiracy to be
consistent with what the penalty would be for the underlying crime;
that is, the predicate crime. That is not included in the amendment of
the Senator from Mississippi.
Also, a very important provision of Biden-Hatch is that right now,
under ERISA, the Employment Retirement Security Act of 1974--we were
both here to vote for that--under current law, a violation for
essentially squandering someone's pension to the tune of tens of
millions, maybe billions, of dollars is a misdemeanor with a maximum
penalty of 1 year. If you were to steal an automobile from my driveway,
which is about 2 miles from the Pennsylvania line, drive it across the
Pennsylvania line, under Federal law, it is a 10-year sentence. There
is obviously a bizarre disparity.
What we do is we increase the penalty for criminal violation of ERISA
to 1 to 10 years, based upon the value of what is stolen in ERISA. If
the loss in ERISA is a $20,000 pension versus several billion dollars'
worth, the Sentencing Commission can make that judgment, as they do
now, to have the penalty be from 1 but up to 10 years. That is not in
Senator Lott's amendment.
Lastly, section 6 of Biden-Hatch. Currently, the Securities and
Exchange Commission requires regulated companies to file periodic
financial reports with the SEC. This section of Biden-Hatch creates a
new section in title 18 of the United States Code to require
certification, signed by the top officials of that corporation, that
the financial reports being filed accurately reflect the financial
condition of the company. Criminal penalties are created for failure to
comply with this section. Reckless failure to certify--you have to be
able to prove it; it is a high standard--requires a penalty of up to 5
years, while a willful failure to certify on the part of these
executives includes a maximum penalty of up to 10 years.
The point is, A, everything but one provision of Senator Lott's
amendment either has been passed or is in Biden-Hatch. I will yield to
my colleague, but I am willing to accept the one provision that is not
included. That is the provision relating to freezing payments for up to
45 days under the authority of the SEC of compensation packages that
are excessive so there is time to look at it. I am willing to accept
that.
It does not include three sections: Conspiracy, the ERISA increased
penalties, and the requirement of certification that the financial
reports accurately reflect the financial condition of the company, with
penalties to prevail if in fact they either recklessly or willfully do
not sign such a document or they recklessly or willfully signed it and
it does not reflect what in fact they say it reflects.
That is a response to the majority leader's request of what the
difference is. That is the difference.
I now yield, with the permission of my colleagues, to the Senator
from Utah, and I might add, this is not original stuff of Joe Biden;
this was Hatch and Biden, Biden and Hatch. He takes equal
responsibility for this. If we are wrong, we are equally wrong.
I yield the floor.
The PRESIDING OFFICER. The Senator from Utah.
Mr. HATCH. Mr. President, I am proud to stand here with my colleague
from Delaware, who is one of the truly remarkable Senators who knows as
much about criminal law as anybody in this body or in the Congress
itself.
I also rise today and applaud President Bush and Senator Lott, as
well as Senator Biden, for offering what really, combined, will be a
comprehensive legislative proposal that calls for harsh, swift
punishment of corporate executives who exploited the trust of their
shareholders and employees while enriching themselves.
Senator Biden and I have worked together for years now on many
important pieces of legislation. This is not new for us. I always feel
good when I can work with my colleagues on the other side. It is always
a pleasure to work with him. I commend him for the care and attention
he has given to the subject of white-collar penalties, as well as for
his leadership in this area. Just in the past 4 weeks, Senator Biden
scheduled two hearings to review the adequacy of current penalties for
white-collar criminal offenses. I am thankful that he did so for I
think this is a critically important area for us to focus on,
especially in today's unprecedented climate of market turmoil and
corporate responsibility--or should I say irresponsibility.
All of us well know that the past few months have been painful ones
for our Nation's financial markets. At least some of the blame can be
laid at the doors of some multibillion-dollar corporations, their
highly paid executives, and the accounting firms that were supposed to
assure the public's trust. We learn--each week it seems--of more and
more accounting and corporate fraud and irregularities that have caused
billions of dollars of losses to innocent investors. I am personally
outraged by these scandals.
The amendment I cosponsor today is a product of much thoughtful
attention and scrutiny. No Member feels more strongly than I do about
the importance of our criminal laws. They must be fair, and they must
be just. If our criminal laws are to bear credibility and provide
deterrence, they must adequately reflect the severity of the offenses.
But right now they do not do so in the context of so-called white
collar crimes. They are, to put it bluntly, out of whack.
A person who steals, defrauds, or otherwise deprives unsuspecting
Americans of their life savings--no less than any other criminal--
should be held accountable under our system of justice for the full
weight of the harm he or she has caused. Innocent lives have been
devastated by the crook who cooks the books of a publicly traded
company, the charlatan who sells phony bonds, and the confidence man
who runs a Ponzi scheme out there. These sorts of white-collar
criminals should find no soft spots in our laws or in their ultimate
sentences, but all too often they have done so.
It is time for us to get tough with these offenders. We need to make
crystal clear that we will not tolerate this sort of outrageous
criminal conduct, conduct that not only devastates the savings of
citizens, but also has lasting effects on the entire world's confidence
in our American financial markets. This amendment will take away the
soft landings these criminals have expected and obtained for far too
long.
The amendment Senator Biden and I propose--with the acceptance of the
additional language of the President and
[[Page S6547]]
Senator Lott--makes several notable improvements to current law. As
Senator Biden said, and I will reiterate, first, our amendment
increases the maximum penalties for those who commit mail fraud, wire
fraud, and ERISA offenses, as well as those who conspire to violate
Federal criminal laws. These changes are long overdue. The maximum
penalty under current law for most of these offenses is 5 years, which
is the same as the maximum penalty that could be handed down for
mutilating a coin produced by the U.S. Mint. The current maximum
penalty for ERISA fraud violations is just 1 year. In other words, a
fraud committed in connection with employment retirement plans, no
matter how severe or wide, is punishable now only as a misdemeanor.
Under current law, one could get 5 years for scratching George
Washington's face off a quarter but only 1 year for defrauding an
entire company's pension plan. It goes without saying that we need to
fix this problem.
Think about it. Pension plans go down the drain because of dishonest
business people, which is sometimes hundreds of millions of dollars.
Think of all the people who lose as a result of that.
Second, our amendment would make corporate officials criminally
responsible for their public filings with the SEC. Make no mistake,
these filings are critically important to investors who rely upon them
to make decisions affecting how they should invest billions and
billions of dollars. They need to be accurate. Our amendment makes it
possible to hold somebody criminally accountable if they are not
accurate.
Third, our amendment directs the U.S. Sentencing Commission to review
the adequacy of current guidelines for white-collar offenders. We heard
just a few weeks ago from the Department of Justice that these types of
criminals often get off with a slap on the wrist and that judges too
often do contortions to avoid handing down terms of imprisonment. This
simply is not good and will not do. It undermines the deterrent effect
of our criminal laws, makes a mockery of our system of fair and
evenhanded justice, and ultimately sends the wrong message to all
Americans. Our amendment will ensure that the Sentencing Commission
will take steps designed to ensure that our system of justice no longer
coddles criminals simply because they ``just'' steal.
It is time for the Senate to act on this important matter of fraud
and responsibility. I think these amendments are a big step in the
right direction. I compliment the President, Senator Lott, and, of
course, my dear friend and colleague from Delaware, Senator Biden, for
the work they have all done on these two amendments. I agree with
Senator Biden that we are willing to accept that part of the preference
package.
With that, I yield the floor.
The PRESIDING OFFICER. The Senator from North Carolina is recognized.
Mr. EDWARDS. Mr. President, I ask unanimous consent that the pending
amendment be laid aside.
The PRESIDING OFFICER. Is there objection?
Mr. SARBANES. I object for the moment. I suggest the absence of a
quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. BIDEN. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 4190, As Modified
Mr. BIDEN. Mr. President, I ask unanimous consent to modify the
Hatch-Biden amendment by changing on page 6 of our amendment, under the
title ``Failure of corporate officers to certify financial reports,''
line 19--it presently reads:
(1) any person who recklessly violates any provision of
this section. . . .
I ask unanimous consent to amend it to say on line 19, subsection 1:
Any person who recklessly--
And add the words ``and knowingly''--
recklessly and knowingly.
Page 6, line 19, fourth word in, add as a fifth word ``and'' and the
sixth word ``knowingly.''
The PRESIDING OFFICER. Without objection, it is so ordered. The
amendment is so modified.
The amendment, as modified, reads as follows:
Strike all after the first word and insert the following:
VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 801 SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE
OR TO DEFRAUD THE UNITED STATES.
Section 371 of title 18, United States Code, is amended by
striking ``If two or more'' and all that follows through
``If, however,'' and inserting the following:
``(a) In General.--If 2 or more persons--
``(1) conspire to commit any offense against the United
States, in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined or imprisoned, or
both, as set forth in the specific substantive offense which
was the object of the conspiracy; or
``(2) conspire to defraud the United States, or any agency
thereof in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined under this title, or
imprisoned not more than 10 years, or both.
``(b) Misdemeanor Offense.--If, however,''.
SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years'';
and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
title.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this title, the growing incidence of
serious fraud offenses which are identified above, and the
need to modify the sentencing guidelines and policy
statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address--
(A) whether the guideline offense levels and enhancements
for violations of the sections amended by this title are
sufficient to deter and punish such offenses, and
specifically, are adequate in view of the statutory increases
in penalties contained in this title; and
(B) whether a specific offense characteristic should be
added in United States Sentencing Guideline section 2B1.1 in
order to provide for stronger penalties for fraud when the
crime is committed by a corporate officer or director;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify
financial reports
``(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a
written statement by the chairman of the board, chief
executive officer, and chief financial officer (or equivalent
thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify the appropriateness of the financial statements
and disclosures contained in the periodic report or financial
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
[[Page S6548]]
``(c) Criminal Penalties.--Notwithstanding any other
provision of law--
``(1) any person who recklessly and knowingly violates any
provision of this section shall upon conviction be fined not
more than $500,000, or imprisoned not more than 5 years, or
both; or
``(2) any person who willfully violates any provision of
this section shall upon conviction be fined not more than
$1,000,000, or imprisoned not more than 10 years, or both.''.
(b) Technical and Conforming Amendment.--The section
analysis for chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1348. Failure of corporate officers to certify financial reports.''.
This section shall take effect one day after date of this
bill's enactment.
Mr. BIDEN. I thank the Chair and suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. REID. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Maryland.
Mr. SARBANES. Mr. President, I ask unanimous consent that the pending
second-degree amendments be withdrawn; that no second-degree amendments
be in order to either of the two pending first-degree amendments; that
the Daschle for Biden amendment No. 4186 be further modified with the
changes that are at the desk; that the time until 4:45 p.m. today be
for debate in relation to the pending first-degree amendments; that the
time be equally divided between the two managers or their designees;
that at 4:45 p.m., without further intervening action or debate, the
Senate proceed to vote in relation to the Daschle for Biden amendment
No. 4186, as further modified; that upon disposition of that amendment,
the Senate vote in relation to the Lott amendment No. 4188; provided
further that upon disposition of these amendments, Senator Edwards be
recognized to call up amendment No. 4187.
The PRESIDING OFFICER. Is there objection?
The Senator from Nevada.
Mr. REID. Reserving the right to object, I ask the manager of this
bill, the chairman of the committee, to insert after the words
``Senator Edwards be recognized to call up amendment No. 4187,'' that
following the disposition of that amendment, Senator Gramm be
recognized.
Mr. GRAMM. Following.
Mr. REID. That is right. We were sequencing this, that following
Senator Edwards, Senator Gramm be recognized; following that, Senator
Levin be recognized; and following that, Senator Gramm be recognized.
The PRESIDING OFFICER. Does the Senator from Maryland so modify his
request? Is there objection?
Without objection, it is so ordered.
The amendments (Nos. 4189, and 4190, as modified) were withdrawn.
The amendment (No. 4186), as further modified, reads as follows:
On page 117 in line 12 strike ``Act'' and insert the
following: Act.
TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
SEC. 801 SHORT TITLE.
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002''.
SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE
OR TO DEFRAUD THE UNITED STATES.
Section 371 of title 18, United States Code, is amended by
striking ``If two or more'' and all that follows through
``If, however,'' and inserting the following:
``(a) In General.--If 2 or more persons--
``(1) conspire to commit any offense against the United
States, in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined or imprisoned, or
both, as set forth in the specific substantive offense which
was the object of the conspiracy; or
``(2) conspire to defraud the United States, or any agency
thereof in any manner or for any purpose, and 1 or more of
such persons do any act to effect the object of the
conspiracy, each person shall be fined under this title, or
imprisoned not more than 10 years, or both.
``(b) Misdemeanor Offense.--If, however,''.
SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.
(a) Mail Fraud.--Section 1341 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
(b) Wire Fraud.--Section 1343 of title 18, United States
Code, is amended by striking ``five years'' and inserting
``10 years''.
SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1131) is amended--
(1) by striking ``$5,000'' and inserting ``$100,000'';
(2) by striking ``one year'' and inserting ``10 years'';
and
(3) by striking ``$100,000'' and inserting ``$500,000''.
SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the
United States Sentencing Commission shall review and, as
appropriate, amend the Federal Sentencing Guidelines and
related policy statements to implement the provisions of this
title.
(b) Requirements.--In carrying out this section, the
Sentencing Commission shall--
(1) ensure that the sentencing guidelines and policy
statements reflect the serious nature of the offenses and the
penalties set forth in this title, the growing incidence of
serious fraud offenses which are identified above, and the
need to modify the sentencing guidelines and policy
statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address--
(A) whether the guideline offense levels and enhancements
for violations of the sections amended by this title are
sufficient to deter and punish such offenses, and
specifically, are adequate in view of the statutory increases
in penalties contained in this title; and
(B) whether a specific offense characteristic should be
added in United States Sentencing Guideline section 2B1.1 in
order to provide for stronger penalties for fraud when the
crime is committed by a corporate officer or director;
(3) assure reasonable consistency with other relevant
directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing
guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553(a)(2) of title 18,
United States Code.
SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.--Chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify
financial reports
``(a) Certification of Periodic Financial Reports.--Each
periodic report containing financial statements filed by an
issuer with the Securities Exchange Commission pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a
written statement by the chairman of the board, chief
executive officer, and chief financial officer (or equivalent
thereof) of the issuer.
``(b) Content.--The statement required under subsection (a)
shall certify the appropriateness of the financial statements
and disclosures contained in the periodic report or financial
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
``(c) Criminal Penalties.--Notwithstanding any other
provision of law--
``(1) any person who recklessly and knowingly violates any
provision of this section shall upon conviction be fined not
more than $500,000, or imprisoned not more than 5 years, or
both; or
``(2) any person who willfully violates any provision of
this section shall upon conviction be fined not more than
$1,000,000, or imprisoned not more than 10 years, or both.''.
(b) Technical and Conforming Amendment.--The section
analysis for chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1348. Failure of corporate officers to certify financial reports.''.
Mr. BIDEN. Mr. President, I rise today--along with my good friend,
Senator Hatch--to offer our bill, the White-Collar Penalty Enhancement
Act of 2002 as a second-degree amendment to amendment No. 4174, Senator
Leahy's amendment to S. 2637.
Let me begin by applauding Senator Sarbanes for his leadership in
sponsoring S. 2637, and guiding it through his Banking Committee with a
17-4 vote. It is my hope and expectation that it will win the same
overwhelming support on the floor of the Senate. I also commend
Senators Leahy and Daschle for offering the Corporate and Criminal
Fraud Accountability Act, of which I am a cosponsor.
Let me briefly recount the events which bring me to the floor today
to offer this amendment to increase penalties on white collar
criminals. In recent months, dramatic events have shaken our country
out of complacency. A decade of peace and prosperity
[[Page S6549]]
came to an end, first with a shattering reminder of our vulnerability
to external threats, and then with a series of spectacular corporate
collapses that revealed cracks in the very foundation of our economic
system.
Our response to terrorism was to come together as a nation, reminded
of all we have in common, all we have to be proud of.
The shock of those high-flying corporations falling spectacularly to
earth presents us with different problems. We have to examine our own
system--the capitalist system that has brought us so much material
success, the envy of the rest of the world.
As the stock market continues to lose value, as the dollar has
dropped to a 2-year low, we know that investors, here at home and
abroad, have lost some of their faith in the American economy.
That loss of faith has a material impact of the wealth of this
country, as our currency and our securities lose value. Some observers
worry aloud that a full-blown loss of faith in our economy could drain
even more value from our markets.
The task before us is nothing less than restoring confidence in our
market economy. There are many facets to this problem.
One is reforming the auditing process. On the Senate floor right now
is the Sarbanes bill that is essential to any effort to restore
investor's faith in our markets. Audit firms are supposed to be
independent voices, providing disinterested information that investors
need to assess risk and to allocate funds to those companies that will
have the best chance of raising our standard of living.
We need more transparency, more accountability in the conduct of
accounting firms, and more confidence that they have access to, and are
willing to tell us, the truth about the businesses they audit. Senator
Sarbanes has done us all a service by bringing this bipartisan bill to
the floor.
Yesterday, I was hoping to hear the President support this bipartisan
approach to reform, reform that is supported by the business community
in the form of the Business Roundtable, when he spoke yesterday. I
still hope he will soon add his voice in support of this landmark
reform.
Just as important is the amendment to the Sarbanes bill that I am
cosponsoring with Senator Leahy. It will put real teeth in securities
fraud enforcement, providing substantial criminal penalties for those
who defraud investors of publically traded securities or who destroy
evidence to obstruct justice.
Yesterday, the President announced his support for tougher criminal
penalties for fraud offenses. I applaud the President's call for
increase penalties for wire and mail fraud, and my amendment contains
identical provisions. But I am concerned that the President's proposals
do not go far enough.
For example, in the wake of the publicly reported problems at Enron,
WorldCom, and other companies, we need to restore people's faith in
their pension plans. They need to know that the companies they work for
will treat them fairly, handle their funds wisely, and that the
investments made by pension funds are sound. Yet, I believe that the
criminal penalties for violations under the Employment Retirement
Investment Security Act of 1974, ERISA, limited to 1 year in jail, are
woefully inadequate to protect defrauded pensioners.
As chairman of the Judiciary Subcommittee on Crime and Drugs, I held
a hearing several weeks ago--and am holding a second hearing this
afternoon--on the adequacy of criminal penalties to deter this type of
corporate wrongdoing. Corporate executives who defraud investors by
whatever means should go to jail--period--and we need to give
investigators and prosecutors the tools they need to send them there.
One thing most of our hearing witnesses agreed on was that there is a
``penalty gap'' between white collar crimes and other crimes. For
example, if a kid steals your car and drives it over the 14th Street
Bridge into Northern Virginia, he could get up to 10 years in jail
under the Federal interstate auto theft law. Yet, if a corporate CEO
steals your pension and commits a criminal violation under ERISA, he is
only subject to 1 year in jail.
At my hearing, we heard from Charlie Prestwood, a 63-year-old Enron
retiree, who lives in Conroe, TX. Charlie worked proudly for some 33
years for that company, saved and invested in his pension, and retired
with about $1.3 million in his plan. Within a few tragic months, that
was nearly wiped out--only $8,000 remained. Charlie is not a lawyer,
but he had the good sense to know that its just not fair that a car
thief who steals a jalopy can get 10 years in prison and a Gucci-clad
corporate crook can steal a person's life savings and might only end up
with 1 year in prison.
Accordingly, the amendment that Senator Hatch and I offer today is
carefully crafted to hold corporate officer responsible and to reduce
the ``penalty gap'' between a number of white collar crimes and other
serious crimes. It does 3 basic things.
First, it goes beyond President Bush's proposal by raising penalties
for those white collar crimes that are most often violated but which
have insufficient penalties to deter corporate crooks. For example, it
raises the maximum penalties from 1 to 10 years for ERISA criminal
violations. It double penalties for wire and mail fraud from 5 to 10
years, and it treats white collar who conspire with others like drug
king pins, by mandating that they receive the same maximum penalty for
the offense underlying the charged conspiracy, rather than their
sentence being capped at a 5-year penalty as exists under current law.
When these penalty enhancements are taken in combination with the new
10-year felony for securities fraud contained in the amendment I have
co-sponsored with Senator Leahy, the Government will have the full
range of prosecutorial arrows in its quiver to fight pension crooks and
corporate wrong doers. Respectfully, the President's penalty proposal
is only one small piece of the white collar crime-fighting puzzle.
Second, our amendment tells corporate big wigs that they are no
longer off the hook for their companies misdeeds. My amendment requires
top corporate officials to certify to the Securities and Exchange
Commission that the periodic financial reports filed by their companies
with the Commission accurately reflect the financial health of these
corporations. Reckless failure by a corporate official to do so will
result in up to 5 years in prison, while willful failure to do so will
trigger a jail term of up to 10 years.
Third, our amendment directs the U.S. Sentencing Commission to review
and amend the federal sentencing guidelines to lengthen sentences for
white collar criminals to reflect these new, more serious penalties. It
also directs the Commission to impose sentencing enhancement where
corporate officials defraud victims. I applaud President Bush for
announcing a similar proposal.
Make no mistake--this amendment will not stamp out white collar
crime. We live in a fallen world where bad people do bad things--
whether its stealing cars or stealing pensions. But, its time to
``level the playing field'' between white collar and blue collar
criminals.
I believe the amendment that Senator Hatch and I are offering will
move us substantially in the direction of deterring corporate
wrongdoers by holding them responsible for the criminal acts. It will
also begin the restoration of confidence in our financial markets. We
must do both. The time to act is now. I urge my colleagues to support
this amendment.
I yield the floor.
amendment no. 4188
Mr. HATCH. Mr. President, I want to applaud President Bush and
Senator Lott for offering a comprehensive legislative proposal that
calls for harsh, swift punishment of corporate executives who exploit
the trust of their shareholders and employees, while enriching
themselves.
This bill, which tracks the President's recent proposal, increases
the criminal penalties that apply to fraud statutes that are frequently
used to prosecute corporate wrongdoers. It also strengthens an existing
obstruction of justice statute, and calls for an aggravated sentencing
enhancement for frauds perpetrated by corporate officers and directors.
Finally, it increases the Security and Exchange Commission's
administrative enforcement
[[Page S6550]]
tools by strengthening the SEC's ability to freeze improper payments to
corporate executives while the company is under investigation, and by
enabling the SEC to bar corporate officers and directors from continued
service where they engage in serious misconduct.
I support these provisions because I strongly believe that it is
critical that we hold corporate executives accountable for acts of
wrongdoing. We can do so by supplying the SEC and federal prosecutors
with the civil and criminal tools they need to investigate and
prosecute acts of corporate misconduct.
Let me briefly elaborate on some of the specific provisions contained
in this bill.
First, as I mentioned, the bill doubles the maximum prison term for
mail and wire fraud offenses, from 5 years to 10 years. This is
identical to a provision Senator Biden and I have included in our
amendment. This is a necessary sentencing enhancement, and one that is
long overdue. Because prosecutors frequently use the mail and wire
statutes to charge acts of corporate misconduct, it is important that
we ensure that the penalties that apply to such offenses are
sufficiently severe to deter and punish corporate wrongdoers.
Second, like the suggested enhancement contained in the bill Senator
Biden and I have proposed, this amendment directs the U.S. Sentencing
Commission to review the sentencing guidelines that apply to acts of
corporate misconduct and to enhance the prison time that would apply to
criminal frauds committed by corporate officers and directors. As I
have stated, I strongly support such an enhancement because corporate
leaders who hold high offices and breach their duties of trust should
face stiff penalties.
Third, the amendment strengthens an existing federal offense that is
often used to prosecute document shredding and other forms of
obstruction of justice. Section 1520 of Title 18 of the United States
code currently prohibits individuals from persuading others to engage
in obstructive conduct. However, it does not prohibit an act of
destruction committed by a defendant acting alone. While other existing
obstruction of justice statutes cover acts of destruction that are
committed by and individual acting alone, such statutes have been
interpreted as applying only where a proceeding is pending, and a
subpoena has been issued for the evidence that is destroyed.
This amendment closes this loophole by broadening the scope of the
Section 1512. Like the new document destruction provision contained in
S. 2010, this amendment would permit the government to prosecute an
individual who acts alone in destroying evidence, even where the
evidence is destroyed prior to the issuance of a grand jury subpoena.
Prosecutors in the Andersen case succeeded in convicting the
corporation. However, in order to so, they had to prove that a person
in the corporation corruptly persuaded another to destroy or alter
documents, and acted with the intent to obstruct an investigation.
Certainly, one who acts with the intent to obstruct an investigation
should be criminally liable even if he or she acts alone in destroying
or altering documents. This amendment will ensure that individuals
acting alone would be liable for such criminal acts.
This amendment also includes new statutory provision that will
strengthen the SEC's ability to freeze improper payments to corporate
executives while a company is under investigation. These provision
would prevent corporate executives from enriching themselves while a
company is subject to an SEC investigation, but before the SEC has
gathered sufficient evidence to file formal charges.
In particular, these provisions would enable to SEC to freeze
improper payments by obtaining a federal court order. The order, which
could last for 45 days and be extended upon a showing of good cause,
would freeze extraordinary payments to corporate executives and require
that such payments be escrowed. And where an executive is charged with
a securities law violation prior to the expiration of the court order,
the escrow would continue, with court approval, until the conclusion of
legal proceedings.
Finally, the amendment grants the SEC the authority to bar
individuals who have engaged in serious misconduct from serving as
officers and directors of nay public company. Under current law, only a
court may order an officer and director bar. In an SEC enforcement
action, a court may issue an order that bars a person from acting as an
officer or director of a public company where the person has committed
a securities fraud violation, and his or her conduct demonstrates
``substantial unfitness'' to serve as an officer or director. However,
under current law, the SEC cannot order this remedy in an
administrative cease-and-desist proceedings, even where the person's
conduct would otherwise meet the standards for the bar.
This amendment would enable the SEC to issue such a bar where the
officer or director has committed a securities law violation and his or
her conduct demonstrates ``unfitness'' to serve as an officer or
director. This will give the SEC the ability to punish an officer or
director who has committed an unlawful act, where it has not yet
instituted an enforcement action.
I strongly believe that if Congress and the President act together to
increase corporate transparency and to enact tough civil and criminal
provision, we will succeed in restoring confidence in our market
economy. The Federal government plays an important role in upholding
and enforcing standards of corporate conduct. I look forward to working
with my colleagues and with the President to enact needed legislation
to strengthen corporate accountability.
Mr. GRAMM. Mr. President, let me try to explain where we are. We are
about to have two votes. One vote is on a bipartisan amendment that was
put together prior to our receipt of the language of the President's
proposal. That was done by Senator Biden and Senator Hatch. That
amendment will be voted on first.
I believe that amendment deals with the same subject area as the
President's proposal. The overlap is not perfect, but when you take
Senator Leahy's amendment that we have already adopted, when you take
this amendment, the things that are covered in the President's proposal
are covered.
We also have the legislative language proposed by the White House to
follow on the proposals the President made yesterday in New York.
When we adopt these two amendments, we will have added a substantial
amount to the underlying bill. We will have added, in essence, two
different variants of the President's proposal of yesterday. I assume
we will get a unanimous vote for both of these amendments. I commend to
my colleagues to vote for both of them.
At that point, we will proceed in the outline we have. It is my
understanding we will try to put together an additional list, depending
on the amount of time we have. Once these two votes are taken, the
subject matter of the President's proposal of yesterday will be part of
this bill. I commend to my colleagues to vote for both amendments.
Mr. SARBANES. Mr. President, in just a few minutes, at 4:45, we will
move to the first of two votes. The first vote will be on the Daschle
amendment, and the second vote on the Lott amendment. I urge my
colleagues to support both amendments.
At the conclusion of those votes, we will go to Senator Edwards, who
has been waiting patiently, to call up an amendment. Then we have
sequenced behind Senator Edwards, for purposes of calling up
amendments, Senator Gramm, and Senator Levin has an amendment involving
the powers of the SEC, and then back to Senator Gramm. That is the
procedure we have managed to put into place so far while continuing to
work to try to compile a list of amendments and to do some sequencing.
We urge our colleagues to inform us--I am not urging to add
amendments, but just informing colleagues of the process so they can be
on the alert.
Very shortly we will begin the first of two rollcall votes. Both of
these are amendments which strengthen the penalties. Many are related
to the Leahy amendment which we adopted earlier today, and in a sense
deal primarily with the subject matter that was in the Leahy amendment.
I urge my colleagues to be supportive of both amendments.
Mr. GRAMM. I yield back any time I may have.
[[Page S6551]]
Mr. SARBANES. I yield back the time.
The PRESIDING OFFICER (Mr. Miller). The question is on agreeing to
amendment No. 4186 as further modified. The yeas and nays have been
ordered. The clerk will call the roll.
The assistant legislative clerk called the roll.
Mr. REID, I announce that the Senator from New Jersey (Mr. Corzine)
is necessarily absent. I further announce that, if present and voting,
the Senator from New Jersey (Mr. Corzine) would vote ``aye.''
Mr. NICKLES, I announce that the Senator from North Carolina (Mr.
Helms), the Senator from Ohio (Mr. Voinovich), and the Senator from
Idaho (Mr. Crapo) are necessarily absent. I further announce that, if
present and voting, the Senator from North Carolina (Mr. Helms), would
vote ``aye.''
The PRESIDING OFFICER. Are there any other Senators in the Chamber
desiring to vote?
The result was announced--yeas 96, nays 0, as follows:
[Rollcall Vote No. 170 Leg.]
YEAS--96
Akaka
Allard
Allen
Baucus
Bayh
Bennett
Biden
Bingaman
Bond
Boxer
Breaux
Brownback
Bunning
Burns
Byrd
Campbell
Cantwell
Carnahan
Carper
Chafee
Cleland
Clinton
Cochran
Collins
Conrad
Craig
Daschle
Dayton
DeWine
Dodd
Domenici
Dorgan
Durbin
Edwards
Ensign
Enzi
Feingold
Feinstein
Fitzgerald
Frist
Graham
Gramm
Grassley
Gregg
Hagel
Harkin
Hatch
Hollings
Hutchinson
Hutchison
Inhofe
Inouye
Jeffords
Johnson
Kennedy
Kerry
Kohl
Kyl
Landrieu
Leahy
Levin
Lieberman
Lincoln
Lott
Lugar
McCain
McConnell
Mikulski
Miller
Murkowski
Murray
Nelson (FL)
Nelson (NE)
Nickles
Reed
Reid
Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stabenow
Stevens
Thomas
Thompson
Thurmond
Torricelli
Warner
Wellstone
Wyden
NOT VOTING--4
Corzine
Crapo
Helms
Voinovich
The amendment (No. 4186), as further modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. LEAHY. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Vote On Amendment No. 4188
The PRESIDING OFFICER. Under the previous order, the question is on
agreeing to Lott amendment No. 4188.
Mr. HATCH. I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be.
The clerk will call the roll.
The legislative clerk called the roll.
Mr. NICKLES. I announce that the Senator from North Carolina (Mr.
Helms), the Senator from Ohio (Mr. Voinovich), and the Senator from
Idaho (Mr. Crapo) are necessarily absent.
I further announce that if present and voting the Senator from North
Carolina (Mr. Helms) would vote ``yea.''
The result was announced--yeas 97, nays 0, as follows:
(Rollcall Vote No. 171 Leg.)
YEAS--97
Akaka
Allard
Allen
Baucus
Bayh
Bennett
Biden
Bingaman
Bond
Boxer
Breaux
Brownback
Bunning
Burns
Byrd
Campbell
Cantwell
Carnahan
Carper
Chafee
Cleland
Clinton
Cochran
Collins
Conrad
Corzine
Craig
Daschle
Dayton
DeWine
Dodd
Domenici
Dorgan
Durbin
Edwards
Ensign
Enzi
Feingold
Feinstein
Fitzgerald
Frist
Graham
Gramm
Grassley
Gregg
Hagel
Harkin
Hatch
Hollings
Hutchinson
Hutchison
Inhofe
Inouye
Jeffords
Johnson
Kennedy
Kerry
Kohl
Kyl
Landrieu
Leahy
Levin
Lieberman
Lincoln
Lott
Lugar
McCain
McConnell
Mikulski
Miller
Murkowski
Murray
Nelson (FL)
Nelson (NE)
Nickles
Reed
Reid
Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stabenow
Stevens
Thomas
Thompson
Thurmond
Torricelli
Warner
Wellstone
Wyden
NOT VOTING--3
Crapo
Helms
Voinovich
The amendment (No. 4188) was agreed to.
Mr. REID. Mr. President, I move to reconsider the vote.
Mr. SARBANES. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. REID. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. REID. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
Mr. SARBANES. Mr. President, I ask for the regular order.
The PRESIDING OFFICER. Under the previous order, the Senator from
North Carolina is recognized.
Amendment No. 4187
Mr. EDWARDS. Mr. President, I wish to say a few words about an
amendment I intend to offer along with Senators Enzi and Corzine. This
amendment addresses an important player in the problem we have had with
corporate misconduct in this country. It is a player with which I have
a lot of personal experience. That player is a lawyer.
As most people know, I practiced law for 20 years and spent a lot of
time representing kids and families against very powerful interests. I
think I have a reasonably good understanding of what responsibilities
we as lawyers have to the people we represent. While those are the
kinds of folks that I mostly represented, other lawyers have different
kinds of clients. Some lawyers represent corporations rather than
individuals. The lawyers who represent corporations have the same kind
of responsibility, but it is to a different entity and a different
group of people. They have a responsibility, though, to represent that
corporation, their client, zealously, the same way I had the
responsibility to represent kids and families.
One of the problems we have seen occurring with this sort of crisis
in corporate misconduct is that some lawyers have forgotten their
responsibility. We have heard a great deal about managers and
accountants, which Senator Enzi is familiar with, and scandals such as
Enron and WorldCom. Managers and accountants are the focus of Senator
Sarbanes' bill, and they are critical to us doing what needs to be done
to correct this problem and restore the public confidence.
The truth is that executives and accountants do not work alone.
Anybody who works in corporate America knows that wherever you see
corporate executives and accountants working, lawyers are virtually
always there looking over their shoulder. If executives and/or
accountants are breaking the law, you can be sure that part of the
problem is that the lawyers who are there and involved are not doing
their jobs.
For the sake of investors and regular employees, ordinary
shareholders, we have to make sure that not only the executives and the
accountants do what they are responsible for doing, but also that the
lawyers do what they are responsible for doing as members of the bar
and as citizens of the country.
Let me be a little more specific about what this amendment does and
what the responsibility of a lawyer is and should be. If you are a
lawyer for a corporation, your client is the corporation and you work
for the corporation and you work for the shareholders, the investors in
that corporation; that is to whom you owe your responsibility and
loyalty. And you have a responsibility to zealously advocate for the
shareholders and investors in that corporation.
What we have seen some lawyers do, unfortunately, is different. We
have seen corporate lawyers sometimes forget who their client is. What
happens is their day-to-day conduct is with the CEO or the chief
financial officer because those are the individuals responsible for
hiring them. So as a result, that is with whom they have a
relationship. When they go to lunch with their client, the corporation,
they are usually going to lunch with the CEO or the chief financial
officer. When they
[[Page S6552]]
get phone calls, they are usually returning calls to the CEO or the
chief financial officer. The problem is that the CEO and the chief
financial officer are not the client. Their responsibility and the
client they have to advocate for--and which they have an ethical
responsibility to advocate for--is, in fact, the corporation, not the
CEO or the chief financial officer.
One of the most critical responsibilities that those lawyers have is,
when they see something occurring or about to occur that violates the
law, breaks the law, they must act as an advocate for the shareholders,
for the company itself, for the investors. They are there and they can
see what is happening. They know the law and their responsibility is to
do something about it if they see the law being broken or about to be
broken.
This amendment is about making sure those lawyers, in addition to the
accountants and executives in the company, don't violate the law and,
in fact, more importantly, ensure that the law is being followed. For
some time, the SEC actually tried to do that in the late 1970s and
early 1980s. They brought legal actions to enforce this basic
responsibility of lawyers--the responsibility to take steps to make
sure corporate managers didn't break the law and harm shareholders in
the process. If you find out that the managers are breaking the law,
you must tell them to stop. If they won't stop, you go to the board of
directors, which represents the shareholders, and tell them what is
going on. If they won't act responsibly and in compliance with the law,
then you go to the board and say something has to be done; there is a
violation of the law occurring. It is basically going up the ladder, up
the chain of command.
For years, the SEC recognized the principle that lawyers had a legal
responsibility to go up the ladder if they saw wrongdoing occurring.
But then they stopped. One of the reasons they stopped is because there
were a lot of protests coming from the organized bar. With Enron and
WorldCom, and all the other corporate misconduct we have seen, it is
again clear that corporate lawyers should not be left to regulate
themselves no more than accountants should be left to regulate
themselves. There has been a lot of debate, rhetoric, and discussion--
rightfully so--about the necessity about not ``letting the fox guard
the chicken coop.'' The same is true with lawyers. This has become
clear through various acts of misconduct. The lawyers have involvement
and responsibility, and they also cannot be left to regulate
themselves.
In January, a bipartisan group of the top securities lawyers and
legal ethics experts in the country wrote a letter to Harvey Pitt
telling him it was time for the SEC to enforce the up-the-ladder
principle, as in the past. Mr. Pitt's top lawyer said: We are not going
to do anything. If Congress wants something done, Congress should act.
Then I wrote a letter to Mr. Pitt in essence saying: We are ready to
act here. Will you help us in crafting legislation and working out this
problem?
That was 3 weeks ago. As of now, I have not yet received a response.
The time has come for Congress to act. This amendment acts in a very
simple way. It basically instructs the SEC to start doing exactly what
they were doing 20 years ago, to start enforcing this up-the-ladder
principle.
This is what the amendment says specifically: First, the SEC shall
establish rules to protect investors from unprofessional conduct by
lawyers, conduct that violates the legal standards of the profession.
Second, the SEC shall make one rule in particular, and it is a simple
rule with two parts. No. 1, a lawyer with evidence of a material
violation of the law has to report that evidence either to the chief
legal counsel or the chief executive officer of the company. No. 2, if
the person to whom that lawyer reports doesn't respond appropriately by
remedying the violation, by doing something that makes sure it is
cured, that lawyer has an obligation to go to the audit committee or to
the board. It is that simple. You report the violation. If the
violation isn't addressed properly, then you go to the board.
Three important details about this amendment address some of the
concerns that I have heard voiced. First, the way we have drafted the
bill, the duty to report applies only to evidence of a material
violation of the law. That means no reporting is required for piddling
violations or violations that don't amount to anything. The obligation
to report is triggered only by violations that are material--violations
that a reasonable investor would want to know about. So we have been
very careful there.
Second, when the evidence is reported within the company, we have not
specified how a CEO or a general counsel should act to rectify the
violation. That is because the truth is that the appropriate response
to cure the problem will vary dramatically, depending on the
circumstances. If the CEO can do a short investigation, for example,
and figure out that no violation occurred, then the obligation stops
there. But if there is a serious violation of the law, the appropriate
response is clear: The CEO has to act promptly to remedy the violation.
If he doesn't, the lawyer has to go to the board. It is that simple.
One final point. Nothing in this bill gives anybody a right to file a
private lawsuit against anybody. The only people who can enforce this
amendment are the people at the SEC.
They will enforce this amendment not on behalf of any private party,
but in the name of the American people. This is about forcing the SEC
to do its job and protect the American people.
Mr. President, I call up amendment No. 4187 and ask for its immediate
consideration.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from North Carolina [Mr. Edwards], for himself,
Mr. Enzi, and Mr. Corzine, proposes an amendment numbered
4187.
Mr. EDWARDS. Mr. President, I ask unanimous consent that the reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To address rules of professional responsibility for
attorneys)
On page 108, line 15, insert before the end quotation marks
the following:
``(c) Rules of Professional Responsibility for Attorneys.--
Not later than 180 days after the date of enactment of this
section, the Commission shall establish rules, in the public
interest and for the protection of investors, setting forth
minimum standards of professional conduct for attorneys
appearing and practicing before the Commission in any way in
the representation of public companies, including a rule
requiring an attorney to report evidence of a material
violation of law by the company or any agent thereof to the
chief legal counsel or the chief executive officer of the
company (or the equivalent thereof) and, if the counsel or
officer does not appropriately respond to the evidence
(adopting, as necessary, appropriate remedial measures or
sanctions with respect to the violation), requiring the
attorney to report the evidence to the audit committee of the
board of directors or to another committee of the board of
directors comprised solely of directors not employed directly
or indirectly by the company, or to the board of directors.
Mr. EDWARDS. I yield the floor.
Mr. GRAMM addressed the Chair.
Mr. SARBANES. Will the Senator yield for a question?
The PRESIDING OFFICER. The Senator from Texas.
Amendment No. 4200 to Amendment No. 4187
(Purpose: To modify attorney practices relating to clients, and for
other purposes)
Mr. GRAMM. Mr. President, on behalf of Senator McConnell, I send a
second-degree amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from Texas [Mr. Gramm], for Mr. McConnell,
proposes an amendment numbered 4200 to amendment No. 4187.
Mr. GRAMM. Mr. President, I ask unanimous consent that the reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The amendment is printed in today's Record under ``Text of
Amendments.'')
Mr. GRAMM. Mr. President, I am not going to talk about the amendment.
Senator McConnell was concerned--he has an appointment tonight and he
wanted to be recognized, so I offered the amendment for him. I wish to
say a few words before I yield, giving him an opportunity to speak on
behalf of the second-degree amendment.
I wish to print in the Record the lead editorial from today's Wall
Street Journal. I would like to read the first paragraph. I want to
make it clear, I
[[Page S6553]]
am not talking about this amendment, I am just talking about the
climate we are in. This is the lead editorial in today's Wall Street
Journal:
As if investors weren't frightened enough, the politicians
are now offering to help. That was worth more than 180 points
off the Dow yesterday, but then stock prices aren't the
point. Everything you're hearing now from Washington is aimed
at winning the November elections, not calming financial
markets.
This is an excellent editorial. One can agree with it or not agree
with it. The point I want to make is the following: There is a
wonderful line in a very famous economics book, ``The Wealth of
Nations,'' where Adam Smith is talking about government and talking
about problems. A line in ``The Wealth of Nations'' goes something
like: The economy is powerful and it overcomes not only the illness but
the absurd prescription of the doctor that comes from the Government.
I believe we have now put together the makings of a good bill. We
still have differences of opinion. We still have differences not on
whether we should set up a board, not on how strong it should be. We
agree on those issues. We have differences about how independent the
SEC should be. We have differences as to whether that board ought to
set audit standards and independent standards or whether we ought to do
it by law.
As we go through the process in the next 2 days, if the some 30
amendments that people on my side of the aisle are proposing to offer
is any index, and as someone once said--and I am sorry I cannot
remember his name--I have only seen the heart of a good man, not
necessarily the heart of an evil man. I have just seen these
amendments.
I am concerned that people who are looking at investing are going to
say: My God, it is one thing that my stock has been battered because
there were people who did things that were wrong, there were people who
did things that were illegal, but now I am going to be battered by one-
upmanship efforts to show that Congress is really tough, that Congress
is tougher than the President, the President is tougher than the
Congress, that Republicans are tougher than Democrats, or Democrats are
tougher than Republicans.
I would just like to say, not that anybody is going to be calmed by
what I say, but I would like to say, in the end, I think we will end up
with a fairly responsible bill, and I hope people who are thinking
about investing money will take into account that this, too, will pass;
that this summer will pass; that after all the charges are made and the
one-upmanship has occurred, in the end, normally this process has
worked pretty well for over 200 years, and my guess is it will work
well again and we will end up in a give-and-take in conference, with
the White House involved, measuring each amendment in terms of what we
think will work and what we think probably hurts more than it helps--
the absurd prescription of the doctor about which Adam Smith talked.
If we do go too far in one area or we do not go far enough in
another, there is going to be another Congress next year and the year
after and for every year from now until the end of the world, I hope.
Just reading this article set me thinking about it. There are
probably people trying to decide this afternoon what they are going to
do tomorrow on Wall Street. We have this bill passed in the House
where, if you are domiciled outside the United States and move your
domicile, you cannot get Government contracts. This is the era of
where, if you want to slap an accountant around, it is not going to do
a lot of harm. It is not fair, it is not right, I am not for it, and I
am not going to do it, but if you want to slap business around, this is
a wonderful time to do it.
The problem is the market is going to open in the morning and people
are going to either buy or sell or they are going to do both.
I ask unanimous consent to print this lead editorial from the Wall
Street Journal in the Record.
There being no objection, the editorial was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal]
Review & Outlook: The November Markets
``Congress must now act to restore public confidence.''--
Senator Carl Levin (D., Mich.)
As if investors weren't frightened enough, the politicians
are now offering to help. That was worth 180 more points off
the Dow yesterday, but then stock prices aren't the point.
Everything you're hearing now from Washington is aimed at
winning the November elections, not calming financial
markets.
That includes President Bush's much-touted Wall Street
speech yesterday on ``corporate responsibility.'' His stern
words for CEO wrongdoers were perfectly apt, and some of his
proposals might even help. But coming so long after the Enron
scandal first broke, and amid election season, the speech was
widely and accurately described as an exercise in defensive
politics.
Democrats immediately panned it as inadequate, but they'd
have said that if Mr. Bush had proposed public hangings.
Their goal is to associate Republicans with corporate
``greed,'' to knock Mr. Bush's approval rating from its war-
time pedestal and develop a campaign issue.
You can judge their sincerity by the sop to trial lawyers
that has suddenly appeared in the ``reform'' queue. For
months Maryland Democrat Paul Sarbanes has worked to form a
bipartisan coalition for accounting reform. But now Senate
Democrats are also demanding that Mr. Bush sign onto
expanding the time available for plaintiff plutocrat Bill
Lerach to file shareholder suits. In other words, what
they're really after is a Bush veto, which they will then run
against.
It's not as if Mr. Bush is letting business off the moral
hook. He's creating a new Justice Department task force on
corporate fraud, which as these things go will find someone
to indict. He's also painted a bull's-eye on CEOs, who will
now be personally and criminally liable (and face stiff
penalties) for their companies' financial results.
We only hope Justice keeps in mind the requirement of mens
rea, or criminal intent, when it's CEO hunting. This legal
principle got trampled in the rush to convict Arthur
Andersen. If otherwise honest CEOs can be indicted merely for
putting their names to a statement that turns out to be
false, good luck finding competent executives.
The brighter CEOs have also been busy cleaning up their own
act. They understand something that politicians won't admit,
which is that only business is truly capable of restoring
confidence in business. The New York Stock Exchange and
Goldman Sachs chief Hank Paulson have proposed more CEO
supervision by independent directors, among other reforms.
Just as significant, major pension funds and large
investors have begun to scrutinize stock options and other
forms of executive compensation. This sort of due diligence
too often went missing in the ``decade of greed,'' as
liberals now like to call the 1990s. (Or are we confusing our
decades?)
Mr. Bush put it well yesterday: ``I challenge every CEO in
America to describe in the company's annual report,
prominently and in plain English, details of his or her
compensation package, including salary and bonus and
benefits. And the CEO, in that report, should also explain
why his or her compensation package is in the best interests
of the company he serves.'' The point isn't that there is a
moral taint to high pay but that it has to be justified in
shareholders value.
The one place we've thought regulatory change might help is
audit reform. Clearly the culture of the accounting trade
went awry in the 1990s, and not only at Arthur Andersen. We
favored Paul Volcker's plan, which would have restored some
internal accounting-firm discipline and reduced conflicts of
interest. But the accounting lobby resisted and now finds
itself fending off much more intrusive regulation in
Congress. Serves them right.
As a political matter, Republicans are also paying for
protecting the accountants. Bush SEC Chairman Harvey Pitt,
who once worked for the Big Five, is now being urged to
resign by the likes of Al Gore, Tom Daschle and John McCain.
As these columns noted long before these politicians wet
their finger to the wind, Mr. Pitt's temptation now will be
to appease these critics by cracking down too hard on too
many, in a way that further roils financial markets. A
regulator with more credibility usually has to regulate less.
The investing public, fortunately, seems to understand
this. While rightly angry about WorldCom and Enron, the
public hasn't panicked even after three years of stock-market
losses. Americans know that even scarier than a bear market
in stocks is a bull market for politicians.
Mr. GRAMM. Mr. President, I ask my colleagues to read the editorial
and pray over it. As I say, there are some things in it one may like,
some one may not like; one may not like any of it, or one may like all
of it.
In the next couple of days, we are going to have a lot of proposals
that are going to be frightening to investors. I wanted to take this
opportunity tonight to tell them that--I know my dear colleague who is
sitting in the chair as a Presiding Officer remembers the old hymn,
``This is My Father's World.'' Remember that hymn? It talks about all
these things that are happening, all these bad things that happen, but
in the end it is going to be right. I think the Lord is going to count
on us to right it. I hope it is in good hands.
In any case, I wanted to say that as we hear all these ideas brought
up, if
[[Page S6554]]
you are thinking about investing money tomorrow or next week or next
year, do not be frightened. I think this issue is going to move back
toward a middle course, and if we go too far--and I hope we will not,
and I am dedicated to not doing more harm than good--then we will fix
it, and if in some areas we do not go far enough, we can come back and
fix it, too.
As I said, I offered the second-degree amendment for Senator
McConnell who has an appointment and wanted to get his amendment in. I
yield the floor.
The PRESIDING OFFICER. The Senator from Kentucky is recognized.
Mr. McCONNELL. Mr. President, I say to my friend from Texas, I have
enjoyed his wisdom over the last 18 years. I am going to save my
remarks about how I feel about his departure until later in the year.
We have just heard another example of the extraordinary wisdom of the
senior Senator from Texas from which I have benefited for 18 years. I
wish to tell him again how much his service has meant not only to his
State but to our Nation.
I say to my friends from Wyoming and North Carolina, they will be
relieved to know I do not intend to make my speech on the second-degree
amendment. This is an amendment about which I am sure the junior
Senator from South Carolina is going to be particularly enthusiastic. I
say that with tongue in cheek. I will briefly describe what it is.
This is an amendment to provide a client's bill of rights for clients
with Federal claims or who are in Federal court. Fundamentally, what
this client's bill of rights would provide is an opportunity for an
orderly and systematic notice from their lawyers of the fee
arrangements to which they are subjecting themselves; in addition to
that, a bereavement rule which would prevent the solicitation of
business within 45 days of the occurrence of the event. That is a brief
summary of what my amendment is about. There will be ample time for
everyone to take a look at the amendment over the evening. It does not
in any way detract from the underlying Edwards-Enzi amendment, which I
support and commend the authors for offering. I think it is right on
the mark. I would like to see these principles expanded to a larger
class of clients so they, too, can receive adequate protection.
I yield the floor.
The PRESIDING OFFICER. The Senator from Nevada.
Mr. REID. Mr. President, I ask unanimous consent that following the
previous sequence already in place, the amendments listed in this
agreement be the next six amendments in the sequence, in the order
listed: Carnahan amendment regarding electronic filing; McCain
amendment regarding accounting treatment/stock options; Dorgan
amendment regarding bankruptcy/disgorgement; Enzi amendment regarding
materiality; Schumer amendment regarding restitution; and Murkowski
amendment regarding the Ninth Circuit.
The PRESIDING OFFICER. Without objection, it is so ordered.
Several Senators addressed the Chair.
Mr. REID. Mr. President, I would say to the Chair that I ask the
Senator to yield to me for a unanimous consent request so the Senator
from Illinois would have the floor.
The PRESIDING OFFICER. The Senator from Illinois.
Mr. DURBIN. Mr. President, I want to make a comment about the second-
degree amendment that is pending. I want to commend my colleague, the
Senator from Kentucky.
Last night, at the close of the session, there was an amendment
offered by the Senator from Kentucky and the Senator from Texas. Now
remember, this bill is about corporate misconduct. This is about
corporate corruption. Last night, they decided we ought to expand the
jurisdiction and scope of this debate to include reforming labor
unions.
I have followed Enron, WorldCom, and others very closely and do not
recall ever hearing anybody say the root cause of the problem of these
corporations was labor unions. Thank goodness the Senate rejected that
notion.
The Senator from Kentucky comes back tonight and says, no, it is not
just labor unions, it is the fees paid to lawyers; that is the problem.
When you are dealing with corporate corruption, it is the fees paid to
lawyers, contingency fee contracts, and class actions.
I was stopped cold when I heard this amendment being described to try
to understand what this has to do with making certain that criminal
misconduct by corporate officers will result in time in jail. I do not
get the connection. Perhaps the Senator from Kentucky can help me
understand this. How does the issue of attorney's fees relate to
corporate misconduct and corporate corruption?
I am sorry he cannot join us in this debate to respond, but I say to
my colleagues I am beginning to get the distinct impression that the
other side of the aisle is trying to change the subject on us. I do not
think they want to talk about wrongdoing in corporate boardrooms and
what we can do to restore confidence.
Yesterday, the President used the bully pulpit and turned the bears
loose on Wall Street. Today, we had another dip in the stock market. We
had better get honest. We had better get real. We had better make some
real changes in the law to bring honesty in transactions with major
businesses if we want to restore America's confidence in business
dealings and bring people back to the stock market and get this economy
back on track and give people a chance to save for their retirement.
That is what this is all about.
Somehow or another the other side of the aisle wants us to veer off
now and talk about attorney's fees. I do not get the connection, and I
urge my colleagues to take a close look at this long amendment and try
to join me in divining what they are trying to achieve other than to
perhaps change the subject.
I yield the floor.
The PRESIDING OFFICER. The Senator from Wyoming is recognized.
Mr. ENZI. Mr. President, I do rise in support of the Edwards-Enzi-
Corzine amendment. I am disappointed there has been a second-degree
amendment to this, on which amendment we are working. It does not deal
with the same topic. It does not deal with the same bill. It is going
off in a different direction. If we keep having second-degree
amendments throughout that go off in other directions, we are not going
to get this bill finished and through the process. So it would be my
hope it would be withdrawn.
I will concentrate my efforts on the amendment I have worked on with
Senator Edwards, Senator Corzine, and others. This amendment is
designed to assure that attorneys are responsible for fully informing
their corporate client of evidence of material violations of Federal
securities law. That is what we are talking about through the whole
accounting reform.
Over the past few months, Congress and the public have concentrated
on the role of accountants and auditors involved in Enron, WorldCom,
Global Crossing, and others. We have held hearings and drafted
legislation intended to restore a high level of ethical behavior to
corporate America and the accounting industry. This breach in ethical
behavior led to the problems these companies are now experiencing. I
have to say through all of those hearings, as an accountant, I felt the
profession was very picked on, and the profession deserved to be picked
on--not everybody in the profession. Again, it is that one-half of 1
percent or one-tenth of 1 percent who are fouling up everything for
everybody. It happens in a lot of different professions.
As we beat up on accountants a little bit, one of the thoughts that
occurred to me was that probably in almost every transaction there was
a lawyer who drew up the documents involved in that procedure. I know
as to the companies we looked at, that was the case. It seemed only
right there ought to be some kind of an ethical standard put in place
for the attorneys as well. All of the people who are involved should be
looking at a new way of doing business.
As an accountant, I have been deeply disturbed by the action taken by
some in my profession, and as a result I have taken a more personal
interest than others might in drafting legislation which will ensure
that accountants act professionally and responsibly, and which will
protect the interests of corporate shareholders.
Following hearings on this matter, it has become clear that the role
of attorneys who counseled these corporations and their accountants
must be scrutinized as well. Just like accountants,
[[Page S6555]]
these lawyers are expected to represent the corporation in the best
interests of the shareholders. In doing so, these attorneys are hired
to aid the corporation and its accountants in adhering to Federal
securities law.
When their counsel and advice is sought, attorneys should have an
explicit, not just an implied, duty to advise the primary officer and
then, if necessary, the auditing committee or the board of directors of
any serious legal violation of the law by a corporate agent. Currently,
there is no explicit mandate requiring this standard of conduct. It is
clearly in the best interest of their client to disclose this kind of
information to the board, rather than just upper management.
Maybe it could be called the ``smell test.'' If something smells
wrong, somebody who can do something to fix it ought to be told.
It is important to understand the corporate attorney's client is the
whole corporation and its shareholders, and not just the CEOs or some
of the executives, accountants, or auditors. As a result, their
ultimate duty of representation is not to the people to whom they
normally report but to the shareholders through the board of directors.
This amendment would require the Securities and Exchange Commission
to enact rules within 180 days to set forth minimum standards of
professional conduct and responsibility for attorneys appearing and
practicing before the Commission; not all attorneys, just attorneys
appearing and practicing before the Commission; that is, those who are
dealing with documents that deal with companies listed by the
Securities and Exchange Commission.
This amendment instructs the Commission to establish rules that
require an attorney, with evidence of material legal violation by the
corporation or its agent, to notify the chief legal counsel or the
chief executive officer of such evidence and the appropriate response
to correct it. If these officers do not promptly take action in
response, the Commission is instructed to establish a rule that the
attorney then has a duty to take further appropriate action, including
notifying the audit committee of the board of directors or the board of
directors themselves, of such evidence and the actions of the attorney
and others regarding this evidence. It is all within the corporation.
This amendment is simple. It requires the attorney to contact
specific persons who are part of the management hierarchy and explain
the problem. If that fails to correct the problem, the attorney must
contact the audit committee or the board of directors.
I am usually in the camp that believes States should regulate
professionals within their jurisdiction. However, in this case, the
State bars as a whole have failed. They have provided no specific
ethical rule of conduct to remedy this kind of situation. Even if they
do have a general rule that applies, it often goes unenforced. Most
States also do not have the ability to investigate attorney violations
involved with the complex circumstances of audit procedures within
giant corporations.
Similarly, the American Bar Association's Model Rules of Professional
Responsibility do not have mandatory rules for professional conduct for
corporate practitioners which require them to take specific action. The
ABA merely has a general rule that an attorney must represent the best
interests of an organization and suggests a number of ways an attorney
could respond, including reporting illegal conduct to a responsible
constituent of the organization, such as the board of directors. But
this does not mandate action.
In response to Enron and the current environment concerning corporate
integrity, on March 27 of this year the ABA did form a task force on
corporate responsibility. But how many task forces have been formed and
accomplished nothing? Task forces are often used to delay
implementation of necessary changes. When task forces are used, we all
know it takes years to set up the rules. When they are established,
States may not actively enforce them or even have the means to enforce
them.
In any event, it is my understanding that the ABA's task force's
preliminary recommendations are for the attorney to report law
violations through a chain or ladder of the corporation. That is what,
in fact, this amendment does, first through the legal counsel or CEO
and then to the audit committee or the board of directors.
While I almost always advocate a State solution, in this instance I
must advocate a Federal solution. In the past, Congress has authorized
a Federal commission to regulate the conduct of attorneys through
promulgation of rules on attorneys practicing before them. For example,
31 U.S.C. section 330 provides the Treasury Department authority to
regulate the practice of attorneys appearing before the Internal
Revenue Service. Accordingly, the IRS has promulgated rules on the
conduct of attorneys.
Under 31 CFR, part 10.21 of the IRS regulations, each attorney who
knows the client has not complied with the revenue laws or who has made
an error or omission on any return or document required by the IRS
shall advise the client promptly of the fact of such noncompliance,
error, or omission. The amendment I am supporting will give the SEC
authority to promulgate a rule similar to the IRS rule.
In the past, the SEC has tried to impose ethical conduct on
attorneys. SEC rule 2(e), previously 102(e), authorizes the Commission
to disbar or suspend from practice before it a lawyer or other
professional who violates the securities law, assists in someone else's
violation, or otherwise engages in unprofessional conduct.
Through this process, the SEC previously instituted proceedings under
rule 102(3) to enforce the ethical standards for the practice of
Federal securities law. But it has stopped bringing these types of
actions. This amendment will get the SEC back on track and make
attorneys stand up and pay attention if they have evidence a corporate
agent has committed a material legal violation.
In the wake of Enron, over forty professors with expertise in Federal
securities and ethics law, have written to SEC Chairman Harvey Pitt
asking for some form of regulation over the practice and conduct of
attorneys involved in Federal securities law.
In their letter, they state that if senior managers will not rectify
a violation, lawyers who are responsible for the corporation's
securities compliance work, should be required to report to the board
of directors.
As they point out, such a disclosure obligation is still less onerous
than that imposed on accountants under section 10A of the 1934
Securities Exchange Act, which requires an auditor to report, both to
the client's directors and simultaneously to the SEC, and illegal act
if management fails to take remedial action.
The amendment I am supporting would not require the attorneys to
report violations to the SEC, only to corporate legal counsel or the
CEO, and ultimately, to the board of directors.
Some argue that the amendment will cause a breach of client/attorney
privilege, which is ludicrous. The attorney owes a duty to its client
which is the corporation and the shareholders. By reporting a legal
violation to management and then the board of directors, no breach of
the privilege occurs, because it is all internal--within the
corporation and not to an outside party, such as the SEC.
This amendment also does not empower the SEC to cause attorneys to
breach their attorney/client privilege. Instead, as is the case now,
attorneys and clients can assert this privilege in court.
In addition, this amendment creates a duty of professional conduct
and does not create a right of action by third parties. The Fourth
Circuit has made such a ruling concerning the code of conduct applied
by the IRS Rules.
The SEC has already found that attorneys who fail to take steps to
prevent their clients from violating Federal securities law are guilty
of aiding and abetting. This amendment will put attorneys on the right
course. By reporting violations to the board of directors, they can
avoid being found guilty of aiding and abetting their client.
Just as I am concerned about the conduct of accountants because that
is my profession, I would think member attorneys would be as concerned
about the conduct of the legal profession. To ignore the role attorneys
played in Enron, World.Com and Global Crossing is a disservice to their
profession.
[[Page S6556]]
I hope you will join me in ensuring that attorneys are required to
conduct themselves ethically and in the best interests of their client
when they see evidence of a material legal violation. They should be
expressly required to report that type of activity to upper managers,
and ultimately, to the board of directors who represent the
shareholders.
After Enron, it is clear we need some hard and fast rules, and not
just an arcane honor code rarely adhered to, so the necessary measure
of client duty is placed into the hearts and minds of the legal
profession. Again, I am disappointed there is a second-degree
amendment. This is an important amendment and something that I thought
would be cleared by both sides. We will deal with the rest of the
process.
I yield the floor.
The PRESIDING OFFICER (Mr. Akaka). The Senator from Wyoming yields
the floor.
The Senator from New Jersey.
Mr. CORZINE. Mr. President, first, I am proud to have worked with
Senator Edwards and Senator Enzi on this amendment on lawyer
responsibility in corporate practice. It is an exceptional piece of
additional effort in dealing with corporate fraud, corporate crime, and
corporate abuse. I am very happy to have participated with him, and I
particularly compliment Senator Edwards on bringing this important
issue to the attention of the Senate and for making sure that we
propose this strong amendment, to ensure corporate lawyers' ethical
responsibilities.
I, too, with the Senator from Wyoming, am disappointed. We are mixing
apples and oranges when we are talking about lawyer's fees. This is
dealing with corporate actions of lawyers. I don't understand why we
are trying to move to a completely different subject when what we are
trying to deal with is corporate responsibility. Lawyers play a role in
that as much as accountants and management.
Again, I thank Senator Enzi for his cooperation and leadership, not
only on this effort but with regard to the core bill, which is going to
make a big difference in the marketplace. People talk about weakness in
the market and are fearful of what we do in Congress, but they are
really fearful of what we will not do or what we might do in addressing
some of the quite obvious needed reforms.
We have talked a lot in the wake of Enron and WorldCom about the
responsibility of accountants and corporate managers. Rightly so, as we
have seen far too much bending of the rules, breaking of the rules in
pursuit of profit, pursuit of personal gain. In their wake,
shareholders, employees, and frankly the whole economy, has suffered
from the selfishness that we have seen demonstrated by the actions of
many--the criminal actions, in some instances.
It is not insignificant that even before this week, before there was
so much focus on this issue, this year there had been roughly $2
trillion worth of damage, value lost in the stock market, which is
reflective of the discomfort that investors across the globe, as well
as here at home, feel about where we stand.
As a former corporate leader, I tell you I am disgusted with many of
the actions I have seen taken by some corporate managers when they
betrayed shareholders' trust, employees' trust, and the public
confidence in general. I think they have basically betrayed our whole
Nation's economy. That is why I have been pleased to work on this
critical legislation that Senator Sarbanes has proposed regarding the
accounting industry's corporate responsibility.
But I do not think that is enough. I think, as Senator Edwards said
when he brought this to our attention, executives and accountants do
not work alone. In fact, in our corporate world today--and I can verify
this by my own experiences--executives and accountants work day to day
with lawyers. They give them advice on almost each and every
transaction. That means when executives and accountants have been
engaged in wrongdoing, there have been some other folks at the scene of
the crime--and generally they are lawyers.
This is not a new issue. The SEC had an unambiguous view about this
more than 10, 15 years ago. More than 10 years ago Judge Stanley
Sporkin, while commenting on the criminal actions of Charles Keating,
noted that Keating had:
. . . surrounded himself with literally scores of
accountants and lawyers to make sure all the transactions
were legal.
In a now famous refrain, Sporkin lamented:
Where were these professionals . . . when these clearly
improper transactions were being consummated? . . . Where,
also, were the outside accountants and attorneys when these
transactions were being effectuated?''
That sounds a little familiar in the current circumstance. The bottom
line is this. Lawyers can and should play an important role in
preventing and addressing corporate fraud. Our amendment seeks to
ensure that. It seeks to go back to the old way: When lawyers know of
illegal actions by a corporate agent, they should be required to report
the violation to the corporation.
Let me be clear. The same as I feel about most accountants and most
business leaders, the vast majority of lawyers discharge their duties
with integrity and in an ethical manner. This is not an effort to blame
corporate lawyers. But we cannot overlook the role corporate lawyers,
the lowest common denominator, can play in addressing abuses and
ensuring that our markets have integrity. We need to clarify that
corporate lawyers have a duty to the shareholders, not just to the
management that hired them.
That is why Senator Edwards, Senator Enzi, and I have crafted an
amendment that will clarify that lawyers who know of wrongdoing by a
corporation must report that wrongdoing to the client so it can be
corrected. The client is more than just the person who hired them. The
lawyer's client is the corporation's shareholders, not the manager. As
we have seen far too often this year, when management is engaged in
fraud it harms the shareholders. That is why we need to ensure that
lawyers who know of illegal acts report those acts to the board of
directors which represent those shareholders. Our amendment would
require the SEC to establish rules in the public interest and for the
protection of investors, setting forth minimum standards of
professional conduct for attorneys appearing and practicing before the
Commission. Those rules would include--shall include a requirement that
lawyers who have evidence of a violation of law would be required to go
up the ladder of corporate management and report the violation.
It is a simple principle--very much common sense. If a manager
doesn't respond appropriately, including remedying any violation, the
lawyer would then be required to report the violation to the board of
directors which represents the shareholders.
We should recognize that in some instances where there may be
evidence of a violation, it may become apparent after a more complete
investigation that there is not an actual violation. But when lawyers
are aware of a potential violation, they do have a duty to investigate.
And if they determine there is a material violation of law--not some
small violation, some insignificant rule--that violation should be
remedied by the corporation. If it is not remedied, it is the duty of
the lawyer, under our language, to report it to the board.
I am pleased that Senator Edwards and Senator Enzi and I have been
able to craft an amendment that will firmly establish the ethical duty
of corporate lawyers to report wrongdoing to their client, including,
if necessary, to the board of directors that represents a company's
shareholders.
Addressing the role of corporate lawyers is just as important a step
as it is with accountants and with corporate officers. If we want to
truly address this breakdown in corporate responsibility, it is a
critical piece of the puzzle that cannot be overlooked. I urge my
colleagues to support this sensible amendment.
Once again I say I am disappointed with the McConnell amendment. I
suggest we move to table that, in light of its irrelevance with respect
to the underlying matter.
I will withdraw that motion, and I suggest the absence of a quorum.
Mr. REID. Will the Senator withhold?
Mr. SARBANES. Does the Senator yield the floor?
The PRESIDING OFFICER. Does the Senator withhold suggesting the
absence of a quorum?
[[Page S6557]]
Mr. CORZINE. Yes. I yield the floor.
The PRESIDING OFFICER. The Senator from Georgia.
Amendment No. 4206
Mr. MILLER. Mr. President, I ask unanimous consent the pending
amendments be laid aside so I may offer an amendment, and that there be
a time limitation of 2 minutes on my amendment, with no amendments in
order to my amendment. This amendment has been agreed to by both
managers.
Mr. REID. Reserving the right to object, and following the
disposition of this that we will return to the Edwards amendment?
The PRESIDING OFFICER. That is the understanding of the Chair. Is
there objection? Without objection, it is so ordered.
Mr. MILLER. I send my amendment to the desk.
The PRESIDING OFFICER. The clerk will report the amendment.
The assistant legislative clerk read as follows:
The Senator from Georgia (Mr. Miller) proposes an amendment
numbered 4206.
Mr. MILLER. I ask unanimous consent the reading of the amendment be
dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To express the sense of the Senate that the chief executive
officer of a corporation should sign the corporation's income tax
returns)
At the end add the following new title:
TITLE VIII--CORPORATE TAX RETURNS
SEC. 801. SENSE OF THE SENATE REGARDING THE SIGNING OF
CORPORATE TAX RETURNS BY CHIEF EXECUTIVE
OFFICERS.
It is the sense of the Senate that the Federal income tax
return of a corporation should be signed by the chief
executive officer of such corporation.
Mr. MILLER. Mr. President, this amendment is only three lines long.
Let me read them to the Senate:
It is the sense of the Senate that the Federal income tax
return of a corporation shall be signed by the chief
executive officer of such corporation.
Believe it or not, that is not in the law right now, and it should
be. The average wage earner on his 1040 form has to sign it. We require
it of him. That is what we should require of the CEO of a corporation,
just treat them the same.
I yield the floor.
The PRESIDING OFFICER. The Senator from Maryland, Senator Sarbanes.
Mr. SARBANES. I urge the adoption of the amendment.
The PRESIDING OFFICER. Is there further debate?
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
Mr. GRAMM. Mr. President, I withdraw the request. I don't have any
problem. It was a confusion of which amendment.
The PRESIDING OFFICER. Without objection, the amendment is agreed to.
The amendment (No. 4206) was agreed to.
Mr. LEVIN. Mr. President, I move to reconsider the vote.
Mr. REID. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. REID. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. DASCHLE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DASCHLE. Mr. President, I announce that there will be no more
rollcall votes tonight. I hope Senators will come to the floor and
continue to participate in the debate. But for the interest of Senators
and schedules, we will have no additional rollcall votes tonight.
I yield the floor, and I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. SARBANES. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SARBANES. Mr. President, while we are all waiting for further
business, I will take just a moment to speak to the amendment that has
been offered by the very able Senator from North Carolina. In fact, I
would like to put a couple of inquiries to the Senator, if I might.
It is my understanding that this amendment, which places
responsibility upon the lawyer for the corporation to report up the
ladder, only involves going up within the corporate structure. He
doesn't go outside of the corporate structure. So the lawyer would
first go to the chief legal officer, or the chief executive officer,
and if he didn't get an appropriate response, he would go to the board
of directors. Is that correct?
Mr. EDWARDS. Mr. President, my response to the question is the only
obligation that this amendment creates is the obligation to report to
the client, which begins with the chief legal officer, and, if that is
unsuccessful, then to the board of the corporation. There is no
obligation to report anything outside the client--the corporation.
Mr. SARBANES. I think that is an important point. I simply asked the
question in order to stress the fact that that is the way this
amendment works. This has been a very carefully worked out amendment. I
engaged in an exchange with the distinguished Senator from North
Carolina, and the Senator from Wyoming, Mr. Enzi, the cosponsors of
this amendment. I know how careful they have been in trying to craft
the amendment and in bringing it here. I think they have done an
absolutely first-rate job in sort of focusing the amendment,
considering questions that were raised from one source or another, and
adjusting it in order to meet them.
I think the amendment they have now put before us is an extremely
well reasoned amendment, and it ought to command the support of the
Members of this body.
I very deeply regret that Senator McConnell has added an amendment to
the amendment. His amendment really doesn't address this amendment. It
doesn't really address the subject matter of this legislation. It is a
total diversion. Of course, I presume it will complicate our ability to
try to move ahead as we consider amendments. It obviously complicates
the consideration of the Edwards-Enzi amendment which is now pending.
Furthermore, I understand that under this amendment it can only be
enforced by the SEC through an administrative proceeding. Is that
correct?
Mr. EDWARDS. The answer is yes. The only way to enforce this legal
requirement is through an administrative process.
Mr. SARBANES. That was an effort, of course, to deal with the idea
that somehow it might bring causes of action from outside, or somewhere
else. So it is limited to the SEC. The SEC, as I understand it, had
something like this in place in the past. Is that correct?
Mr. EDWARDS. The answer is yes. Years ago, the SEC had and enforced
such a regulation, which they have not been doing for some time.
Mr. SARBANES. I further understand that a number of professors of
securities regulations and professional ethics are, in fact, supportive
of this proposal. I think at an earlier time they wrote to the SEC
urging the SEC itself to put some provision such as this into place. Is
that correct?
Mr. EDWARDS. The Senator is correct. There is a large group of
distinguished securities lawyers and legal ethics lawyers who have
written the SEC suggesting exactly what the Senator said--that it
become part of the regulations and part of the law.
Mr. SARBANES. This amendment really, in effect, parallels or follows
those recommendations--at least in substantial respect--as I understand
it.
Mr. EDWARDS. That is correct.
Mr. SARBANES. Again, that letter which I have had the chance to
review, and also the signatories to it--some 40 or so distinguished
professors of securities regulations or professors of professional
ethics at the law schools--is also a very carefully reasoned proposal.
The one they submitted to the SEC is the one the Senator from North
Carolina has tracked in his amendment.
I thank both Senator Edwards and Senator Enzi for their very careful
[[Page S6558]]
work. And I very much hope at the appropriate time we will be able to
adopt this amendment and include it in this legislation. I think it
makes an important contribution.
Mr. President, I yield the floor. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. LEVIN. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LEVIN. Mr. President, I ask unanimous consent at this time that I
be called upon to offer an amendment; that the amendment be debated
tonight--it is the amendment on SEC enforcement--and that when the
debate is completed tonight and when we recess until the morning, that
when the morning arrives, we would then return immediately to the
Edwards underlying amendment and the McConnell second-degree amendment
thereto.
The reason I make this unanimous consent proposal tonight is that
there are a lot of relevant amendments which are waiting in line, which
are important amendments, which have a lot of support, I believe, on a
bipartisan basis in this body that ought to be considered prior to
cloture or else; because they may not be technically germane, they
would be precluded if cloture is invoked.
I have a number of amendments on the list. I think we should move
this train forward tonight, utilize the time this evening to move this
process forward so as many of these amendments as possible can be
considered before cloture. I make that unanimous consent proposal at
this time.
The PRESIDING OFFICER. Is there objection?
The Senator from Texas.
Mr. GRAMM. Mr. President, reserving the right to object, let me say
that we have a lot of people who want to offer amendments. I have on my
side some 30 amendments. We had better follow the regular order. Let me
say that I would intend, once we have disposed of this unanimous
consent request, to ask that all further amendments be germane to the
bill and that at noon tomorrow we proceed to third reading. But I
object to the unanimous consent request.
The PRESIDING OFFICER. Objection is heard.
The Senator from Nevada.
Mr. REID. Mr. President, I ask unanimous consent that at 10:30
tomorrow morning, Thursday, July 11, the Senate resume consideration of
S. 2673 and that the time until 12 noon be divided as follows: The
first 45 minutes under the control of Senator Byrd; the remaining 45
minutes under the control of Senator McConnell or his designee; that at
12 noon Senator Enzi be recognized to make a motion to table the
McConnell second-degree amendment No. 4200, with no intervening
amendment in order prior to disposition of the McConnell amendment.
That is not part of this agreement. For the information of Senators,
we would have an hour, beginning at 9:30, for morning business for both
sides, equally divided.
Mr. LEVIN. Mr. President, reserving the right to object.
Mr. GRAMM. Mr. President, I think this is a perfectly reasonable
unanimous consent request, and I do not object.
Mr. LEVIN. Reserving the right to object, Mr. President, I have two
questions relative to this unanimous consent request. The first
question is, Does this then mean we would move to the disposition of
the Edwards amendment?
Mr. REID. Mr. President, that is my hope. One of the reasons we want
to dispose of the second-degree amendment--Senator Enzi, who has worked
with you and others on the underlying amendment, is going to move to
table. We hope we can move to the Edwards amendment.
The Senator from Texas, Mr. Gramm, has told us he wants to study this
tonight and he will give us word on it tomorrow. I think it has been
debated quite sufficiently. It appears to me the Edwards amendment is
reasonable. I think in the dialog he answered all the questions of the
Senator from Texas. I have no problem if the Senator wants to spend the
night looking it over more.
Mr. LEVIN. My second question under the reservation is this: This
does not then change the order that has been previously listed for
amendments under the earlier UC request; is that correct?
Mr. REID. That is correct. We have a number of amendments queued up.
Senator Edwards has been here all day, for example. The Senator from
Michigan has been here a long time today. We hope we can move through
some of these tomorrow.
As the Senator knows, there is anticipation tonight that a cloture
motion will be filed on this bill. The majority leader has told
everyone that we have only 3 weeks remaining in this little session
before the August recess. We would like to do prescription drugs. We
are going to move, we hope, to the MILCON appropriations bill in the
next day or so. We have homeland security we have to do. There is so
much to do and a limited amount of time in which to do it.
Mr. LEVIN. Further reserving the right to object, Mr. President, I
will simply add the following because there are relatively few hours
between now and a vote on cloture, assuming that cloture motion is
filed. I think we should fully utilize that time to consider relevant
amendments. What my great fear is--which is being reinforced tonight--
is that the time is going to be filled not by relevant amendments but
in other ways which would preclude the consideration of relevant
amendments in the event cloture is adopted. That is a major concern I
have. I don't know if other people waiting in line with amendments that
are relevant amendments have the same concern, but I hope and believe
they do.
I hope it will be possible for relevant amendments to be considered,
if not tonight, then tomorrow, and that the time be fully utilized;
otherwise, it would simply preclude important relevant amendments that
are waiting in line.
Mr. REID. Mr. President, the Senator also speaks for others. We have
had, over the last several months, problems getting legislation up the
way we used to do it here. It is difficult when we have obstacles that
are brought up. It does not allow us to proceed in the normal fashion.
I hope the Senator will allow the agreement to go forward.
The PRESIDING OFFICER (Ms. Cantwell). The Senator from Texas.
Mr. GRAMM. Madam President, I am told one of my colleagues is coming
down to object to this unanimous consent request. I have to suggest the
absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. REID. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. I renew my unanimous consent request.
The PRESIDING OFFICER. Is there objection?
Mr. GRAMM. Madam President, the reservations of the Senator from
Michigan have no impact on this unanimous consent request? That is a
parliamentary inquiry. The reservations expressed by the Senator
Michigan have no impact on the unanimous consent request as it is
written?
The PRESIDING OFFICER. That is correct.
Mr. GRAMM. I have no objection.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Nevada.
Mr. REID. Madam President, I appreciate very much the work of the
managers of this bill. This is very important legislation. I was
advised by the chairman of the committee just a few minutes ago the
stock market dropped again today almost 300 points. We need to do
something to reestablish credibility and to reestablish the confidence
of the American people in corporate America. This legislation goes a
long way toward that end. I hope there will be cooperation tomorrow so
that some of these relevant amendments can be offered.
I hope everyone understands the importance of this legislation. I am
confident they do. I appreciate the ability to work this out so we can
at least move forward tomorrow to the extent we do in this unanimous
consent agreement.
[[Page S6559]]
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Madam President, let me just outline, if I may, where I
see we are in the process. Tonight, a cloture motion is going to be
filed. Tomorrow we are going to have a series of amendments. As
everybody knows, when cloture is invoked, the relevant test is
germaneness, not relevance, not significance, not the feeling of a
Member that their amendment is important or more important than any
other Member. The test is germaneness.
Anybody who has ever been involved in a situation where we move
toward cloture understands that once we are on that track, unless
amendments are relatively acceptable on a broad basis to all parties
involved, knowing that the amendment is sheared off at the hour of
cloture, that amendment in all probability--let me state it more
precisely--that amendment is not going to be adopted.
We can do this in one of two ways, and either way works perfectly
with me. We can either try for the nongermane amendments--if your
amendment is germane, you are solid, you can offer it now, you can
offer it later, and you are going to get a vote on it. But if your
amendment is not germane, I suggest we try to get our staffs together
and see if something can be worked out where if part of the amendment
or all of the amendment or the amendment and something else is
noncontroversial, it could be adopted.
At the end of the day, we will all be happier if we do that. If we
spend all of tomorrow butting heads knowing what the final outcome is
going to be, the net result is we are just going to have unhappiness
and no good will come out of it.
I say to anyone who has a nongermane amendment, in the end, to have
that amendment adopted it is going to have to be generally supported
because, obviously, any Member is going to be able to prevent it from
being voted on. It is going to get sheared off at cloture.
I have a list of amendments, most of which have absolutely nothing to
do with this bill. I have amendments on bankruptcy. I have amendments
on the Ninth Circuit Court of Appeals. I have amendments on pensions. I
have amendments on tax policy. I have numerous amendments on stock
options.
I submit to all these people who want to offer amendments that what
we ought to do if we are going to try to get something done is to have
them have their staff sit down with staff on both sides of the aisle
and say: Is there anything in here that might be generally agreed to,
and if that is the case, we could move in that direction.
Finally, let me say we have in place a unanimous consent agreement
about how we are going to proceed tomorrow morning, and I ask the
Democratic floor leader, if I can, given that we have a unanimous
consent agreement in place for the morning, can we simply have the
floor open for the purpose of debate only tonight so that those of us
who are going to be here all day tomorrow, as we were all day today,
can go home?
Mr. REID. I say to my friend, there are some things we have to do,
such as filing cloture, and if that situation of debate only is in
effect, we could not do that.
Mr. GRAMM. With what now?
Mr. REID. If there is debate only, we could not file the cloture
motion.
Mr. GRAMM. If you can just tell us, if we can have an agreement--the
Senator can amend it. All I am saying is, if people want to stay and
debate any pending amendment or talk about whatever they want to talk
about, that is fine. It seems to me if we are through with all of our
business except debate, we could let people who have debated enough go
home.
Mr. REID. The leader has stated there will be no more rollcall votes
tonight. I hope if one wants to talk about the bill, they will do that,
but I do not think we need a UC to accomplish that.
Mr. GRAMM. If the Senator will yield, what about a unanimous consent
request, except to file a cloture motion, that there will be debate
only tonight? That way we do not have a problem of potentially someone
asking unanimous consent for something.
Mr. REID. My personal feeling is I have no problem with that. I have
to check with staff to make sure I am not missing anything, but I want
to make sure the Senator from North Carolina is protected.
Mr. EDWARDS. Will the Senator from Texas yield, if he has the floor?
Mr. GRAMM. If I do I yield to him.
The PRESIDING OFFICER. The Senator from North Carolina.
Amendment No. 4187, As Modified
Mr. EDWARDS. Madam President, I have a modification to my amendment
at the desk.
The PRESIDING OFFICER. The amendment is so modified.
The amendment, as modified, is as follows:
On page 108, line 15, insert before the end quotation marks
the following:
``(c) Rules of Professional Responsibility for Attorneys.--
Not later than 180 days after the date of enactment of this
section, the Commission shall establish rules, in the public
interest and for the protection of investors, setting forth
minimum standards of professional conduct for attorneys
appearing and practicing before the Commission in any way in
the representation of public companies, including a rule
requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or
similar violation by the company or any agent thereof to the
chief legal counsel or the chief executive officer of the
company (or the equivalent thereof) and, if the counsel or
officer does not appropriately respond to the evidence
(adopting, as necessary, appropriate remedial measures or
sanctions with respect to the violation), requiring the
attorney to report the evidence to the audit committee of the
board of directors or to another committee of the board of
directors comprised solely of directors not employed directly
or indirectly by the company, or to the board of directors.
Mr. EDWARDS. I yield the floor.
The PRESIDING OFFICER. The Senator from Nevada.
Cloture Motion
Mr. REID. Madam President, I send a cloture motion to the desk.
The PRESIDING OFFICER. The cloture motion having been presented under
rule XXII, the Chair directs the clerk to read the motion.
The assistant legislative clerk read as follows:
Cloture Motion
We, the undersigned Senators, in accordance with the
provisions of rule XXII of the Standing Rules of the Senate,
do hereby move to bring to a close the debate on Calendar No.
442, S. 2673, the Public Company Accounting Reform and
Investor Protection Act of 2002:
Jon Corzine, Deborah Stabenow, Paul Wellstone, Ron Wyden,
Daniel Akaka, Barbara Boxer, Charles Schumer, Byron
Dorgan, Harry Reid, Paul Sarbanes, Daniel Inouye, John
Edwards, Barbara Mikulski, Thomas Carper, Jack Reed,
Tim Johnson.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Madam President, before the Senator from Texas departs,
I wish to add an observation to the comments he made before about how
to proceed.
There are a number of amendments. The definition of germaneness, once
cloture has been invoked, is very narrow. There are amendments that
Members have which in the normal terminology would be regarded as
germane and are certainly relevant. It seems to me an effort should be
made to address those amendments as well as ones that are perceived to
be germane in the very narrow sense.
There is another category of amendments that I am not very
sympathetic to, and those are ones that have really nothing to do with
this bill. The second-degree amendment offered by the Senator from
Kentucky that is now pending, in my judgment, is an example of that. We
probably ought to move very quickly to table those kinds of amendments
when they come up so we have an opportunity for colleagues who have
amendments that are really relevant to this legislation to bring them
up and to have them considered.
Mr. GRAMM. Will the Senator yield?
Mr. SARBANES. Yes.
Mr. GRAMM. I think we have a fairly broad consensus that is the
direction in which we should go. The fact that we are getting ready to
have cloture should not prevent us from adopting amendments where there
is support and where there is a collective judgment that the amendment
is relevant. The plain truth is that anyone knowing that cloture was
coming could have held up the President's amendment which added
criminal sanctions. Any Member of the Senate could have prevented that
from being voted on knowing that it was nongermane, but nobody did that
because there was a general base of support for it.
[[Page S6560]]
All I was saying was that every Member of the Senate knows the
germaneness rule and everybody knows that, come whenever we invoke
cloture, any amendment that is nongermane is going to fall. Then what
is going to happen is, unless there is some consensus for the
amendment, it is simply going to be delayed until it is cut off.
If what the Senator is saying is that if an amendment is relevant, if
it would improve the bill, if it is not highly controversial, we ought
to take it, I agree with that. Looking down my amendment list, there
are not a lot of such amendments, but the ones that are there, if
people want to bring them up, I am not going to oppose an amendment
simply because it is not germane.
Mr. SARBANES. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. REID. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. Madam President, I ask unanimous consent that the
previously agreed to Daschle for Biden amendment, No. 4186, as
modified, be inserted in the appropriate place in the bill.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________