[Congressional Record Volume 148, Number 103 (Thursday, July 25, 2002)]
[Pages S7350-S7365]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  The PRESIDING OFFICER. Under the previous order, the Senate will 
proceed to the consideration of the conference report to acompany H.R. 
3763, which the clerk will report.
  The legislative clerk read as follows:

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to the bill (H.R. 
     3763), to protect investors by improving the accuracy and 
     reliability of corporate disclosures made pursuant to the 
     securities laws, and for other purposes, having met, have 
     agreed that the House recede from its disagreement to the 
     amendment of the Senate, and agree to the same with an 
     amendment, and the Senate agree to the same, signed by a 
     majority of the conferees on the part of both Houses.
  The PRESIDING OFFICER. The Senate will proceed to the consideration 
of the conference report.
  (The report is printed in the House proceedings of the Record of July 
24, 2002.)
  The PRESIDING OFFICER. The Senator from Nevada is recognized.
  Mr. REID. Madam President, I suggest the absence of a quorum and ask 
that the time not be charged against either manager.
  The PRESIDING OFFICER. Without objection, it is so ordered. 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for the quorum call be rescinded.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. Without objection, it is so ordered.
  Mr. SARBANES. Madam President, parliamentary inquiry of the Chair: 
What is pending before the Senate?
  The PRESIDING OFFICER. The debate on the conference report is limited 
to 2 hours equally divided.

[[Page S7351]]

  Mr. SARBANES. So there is 1 hour on each side.
  The PRESIDING OFFICER. The Senator is correct.
  Mr. SARBANES. Madam President, I yield myself 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SARBANES. Madam President, I am very pleased that we are now 
considering the conference report on the Public Company Accounting 
Reform and Investor Protection Act of 2002. The Senate approved this 
legislation on July 15 on a 97-0 vote. Conferees were named promptly 
both here and in the House, and the conference committee immediately 
went to work.
  Agreement was reached yesterday in the early evening, about 7 
o'clock, by the conference committee, and the House took up the 
conference report this morning and acted on it earlier in the day. The 
vote, I believe, was 422--3.
  The conference report has now come over to us, and obviously, under 
our procedures, it is our turn to proceed to consider it.
  This legislation establishes a carefully constructed statutory 
framework to deal with the numerous conflicts of interest that in 
recent years have undermined the integrity of our capital markets and 
betrayed the trust of millions of investors.
  I say to my colleagues that in every one of its central provisions, 
the conference report closely tracks or parallels the provisions in the 
Senate bill for which, as I indicated earlier, all the Members present 
at the time, 97 of us, voted only a short time ago.
  This legislation establishes a strong independent accounting 
oversight board, thereby bringing to an end the system of self-
regulation in the accounting profession which, regrettably, has not 
only failed to protect investors, as we have seen in recent months, but 
which has in effect abused the confidence in the markets, whose 
integrity investors have taken almost as an article of faith.
  This legislation reflects the extraordinary efforts of 
many colleagues on both sides of the Capitol. I want especially to 
recognize and express my deep gratitude to Senators Dodd and Corzine 
who early on introduced legislation that in many respects serves as the 
basis for titles 1 and 2 of this legislation.

  On the House side, Congressman LaFalce introduced comprehensive 
legislation on which we drew.
  I also wish to acknowledge the many important contributions that my 
Republican colleague, Senator Enzi, made at every step in the process. 
Senator Enzi had legislation of his own, but in addition we worked very 
closely in the course of developing this legislation. Again and again I 
was struck by the thoughtfulness and reasonableness of his proposals 
for improving in the legislation. While in the end not all of them were 
included in the legislation, a significant number are, and I thank him 
very much for all his contributions.
  Before addressing the major provisions of the legislation, let me 
make very clear that it applies exclusively to public companies--that 
is, to companies registered with the Securities and Exchange 
Commission. It is not applicable to provide companies, who make up the 
vast majority of companies across the country.
  This legislation prohibits accounting firms from providing certain 
specified consulting services if they are also the auditors of the 
company. In our considered judgment, there are certain consulting 
services which inherently carry with them significant conflicts of 
interest. Auditors, in effect, find themselves in the position of 
auditing their own work. They may be acting as management of the 
company, for instance, on personnel matters when, as the outside 
auditor, they were supposed to be standing one step removed from the 
company as the outside auditor. This is the reasoning behind the 
  What has happened in recent years is that the fees earned from the 
consulting work have dwarfed the fees earned from the auditors, which 
inevitably leads to concerns that punches may be pulled on the audit to 
accommodate the significant and remunerative involvement on the 
consulting side. Certain enumerated consulting practices are therefore 
not allowed, with the exception that a case-by-case exemption can be 
obtained from the oversight board that this legislation establishes.

  The auditor can engage in the balance of consulting services with the 
pre-approval of the audit committee of the corporation. And of course 
an auditor can engage in whatever consulting services the firm and the 
corporation agree upon so long as the firm is not also acting as the 
corporation's auditor.
  The bill sets significantly higher standards for corporate 
responsibility governance. It requires public companies to have 
independent audit committees and also enhances the role of the audit 
committee, which will have responsibility for hiring and firing the 
auditors and setting their compensation.
  The legislation requires full and prompt disclosure of stock sales by 
company executives. Senator Carnahan added an important provision to 
the bill, requiring electronic filing with respect to such sales. That 
requirement would take effect in a year's time, to allow time for the 
necessary systems to be put in place; once in place it will assure 
prompt and accurate disclosure of these very significant transactions.
  The legislation places limits on loans by corporations to their 
executive officers. It sets certain requirements for disclosure with 
respect to special purpose entities, which were used by some 
corporations that have run into such serious difficulty in recent 
months. It seeks to address the statement of pro forma earnings, in 
order to assure a more complete and accurate picture of a public 
company's financial position.
  It also addresses the conflicts of interests that arise for stock 
analysts to whom investors look for impartial research-based advice 
about stocks. Unfortunately, many of these analysts are under pressure 
to promote stocks in which their broker-dealer firms may have an 
investment banking interest; on the one hand they are supposed to give 
unbiased advice to potential purchasers of stock, whether to buy or 
sell, but at the same time the firm of which they are a part is 
interested in developing a business relationship with the company on 
which the analyst is passing judgment. It has been sobering to discover 
that analysts have been formally recommending certain stocks to the 
investing public, while at the same time discussing them contemptuously 
among themselves. We have had too many demonstrations of this 
  The legislation includes provisions to protect analysts against 
retaliation, in cases where a negative recommendation may invite 
retaliation. Furthermore, the bill authorizes significant increases in 
funding for the Securities and Exchange Commission, which for the first 
time in many years will give it something close to the funding 
resources it needs.
  There are also extensive criminal penalties contained in this 
legislation. These were initially included in legislation reported by 
the Judiciary Committee, which Senator Leahy offered as an amendment to 
the bill. The House then passed its own bill with respect to criminal 
penalties, a separate standing bill, which in many instances doubled or 
even tripled the penalties in the Leahy proposal as it came to the 
floor, and the Leahy proposals were further supplemented by an 
amendment from Senators Biden and Hatch and another from Senator Lott.
  The PRESIDING OFFICER. The Senator has consumed 10 minutes.
  Mr. SARBANES. I yield myself 4 additional minutes.
  The PRESIDING OFFICER. The Senator has that right.
  Mr. SARBANES. These provisions, among other things, require the CEOs 
and CFOs to certify their company's financial statements under penalty 
of potentially severe punishments.
  We provide a $776 million authorization for the SEC. I want to spend 
a minute on this point, because it is very important. The Senate 
Appropriations Committee is now working on an appropriation that would 
contain $750 million for the SEC. It is urgent that we provide adequate 
funding for the Commission, whose responsibilities have expanded as the 
volume of market activity has grown, but whose funding has lagged. 
Clearly, the Commission must have the resources necessary to ensure a 
decisive and expeditious response to the scandals we have seen in

[[Page S7352]]

recent months, and to minimize the likelihood that we will see others 
in the future.
  I must underscore this point. The Commission has been underfunded, 
and the result has been understaffing, high staff turnover and low 
morale as the Commission seeks to carry out its work. The SEC must be 
in a position to address immediately the problems of inadequate staff 
resources and inadequate pay.
  At the moment, the SEC cannot offer its attorneys and accountants the 
same level of salary and benefits that their counterparts receive at 
the five Federal bank regulatory agencies. Talented and dedicated staff 
attorneys and accountants can increase their compensation by as much as 
one-third simply by moving to another agency. This is an intolerable 
situation. Pay parity has been authorized and now must be funded; this 
legislation specifically provide the necessary funding.
  In addition, the authorization provides funding that will enable the 
Commission to upgrade its technical capacities, its computer systems, 
and it provides significant resources so that the Commission can 
augment its staff of attorneys, accountants and examiners at a time 
when they are needed to address a very heavy workload burden.
  As an aside, I mention that this morning the committee reported to 
the Senate four nominees to bring the Securities and Exchange 
Commission to its full complement of five members. I very much hope we 
will be able to approve them next week so that they will be able to 
take their positions before the August recess. If we do, the Commission 
will be at full strength. They will all be in place and ready to do the 
job, and I think that is highly desirable.
  In closing, let me say that I believe this conference report reflects 
our best efforts to deal with issues which we know to be numerous and 
complex. Throughout the process, we have worked together carefully on 
these issues. We have sought advice from the most distinguished and 
experienced practitioners in the field. We held 10 hearings in March 
with some of the very best experts in the country as our witnesses. We 
have consulted extensively, and I hope my colleagues will agree in good 
faith and across party lines. Our vision has been broad, our purpose 
steady. I think our approach has been reasonable.
  We will send to the President legislation establishing a solid 
statutory framework for the reforms we know are urgently needed.
  Our markets have benefited beyond measure from the statutory 
framework that created the SEC nearly 70 years ago. Indeed, I think we 
have had a tendency to take that for granted. Those markets have been a 
very significant economic asset for the United States, and an integral 
part of our economic strength. This legislation will serve to 
complement and reinforce that framework, which has served us well, and 
I believe it will stand the test of time.

  Our markets, which have the reputation of being the fairest, the most 
efficient, the most transparent in the world, have suffered greatly in 
recent times, so much so that they seem to have lost the confidence of 
our investors. It is our purpose, with this legislation and through 
other actions that will have to be taken by the regulatory agencies and 
by the private sector, to see that once again our capital markets 
deserve the enviable reputation for fairness, efficiency, and 
transparency that they have enjoyed through the years.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Madam President, I yield myself such time as I may 
  I want to begin with some thank-yous and congratulations. First, I 
want to congratulate Senator Sarbanes on this bill, and I want to make 
note that in a very difficult period, where so many were trying to 
point the finger of blame, when it seemed almost every day that people 
were clamoring to make the strongest statement they could make to get 
the sound bite on television, Senator Sarbanes could have taken that 
same route in the Banking Committee. We are the committee that has 
jurisdiction over the issues that had been at the very heart of our 
recent concerns in the capital markets.

  However, Senator Sarbanes did not take that route. I congratulate 
him. He not only brought good reflection on himself, but he helped 
raise the esteem that the Banking Committee is held in and reflected 
well on the Senate. We had hearings but we were focusing on what could 
be done to fix the problem. As a result, those hearings were the most 
productive that were held. They contributed to bringing us to where we 
  Now let me make it clear, from the very beginning there has been a 
broad consensus, and a very deep consensus, on 90 percent of the issues 
in this bill. One of my frustrations in this debate--and when you are 
debating something as high profile as this is, there are frustrations. 
I am not complaining--as my wife says whenever I complain about this 
job, not only did nobody force you to take it, but a lot of good people 
worked hard to keep you from getting it--I am not complaining, but part 
of our problem has been that the media has wanted to present this as a 
debate that had to do with how tough people were being, to the 
exclusion, often, in my opinion, of how reasonable we need to be.
  We have before the Senate a bill that is clearly an improvement over 
the status quo. I don't care how disappointed you are in any one 
provision--and on several provisions I am very disappointed. No matter 
how disappointed a Member is, this is an improvement over the status 
quo, and for two reasons. One is obvious. That is, we needed stiffer 
criminal penalties. And, second, we needed to create an independently 
funded and an independently operating accounting oversight board so 
that we could deal with ethics questions in a framework that will 
promote high ethical standards, in the framework of independence. In 
addition, we desperately needed to have an independently funded FASB.
  I would just say as an aside, Madam President, over the years I have 
agreed with FASB in some of their decisions; I have disagreed with FASB 
on some of their decisions. However, I am proud to be able to say today 
I have never taken the position that Congress ought to override FASB. 
As incomprehensible as some of their rulings have been to my way of 
thinking, having Congress vote on accounting standards is a very 
dangerous thing.
  Some of our colleagues want to vote on the whole issue of expensing 
stock options. Wherever you come down on that issue, having Congress 
vote on accounting standards is very dangerous, very counterproductive. 
I hope that will not happen. Certainly, I am not going to vote to 
impose accounting standards on this board. We want FASB to set 
accounting standards. We want to be sure they have the independence 
that is necessary to allow them to do it.
  In those areas there has never been a disagreement on this bill. The 
disagreements that have occurred have had to do with the perception of 
individual Members as to what was practical, what was workable, what 
was desirable. The one view I have always subscribed to, and I would 
have to say given my period of service in public life I am more 
convinced of it than ever, is that Thomas Jefferson was right when he 
said good men--he would say good people today, of course--good men with 
the same information are prone to have different opinions.
  There is a natural tendency in the human mind to think, if people 
disagree with you, that either, A, they don't know what they are 
talking about; or B, they don't have good intentions. I subscribe to 
the Jefferson thesis.

  The areas where I disagree with the bill are pretty straightforward. 
First of all, I believe there is a very real problem in auditor 
independence. If I were a member of this new accounting oversight board 
that we are going to put into place and I had to vote on the nine 
prohibited areas that are written into law in the bill, I would want to 
study them in detail. I might very well support all nine of them. I do 
not believe they should be written into law.
  The advantages of letting the board set these standards--it seems to 
me that there are three:
  No. 1, the board is going to have more time and more expertise than 
we have and is likely to do a better job.

[[Page S7353]]

  No. 2, if we make a mistake and we write it into law, it is hard to 
fix things that are written into law. As Alan Greenspan has said, if 
Glass-Steagall, Depression-era banking legislation, had been a 
regulation, it clearly would have been changed by the 1950s. We did not 
change it until 1999. It took a long time to change it.
  Finally, and probably of greatest importance, there is a natural 
tendency when we are talking about the problem in an era where we are 
all reading about Enron and WorldCom and the huge companies, to forget 
this law will apply to 16,254 companies. Many of these companies are 
quite small. One of the advantages of allowing the accounting oversight 
board to set out prohibitions on auditors performing other services in 
regulation, instead of prescribing them in law, is that the board can 
find a system whereby they can recognize what is practical in dealing 
with smaller companies and how that might differ from what is practical 
for General Motors.
  An example that has come to my mind is one where I am operating a 
small public company, stock traded on an exchange or on Nasdaq, and I 
employ an accounting firm that has a CPA who basically does my 
auditing. He is in Houston. I am trying to hire a new bookkeeper in my 
company. I have three candidates. When my auditor is in town auditing 
my books, I say: I have these three candidates. I majored in physics in 
college, and I don't know anything about accounting. Could you 
interview these three bookkeepers and tell me who you think would be 
  Under this bill, that would be illegal. That would be providing a 
personnel service. It is prohibited for my auditor to provide that 
service for me as well.
  For General Motors, should your auditor be providing a personnel 
service? My guess is they probably should not. But for this small 
company in College Station, Texas, what this prohibition ultimately 
will do is force them to do one of three things: In all probability, 
they will hire the bookkeeper without ever getting the advice of a CPA; 
No. 2, they can hire another CPA to interview these three candidates 
for a bookkeeper and pay them; No. 3, they can file for a waiver 
through the SEC and through the board. Each option is a worse choice 
from those available to such a small company today, and a worse choice 
for its shareholders.
  The bill allows a waiver on an individual company by company basis. I 
rejoice that is the case. I personally believe we should have given the 
board, with the agreement of the SEC, the ability to grant blanket 
waivers based on the circumstances of classes of individual companies.
  For example, if you have already granted 1,000 waivers where 
companies have applied for a waiver for a certain requirement based on 
their size, their location, practicality, the cost, whatever, at that 
point shouldn't the board be able to say: We have established this 
principle, and if your company meets these conditions, you are granted 
the waiver? Then, all they have to do is prove they meet the 

  My concern--and who knows, maybe this will be true, maybe it will 
not. The problem is we are legislating. We don't know. We can't look 
into the future. My concern is that by not granting them the ability to 
provide blanket waivers we are going to force a lot of smaller 
companies to hire lawyers and lobbyists to come to Washington to 
petition the SEC and the board. My concern is that this is going to use 
up their time and use up the resources of companies.
  There is another side of this story and that is the concern that 
blanket waivers could be used to get around the intent of the law. How 
do you deal with that? How do you find a happy balance? It is not an 
easy question. I would have to say I believe we have imposed a one-
size-fits-all regimentation that is going to be difficult to deal 
with--not impossible to deal with, but I think it is going to be 
  Another problem I have is that we have in this bill an accounting 
oversight board. Its members are not elected officials. They are not 
appointed in the sense that they are not Government officials. They 
will have the ability to make decisions that will affect the livelihood 
of Americans who are in the accounting profession. They will literally 
have the ability to say to a CPA: We are taking your license away and 
you can never practice again in providing accounting services to a 
publicly traded company.
  Clearly, there are cases where that is justified. Clearly, there are 
cases where people ought to be fined and, clearly, there are cases 
where people ought to be put in prison. But I think when you are taking 
people's livelihoods, they ought to have an opportunity to appeal to 
the Federal district court where they live.
  I think there ought to be a burden on them to make their case, and 
obviously the court is going to take into account that this board, that 
was duly constituted, made a decision. But I think that is an 
opportunity that people ought to have that they do not have under this 
  I am also concerned about litigation. During the whole Clinton 
administration, there was only one bill where we overrode the 
President's veto, and that was a bill having to do with private 
securities litigation reform. We had a massive number of predatory 
strike suits where people filed lawsuits against companies. They almost 
always settled out of court. We had one law firm that filed the lion's 
share of the lawsuits. And the chief lawyer in that company said, in 
effect, ``It is wonderful to practice law where you don't have 
  That was a mistake when he said that, but he said it.
  We took action to try to eliminate or minimize this abuse. In doing 
so, we codified a 1991 Supreme Court decision that addressed what 
happens if you think you have been wronged. We are not talking about 
criminal activity. We are not talking about SEC enforcement. We are not 
talking about the Justice Department. We are talking about civil 
disputes that people have. Under that law, in codifying what the 1991 
Supreme Court decision said, we said that within a year after you 
believe you have been wronged, you have to file your lawsuit, and 
within 3 years after the event happens, you have to file your lawsuit.
  One of the things this bill does, which I oppose, is it raises that 
to 2 years and 5 years, respectively. I would say that if there were 
evidence that people were not getting these lawsuits filed because of a 
lack of time, that under the circumstances I think that increasing the 
statute of limitations would have been justified. But as we have looked 
at the data, the mean average lawsuit is filed 11 days after the injury 
is discovered. Something like 90 percent of the lawsuits are filed in 
the first 6 months. It seems to me that this provision and other 
provisions of the bill that expand the ability of people to sue may 
have a positive effect in making people pay attention to their 
business, but we all know, based on our legal system, that it is going 
to be abused and that very heavy costs are going to be imposed on the 
private sector of the economy as litigation costs ultimately are added 
to the cost of the product that is produced and reduced from the stock 
value held by shareholders.

  I could go on and on. There are other people who want to speak. We 
are under a time limit. But let me sum up.
  I thought about this long and hard, and as I thought about this bill, 
I had to weigh, Does it do more good than harm? I have concluded that 
it does. It does less good than it could have done; it does more harm 
than it should have done--we could have corrected these things--but, 
quite frankly, in the environment we were in it was impossible. In the 
environment we were in, where everything was judged on some concept of 
being tough rather than on practicality and workability, it was 
impossible for us to come back and deal with these problems.
  Finally, in the timeframe that we all faced in conference, we never 
really got around to discussing the practical kinds of things that do 
not seem important when you are writing law but seem very important 2 
or 5 years later when you are implementing it.
  Having said all that, I cannot stand up here and argue that this bill 
has worsened the status quo. This bill is better than the status quo 
for two reasons. No. 1, change needs to be made and criminal penalties 
need to be raised. These independent boards need to be established, and 
90 percent of this bill, in my opinion, clearly represents a step in 
the right direction.

[[Page S7354]]

  But, second--and this may sound like strange logic but I think it is 
important. I think to understand American government you have to 
understand it. The American people expect Congress to respond to a 
problem. We may not know the answer. We may not have perfect knowledge. 
But they expect us to try to do something about it. That in and of 
itself is an argument to which we should respond.
  I would argue--being a conservative, as everyone engaged in this 
debate knows--I would argue we need to be careful. But in the end this 
bill is an improvement on the status quo. It could have been better. 
There are changes that could have been made that were not. But in the 
end, I cannot argue that this bill should not pass, should not become 
law. The President is going to sign the bill, and clearly he should.
  I do believe we will have to come back after the fact and we will 
have to correct some of these issues. I think as time goes on we will 
see we may not have done enough in one area. Maybe we went overboard in 
another area. But the Congress will meet again, people will be paid to 
do this work, and I am confident that it will be done.
  So let me conclude on this thought. I believe the marketplace has 
gone a long way toward solving this problem. I think the New York Stock 
Exchange action was excellent. Once again, they are proving that they 
are a great institution. As I have often said about the New York Stock 
Exchange, I feel as if I am standing on holy ground at the New York 
Stock Exchange.
  Every boardroom is different from what it was before this crisis 
started. No one sitting on a board, corporate board or an audit 
committee, will ever be the same. No auditors will ever look at their 
task the way they did before all of this started, at least for a very 
long time. or at least for a very long time.

  One of the advantages of having structure is when they forget, the 
structure won't forget. I totally agree with that. I think this 
represents a complement to it.
  There is much in here I would have done differently. But in the end, 
I think this is a response that people can say the Government did hear, 
the Government did care, and Congress did try to fix it. I don't doubt 
that there are mistakes in here. I think I could name some, if asked 
to. But, on the whole, this is a response that was aimed at the 
problem. People went about it in a reasonable manner.
  Certainly, the authors of this bill intended to do as good a job as 
they could do.
  I again want to congratulate Senator Sarbanes. I also want to thank 
him, looking back now at how quickly the conference went. I know people 
were unhappy when we had this period when the floor was tied up, and 
there were numerous amendments people wanted to add to the bill. But I 
think, given how the whole thing played out, it worked out from that 
point of view pretty much right.
  If people on Wall Street are listening to the debate and trying to 
figure out whether they should be concerned about this bill, I think 
they can rightly feel that this bill could have been much worse. I 
think if people had wanted to be irresponsible, this is a bill on which 
they could have been irresponsible and almost anything would have 
passed on the floor of the Senate.
  I think given where we are on this bill that it is a testament to the 
fact that our system works pretty well.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Edwards). Who yields time?
  Mr. GRAMM. Mr. President, I yield 12 minutes to the Senator from 
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. ENZI. Thank you, Mr. President.
  I am here today to speak in support of the conference report to the 
accounting reform bill. I will be encouraging all Senators to vote for 
the conference report.
  This is earthshaking legislation that has been done with tremendous 
speed. It had to be earthshaking because we are trying to counteract 
the tremors from the volcanic action of the mountaintop being blown off 
such companies as Enron, WorldCom, Global Crossing, and others. Those 
collapses have set up a series of tremors across this country.
  Congress is not the one to solve all the problems. But as Senator 
Gramm just mentioned, we are expected to work at solving all of the 
problems. We have put in a huge effort on this bill, and it will make a 
  While we have been working, the stock market has been going through 
some tremendous gyrations. I think some of those reactions in the stock 
market were to see how carefully we would consider and resolve this 
issue. I believe, the stock market was worried that we would overreact. 
The market watched to see if Congress would keep adding and adding 
things, until we destroyed the whole system. They can now see that did 
not happen--Congress acted responsibly. We took a long and tough look 
at the problem and reacted, but we did not overreact. At the same time 
corporations across the country have been making sure they did not have 
the kinds of problems brought to light in a few of these companies.
  ``Corporations'' should not be a bad word in this country. This 
country was built on business.

  I always like to mention that it was primarily built on small 
business--small businesses that grew up, in many cases, but 
nevertheless ideas that started out as a small business.
  We have to keep our focus on those small businesses, and make sure 
they are able to continue to operate in the climate that we have in the 
United States and under the laws that we pass.
  I am pleased to say that the actions we took in this bill provide 
some assurance to small businesses and small accounting firms that they 
can continue to operate the way they have in the past.
  We have given encouragement to the States not to run out and apply 
the same types of laws. I hope the States are paying attention because 
they will ruin a very good thing if they destroy small business. Keep 
the eye on small business, and we will continue to have big business.
  Corporations have been checking what has been going on in their firms 
to a greater extent than they have ever before. Boards, CEOs, CFOs, and 
audit committees have been checking to see if they have the kinds of 
problems that brought down these other companies.
  It is much like when there is a plane crash. Right after a plane 
crash is probably the safest time in the world to fly because everybody 
checks their equipment ever so much more carefully to make sure that 
the kind of defects that may have caused other problems will not happen 
to them. And the effect lasts for a long time afterwards.
  Corporations have been checking their books. They have begun changing 
procedures. Some of the changes they have made have resulted in 
restatements. They have paid a price for doing restatements. But they 
have done the right thing by doing a restatement, and they should be 
recognized for that. I mentioned speed before. The Senate is not 
designed for speed. We started out slow. We held 10 hearings. We looked 
at the issues very carefully, everybody resolved in writing their own 
  One of the tough things about legislating is putting it down in 
writing. The concepts are so easy, but the details are so tough.
  There are a number of people who drafted bills on this--both in the 
House and in the Senate. On this side, Senator Gramm and I drafted a 
bill. Senator Corzine and Senator Dodd introduced a bill. Of course, 
Senator Sarbanes had the overreaching bill, and I believe his benefited 
a little bit from having copies of both the House and Senate bills on 
which to build his bill. I compliment him for the way he took ideas 
from all of these different approaches.
  Again, it shows the value of legislating by a wide variety of people. 
You get a wide variety of viewpoints, which actually provides some 
insights into areas that a person might not have thought about.
  But, at any rate, we concluded the hearings, and we merged the bill. 
This came to committee the week before the Fourth of July. It passed 
out of committee in one day. It came to the floor of this body just 2 
weeks ago. And now, it has already been conferenced, and come back to 
us for final passage. Part of that is a result of the atmosphere we are 
in, and the need for action. Timing can be everything on a bill. But 
part of it is because of the concentration of people who worked on 

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  This legislation is a response to problems highlighted by the recent 
corporation failures of Enron, WorldCom, and others. It does send a 
clear signal to corporate America that executives can no longer abuse 
the trust their shareholders place in them without severe consequences.

  This legislation builds a strong and independent board to oversee the 
accounting industry. It will eliminate the climate of self-regulation 
that has historically guided accounting.
  However, I would like to make one point clear. I believe that, 
overall, accountants take their responsibilities very seriously. They 
did before, and they do now. We have the best system in the world. What 
we are doing with this is to maintain that we have the best system in 
the world. Most accountants are honest and hard working. They work for 
the benefit of the investors with probably the same percentage of 
exceptions as other professions.
  This legislation will also provide for strong disciplinary action 
against executives who break the law. No longer will they be 
disciplined with a slap on the wrist. The bill recognizes that 
executives who destroy the dreams of investors by irresponsible and 
unethical behavior will be given the severe punishment they deserve.
  I also want to again thank Senator Sarbanes and Senator Gramm for 
their leadership on this issue. They both have worked tirelessly the 
past few months to get this bill finished in a timely manner. I 
particularly appreciate some of the insights Senator Gramm gave me as 
he worked on this bill in more detail than most people ever achieve. It 
is his standard, and he carried that out again this time, which did 
resolve a number of the problems. I want to congratulate Senator 
Sarbanes, and thank him for the way he conducted the hearings. A lot of 
people do not realize that the Chairman of a committee usually gets to 
pick most of the witnesses, and the ranking member gets to pick a few 
of the witnesses.
  As we went through these 10 hearings, I couldn't find any witnesses 
that I wouldn't have picked were I given the selection. There were some 
very qualified people who testified. Some of them were even 
accountants. I did appreciate that. I apologize for asking some 
questions of them but it was such a great opportunity for me. My staff 
noticed that when the camera focused in on the person giving the 
answer, the wedge of people behind them were all asleep.

  So what we dealt with is not the kind of thing that Americans get 
really excited about. It is far too detailed for us to get too excited 
about it. For accountants, these kinds of discussions are almost like 
watching ESPN.
  Senator Sarbanes did continue to meet with me and other Members and 
continued to make changes that improved the bill. There was a wide 
variety of Senators who worked on this bill. I have mentioned Senators 
Dodd and Corzine and Gramm. Senator Edwards worked with me on one 
provision that is in this bill to make sure that not only accountants, 
analysts, CEOs, CFOs, Boards and audit committees were addressed under 
this bill, but lawyers have some responsibility, too.
  I find it very exciting we are going to make lawyers have a code of 
ethics when they are dealing with the Securities and Exchange 
Commission, and that they are going to have an obligation to report 
things when they find them. I know that causes some consternation among 
some attorneys, but I think it will make, overall, the same kind of 
improvements we are expecting from everybody else.
  Senators Allen, Gregg, Baucus, Grassley, and Kennedy all worked on 
some provisions that we don't talk about too much; again, it is in the 
detail area, but it has to do with the blackout period when you are 
dealing with pension and other stock sales by executives. I know the 
intense hours it took to come up with a solution that would work. And 
if you have that many people agreeing on it, there is probably a good 
chance it will work.
  Again, I congratulate all those people for their constraint in 
limiting their ideas to what needed to be done for this bill. A lot of 
ideas were floating around here on lots of things we can with 
corporations and executives that people want to have fixed, but this 
bill did maintain some real constraint to stay on topic.
  I do believe the conference report is an improved bill from the one 
that passed the Senate. Again, I appreciate Senator Sarbanes working 
with me to make some of the changes about which I spoke.
  One change we made changes the implication that not all nonaudited 
services should be presumed illegal. The bill has been changed to 
clearly allow the audit committee to make that determination without 
the law implying that it is illegal.
  In addition, he made some changes dealing with the testing of 
internal compliance. I believe the new language more clearly represents 
the true role of auditors. One of the problems we dealt with throughout 
this process is educating Members on exactly what the role of an 
auditor is. I believe the new language represents that realization, and 
I thank the chairman for making the change.
  There is another important change in the provision dealing with 
corporate loans. The provision would still prohibit corporate 
executives from reaping millions of dollars in loans from their 
companies, but the new language also realizes that executives need to 
use things such as credit cards to conduct their business. So this 
section is a vast improvement.
  Another item I would like to comment on is the understanding that 
insurance companies, many times, have audits they must file with their 
State regulators. It would be burdensome and expensive to require these 
companies to hire a separate auditing firm to perform this 
responsibility. That problem was also recognized, and the needed 
changes were made.

  However, I also understand that due to the time constraints, a report 
will not be filed with the bill. I think this will pose a series of 
problems because we will not be defining what the authors actually 
intended with certain sections of the bill and allowing the same 
written discourse that there would be on the bill. I think this may 
especially cause problems with the extraordinary number of regulations 
that are going to have to be written to implement the bill.
  As the ranking member of the subcommittee with jurisdiction over the 
Securities and Exchange Commission, I do intend to work closely with 
the Commission to ensure that the new regulations are consistent with 
what I see as congressional intent. I will work with others to make 
sure these regulations conform.
  I ask the ranking member, could I have an additional 3 minutes?
  Mr. GRAMM. Sure.
  Mr. President, I yield an additional 3 minutes to the Senator from 
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. ENZI. I thank the Senator.
  Mr. President, some of the issues that did not come up in this bill 
dealt with FASB. We did something marvelous for FASB. We made sure of 
its independence. One way we made sure of its independence, besides 
citing in the law, was to make sure FASB has independent funding. They 
will not have to come to Congress with a budget. And they will not have 
to go to corporate America for funding. They will get independent 
funding to be able to do the job they need to do. That will inhibit us 
from trying to change what they are doing in setting accounting 
  I am pleased to state that we have taken a look at the things they 
are working on right now. They are working on four issues that are 
extremely important to make sure what happened with other companies 
will not happen again.
  I have to tell you, in those four things they have listed as a 
priority, one of them is not stock options and what to do with them. 
They do need to address that, but I certainly hope that Congress does 
not decide that what we see as a problem does supersede other problems 
that may have caused collapses such as Enron's.
  So I hope we will not get in a position of dictating now to FASB what 
they should be working on, and in what order, and to what degree, or, 
worse yet, just going ahead and passing accounting standards on our 
  With respect to section 302, the conference recognizes that results 
presented in financial statements often necessarily require 
accompanying disclosures in order to apprise investors of

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the company's true financial condition and results of operations. The 
supplemental information contained in these additional disclosures 
increases transparency for investors. Accordingly, the relevant 
officers must certify that the financial statements together with the 
disclosures contained in the periodic report, taken as a whole, are 
appropriate and fairly represent, in all material respects, the 
operations and financial condition of the issuer.
  I also believe the conferees contemplate that the Board will have 
discretion to contract or outsource certain tasks to be undertaken 
pursuant to this legislation and the regulations promulgated under the 
Act. The Board may outsource functions which can be done more 
efficiently by existing and established organization. An exercise of 
discretion in this manner does not absolve the Board of responsibility 
for the proper execution of the contracted or outsourced tasks.
  I also believe that the Conferees expect that the Board and the 
standard setting body will deem investment companies registered under 
Section 8 of the Investment Company Act of 1940 to be a class of 
issuers for purposes of establishing the fees pursuant to this section, 
and that investment companies as a class will pay a fee rate that is 
consistent with the reduced risk they pose to investors when compared 
to an individual company. Audits of investment companies are 
substantially less complex than audits of corporate entities. The 
failure to treat investment companies as a separate class of issuers 
would result in investment companies paying a disproportionate level of 
  In addition, I believe we need to be clear with respect to the area 
of foreign issuers and their coverage under the bill's broad 
definitions. While foreign issuers can be listed and traded in the U.S. 
if they agree to conform to GAAP and New York Stock Exchange rules, the 
SEC historically has permitted the home country of the issuer to 
implement corporate governance standards. Foreign issuers are not part 
of the current problems being seen in the U.S. capital markets, and I 
do not believe it was the intent of the conferees to export U.S. 
standards disregarding the sovereignty of other countries as well as 
their regulators.
  I also realize inconsistencies appear in sections 302 and 906. The 
SEC is required to complete rulemaking within 30 days after the date of 
enactment with regard to CEO certification under section 302. However, 
section 906 suggests that certification would be required upon 
enactment, thus the penalties would go into effect before the 
certification requirement is completed through the rulemaking process. 
I believe it was the intent of the Conferees that the penalties under 
section 906 should not become effective until the rulemaking process is 
  Under the conference report, section 3(a) gives the SEC wide 
authority to enact implementing regulations that are ``necessary or 
appropriate in the public interest.'' I believe it is the intent of the 
conferees to permit the Commission wide latitude in using their 
rulemaking authority to deal with technical matters such as the scope 
of the definitions and their applicability to foreign issuers. I would 
encourage the SEC to use its authority to make the act as workable as 
possible consistent with longstanding SEC interpretations.
  Finally, I not only thank the Senators I have been able to work with 
on this, but I also thank the staffs. I thank particularly Katherine 
McGuire, my legislative director, and Mike Thompson, who handles my 
banking issues. I also thank Kristi Sansonetti, who works on all of my 
legal issues, and Ilyse Schuman, who played a very important role in 
the blackout pension period.
  I thank, on Senator Sarbanes's staff, Steve Harris, Marty Gruenberg, 
Steve Kroll, Dean Shahinian, Lynsey Graham, and Vince Meehan.
  I thank, on Senator Gramm's staff, Wayne Abernathy, Linda Lord, who 
is probably one of the most knowledgeable lawyers in this area I have 
ever encountered, Michelle Jackson and Stacie Thomas.
  And, on Senator Dodd's staff, I thank Alex Sternhell.
  America will never know all the work these people have done on this 
bill, the hours they have spent on it, daytime and nighttime. I have 
seen them working in the early morning hours on this, and that is after 
spending the previous night working on it. They have just spent 
incredible time on this.
  There is some incredible expertise among these people. Without their 
help, we would have never gotten to this point. So I thank all of them.
  I thank the chairman and Senator Gramm and all the others who have 
had a part in this. It is time we adopt this bill.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, let me first say, I think Senator Enzi 
has been extremely gracious in recognizing the extraordinary 
contribution that has been made by the staff as we have formulated this 
legislation. I appreciate him doing that. I certainly associate myself 
with his remarks about the dedication and the perseverance and the 
extraordinarily high level of competence that is brought to this matter 
by staff on both sides of the aisle--committee staff and personal 
  Mr. President, I yield 10 minutes to the Senator from New Jersey.
  The PRESIDING OFFICER. The Senator from New Jersey.
  Mr. CORZINE. Mr. President, I am honored today to stand before the 
Senate to express my strong support and appreciation for the conference 
report that I suspect, within an hour or so, we will adopt, and, 
hopefully, unanimously, as we did the original bill that came out of 
the Senate.
  I think it is historic. I think it is truly critical in bringing 
about the kind of important reforms that will make a real difference to 
our financial system, not just today but I think as a standard it will 
be very much an important part of the structure of our financial system 
for decades to come.
  I have said often, since we have talked about this legislation, that 
it really does, in my mind, fill a large gap that has been missing in 
our securities laws that were written 70 years ago. I think it very 
well may be the most important step we will have taken in that interim 
period, to make sure we have a measured but strong securities and 
reporting structure in our Nation that makes for the depth and breadth 
and beauty and effectiveness of our financial markets.
  This legislation, as has been noted, comprehensively deals with 
reform of our accounting profession, enhances corporate accountability, 
improves transparency, moderates conflicts in a number of parts of our 
financial world, deals with the transparency of corporate financial 
statements, strengthens the SEC, tightens penalties and more securely 
sets the law, and ultimately, I believe, will restore the trust, the 
needed trust, and investor confidence in the integrity of America's 
capital markets.
  This was an absolutely necessary step at this time in our Nation's 
history. There has been an enormous betrayal of trust, demonstrated, 
certainly, by the headlines and the litany of corporate abuses. Let me 
say, it goes deeper than just the headlines. There have been 1,100 
corporate earnings restatements in the last 4 years. There is a basic 
loss of more than just the simple sense of trust that people get from 
the headlines. It is hard for people to make investment decisions when 
they don't have good facts, good numbers, and the ability to draw good 
conclusions about where the investor dollar should go.
  It has led to a misallocation of capital. And there was a serious 
need for people to have reform in this area because this betrayal 
really went at the heart of why people were employees of various firms, 
why investors put their trust in investing in companies, and why the 
American system, which so relies on trust, has been called into 
question with respect to the integrity of our financial markets in 
recent days.
  It is an extraordinary step. I am pleased to have been a part of it.
  I see the chairman just left the Chamber. I want to take a few 
moments to make sure he knows how strongly I feel about the leadership 
he played. For those who were not a part of this measured process that 
Chairman Sarbanes put forward--I have said this to him personally--the 
10 hearings we had were the moral equivalent of a graduate finance 
program. I

[[Page S7357]]

suspect that very few times in congressional history have we seen the 
breakdown in the detail and presentation of sophisticated information, 
complicated topics, presented with the security and integrity that were 
presented in our hearings that led to the creation of this legislation. 
He did an incredible job of putting together a bill.
  I get a little nervous when I hear people say this was a rush to 
justice, a rush to an answer. This was one of the most thoughtful and 
measured programs of review put in place before the legislation was 
written that absolutely could ever have been conceived. He deserves 
enormous credit for making sure we were thoughtful in the process.
  Like Senator Enzi, I compliment all the staffs who were involved in 
this. This was an incredible effort on all of their parts. From the 
bottom of my heart--and I am sure all those others who were involved in 
this process--I truly appreciate the thoughtfulness and care they all 
gave to it.
  I also would be remiss if I did not mention Senator Dodd for his 
great help in originally putting together our initiatives with regard 
to accounting reform, corporate oversight, and resourcing the SEC, 
which I think are fundamental parts of the legislation. We feel good 
about that. I think Senator Dodd has taken an extraordinary step in 
  Once again, I say to the Senator from Wyoming, this is about making 
America better. It is fundamentally about doing the right thing at the 
right time. His leadership on that, to make sure we stayed constrained, 
as he says, thoughtful, and measured about how we addressed the 
problem, has been most appropriate, and I have appreciated the 
opportunity to work with him. I compliment him for that effort.

  I would say the same about the Presiding Officer. The addition of a 
number of the amendments that have come, particularly with regard to 
bringing in the responsibility that is associated with lawyering in 
America, as important as it is for accountants and CFOs and CEOs, I 
think was an important step. There has been a lot of really great 
effort here.
  Now that the chairman is back in the Chamber, I want to say again, 
this is a classic example of quality leadership, of thoughtful 
leadership, and getting to a result that will make a difference in the 
lives of Americans in the years ahead.
  This is a little more personal for me because for the 5 years before 
I came here, I was a CEO. Sometimes you want to hide from that moniker 
these days since it is not so popular. I think these days about the 
words of Andy Grove, who said that he was ashamed and embarrassed by 
some of the actions and many of the actions that are associated with 
the abuse we have seen. I stand with Andy Grove on that.
  This is not one of our prouder moments in our financial system. But 
what does make me proud is that we could work together in a bipartisan 
way to come to a thoughtful, measured response that will make a 
difference, that really will move our securities laws in a direction 
that will give the American people confidence in how they read an 
income statement, when they look at a balance sheet and when they judge 
where they want to work, that they will have the necessary information.
  I am not going to go into detail on the bill. Senator Sarbanes and 
Senator Enzi did that. It is a great piece of legislation. I don't 
think it went too far at all. In fact, I think it is about spot on. I 
am sure there will be things we will need to review in time, tweak 
with, but this is a good set of initiatives which will make a 
difference in America's financial system.
  When we address these issues, it does beg to recognize that there are 
additional tasks that need to be addressed. I heard the chairman talk 
about it is not good enough to authorize; we have to appropriate the 
funds to go with the necessary obligations we put on the SEC; we need 
to make sure our new advisory board actually has the resources. I think 
we do. But their independence, their ability to function, will come 
because they have the resources. The same as the SEC; we have to do our 
job in the second part of this to make sure those resources are 
  We do need to make sure the SEC Commissioners are in place so that we 
can have a credible process of looking at enforcement and review of 
laws and making sure that as we structure the SEC in the days going 
forward, we have the best of minds brought to bear there. I hope we can 
vote on these Commissioners very quickly.
  For myself--I know there are differences of views about this--there 
are other unmet items on the agenda. Not necessarily do they apply to 
this bill, but in my view we should, as a nation, deal with the stock 
options issue. I don't think Congress should write the accounting 
rules, but I believe to recognize that stock options are an expense is 
relatively self-evident to those who have operated in business. They 
are used as a substitute for compensation. Compensation is an expense. 
That is why you see Chairman Greenspan and all of what I think is the 
critical weight of those who have observed on this issue speaking out 
that this is an issue that needs to be addressed. The Bermuda registry 
of companies, derivatives regulation are also issues.
  Could I have 1 additional minute?
  Mr. SARBANES. I yield an additional minute.
  The PRESIDING OFFICER. The Senator may continue.
  Mr. CORZINE. We need to address these issues. There are missing gaps 
in other parts of our oversight of our securities markets and financial 
markets that need to be addressed.
  Finally, I believe there is a gaping hole in our oversight of what 
our investors and employees and the public need to see addressed, and 
that is pension reform. I know working their way through Congress right 
now are a number of initiatives on it. Fewer than 50 percent of 
Americans have pensions. We have a major need to address this. We 
should pull it together in as thoughtful a way as Chairman Sarbanes has 
led our Senate to this conclusion, led this debate to a positive 
conclusion. I hope we will address that in the future. So, once again, 
I express my great gratitude to all those involved. I particularly 
thank Chairman Sarbanes for his strong leadership.

  Mr. SARBANES. Mr. President, I thank the able Senator from New Jersey 
for his kind and gracious remarks about my efforts. I underscore the 
enormously valuable contribution that Senator Corzine made to the 
development not only of this legislation but all of the work that has 
come before the committee. He brought a perspective and perception here 
that were extremely important, enabling us to work through some 
difficult issues. I appreciate that.
  I yield 7 minutes to the Senator from Vermont, chairman of the 
Judiciary Committee.
  The PRESIDING OFFICER. The Senator from Vermont is recognized.
  Mr. LEAHY. Mr. President, I thank the chairman. The Senator from 
California wishes 1 minute. I yield 1 minute to her.
  Mrs. BOXER. Mr. President, I came to the floor to give my deepest 
thanks to Senator Sarbanes and Senator Leahy for leading us in just the 
way we needed to be led toward a tough, fair reform that would lead to 
confidence in our financial system. I also thank Senator Enzi for his 
  I was a stockbroker years ago, decades ago, and in those days the big 
accounting firms were known for their integrity, and CEOs were highly 
respected. That check and balance was lost along the way and it must be 
  I believe this bill will do it and our people will, once again, have 
trust and confidence in our financial system. They will know when they 
read an annual report and it is signed off on by an accounting firm 
that it means what it says and says what it means. That will bring the 
stock market back into balance. It will not happen tomorrow. This isn't 
magic legislation. But over time confidence will be restored and our 
economy will be on solid footing once again. I thank my friends.
  Mr. LEAHY. Mr. President, I thank Chairman Sarbanes for his 
leadership on this impressive bill and on the conference agreement. The 
then-Congressman Sarbanes was one of the first people I met when I came 
to Washington as an elected Member of this body. We have been friends 
from that time forward. I have been so pleased to work with him.
  I am proud that the conference agreement includes and adopts the 
provisions of the Leahy-McCain amendment,

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which the Senate adopted by a 97-to-0 vote--again, with the strong help 
and support of the Senator from Maryland.
  These provisions are nearly identical to the Corporate and Criminal 
Fraud Accountability Act, which I introduced with Majority Leader 
Daschle and others in February. It was reported unanimously by the 
Senate Judiciary Committee in April.
  The Presiding Officer helped get this through the Judiciary 
Committee. The Leahy-McCain amendment provides new crimes with tough 
criminal penalties to restore accountability and transparency in our 
markets. It accomplishes this in three ways: No. 1. It punishes 
criminals who commit corporate fraud. No. 2. It preserves evidence that 
can prove corporate fraud. No. 3. It protects victims of corporate 
  As a former prosecutor, I know nothing focuses one's attention on the 
question of morality like seeing steel bars closing on them for a 
number of years because of what they did.
  The conference report includes a tough new crime of securities fraud 
which will cover any scheme or artifice to defraud investors. We added 
the longer jail term of the other body.
  There are three key provisions of the Senate-passed bill that were 
not in the recently passed House bill but are now in the conference 
agreement. I think they are truly an essential part of a comprehensive 
reform measure. First, we extend the statute of limitations in 
securities fraud cases. In many of the State pension funds cases, the 
current short statute has barred fraud victims from seeking recovery 
for Enron's misdeeds in 1997 and 1998. For example, Washington State's 
policemen, firefighters, and teachers were blocked from recovery of 
nearly $50 million in Enron investments by the short statute of 
limitations. That is why the last two SEC Chairmen--one a Republican 
and the other a Democrat--endorsed a longer short statute of 
limitations to provide victims with a fair chance to recoup their 
  Secondly, we include meaningful protections for corporate 
whistleblowers, as passed by the Senate. We learned from Sherron 
Watkins of Enron that these corporate insiders are the key witnesses 
that need to be encouraged to report fraud and help prove it in court. 
Enron wanted to silence her as a whistleblower because Texas law would 
allow them to do it. Look what they were doing on this chart. There is 
no way we could have known about this without that kind of a 
whistleblower. Look at this. They had all these hidden corporations--
Jedi, Kenobi, Chewco, Big Doe--I guess they must have had ``little 
doe''--Yosemite, Cactus, Ponderosa, Raptor, Braveheart. I think they 
were probably watching too many old reruns when they put this together. 
The fact is, they were hiding hundreds of millions of dollars of 
stockholders' money in their pension funds. The provisions Senator 
Grassley and I worked out in Judiciary Committee make sure 
whistleblowers are protected.
  Third, we include new anti-shredding crimes and the requirement that 
corporate audit documents be preserved for 5 years with a 10 year 
maximum penalty for willful violations. Prosecutors cannot prove their 
cases without evidence. As the Andersen case showed, instead of just 
incorporating the loopholes from existing crimes and raising the 
penalties, we need tough new provisions that will make sure key 
documents do not get shredded in the first place.
  It only takes a minute to warm up the shredder, but it can take years 
for prosecutors and victims to prove a case.
  The conference report also maintains almost identical provisions to 
those authored by Senator Biden and approved unanimously by the Senate. 
These include enhanced criminal penalties for pension fraud, mail 
fraud, wire fraud, and a new crime for certifying false financial 
reports. As chairman of the Judiciary's Subcommittee on Crime and 
Drugs, Senator Biden deserves praise for his leadership of these 
  It is time for action--decisive and comprehensive reforms that will 
restore confidence and accountability in our public markets for the 
millions of Americans whose economic security is threatened by 
corporate greed.
  We cannot stop greed, but we can keep greed from succeeding.
  We have seized this moment to make a good beginning to fashion 
protections for corporate fraud victims, preserve evidence of corporate 
crimes and hold corporate wrongdoers accountable. We have much to do to 
help repair the breaches of trust that have so shattered confidence in 
our markets and market information. We have made a good start today 
toward restoring that confidence but more will be needed. In addition 
we will need swift and strong enforcement actions and good faith 
administration of the reform set forth in our conference report. Our 
conference is concluding but our work is just beginning.
  Again, I thank the Senator from Maryland.
  Mr. SARBANES. Mr. President, I thank the Senator from Vermont. I 
underscore again how important his contributions were. The Senate 
Judiciary Committee reported out a bill without opposition in the 
committee. That is something which accompanied this legislation.
  I yield 4 minutes to the Senator from South Dakota, and then it is my 
intention to go to the Senator from North Carolina.
  Mr. JOHNSON. Mr. President, most of all I thank him for his 
extraordinary leadership on the development of this landmark 
legislation. I think it is fair to say this is the most critically 
important piece of investor protection legislation since the Securities 
Act of 1933 or the Securities Exchange Act of 1934.
  This comes on the heels of the disclosure of corporate corruption 
that has been endemic in recent months, where we have witnessed lost 
jobs, lost savings, lost pensions, and ultimately lost confidence 
worldwide in America's capital markets.
  There is an urgency that strong legislation be passed by this body 
and the Congress to restore confidence--restore both the perception and 
the reality of integrity in our capital markets.
  This legislation is strong legislation. That is why it has been 
applauded by editorial writers from the east coast to the west coast. 
Senator Sarbanes has been the subject of much congratulatory 
observation on the part of so many. This comes on the heels of, 
frankly, much weaker legislation that had been passed previously in the 
House of Representatives, the other body.
  By passing a strong Senate bill, we were able to go to conference. I 
am proud to have served on that conference committee and to craft 
legislation there that goes in the direction of the Senate rather than 
in the direction of the other body and gives this Nation strong 
securities legislation. It provides a stiff penalty for corporate 
wrongdoing, creates a strong oversight board to ensure that corporate 
audits are done properly, and that the books, in fact, are not cooked. 
It imposes tough new corporate responsibility standards and implements 
control over stock analysts' conflicts of interest, so they are not 
making a fortune while advising their clients to invest. It requires 
public companies to quickly and accurately disclose financial 
information. It ensures that the Securities and Exchange Commission has 
the resources to accomplish its mission of regulating the securities 
  These important provisions will ensure that America's financial 
markets remain efficient and transparent and the envy of the world. It 
will benefit average people who may not have had enough information to 
make informed decisions in the past and certainly could not have 
possibly known that the books were cooked, that the audits were 
incorrect, and that corruption was running rife. They had no way of 
knowing that.
  This will turn that around. This is not the last word, but this is a 
critically important step in the right direction to returning integrity 
to our markets. We can observe, having come through this horrible 
experience in recent months of disclosure after disclosure of 
corruption having taken place, a recognition that free market economies 
can only work when there is a cop on the beat. Free market economies 
can only work when there are fair, well-enforced, and strictly enforced 
rules. A free market economy without rules, without a cop on the beat, 
is not an economy that will ever work at all.
  This goes a long way, I believe, to reviving confidence in America's 
economic future. It goes a long way to restoring the fairness and 

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so that people may make their investments--and investments may go up, 
and they may go down, but they can know when they make those 
investments, they are making those investments based on true and 
accurate analysis and not on bogus numbers that some audit firm on the 
take has been willing to put forward as the truth when, in fact, they 
are not the truth.
  Again, the whole Nation owes a great deal of gratitude to Chairman 
Sarbanes and to the Senate, in this case, for what I am confident is 
going to be an overwhelming vote in favor of this legislation.
  I yield the floor.
  Mr. SARBANES. Mr. President, I yield 6 minutes to the Senator from 
North Carolina.
  The PRESIDING OFFICER (Mr. Corzine). The Senator from North Carolina.
  Mr. EDWARDS. Mr. President, I thank, along with all my colleagues, 
Senator Sarbanes for the extraordinary work he has done on this bill. 
We are proud of him. America appreciates very much what he and others 
who have worked with him have done.
  I also thank Senator Enzi, who is in the Chamber, and Senator 
Corzine, who is presiding, for the work they have done with me on what 
I think is an important part of this legislation which, in addition to 
corporate CEOs and accountants, is holding the lawyers involved in 
these transactions responsible and accountable; that if they see 
something wrong occurring, they should do something about it--report it 
to their client, to the corporation, report it to the CEO, the chief 
legal officer and, if necessary, report it to the board.
  In Congress, we are doing what needs to be done and stepping to the 
plate with regard to corporate responsibility. That is in striking 
contrast to what is going on in my home State right now.
  At a time when Americans are demanding more corporate responsibility, 
when Congress is stepping up and doing what needs to be done, the 
President has gone to North Carolina today to ask for less corporate 
responsibility, to make it easier on insurance companies and to make it 
harder on victims.
  The President is in North Carolina today proposing some of the 
smallest limits that have ever been proposed for families who have 
suffered tragedies, serious problems, as a result of poor medical care 
at a time when medical malpractice insurance premiums constitute way 
less than 1 percent, substantially less than 1 percent, of medical care 
costs in this country.
  The President is holding a roundtable, as I speak, on this subject. I 
would like to see how many victims of medical negligence, of medical 
malpractice, people who have been devastated and their lives 
devastated, are participating in this roundtable. I know these people. 
For many years I have represented them. I have been in their homes. I 
have been in homes and spent time with families whose child will never 
walk, who have been blinded for life, who have been crippled for life, 
who have suffered injuries from which they will never recover.
  These children blinded for life, crippled for life, severely injured 
for life--there is a description in the HHS report on which the 
President is relying which talks about when juries find they have been 
hurt and award money to them, they describe it as ``winning the lottery 
ticket.'' The parents of a child who has been blinded for life, the 
parents of a child who will never walk, rest assured they do not 
believe they have the winning lottery ticket.
  My question is: How many of those people are the President talking to 
when he is in North Carolina today? The next time he comes back to 
North Carolina, we invite him to talk to some of those people because 
those are the ordinary Americans to whom he should be talking. Those 
are the people who are going to be impacted. The children who have 
suffered serious injuries are the ones who are going to have the 
greatest impact and have their rights taken away by what the President 
is proposing.
  Unfortunately, listening to ordinary people is not what this 
administration does. They have done it time and time again. It is 
stunning, but it is sad and consistent. When this administration has a 
choice between protecting the rights of big companies, big insurance 
companies versus the rights of ordinary people, they choose the big 
insurance company, the big companies every single time. They have been 
dragged kicking and screaming to do something about corporate 
responsibility, which we are doing in the Congress.
  On the Patients' Bill of Rights, on which Senator Kennedy, Senator 
McCain, and I have worked so hard, they have consistently sided with 
the big HMOs, which is why we do not have a Patients' Bill of Rights in 
this country.
  On prescription drugs, when we tried to do something about the cost 
of prescription drugs on the floor of the Senate, this administration 
consistently sided with the big drug companies. When it comes to the 
environment, this administration has weakened clean air laws that 
protect the air for our children and consistently sided with the big 
energy companies that are polluting our air.
  Today the President adds to that list, in going to the State of North 
Carolina, the big insurance companies. This President loves to talk 
about compassion. My question to him is: Where is his compassion for 
the victims?
  Mr. President, I yield the floor.
  Mr. BAYH. Mr. President, I rise today in support of the accounting 
reform and corporate responsibility conference agreement. I do so, 
because I believe very strongly that it is in the best interests of 
America at this critical time in our history.
  I believe it goes way beyond mere accounting issues. What we are 
agreeing to today deals with the financial security of millions of 
individual investors across this country, the security of their 
pensions, their 401(k) programs, and their other investments for the 
future of their children and their grandchildren.
  What we are talking about today involves the very vitality of our 
economy, the amount of investment that will take place in the economy, 
the number of jobs that will be created, and the vitality of farms. It 
involves the standing of America in the international economy, whether 
we will continue to be a safe haven for investments from those abroad, 
attracting the capital that helps us build a strong foundation for 
America's economy.
  More than anything else, this bill embodies the basic values upon 
which this has been based. It clearly answers the question: Will we 
continue to encourage those virtues that have always characterized 
America and will our Nation continue to be the land of opportunity 
based upon hard work, honesty, and playing by the rules or, will we be 
perceived as the land of opportunity based upon deceit. I believe that 
the right answer, based upon traditional values and virtues, is 
embodied in the accounting reform and corporate responsibility bill.
  I congratulate our colleagues, Senators Sarbanes, Dodd, Corzine and 
Enzi. They demonstrated leadership and foresight in this issue.
  Since the tragedies of 9/11, our country has been involved in twin 
struggles: One, the physical national security of this country; and, 
second, getting this economy moving again to ensure the economic 
security of Americans across this country. There are parallels between 
these two challenges. Both occurred as a result of unexpected tragedies 
but have presented us with opportunities to make this an even better, 
stronger, more secure Nation. Both involve breaking the political 
gridlock and the bureaucratic inertia that all too often make progress 
in this Capitol difficult. And both involve striking the right balance 
between individual freedom and liberty on the one hand, that we 
cherish, and collective security, which makes individual liberty 
meaningful, on the other.
  Let me conclude where I began. This issue goes a long way beyond mere 
accounting issues. It goes a long way beyond economic policy. It goes 
to the very heart of who we are, what we stand for as a people, and the 
kind of values we cherish in the United States of America. This will 
protect individual investors. It will help to ensure the integrity of 
our economy. But more than anything else, it will ensure that those 
Americans who have embraced our tradition with virtues, who have worked 
hard and saved their money, who have played by the rules, and are 
honest are able to get ahead in this society.

[[Page S7360]]

  It will send a loud and clear signal to those who practice corporate 
fraud that they do not have an avenue to success in this country. That 
does not embody the best values of America. I strongly support the 
accounting reform and corporate responsibility conference agreement. I 
urge my colleagues to enact this important legislation.
  Mr. KERRY. Mr. President, I strongly support the Sarbanes-Oxley Act 
of 2002 because it will help end the corporate abuses that in recent 
months have plagued our economy and will help restore confidence in our 
economy. I would like to take this opportunity to express my 
appreciation for the efforts that Senator Paul Sarbanes, Chairman of 
the Senate Banking, Housing and Urban Affairs Committee, has made to 
develop and enact this important legislation. As a former member of the 
Banking Committee, I know how difficult it is to respond quickly to 
recent events that affected our capital markets. However, Senator 
Sarbanes has put together a coalition which led to a unanimous vote in 
support of his bill in the Senate, and the provisions of which is the 
base text for this conference report.
  The United States must stand for the fairest, most transparent and 
efficient financial markets in the world. However, the trust and 
confidence of the American people in their financial markets have been 
dangerously eroded by the emergence of serious accounting 
irregularities by some companies and possible fraudulent actions by 
companies like WorldCom, Inc., Enron, Arthur Andersen and others. Some 
investment banks have been charged with publicly recommending stocks 
for public purchase that their own analysts regarded as junk.
  The shocking malfeasance by these businesses and accounting firms has 
put a strain on the growth of our economy. The misconduct by a few 
senior executives has cost the jobs of hard-working Americans, 
including 17,000 at WorldCom and thousands more at companies accused of 
similar wrongdoing. The lack of faith in our financial markets 
contributed to an overall decline in stock values and has caused grave 
losses to individual investors and pension funds. For example, the 
losses to the California Public Employees Retirement System from the 
recent WorldCom disclosures total more than $580 million.
  The conference report creates a new Public Company Accounting 
Oversight Board to oversee the auditing of companies that are subject 
to the federal securities laws. The Board will establish auditing, 
quality control, and ethical standards for accounting firms. The 
conference report restricts accounting firms from providing a number of 
non-audit services to its audit clients to preserve the firm's 
independence. It also requires accounting firms to change the lead or 
coordinating partners for a company every five years.
  The conference report requires CEOs to certify their financial 
statements or face up to 20 years in prison for falsifying information 
on reports. It keeps executives from obtaining corporate loans that are 
not available to outsiders. It requires public companies to provide 
periodic reports to the SEC on off-balance transactions, arrangements, 
obligations and other relationships that may have a material current or 
future effect on the company's financial condition. It requires 
directors, officers and 10 percent equity holders to report their 
purchases and sales of company securities within two days of the 
  I am pleased that the conference report includes the Corporate Fraud 
and Criminal Fraud Accountability Act which will provide for criminal 
prosecution and enhanced penalties of persons who defraud investors in 
publicly traded securities or alter or destroy evidence in Federal 
investigations. It will also prohibit debts incurred in violation of 
securities fraud laws from being discharged in bankruptcy and protect 
whistle blowers who report fraud against retaliation by their 
  The conference report requires the SEC to adopt rules to foster 
greater public confidence in securities research including: protecting 
the objectivity and independence of stock analysts who publish research 
intended for the public by prohibiting the pre-publication clearance of 
such research or recommendations by investment banking or other staff 
not directly responsible for investment research; disclosing whether 
the public company being analyzed has been a client of the analyst's 
firm and what services the firm provided; limiting the supervision of 
research analysts to officials not engaged in investment banking 
activities; protecting securities analysts from retaliation by 
investment banking staff.
  The provisions included in this legislation will help restore 
confidence in our capital markets and in turn will help provide for 
future economic growth. It is an important first step, not a last. Mr. 
President, I am pleased to support the Conference Report and will 
continue to look for ways to improve investor confidence in our 
financial markets.
  Mr. SCHUMER. Mr. President, everyone knows that New York City is the 
financial capital of the world. Yet as we continue to rebuild our city 
in light of the tragic events of September 11, we are now faced with 
the devastating effects of depressed markets and unsure investors, who 
are once again victims. With more than half of American households 
investing in the markets, we're all affected by a crisis in investor 
  I can't think of a more appropriate time than the present for the 
Senate to debate legislation to restore dwindling investor confidence 
and bring sound footing back to our financial markets. Isn't it ironic? 
Just a few weeks ago, the headlines read ``Sarbanes bill dead'' or 
``Accounting Reform Fading.''
  In the wake of recent revelations about WorldCom and just 2 days ago 
Merck, corporate corruption has reached an all-time high; we are now at 
a new level of corporate corruption. We've reached a new low and the 
question every member of the Senate must be asking is: ``Where does it 
  Buzzwords like ``accounting fraud,'' ``corporate corruption,'' 
``Restatements,'' ``Cooking the books,'' are being bandied about in the 
press, in the coffee shops, at the dinner tables across America. Just 
this weekend at the Taste of Buffalo, people came up to me and said 
``Throw `em in jail, Chuck!'' They were talking about the Ken Lay's, 
Bernard Ebers', the Andrew Fasdow's of the corporate world. White 
collar criminals who ran giant corporations and used tricky gimmicks to 
rob investors of not only their hard money but also their confidence in 
the strongest and fairest markets in the world. * * * They are the 
investment giants: Enron, Arthur Andersen, Adelphia, CMS Energy, 
Reliant Resources, Dynergy, Tyco International, and now Xerox and 
WorldCom. A mere handful of our nations top companies who have gone 
under as a result of misrepresented earnings and poor management. In 
less than a years time, these so-called investment giants through the 
great gift of deceit and tricky accounting practices have reduced 
themselves to mere shells of their former existence.
  As a result, their use of tricky gimmicks to hide the real picture 
and literally milk the system dry have caused investors around the 
globe to question integrity of our nations markets, which are supposed 
to be the strongest and most resilient because they are perceived as 
the most open, most transparent markets in the world. Up until now, the 
United States had been a magnet for foreign investment. Yet, the 
selfish, greedy actions of a small few have led to a steady and 
precipitous drop in foreign investment in our financial markets.
  It is no secret that greed played a major role in our markets rapid 
decline and slow demise. The heads of these entities stole millions, 
some billions of dollars from investors, and it is now time that we 
make them pay for their actions.
  I commend the NASDAQ and the New York Stock Exchange for their 
announcements of new, tough corporate governance standards. The New 
York markets have taken the first steps to correct corporate 
corruption, and now it is our turn to find the right balance in light 
of these unsteady markets and times.
  So what is the right balance? The right balance is one that will not 
only offer strict corporate governance laws, protect the average 
investor from being swindled out of his or her hard earned savings by a 
fast-talking, wheeling and dealing broker, but will

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also severely punish those individuals who intentionally mislead 
investors with faulty practices. That is why I am introducing the 
following amendments to the Public Company Accounting Reform and 
Investor Protection Act of 2002 to further limit the ability of company 
execs from personally manipulating and rigging the system for their 
personal benefit and interest.
  The first amendment prohibits companies from issuing personal loans 
to company executives as seen with Worldcom, whose CEO received more 
than $300,000 in loans from the technology giant. Instead, CEOs will 
have to go to the bank, just like everyone else, to acquire a loan; 
which, will reduce the risk of CEOs ability to use company funds for 
personal purposes.
  The second amendment requires company execs to forfeit any and all 
bonuses and additional compensation if their restatements occur along 
with criminal liability.
  It is my hope that by revealing the few bad apples at the bottom of 
the barrel, and punishing these individuals for their immoral behavior, 
we can save the rest of the industry and restore confidence in our 
  The legislation pending before us will make it harder for companies 
to lie about their assets. Thats the least we can do in re-establishing 
public confidence in corporate America. Our common purpose today is to 
ensure that the Enron's, the Tyco's, and the WorldCom's never happen 
  Now is the time for us to act. It is the least we can do to shore up 
the investing public's confidence in our markets.
  Mr. WELLSTONE. Mr. President, 2 years ago it was pretty lonely being 
in favor of the auditor independence reforms that then-SEC Chairman 
Arthur Levitt said were necessary to guard against unprecedented 
accounting scandals. I am proud that I was one of the few who thought 
Chairman Levitt was going in the right direction. Unfortunately it took 
the implosion of several multi-billion dollar firms, and a loss of tens 
of thousands of jobs and hundreds of billions of dollars in investor 
equity, to prove that he was right. Now America's capital markets have 
been shaken by a dramatic loss in investor confidence, threatening the 
economic recovery.
  But today, Congress has acted. I rise today in strong support of the 
Public Company Accounting Reform and Investor Protection Act conference 
report. I commend the Senator from Maryland, the Chairman of the 
Banking Committee for putting together significant, structural reform 
of corporate governance and auditor independence and for defending it 
in conference.
  And I am heartened that the President and the House leadership have 
finally agreed to comprehensive reform instead of mere half-measures 
and tough rhetoric.
  This bill holds the bad actors accountable for their fraud and 
deception. But the legislation goes much further, as it should, because 
the problem goes much deeper. We are faced with more than the wrong 
doing of individual executives, we are faced with a crisis in 
confidence in American capital markets and American business.
  This conference report retains the strong Senate reforms virtually 
intact. It bars an auditor from offering audit services and other 
consulting services to the same client. It says publically traded 
companies must change the partner in charge of the audit every five 
years. It strengthens oversight of accountants, by establishing an 
independent board to set and enforce standards. And it enhances 
disclosure. This alone is real reform. But the bill does more. It makes 
corporate executives more accountable to their shareholders. It makes 
investment analysts more accountable to the public. And it's bill 
contains strong penalties for corporate wrong-doers.
  All and all, this legislation lets the sunshine back into the smoke-
filled corporate board rooms so that insiders have harder time cheating 
the outsiders. It is structural reform that restores checks and 
balances that will protect against fraud, deception, and reckless 
  We need to restore America's faith in corporate America. It has gone 
beyond individual wrong doing. The system hides and encourages 
corruption. Today the Congress passes strong reform. Now I call on the 
President to make enactment and enforcement of this new law a priority.
  Mr. BOND. Mr. President, last night, the conference committee 
released its final report on comprehensive accounting reform and 
corporate governance legislation. The reaction of our financial markets 
confirms that this legislation is absolutely necessary to help restore 
integrity and confidence to our free market system and our investment 
  However, in our rush to enact broad reforms, we may be damaging the 
economic framework for small companies to reach our capital markets. In 
the long term, the reforms will make our economy stronger. In the short 
term, we will be creating complete chaos for small publicly traded 
companies and companies trying to gain the capital for growth through 
stock offerings.
  I am extremely disappointed in the conferees' decision not to 
recognize this fact and provide the Securities and Exchange Commission 
and the proposed Public Company Accounting Oversight Board with greater 
flexibility in dealing with small firms. Small business has been the 
driving force of our economy for well over a decade. The high hurdles 
in the legislation are necessary for large, conglomerate companies but 
they may be a trip wire for our small business entrepreneurial 
  Mr. SARBANES. Mr. President, I note that the Congress, in the 
Enhanced Review of Periodic Disclosures section in the Sarbanes-Oxley 
Act, provides for regular and systematic reviews by the Securities and 
Exchange Commission of the periodic reports filed by public companies 
that are listed on a national securities exchange or on Nasdaq. The 
section requires that there be some review of issuers' disclosures at 
least once every three years. The bill identifies factors which the 
Commission should consider in scheduling reviews, including the 
issuer's capitalization, stock price volatility and restatements of 
earnings. We expect the Commission to exercise its discretion to 
determine the appropriate level and scope of review for each company's 
reports in the furtherance of the protection of investors and the 
public interest.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. Mr. President, may I ask what the time situation is?
  The PRESIDING OFFICER. The Senator from Maryland has 15 minutes 10 
seconds. The Senator from Wyoming has 21 minutes 30 seconds.
  Mr. SARBANES. I yield 3 minutes to the Senator from New York.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. SCHUMER. I thank the Chair.
  Mr. President, this is an extremely important day for our capital 
markets, for our country, and for the future of our economy. As we all 
know, capitalism has its ups and downs and works in ups and downs, and 
there have been periods throughout our history--I can think of the S&L 
crisis a decade ago--where things get off track, out of control. It is 
our job as Government not to interfere with entrepreneurial vigor, not 
to create such regulation that they become a straitjacketed company, 
but at the time when the markets show that things have gotten off 
track, it is our job to help put them back on track.
  There is a bottom line principle here: If investors, whether 
throughout the United States or the rest of the world, do not believe 
companies are on the level, they will not invest. Unfortunately, the 
revelations of the last year have given people the view that they are 
not on the level. That it is not the same for them in terms of even 
information as it is for somebody at the top, that the information they 
may be getting may be wrong or distorted far beyond what they normally 
would in the world. So this bill puts that back.

  I think it is a carefully balanced bill. There are some changes in 
it. There are some changes not in it that I would like to have seen, 
but the perfect should not be the enemy of the good. It is a good bill, 
a fine bill. In fact, when the agreement was reached, the Dow Jones 
went up 400 points. I do not think it was coincidental. Whether it be 
CEOs of large companies or individual investors, the public is saying 
to us, make it right. Look at the abuses that occurred in the past and 
make sure they cannot occur again, and do it

[[Page S7362]]

in a careful way that keeps our markets fluid, liquid, deep, and 
important. I think this bill does it.
  I want to pay a great deal of tribute to our chairman, Senator 
Sarbanes, and to so many others who made this bill a reality. With the 
passage of this bill, we can tell investors, while we have not cleared 
up every problem, and perhaps we will come back and address this 
later--I think we will have to in a couple areas--we have certainly 
made things better.
  A few weeks ago, Washington looked as if it was dithering in the face 
of crisis, but today we proudly act in a bipartisan way to restore 
faith in our markets, the deepest, strongest, and best markets in the 
  I dare say, I know there are some who are against any change or any 
regulation, but our markets will be stronger tomorrow than they were 
this morning when this bill passes the House, the Senate, and is signed 
by the President.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. Mr. President, we are down quite far in our time. 
Senator Dodd, who wishes to speak, is at a memorial service. I suggest 
if the other side could use some of its time, it would be helpful in 
balancing this out. I ask unanimous consent that while we are trying to 
work this out the time not be charged to either party, and 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. ENZI. 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. ENZI. 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, I yield 8 minutes to the distinguished 
Senator from Connecticut.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, when we opened the conference on this 
legislation a week or so ago, I said my hope was the passage of this 
bill would be quick, decisive, and unanimous. Two out of three is not 
bad. We got quick and decisive and almost unanimous. Our colleague from 
Texas, and our friend, was unable to support the final product for 
reasons he has already explained.
  I thought we did an excellent job in moving as quickly as we did. I 
believe passage of the legislation and the quick and decisive manner 
and nearly unanimous way we achieved the result and overwhelming 
support of the Senate and the House fulfill a responsibility of 
Congress to protect investors. There is more work to be done, but we 
have begun a significant part of the journey. In fact, we traveled a 
great distance down the road in fulfilling a congressional 
responsibility in responding to the events that began to unfold, at 
least to the public's awareness, last October. And the story is not yet 
complete. We do not know the final results.
  I have a few minutes in which to share some thoughts. I am going to 
move quickly to share comments. I begin by commending my colleague from 
Maryland, the chairman of the Banking Committee, for the tremendous job 
he has done. I said yesterday, any students of the Congress of the 
United States who want to seek out good examples of how a legislative 
product can be developed, nurtured, analyzed, discussed, debated, and 
finally passed, this is about as good an example as I have seen in 
recent years of how one ought to proceed. Certainly the hearings we 
held in the Banking Committee I don't recall attracting much attention. 
I don't recall a single one of the 12 hearings we held appearing on the 
nightly news or being lead stories on some of the 24-hour news 
  I recall a great many hearings where people sat there, raised their 
right hand, and took the fifth amendment. That got a lot of attention. 
The 12 hearings held in the Banking Committee of the Senate, where we 
went through the deliberate, slow, ponderous process of actually 
listening to people who had something to say about what ought to be 
done to clean up this mess, never made it on the nightly news that I am 
aware of.
  I commend again my friend and colleague with whom I have enjoyed my 
service in the Congress of the United States for more than a quarter of 
a century. We have sat next to each other for a good part of that time 
in both the House and in this Chamber. I sit next to him on the Foreign 
Affairs Committee and on the Banking Committee. If I could make the 
choice and it would not be determined by seniority, I would make him my 
choice for seatmate. I have great respect for him and admire him 
immensely. He has proven the value of having Paul Sarbanes as a Member 
of this body.
  I also point out the Presiding Officer, one of the most junior 
Members of this Chamber, who provided an incredible, invaluable support 
and source of ideas, guidance. Rarely does a new Member play such an 
important role on such an important piece of legislation. Of any Member 
who was involved in this process, Mike Enzi of Wyoming and others all 
would agree, in any history written of the development of the bill, the 
role of a freshman Senator from the State of New Jersey named Jon 
Corzine needs to be talked about. He played a very important role. We 
would not be here without him. I tip my hat to him and to Mike Enzi, 
the only Member of this Chamber who actually knew something at a 
practical level about what it was to be an accountant and what life was 
like in the trenches.

  For the staff and others who worked on this legislation, this was not 
the most popular idea in the world. Had it not been for unfolding 
events, I am not sure we would have developed that kind of support. I 
will love to one day tell my daughter, who is only an infant, that it 
was the power of our persuasion which convinced a majority here to go 
  Not many understood the value, the substantive value, of this bill. 
Mike Enzi did, a number of others did, there were many in the House who 
did, but an awful lot of people, even as late as a week ago, were 
suggesting maybe this bill was a bad idea, and that it would not go 
anywhere, and it shouldn't go anywhere; we ought to spend another 
couple of months thinking about it.
  Those notices were not a month old, or 2 months old; that was 5 or 6 
day ago. I understand it was the public's demand that we respond to 
this that had an awful lot to do with the support we garnered. That is 
all right. I never argue about how you get support around here as long 
as you get it in the end. We got it in the end, and that is the 
important news.
  The fact is, we are about to vote overwhelmingly to support a very 
critical piece of legislation. I am confident, as he has already 
indicated, that the President will sign this bill into law. We are 
already seeing markets respond, not entirely because of this, but 
certainly in no small measure because of the events that have unfolded 
and the parts Congress played.
  The chairman of the committee has talked about part of the bill. 
There are very important pieces, including the auditor independence. 
The board will be revolutionary in how it operates. Someone pointed out 
today, a lot of what the regulators do will determine the value of what 
we have written legislatively. I am confident that will be the case.
  Having FASB now be compensated for and paid for from public money and 
not relying on the largess and generosity of the accounting industry to 
receive compensation will make a significant difference in establishing 
accounting rules and procedures. Certainly having prohibitions against 
those going from the industry, working for the clients for whom they 
have done audits, will have a beneficial effect on slowing down this 
not only appearance of conflict, but certainly the conflicts of 
interest that have occurred too often.
  There are many other parts of the bill, including corporate 
penalties, that were crafted by our colleague from Vermont and other 
Members of the Judiciary Committee, that deserve a great deal of credit 
for their contribution to this process. The leadership,

[[Page S7363]]

Senator Daschle, certainly for insisting we move as rapidly as we did 
to get the product done in committee and get it on the floor of the 
Senate, understanding how important this issue would be to the 
shareholder interests and pensioners and to others who depend upon a 
solid, strong economy for their well-being--certainly their 
contribution is extremely important as well.
  We have seen the economy begin to do a bit better. I don't think our 
work is done, despite the accomplishments in this legislation. My hope 
would be that before this Senate adjourns in a week and a half from 
now, we might deal with the pension issue. I don't know if that will be 
possible. I know there are a lot of other issues that need to be 
considered. My hope is if we are not able to do that in the next week 
and a half, we will come back soon after we reconvene in September.
  I sit on the Health, Education, Labor, and Pensions Committee with 
the presiding officer who is interested in that committee. My hope is 
that we can deal with the pension reform matters that are necessary, as 
well, for adoption by this Congress before the 107th Congress adjourns.
  Again, I commend all those involved. I thank Alex Sternhill of my 
office, Steve Harris, Marty Gruenberg, all the Members who worked with 
the chairman's committee and the full committee of the Senate Banking 
Committee, and those on the minority side, as well, who played an 
extremely important role.
  While he disagreed with the final outcome of the bill, the Senator 
from Texas and I have had a great relationship over these many years we 
have served together. I have always enjoyed being on his side. He is a 
tough opponent, but when we worked together we have done some pretty 
good work around here and passed some pretty good bills.

  He is leaving and I believe the Senate will be less vibrant an 
institution because of his absence. It is important that this place be 
a place of ideas for debate to occur, and the Senator from Texas has 
always made that kind of contribution.
  The PRESIDING OFFICER. The time of the Senator has expired.
  Mr. DODD. Hang on. I am commending him. He is going to give me more 
  Mr. GRAMM. The Senator can have all the time he wants.
  Mr. DODD. Mr. President, I have learned after more than 20 years that 
if you want the minority to give you a little more time, start 
complementing them. It is amazing. Egos are alive and well in the 
  I am going to miss him. He is not done. We have more work, obviously, 
in the remaining weeks, but this may be one of the last major bills the 
Banking Committee considers. I don't know what life holds for him down 
the road, but the good Lord is not done with him yet.
  I look forward to your vibrancy, your ideas, and your passion in 
whatever role you decide to assume in the next part of your life, and 
thank you for the tremendous work you have given to the committee and 
this body through your service.
  I thank again the chairman and other members of the committee for 
contributing to what may be one of the most important pieces of 
legislation this body will consider in the 107th Congress and one of 
the most important in the area of financial services in many, many 
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. GRAMM. Mr. President, how much time do we have?
  The PRESIDING OFFICER. The Senator from Texas has 14 minutes.
  Mr. GRAMM. We were going to shoot for about 4:30 so I may yield some 
of it back, depending on who comes over.
  Let me, first, thank my dear colleague, Senator Dodd, for his kind 
comments. I have enjoyed working with him over the years. I very much 
appreciate the comments he made.
  I want to say something about my staff. A famous philosopher once 
said: In no way can you get a keener insight into the true nature of a 
leader than by looking at the people by whom he surrounds himself.
  I would always be happy to have anybody judge me by Linda Lord and by 
Wayne Abernathy. It is amazing how much impact staffers have on the 
Senate. I am blessed in this area to have two of the best staff people 
who have ever served any Senator in the history of this country. On 
most issues on which I worked with Linda Lord, she knows more about 
this subject than anybody, and generally more than everybody else 
combined. In working with her, I see that the Lord was a great 
discriminator; he gave some people incredible ability and most of us he 
gave relatively few, in the way of talents. I thank her for the great 
job she has done.
  I thank Wayne Abernathy. In the years I was chairman of the Banking 
Committee, Wayne Abernathy was chairman of the Banking Committee. In 
the day-to-day work, he has made an incredible contribution. If there 
is an unfairness to it, it is that I have gotten credit for all the 
good work that they have done, and I am grateful for that.
  I reserve the remainder of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. How much time do I have remaining?
  The PRESIDING OFFICER. The Senator has 3 minutes remaining.
  Mr. SARBANES. I yield 1 minute to the Senator from Minnesota.
  Mr. WELLSTONE. I thank the Senator from Maryland. I thank him forhis 
great leadership and the other Senators working on this. I can only say 
this in 1 minute: I remember when Arthur Levitt came by several years 
ago to talk with me about the need for audit independence. Senator 
Sarbanes and others have made that possible. Many people took their 
savings, converted it to stock, and thought it would be there for their 
children or grandchildren. Many people had 401(k)s they were counting 
on. All of this has eroded in value. Investors do not have the 
confidence in the economy. I think the key is to make the structural 
change and make sure people can count on the independent audits, that 
no one is cooking their books. This is the best of government 
oversight. I am very proud to support this legislation.
  Once again, I thank the chair of the Banking Committee for 
exceptional leadership.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, as Senator Gramm was speaking earlier I 
was thinking to myself that he really was exemplifying on the floor of 
the Senate the sort of dialog we went through in the committee. As he 
was making an argument about auditor independence, I was thinking that 
is really a very reasonable argument and one to which we really paid 
attention. I want to give the counterargument, and then make a 
concluding comment about the terrific work of the staff on this bill.
  Senator Gramm has suggested that the conference report should be 
changed to give the SEC or the Oversight Board authority to grant broad 
categorical exemptions from the list of non-audit services that Section 
201 of the bill prohibits registered public accounting firms to provide 
to public company audit clients.
  Such a change, in my view, would weaken one of the fundamental 
objectives of the conference report: to draw a bright line around a 
limited list of non-audit services that accounting firms may not 
provide to public company audit clients because their doing so creates 
a fundamental conflict of interest for the accounting firms.
  This limited list is based on a set of simple principles:
  A public company auditor, in order to be independent, should not 
audit its own work (as it would if it provided internal audit 
outsourcing services, financial information systems design, appraisal 
or valuation services, actuarial services, or bookkeeping services to 
an audit client).
  A public company auditor should not function as part of management or 
as an employee of the audit client (as it would if it provided human 
resources services such as recruiting, hiring, and designing 
compensation packages for the officers, directors, and managers of an 
audit client).
  A public company auditor, to be independent, should not act as an 
advocate of its audit client (as it would if it provided legal and 
expert services to an audit client in judicial or regulatory 

[[Page S7364]]

  A public company auditor should not be a promoter of the company's 
stock or other financial interests (as it would be if it served as a 
broker-dealer, investment adviser, or investment banker for the 
  I want to emphasize that Section 201 does not bar accounting firms 
from offering consulting services. It simply requires that they not 
offer certain consulting services to public companies for which they 
wish to serve as ``independent auditor.'' An accounting firm is free to 
offer any services it wants to any public companies it does not audit 
(or to any private companies). It also may engage in any non-audit 
service, including tax services, that is not on the list for an audit 
client if the activity is approved in advance by the audit committee of 
the public company.
  The conference report does authorize the new Oversight Board, on a 
case-by-case basis, to exempt any person, issuer, public accounting 
firm, or transaction from the prohibition on the provision of non-audit 
services to the extent that such exemption is necessary or appropriate 
in the public interest and is consistent with the protection of 
  The exemptive authority provided the Board is intentionally narrow to 
apply to individual cases where the application of the statutory 
requirement would impose some extraordinary hardship or circumstance 
that would merit an exemption consistent with the protection of the 
public interest and the protection of investors.
  But the fundamental presumption of the provision is that these non-
audit services, by their very nature, present a conflict of interest 
for an accounting firm if provided to a public company audit client.
  Arthur Andersen was conflicted because it served Enron as both an 
auditor and a consultant, and for two years it also served as Enron's 
internal auditor, essentially auditing its own work. Enron was 
Andersen's largest client, and in 2000 Andersen earned $27 million in 
consulting fees from the company ($25 million in audit fees).
  In its oversight hearing earlier this year on the failure of Superior 
Bank in Hinsdale, Illinois, the Senate Banking Committee learned first-
hand the risks associated with allowing accounting firms to audit their 
own work. In that case, the accounting firm audited and certified a 
valuation of risky residual assets calculated according to a 
methodology it had provided as a consultant. The valuation was 
excessive and led to the failure of the institution.
  The SEC's recent actions against one of the large public accounting 
firms (KPMG) in an enforcement case illustrates the danger of allowing 
an accounting firm to serve as a broker dealer, investment advisor, or 
investment banker for a public company audit client (Porta Systems). In 
that case, the accounting firm set up an affiliate and the affiliate 
provided ``turn around'' services to the issuer, including functioning 
as the president of the company. There would have been no need for an 
SEC action if the non-audit service were simply prohibited.
  The inherent conflict created by these consulting services has been 
exacerbated by their rapid growth in the last 15 years. According to 
the SEC, 55 percent of the average revenue of the big five accounting 
firms came from accounting and auditing services in 1988. Twenty-two 
percent of the average revenue came from management consulting 
services. By 1999, those figures had fallen to 31 percent for 
accounting and auditing services, and risen to 50 percent for 
management consulting services. Recent data reported to the SEC showed 
on average public accounting firms' non-audit fees comprised 73 percent 
of their total fees, or $2.69 in non-audit fees for every $1.00 in 
audit fees.
  A number of the most knowledgeable and thoughtful witnesses who 
testified before the Senate Banking Committee in the hearings held in 
preparation for this legislation argued that the growth in the non-
audit consulting business done by the large accounting firms for their 
audit clients has so compromised the independence of the audits that a 
complete prohibition on the provision of consulting services by 
accounting firms to their public audit clients is required. Perhaps the 
strongest advocates of this view have been the managers of large 
pension funds who are entrusted with people's retirement savings.
  For example, the California Public Employees' Retirement System 
(CalPERS), manages pension and health benefits for more than 1.3 
million members and has aggregate holdings totaling almost $150 
billion. According to CalPERS CEO, James E. Burton:

       the inherent conflicts created when an external auditor is 
     simultaneously receiving fees from a company for non-audit 
     work cannot be remedied by anything less than a bright-line 
     ban. An accounting firm should be an auditor or a consultant, 
     but not both to the same client.
  John Biggs is CEO of Teachers Insurance and Annuity Association 
College Retirement Equities Fund (TIAA-CREF), the largest private 
pension system in the world, which manages approximately $275 billion 
in pension assets for over 2 million participants in the education and 
research community. Mr. Biggs was also a member of the last Public 
Oversight Board. He told the Committee that:

       TIAA-CREF does not allow our public audit firm to provide 
     any consulting services to us, and our policy even bars our 
     auditor from providing tax services.

  The conference report chose not to follow the approach of imposing a 
complete prohibition on the provision of non-audit services to audit 
clients. Instead it chose the approach of identifying the non-audit 
services which by their very nature pose a conflict of interest and 
should be prohibited. Among those supporting this approach are former 
Comptroller General Charles Bowsher, former SEC Chairman Arthur Levitt, 
and former Federal Reserve Board Chairman Paul Volcker.
  The argument is made that small companies, in particular, may be 
burdened by this requirement and that the SEC should have broad 
authority to grant categorical exemptions. It is even argued that so 
many companies would seek case-by-case exemptions that the SEC would 
become overwhelmed and would be unable to process the exemptions in a 
timely manner.
  The point is that if the provision of a non-audit service to a public 
company audit client creates a conflict of interest for the accounting 
firm that non-audit service should be prohibited, whether the public 
company is large or small. Investors rely on the audit in making their 
investment decisions, and the independence of the audit should not be 
compromised by the provision of the non-audit service. If a legitimate 
exceptional hardship is imposed, then the Oversight Board would have 
the authority to grant case-by-case exemptions.
  The present Comptroller General, David Walker, issued a particularly 
strong statement in support of the approach to auditor independence 
taken in the bill conference report I would like to quote:

       I believe that legislation that will provide a framework 
     and guidance for the SEC to use in setting independence 
     standards for public company audits is needed. History has 
     shown that the AICPA [American Institute of Certified Public 
     Accountants] and the SEC have failed to update their 
     independence standards in a timely fashion and that past 
     updates have not adequately protected the public's interests. 
     In addition, the accounting profession has placed too much 
     emphasis on growing non-audit fees and not enough emphasis on 
     modernizing the auditing profession for the 21st century 
     environment. Congress is the proper body to promulgate a 
     framework for the SEC to use in connection with independence 
     related regulatory and enforcement actions in order to help 
     ensure confidence in financial reporting and safeguard 
     investors and the public's interests. The independence 
     provision [of the bill] . . . strikes a reasoned and 
     reasonable balance that will enable auditors to perform a 
     range of non-audit services for their audit clients and an 
     unlimited range of non-audit services for their non-audit 
     clients. . . . In my opinion, the time to act on independence 
     legislation is now.

  This auditor independence provision is at the very center of this 
legislation. It goes to the public trust granted to public accounting 
firms by our securities laws which require comprehensive financial 
statements that must be prepared, in the words of the Securities Act of 
1933, by ``an independent public or certified accountant.''
  The statutory independent audit requirement has two sides, a private 
franchise and a public trust. It grants a franchise to the nation's 
public accountants--their services, and only their services--must be 
secured before an issuer of securities can go to market, have the 
securities listed on the nation's stock exchanges, or comply

[[Page S7365]]

with the reporting requirements of the securities laws. This is a 
source of significant private benefit.
  But the franchise is conditional. It comes in return for the CPA's 
assumption of a public duty and obligation. As a unanimous Supreme 
Court noted nearly 20 years ago:

       In certifying the public reports that collectively depict a 
     corporation's financial status, the independent auditor 
     assumes a public responsibility. . . . [That auditor] owes 
     ultimate allegiance to the corporation's creditors and 
     stockholders, as well as to the investing public. This 
     ``public watchdog'' function demands that the accountant 
     maintain total independence from the client at all times and 
     requires complete fidelity to the public trust.

  We must cut the chord between the audit and the consulting services 
which by their very nature undermine the independence of the audit. We 
must break this culture that exists, and to do that we need a bright 
line. In my view granting broad exemption authority to the Oversight 
Board or the SEC to permit these non-audit services would undermine the 
separation the conference report is intended to establish.
  I wanted to underscore the fact that there was a very reasoned, 
intense discussion of these issues. There is reason on both sides. I 
thought the Senator made a very strong statement. I wanted to give the 
counterstatement here.
  I share Senator Dodd's view about this exchange of ideas and its 
importance to the functioning of this institution. The Senator from 
Texas has certainly made an important contribution in that regard.
  I wish to take a moment to recognize the terrific work of the staff. 
Senator Gramm referred to Wayne Abernathy and Linda Lord, and of course 
Mike Thompson and Katherine McGuire of Senator Enzi's staff; Laura 
Ayoud of the legislative counsel who worked day and night to put this 
thing in legislative language; the staff of the Banking Committee led 
by Steve Harris, Dean Shahinian, Steve Kroll, Lynsey Graham, Vincent 
Meehan, Sarah Kline, Judy Keenan, Jesse Jacobs, Craig Davis, Marty 
Gruenberg, Gary Gensler, and, as I said, all led so ably by Steve 
  We had the very able staff of the Senators on the committee: Alex 
Sternhell, Naomi Camper, Jon Berger, Jimmy Williams, Catherine Cruz 
Wojtasik, Leslie Wooley, Margaret Simmons, Matt Young, Roger 
Hollingsworth, and Matt Pippin.
  I thank again all my colleagues who participated. I think I 
recognized most of them in the course of the day, and I want to say 
just a word about Chairman Oxley and Congressman LaFalce on the House 
side, who made it possible for us to work through this conference and 
with whom we have worked so cooperatively on so many issues that have 
come before our committee.
  The PRESIDING OFFICER. The time of the Senator has expired. Who 
yields time?
  Mr. SARBANES. How much time is remaining?
  The PRESIDING OFFICER. The Senator from Maryland is without time. 
There are 12 minutes for the Senator from Texas.
  Mr. GRAMM. Mr. President, we have reached the hour that we set for a 
vote. I am ready to yield back the 12 minutes and have the vote 
  I reiterate that this is a bill that was fraught with danger in the 
environment that we were in. Literally anything could have passed. I 
think, by a combination of good work and some good fortune, that has 
not been the case. We have a vehicle before us that I think will be 
complicated. It will be difficult to implement.
  I think we will probably change it in the future. But I think in 
terms of our ability to prosper under the bill, and for the economy to 
survive not only the illness but the prescription of the doctor in this 
case, I think it is doable.
  I yield the remainder of our time.
  The PRESIDING OFFICER. The question is on agreeing to the conference 
  Mr. SARBANES. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  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) is 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 99, nays 0, as follows:

                      [Rollcall Vote No. 192 Leg.]


     Nelson (FL)
     Nelson (NE)
     Smith (NH)
     Smith (OR)

                             NOT VOTING--1

  The conference report was agreed to.
  Mr. SARBANES. Mr. President, I move to reconsider the vote.
  Mr. DASCHLE. 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 (Mr. Dayton). 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 (Ms. Cantwell). Without objection, it is so