[Congressional Record Volume 148, Number 104 (Friday, July 26, 2002)]
[Senate]
[Pages S7426-S7427]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ACCOUNTING REFORM

  Mr. BIDEN. Mr. President, I rise today to voice my support for H.R. 
3764, the Sarbanes-Oxley bill. While not perfect, this is important 
legislation. I commend my friend and colleague, Senator Sarbanes, the 
distinguished chairman of the Senate Banking Committee, for his 
relentless effort to usher this landmark legislation through the 
Senate. I am proud to have worked with him on such an important cause.
  To restore some level of confidence, the accounting reform 
legislation we have passed is critical to stem the corporate greed 
threatening our economy. Over the last several months the market has 
lost considerable value. The dollar is at a 2-year low. Investors are 
questioning the strength of our financial markets. Each day seems to 
bring new revelation of corporate excess--some horrific story about 
unabashed corporate greed and malfeasance. It is a seemingly endless 
onslaught. We don't know where it will end. And, frankly, we fear how 
deep it might go.
  There is a crisis of confidence in American business. It runs deep, 
with revelations about cooked books, fraudulent numbers, inflated 
values, and stock options that make the average working American--who 
earns about $31,000 a year and fears for his or her pension and health 
care benefits--sick. In fact, a Pew Forum survey conducted in March, 
long before the recent revelations, said the esteem in which business 
executives are held is falling by the day. I shudder to think what 
those numbers would be now.
  Something is clearly wrong with the way corporate America is doing 
business. Everyone here knows that--and--if you follow the money--you 
will see that investors also know it. They are registering their 
concern by pulling out of the market. Some have lost their retirement 
savings. Others have to postpone their retirement. They are unable to 
pay college tuition. Surely they have a right to expect a little truth 
in accounting.
  The accounting reform legislation we approve today goes a long way to 
restore their confidence and stem the tide of market uncertainty. It 
will bring accountability and transparency to corporations, their 
officials, and their accountants. We should insist on nothing less.
  In addition, the Sarbanes-Oxley bill includes significant new 
criminal laws for white collar offenses, and raises penalties for a 
number of existing ones.
  I am proud to have sponsored, along with my good friend from Utah, 
Senator Hatch, S. 2717, the White-Collar Penalty Enhancement Act of 
2002. It grew out of a series of hearings I held this year in the 
Judiciary Subcommittee on Crime and Drugs in which we heard about the 
``penalty gap'' between white collar offenses and other serious Federal 
criminal offenses. The Senate unanimously adopted our bill as an 
amendment to the Sarbanes bill several weeks ago, and we are pleased 
that its key provisions are in the legislation approved by the House-
Senate conference. Let me briefly summarize those provisions which will 
become law once the President signs this legislation.
  Our bill significantly raised penalties for wire and mail fraud, two 
common offenses committed by white collar crooks in defrauding 
financial victims. It also created a new 10-year felony for criminal 
violations under the Employee Retirement Security Act of 1974 (ERISA). 
Under current law, a car thief who committed interstate auto theft was 
subject to 10 years in prison, while a pension thief who committed a 
criminal violation of ERISA was subject to up to 1 year in prison. Our 
bill now treats pension theft under ERISA like other serious financial 
frauds by raising the penalties to 10 years.
  Our bill also amended the Federal conspiracy statute which currently 
carries a maximum penalty of 5 years in prison. In contrast, in our 
Federal drug statutes, a drug kingpin convicted of conspiracy is 
subject to the maximum penalty contained in the predicate offense which 
is the subject of the conspiracy--a penalty which can be much higher 
than 5 years. I say what is good for the drug kingpin is good for the 
white collar crook. Thus, our bill harmonized conspiracy for white 
collar fraud offenses with our drug statutes. Now, executives who 
conspire to defraud investors will be subject to the same tough 
penalties--up to 20 years--as codefendants who actually carry out the 
fraud.
  Our bill also directed the U.S. Sentencing Commission to review our 
existing Federal sentencing guidelines. As you know, the sentencing 
guidelines carefully track the statutory maximum penalties that 
Congress sets for specific criminal offenses. Our bill requires the 
sentencing commission to go back and recalibrate the sentencing 
guidelines to raise penalties for the white collar offenses affected by 
this legislation.
  Finally, and most significantly, our bill required top corporate 
officials to certify the accuracy of their companies' financial reports 
filed with the Securities and Exchange Commission.
  Incredibly, under current law, there is no requirement that corporate 
officials certify the accuracy of these reports. As we have seen in the 
cases of WorldCom and others, this is no small matter. Willful 
misstatements about the financial health of a company--once uncovered--
can lead, almost overnight, to a company's bankruptcy, wholesale loss 
of jobs for its employees, and a total collapse in the value of the 
company's pension funds.
  That is why Federal Reserve Board Chairman Alan Greenspan last week 
testified before the Senate Banking Committee that imposing criminal 
sanctions on CEOs who knowingly misrepresent the financial health of 
their company is the key to real reform of corporate wrongdoing.
  I am pleased that this centerpiece of the Senate-passed accounting 
bill is retained in the final legislation. Our provision is simple: 
corporate officials who cook the books and then lie about their 
companies' financial health will go to jail. Our bill says that all 
CEOs and CFOs of publicly traded companies must certify that their 
financial reports filed with the SEC are accurate. If they 
``knowingly'' certify a false report, they are subject to a 10-year 
felony; if they ``willfully'' certify a false report, they are subject 
to a 20-year felony.
  But we may have left one stone unturned. I regret that this final 
bill makes a small but significant change from the original Biden-Hatch 
amendment put the chairman of the board on the hook, along with the CEO 
and CFO. This final bill removed the board chairman from the group of 
corporate officials who are required to certify the accuracy of the 
reports. I think that is a mistake. Contrary to what some in the 
business community argued, requiring the board chairman to certify the 
accuracy of these financial reports would not have threatened the 
management of a corporation or the integrity of its executives.
  Rather, our bill merely would have formalized what should be normal 
procedure--and what every American thinks is plain old common sense--
namely that corporate executives certify that their books are not 
cooked

[[Page S7427]]

and their numbers are truthful. I do not see--and I am sure the 
American people fail to see--what is wrong with demanding truthfulness 
in the valuation of a publicly traded company. It would seem to me that 
those in positions of responsibility in the business community, at 
every level--from the chairman of the board on down--should embrace the 
notion of truth in accounting.
  Why would they demand anything less after what we have seen in the 
last few weeks with a $4 billion discrepancy in WorldCom's books? After 
all, ``the buck stops'' with the chairman of the board--to whom the CEO 
and CFO report. It strikes me as crazy that we will now hold the CEO 
and CFO responsible, but not their boss. Indeed, as many have recently 
pointed out, in most American corporations, the CEO is the chairman of 
the board. To let board chairs off the hook could create a loophole 
where crooked CEO's simply change their title to escape accountability 
for their corporate filings.

  Some naysayers have suggested that the certification requirement 
would undermine the ability of the chair to oversee and act 
independently of the chief executive officer. It is absurd that a 
requirement that merely prohibits top corporate officers from lying 
about the company's financial health would sacrifice board 
independence. If anything, it ensures proper oversight by fostering a 
healthy division of responsibility between management and the board of 
directors, by encouraging the board chair to be actively engaged in the 
periodic process of checking the accuracy of financial statements; and 
by recognizing that the board chair has a vital role in ``stopping 
corporate debacles'' by not knowingly or willfully contributing to the 
filing of false financial reports.
  Other opponents suggested that the certification requirement would 
likely drive independent chairmen out of business and discourage 
otherwise good business leaders from serving on boards of directors. 
This is the same old ``sky is falling'' claim that Wall Street uttered 
during consideration of the original securities legislation in the 
1930s, and it has repeated this mantra with virtually every 
congressional reform offered ever since.
  Truth be told, the certification requirement only imposes criminal 
sanctions for top corporate officials who lie about their financial 
records. Specifically, it only applies to ``knowing'' and ``willful 
failures to certify financial statements--a very high standard. It 
would be one thing if the requirement applied criminal sanctions on a 
``strict liability'' or ``neglience'' standard to board chairs who 
certify false reports. I could even understand their concern under the 
original ``reckless'' standard--that is, that the board chair ``should 
have known'' that the statements were false. But our requirement is 
only triggered where top corporate officials knowingly or willfully 
certify financial statements that they know to be false. So, only top 
corporate officers who are consciously aware of a false statement--and 
not those who act out of ignorance, mistake, accident or even 
sloppiness--would conceivably be subject to criminal sanctions. It is 
troubling, but quite revealing, that even this relatively meek 
certification would alarm some in the business community.
  Regrettably, that is the stone that was left unturned. I wish we had 
turned it. I wish we had, in our infinite wisdom, included board 
chairmen in our legislation.
  Nevertheless, this bill represents a huge step forward. It will 
strengthen accountability. It will tell CEOs and CFOs--we expect you to 
watch your books, and not bury your heads in the sand!'' It will given 
prosecutors important new tools to fight white collar crime. It will 
give judges the ability to impose meaningful sentences for white collar 
crooks.
  In closing, a common theme I have heard at our Crime Subcommittee 
hearings is that white collar crimes are not ``crimes of passion,'' as 
a general rule. Rather, they are the result of a careful, ``cost-
benefit'' analysis in which the crook considers his chance of being 
caught; and his chances of actually going to prison. To date, it was a 
pretty safe bet for the white collar crook to assume he would avoid 
detection, and, even if he was detected, he would not go to jail.
  I have a message today for white collar crooks: ``We are deadly 
serious. We will prosecute you to fullest extent of the law. And we 
will put you in jail for your crimes.''

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