[Congressional Record Volume 149, Number 174 (Tuesday, November 25, 2003)]
[Senate]
[Pages S16023-S16024]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DODD (for himself and Mr. McCain):
  S. 1975. A bill to amend the Internal Revenue Code of 1986 to deny a 
deduction for securities-related fines, penalties, and other amounts, 
and to provide that revenues resulting from such denial be transferred 
to Fair Funds for the relief of victims; to the Committee on Finance.

[[Page S16024]]

  Mr. DODD. Mr. President, I rise today to introduce important 
legislation designed to ensure that corporate wrongdoers are held fully 
responsible for their illegal actions and that investors are given fair 
compensation for such actions.
  As most of my colleagues are aware, in April of this year, 10 large 
securities firms agreed to pay a total of $1.4 billion in fines and 
payments for giving their investment clients tainted and misleading 
advice--advice which cost those clients hundreds of millions of 
dollars.
  The ``global settlement'' was initially lauded as a historic victory 
against corporate wrongdoers. And indeed, thanks to the efforts of 
Federal and State securities regulators, and New York State Attorney 
General Eliot Spitzer, the settlement has the potential to 
fundamentally change pervasive business practices that were so harmful 
to so many.
  But the settlement's impact could be significantly weakened by a 
loophole that would allow the firms to avoid paying taxes on nearly 
$900 million of the penalties--by deducting them as standard business 
costs.
  Only one-third of the total settlement is specifically prohibited by 
law from being tax-deductible. If the firms are able to write off the 
remainder of the costs as business expenses, then the total price tag 
of the settlement will be much smaller than advertised.
  However, there is much more at stake. America's financial markets are 
the most vibrant in the world for one reason--investor confidence. The 
securities laws of the 1930's built the foundation for the deepest, 
most liquid markets in the world. They have created a public trust in 
our markets among investors worldwide who know that we have a zero-
tolerance policy towards corporate malfeasance.
  If we allow firms to write off fines as the cost of doing business, 
then we will perpetuate the idea that fraud is no longer a crime, but 
an accepted business practice. And we will compromise the very 
principles on which our markets are based--credibility, honesty, and 
responsibility.
  We need to send the strongest possible message to corporate America 
that defrauding people of their life savings can never, under any 
circumstances, be considered ``business as usual.'' Our tax code should 
not reward these practices--it should discourage and punish them, to 
the greatest extent possible. Otherwise, the victims of corporate 
misconduct will include not only individual investors, but the 
credibility of our capital markets. And if our markets suffer, so will 
America's place in the world economy.
  That is why I rise today to introduce my legislation. This 
legislation takes two important steps towards fixing this problem. 
First, it expressly prohibits any tax deduction on payments for 
violations of securities laws, including those required by the global 
settlement. Second, it directs all of the tax revenues gained from 
those payments into existing funds administered by the Securities and 
Exchange Commission which repay money to defrauded investors. Under my 
bill, the perpetrators of corporate misdeeds will be fairly punished, 
and the victims will be fairly compensated.
  Everyone agrees that restoring investor confidence is a crucial part 
of getting our economy back on the right track. The vitality of 10 
largest securities firms represent an important piece of this puzzle. 
But Americans will only be willing to entrust them with their hard-
earned money if they can be sure that they are being dealt with 
ethically and honestly.
  The global settlement represents a tremendous opportunity to help 
mend the tattered relationship between corporate America and the 
American people. We can't afford to lose that opportunity in a tax 
loophole. We need to show Americans that corporate fraud is a real 
crime--not business as usual. I urge my colleagues to support this 
bill.
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