[Congressional Record Volume 151, Number 45 (Friday, April 15, 2005)]
[Extensions of Remarks]
[Pages E657-E658]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTRODUCTION OF THE DUE PROCESS AND ECONOMIC COMPETITIVENESS 
                            RESTORATION ACT

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                        Thursday, April 14, 2005

  Mr. PAUL. Mr. Speaker, I rise to introduce the Due Process and 
Economic Competitiveness Restoration Act, which repeals Section 404 of 
the Sarbanes-Oxley Act. Passed in the hysterical atmosphere surrounding 
the Enron and WorldCom bankruptcies, Sarbanes-Oxley was rushed into law 
by a Congress more concerned with doing something than with doing the 
right thing. Today, American businesses, workers, and investors are 
suffering as a result of Congress's eagerness to appear ``tough on 
corporate crime.'' Sarbanes-Oxley imposes costly new regulations on the 
financial services industry. These regulations are damaging America's 
capital markets by providing an incentive for small U.S. firms and 
foreign firms to deregister from U.S. stock exchanges. According to a 
study by the prestigious Wharton Business School, the number of 
American companies deregistering from public stock exchanges nearly 
tripled the year after Sarbanes-Oxley became law, while the New York 
Stock Exchange had only 10 new foreign listings in all of 2004.
  The post-Sarbanes-Oxley reluctance of small businesses and foreign 
firms to register on American stock exchanges is easily understood when 
one considers the costs this act imposes on businesses. According to a 
survey by Kron/Ferry International, Sarbanes-Oxley has cost Fortune 500 
companies an average of $5.1 million in compliance expenses in 2004, 
while a study by the law firm of Foley and Lardner found that the act 
has increased the cost associated with being a publicly held company by 
130 percent.
  Many of the major problems with Sarbanes-Oxley stem from Section 404 
that requires that a Chief Executive Officer certify the accuracy of 
financial statements and that a company's outside auditors must 
``attest to'' the soundness of the internal controls used in preparing 
the statements. The Public Company Accounting Oversight Board defines 
internal controls as ``controls over all significant accounts and 
disclosures in the financial statements.'' According to John Berlau, 
Warren Brookes Fellow at the Competitive Enterprise Institute, the 
definition of internal controls is so broad that a CEO could possibly 
be found liable for not using the latest version of Windows! Financial 
analysts have identified Section 404 as the major reason why American 
corporations are hoarding cash instead of investing it in new ventures.
  Journalist Robert Novak, in his column of April 7, said that, ``[f]or 
more than a year, CEOs and CFOs have been telling me that 404 is a 
costly nightmare'' and ``ask nearly any business executive to name the 
biggest menace facing corporate America, and the answer is apt to be 
number 404 . . . a dagger aimed at the heart of the economy.''
  Compounding the damage done to the economy by Sarbanes-Oxley is the 
harm the act does to constitutional liberties and due process. CEOs and 
CFOs can be held criminally liable, and subjected to up to 25 years in 
prison, for inadvertent errors. Laws criminalizing honest mistakes done 
with no intent to defraud are more typical of police states than free 
societies. I hope those who consider themselves ``civil libertarians'' 
will recognize the danger of imprisoning any citizens for inadvertent 
mistakes, put aside any prejudice against private businesses, and join 
my efforts to repel Section 404.
  Nowhere in the United States Constitution is the federal government 
given the authority to regulate the accounting standards of private 
corporations. These questions are to be resolved by private contracts 
between a company and its shareholders and by state and local 
regulations. I would remind my colleagues who are skeptical of the 
ability of markets and local law enforcement to protect against fraud 
that the market passed judgment on Enron, in the form of declining 
stock prices, before Congress even held the first hearing on the 
matter. My colleagues should also keep in mind that certain state 
attorneys general have

[[Page E658]]

been very aggressive in prosecuting financial crimes
  Far from fulfilling the promise of the authors of Sarbanes-Oxley that 
it would protect economic growth by creating a favorable investment 
climate, Section 404 of the Sarbanes-Oxley Act has raised the costs of 
doing business, thus causing foreign companies to withdraw from 
American markets and retarding economic growth. By criminalizing 
inadvertent mistakes and exceeding Congress's constitutional authority, 
Section 404 also undermines the rule of law and individual liberty. I, 
therefore, urge my colleges to cosponsor the Due Process and Economic 
Competitiveness Restoration Act.

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