[Senate Hearing 107-948]
[From the U.S. Government Printing Office]


 
               ACCOUNTING REFORM AND INVESTOR PROTECTION
                               VOLUME III

                                                        S. Hrg. 107-948

                         ACCOUNTING REFORM AND
                          INVESTOR PROTECTION

=======================================================================

                               DOCUMENTS

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               VOLUME III

                                   ON

       THE LEGISLATIVE HISTORY OF THE SARBANES-OXLEY ACT OF 2002:
 ACCOUNTING REFORM AND INVESTOR PROTECTION ISSUES RAISED BY ENRON AND 
                         OTHER PUBLIC COMPANIES

                               ----------                              

                 EXCERPTS FROM THE CONGRESSIONAL RECORD

                               ----------                              

                JULY 8, 9, 10, 11, 12, 15, AND 25, 2002

                               ----------                              

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


87-708              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel
             Wayne A. Abernathy, Republican Staff Director
                  Martin J. Gruenberg, Senior Counsel
                       Dean V. Shahinian, Counsel
                   Stephen R. Kroll, Special Counsel
                       Lynsey Graham Rea, Counsel
                        Vincent Meehan, Counsel
                        Sarah A. Kline, Counsel
                  Judith Keenan, Senior Policy Advisor
    Alexander M. Sternhell, Staff Director, Securities Subcommittee
                Linda L. Lord, Republican Chief Counsel
              Stacie Thomas Morales, Republican Economist
                Michelle R. Jackson, Republican Counsel
     Geoffrey P. Gray, Republican Senior Professional Staff Member
                  Mark F. Oesterle, Republican Counsel
                Katherine McGuire, Republican Economist
         Michael D. Thompson, Republican Legislative Assistant
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor
                Irene Whiston Carroll, Assistant Editor
                   Frank E. Wright, Assistant Editor
                    Kevin D. High, Assistant Editor

                                  (ii)

                            C O N T E N T S

                              ----------                              

                                VOLUME I

                              ----------                              

                       TUESDAY, FEBRUARY 12, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     3
    Senator Miller...............................................     4
    Senator Enzi.................................................     4
    Senator Corzine..............................................     6
    Senator Hagel................................................     7
    Senator Stabenow.............................................     7
    Senator Bayh.................................................     8
    Senator Carper...............................................     8
    Senator Johnson..............................................     9
        Prepared statement.......................................    55
    Senator Schumer..............................................    10
    Senator Dodd.................................................    11
    Senator Akaka................................................    56

                               WITNESSES

Arthur Levitt, Chairman, U.S. Securities and Exchange Commission, 
  1993 to 2000...................................................    14
    Prepared statement...........................................    56
Richard C. Breeden, Chairman, U.S. Securities and Exchange 
  Commission, 1989 to 1993.......................................    16
    Prepared statement...........................................    58
    Response to written questions of Senator Hagel...............    94
David S. Ruder, Chairman, U.S. Securities and Exchange 
  Commission, 1987 to 1989.......................................    20
    Prepared statement...........................................    69
    Response to written questions of Senator Hagel...............    94
Harold M. Williams, Chairman, U.S. Securities and Exchange 
  Commission, 1977 to 1981.......................................    23
    Prepared statement...........................................    75
    Response to written questions of Senator Hagel...............    95
Roderick M. Hills, Chairman, U.S. Securities and Exchange 
  Commission, 1975 to 1977.......................................    26
    Prepared statement and exhibits..............................    78
    Response to written questions of Senator Hagel...............    95

                              ----------                              

                      THURSDAY, FEBRUARY 14, 2002

Opening statement of Chairman Sarbanes...........................    97

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................    98
        Prepared statement.......................................   141
    Senator Stabenow.............................................    99
        Prepared statement.......................................   141
    Senator Enzi.................................................    99
    Senator Bayh.................................................   100
    Senator Crapo................................................   101
    Senator Bunning..............................................   101
    Senator Shelby...............................................   113
    Senator Carper...............................................   113
    Senator Akaka................................................   114
        Prepared statement.......................................   142
    Senator Miller...............................................   128
    Senator Corzine..............................................   129
    Senator Johnson..............................................   142

                               WITNESSES

Paul A. Volcker, Chairman, International Accounting Standards 
  Committee Foundation; Chairman, Arthur Andersen's Independent 
  Oversight Board; Former Chairman, Federal Reserve System.......   102
    Prepared statement...........................................   143
Sir David Tweedie, Chairman, International Accounting Standards 
  Board; Former Chairman, United Kingdom's Accounting Standards 
  Board..........................................................   107
    Prepared statement...........................................   147

              Additional Material Supplied for the Record

Letter from Paul A. Volcker, Chairman, International Accounting 
  Standards Committee Foundation; Chairman, Arthur Andersen's 
  Independent Oversight Board; Former Chairman, Federal Reserve 
  System to Chairman Paul S. Sarbanes, dated May 17, 2002........   159
Editorial from The Wall Street Journal by Paul A. Volcker, 
  Chairman, International Accounting Standards Committee 
  Foundation, dated February 19, 2002............................   164
Memo from Sir David Tweedie, Chairman, International Accounting 
  Standards Board; Former Chairman, United Kingdom's Accounting 
  Standards Board on Funding of the UK Accounting Standards Board   166
Article from Sir David Tweedie, Chairman, International 
  Accounting Standards Board; Former Chairman, United Kingdom's 
  Accounting Standards Board, dated January 2002.................   168

                              ----------                              

                       TUESDAY, FEBRUARY 26, 2002

Opening statement of Chairman Sarbanes...........................   181

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................   183
    Senator Miller...............................................   184
    Senator Enzi.................................................   184
    Senator Stabenow.............................................   186
    Senator Allard...............................................   187
        Prepared statement.......................................   234
    Senator Shelby...............................................   187
        Prepared statement.......................................   234
    Senator Corzine..............................................   188
        Prepared statement.......................................   234
    Senator Schumer..............................................   219

                               WITNESSES

Walter P. Schuetze, Chief Accountant, U.S. Securities and 
  Exchange Commission, 1992 to 1995..............................   189
    Prepared statement...........................................   235
Michael H. Sutton, Chief Accountant, U.S. Securities and Exchange 
  Commission, 1995 to 1998.......................................   193
    Prepared statement...........................................   239
Lynn E. Turner, Chief Accountant, U.S. Securities and Exchange 
  Commission, 1998 to 2001.......................................   196
    Prepared statement...........................................   243
Dennis R. Beresford, Former Chairman, Financial Accounting 
  Standards Board, 1987 to 1997..................................   201
    Prepared statement...........................................   258
    Response to question raised by Senator Miller................   270

              Additional Material Supplied for the Record

Article by Walter P. Schuetze in Abacus, a Journal of Accounting, 
  Finance, and Business Studies, ``What Are Assets and 
  Liabilities?'' dated February 2001.............................   271
Article by Walter P. Schuetze, 2001 RJ Chambers Research Lecture, 
  dated November 27, 2001........................................   288
Letter from Walter P. Schuetze to Senator Charles E. Schumer, 
  dated March 25, 2002...........................................   296
Letter with attachments from Lynn E. Turner, Director, College of 
  Business, Colorado State University, dated March 1, 2002.......   302

                              ----------                              

                      WEDNESDAY, FEBRUARY 27, 2002

Opening statement of Chairman Sarbanes...........................   341

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................   342
    Senator Miller...............................................   343
    Senator Corzine..............................................   362

                               WITNESSES

John H. Biggs, Chairman, President, and CEO, Teachers Insurance 
  and Annuity Association-College Retirement Equities Fund (TIAA- 
  CREF)..........................................................   343
    Prepared statement...........................................   373
Ira M. Millstein, Co-Chairman of the Blue Ribbon Committee on 
  Improving the Effectiveness of Corporate Audit Committees; 
  Senior Partner, Weil, Gotshal & Manges, LLP....................   350
    Prepared statement...........................................   378

              Additional Material Supplied for the Record

Miscellaneous exhibits submitted by Ira M. Millstein, Co-Chairman 
  of the Blue Ribbon Committee on Improving the Effectiveness of 
  Corporate Audit Committees; Senior Partner, Weil, Gotshal & 
  Manges, LLP....................................................   388

                              ----------                              

                               VOLUME II

                              ----------                              

                         TUESDAY, MARCH 5, 2002

Opening statement of Chairman Sarbanes...........................   505

Opening statements, comments, or prepared statements of:
    Senator Bunning..............................................   506
    Senator Dodd.................................................   507
    Senator Miller...............................................   507
    Senator Crapo................................................   508
    Senator Corzine..............................................   508
        Prepared statement.......................................   550
    Senator Stabenow.............................................   515
        Prepared statement.......................................   550
    Senator Bennett..............................................   515

                               WITNESSES

David M. Walker, Comptroller General of the United States, U.S. 
  General Accounting Office; accompanied by: Thomas McCool, 
  Managing Director, Financial Markets and Community Investment; 
  and Robert Gramling, Former Director, Corporate Financial 
  Audits.........................................................   508
    Prepared statement...........................................   551
Robert R. Glauber, Chairman and Chief Executive Officer, National 
  Association of Securities Dealers, Inc.........................   527
    Prepared statement...........................................   569
Joel Seligman, Dean and Ethan A.H. Shepley University Professor, 
  Washington University School of Law in St. Louis; Public 
  Member, American Institute of Certified Public Accountants 
  Professional Ethics Executive Committee........................   530
    Prepared statement...........................................   573
John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia 
  University School of Law.......................................   534
    Prepared statement...........................................   582

              Additional Material Supplied for the Record

GAO Report, SEC Operations, Increased Workload Creates 
  Challenges, dated March 2002...................................   594
GAO Report, Highlights of GAO's Corporate Governance, 
  Transparency and Accountability Forum, dated March 2002........   638
Business Week article submitted by Senator Paul S. Sarbanes, 
  dated March 11, 2002...........................................   653
The Wall Street Journal article submitted by Senator Robert F. 
  Bennett, dated February 25, 2002...............................   654
Letter from GAO Comptroller General of the United States David M. 
  Walker to Senator Paul S. Sarbanes, dated May 3, 2002..........   657
Letter from John C. Coffee, Jr., Bevis Longstreth, and Joel 
  Seligman to Senator Paul S. Sarbanes, dated July 1, 2002.......   670
Letter from SEC Chairman Harvey L. Pitt to Senator Phil Gramm, 
  dated July 3, 2002.............................................   674
Letter from SEC Attorney General Eliot Spitzer to Senator Paul 
  Sarbanes, dated June 5, 2002...................................   676

                              ----------                              

                        WEDNESDAY, MARCH 6, 2002

Opening statement of Chairman Sarbanes...........................   679

Statement of Senator Gramm.......................................   680

                               WITNESSES

Shaun F. O'Malley, Chairman, 2000 Public Oversight Board Panel on 
  Audit Effectiveness (O'Malley Commission); Former Chairman, 
  Price Waterhouse; Past President, Financial Accounting 
  Foundation.....................................................   681
    Prepared statement...........................................   716
Lee J. Seidler, Deputy Chairman of the 1978 AICPA Commission on 
  Auditors' Responsibilities; Managing Director Emeritus, Bear 
  Stearns........................................................   685
    Prepared statement...........................................   725
Arthur R. Wyatt, CPA, Former Chairman, American Institute of 
  Certified Public Accountants' Accounting Standards Executive 
  Committee; Former Chairman, International Accounting Standards 
  Committee; Former Partner, Arthur Andersen & Co.; Professor of 
  Accountancy Emeritus, University of Illinois...................   689
    Prepared statement...........................................   739
Abraham J. Briloff, Emanuel Saxe Distinguished Professor 
  Emeritus, Bernard M. Baruch College, CUNY......................   692
    Prepared statement...........................................   745
Bevis Longstreth, Member of the O'Malley Commission; Former 
  Commissioner of the Securities & Exchange Commission, 1981-
  1984; Retired Partner, Debevoise & Plimpton....................   696
    Prepared statement...........................................   793

              Additional Material Supplied for the Record

Letter from Chairman Paul S. Sarbanes to President George W. 
  Bush, dated March 6, 2002......................................   802
Letter from the National Association of State Boards of 
  Accountancy to Chairman Paul S. Sarbanes and Members of the 
  Banking Committee, dated March 22, 2002........................   804

                              ----------                              

                        THURSDAY, MARCH 14, 2002

Opening statement of Chairman Sarbanes...........................   809

Opening statements, comments, or prepared statements of:
    Senator Bunning..............................................   811
    Senator Gramm................................................   811
    Senator Corzine..............................................   813
    Senator Enzi.................................................   813
    Senator Dodd.................................................   815
    Senator Bayh.................................................   816
    Senator Stabenow.............................................   817
        Prepared statement.......................................   860
    Senator Miller...............................................   817
    Senator Carper...............................................   842

                               WITNESSES

James G. Castellano, CPA, Chairman, Board of Directors, American 
  Institute of Certified Public Accountants (AICPA); Managing 
  Partner, Rubin, Brown, Gornstein & Company, LLP................   818
    Prepared statement...........................................   860
    Response to written question of Senator Miller...............   888
James E. Copeland, Jr., CPA, Chief Executive Officer, Deloitte & 
  Touche, LLP....................................................   820
    Prepared statement...........................................   862
William E. Balhoff, CPA, CFE, Chairman, Executive Committee, 
  AICPA Public Company Practice Section; Senior Audit Director, 
  Postlethwaite & Netterville, A.P.A.C...........................   823
    Prepared statement...........................................   865
Olivia F. Kirtley, CPA, Former Chairman, Board of Directors, 
  AICPA (1998-1999); Retired Vice President and CFO, Vermont 
  American Corporation...........................................   825
    Prepared statement...........................................   866
James S. Gerson, CPA, Chairman, Auditing Standards Board, AICPA; 
  Partner, PricewaterhouseCoopers, LLP...........................   827
    Prepared statement...........................................   868
Robert E. Litan, Vice President and Director, Economic Studies 
  Program, The Brookings Institution.............................   848
    Prepared statement...........................................   870
    Response to written question of:
        Senator Gramm............................................   889
        Senator Miller...........................................   890
Peter J. Wallison, Resident Fellow and Co-Director, Project on 
  Financial Market Deregulation, American Enterprise Institute...   853
    Prepared statement...........................................   879

                              ----------                              

                        TUESDAY, MARCH 19, 2002

Opening statement of Chairman Sarbanes...........................   893

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................   894
        Prepared statement.......................................   939
    Senator Corzine..............................................   894
    Senator Dodd.................................................   917
    Senator Carper...............................................   936
    Senator Akaka................................................   939

                               WITNESSES

Charles A. Bowsher, Chairman, Public Oversight Board; Former 
  Comptroller General of the United States; accompanied by: Alan 
  B. Levenson, Counsel to the Public Oversight Board.............   895
    Prepared statement...........................................   939
Aulana L. Peters, Member, Public Oversight Board; Former 
  Commissioner, U.S. Securities and Exchange Commission; Retired 
  Partner, Gibson, Dunn & Crutcher...............................   902
    Prepared statement...........................................   963
John C. Whitehead, Former Co-Chairman, Goldman Sachs & Co.; 
  Former Deputy Secretary of State...............................   918
    Prepared statement...........................................   965
L. William Seidman, Former Chairman, Federal Deposit Insurance 
  Corporation; Former Chairman, Resolution Trust Corporation.....   921
    Prepared statement...........................................   967
Michael Mayo, Managing Director, Prudential Securities, Inc......   925
    Prepared statement...........................................   969

              Additional Material Supplied for the Record

The Road to Reform, a White Paper from the Public Oversight 
  Board, dated March 19, 2002....................................   973
Letter from Harvey L. Pitt, Chairman, U.S. Securities and 
  Exchange Commission to Charles A. Bowsher, Chairman, Public 
  Oversight Board, dated January 22, 2002........................   994
Fortune news article, The Price of Being Right, dated February 5, 
  2001...........................................................   996

                              ----------                              

                       WEDNESDAY, MARCH 20, 2002

Opening statement of Chairman Sarbanes...........................  1003

Opening statements, comments, or prepared statements of:
    Senator Akaka................................................  1004

                               WITNESSES

Senator Howard M. Metzenbaum (Ret.), Chairman, Consumer 
  Federation of America..........................................  1004
    Prepared statement...........................................  1032
Sarah Teslik, Executive Director, Council of Institutional 
  Investors......................................................  1009
    Prepared statement...........................................  1040
    Response to written questions of Senator Akaka...............  1056
Thomas A. Bowman, CFA, President and Chief Executive Officer, 
  Association for Investment Management and Research.............  1012
    Prepared statement...........................................  1043
Damon A. Silvers, Associate General Counsel, American Federation 
  of Labor and Congress of Industrial Organizations..............  1016
    Prepared statement...........................................  1053

                              ----------                              

                        THURSDAY, MARCH 21, 2002

Opening statement of Chairman Sarbanes...........................  1059

Opening statements, comments, or prepared statements of:
    Senator Dodd.................................................  1060
    Senator Bunning..............................................  1060
    Senator Corzine..............................................  1061
    Senator Enzi.................................................  1062
    Senator Gramm................................................  1064
    Senator Bennett..............................................  1084
    Senator Schumer..............................................  1087
    Senator Carper...............................................  1089
    Senator Johnson..............................................  1102

                                WITNESS

Harvey L. Pitt, Chairman, U.S. Securities and Exchange Commission  1065
    Prepared statement...........................................  1103

              Additional Material Supplied for the Record

The Washington Post article, submitted by Harvey L. Pitt, 
  Chairman, U.S. Securities and Exchange Commission, dated 
  November 15, 2000..............................................  1167
Letter from Stephen M. Cutler, Director, Division of Enforcement, 
  U.S. Securities and Exchange Commission, to Chairman Paul S. 
  Sarbanes and Congressman Michael G. Oxley, dated July 23, 2002.  1168

                              ----------                              

                               VOLUME III

                              ----------                              

                          MONDAY, JULY 8, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1171

                              ----------                              

                         TUESDAY, JULY 9, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1225
Continuation of the Senate Floor Debate in Regard to the 
  Accounting Reform and Investor Protection Act of 2002 taken 
  from the Congressional Record..................................  1247

                              ----------                              

                        WEDNESDAY, JULY 10, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1261

                              ----------                              

                         THURDAY, JULY 11, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1355
Continuation of the Senate Floor Debate in Regard to the 
  Accounting Reform and Investor Protection Act of 2002 taken 
  from the Congressional Record..................................  1387

                              ----------                              

                         FRIDAY, JULY 12, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1423
Continuation of the Senate Floor Debate in Regard to the 
  Accounting Reform and Investor Protection Act of 2002 taken 
  from the Congressional Record..................................  1429

                              ----------                              

                         MONDAY, JULY 15, 2002

Senate Floor Debate in Regard to the Accounting Reform and 
  Investor Protection Act of 2002 taken from the Congressional 
  Record.........................................................  1463

                              ----------                              

                        THURSDAY, JULY 25, 2002

Senate Floor Debate in Regard to the Sarbanes-Oxley Act of 2002 
  Conference Report taken from the Congressional Record..........  1613
                              ----------                              

                               VOLUME IV

                              ----------                              
Transcript of President Bush's remarks at the Signing Ceremony 
  for the Sarbanes-Oxley Act of 2002 on July 30, 2002............  1653
The Sarbanes-Oxley Act of 2002, Public Law 107-204 signed by 
  President Bush on July 30, 2002. Text is identical to 
  Conference Report on H.R. 3763 passed by the House of 
  Representatives on July 25, 2002, by a vote of 423 Yeas to 3 
  Nays and by the Senate by a vote of 99 Yeas to 0 Nays..........  1657

H.R. 5118, Corporate Fraud Accountability Act of 2002, passed by 
  the House of Representatives on July 16, 2002, by a vote of 391 
  Yeas to 28 Nays................................................  1723

S. 2673, Public Company Accounting Reform and Investor Protection 
  Act of 2002, passed by the Senate on July 15, 2002, by a vote 
  of 97 Yeas to 0 Nays. For procedural purposes, the bill is 
  renamed H.R. 3763..............................................  1737

Senate Committee on Banking, Housing, and Urban Affairs report on 
  S. 2673, Public Company Accounting Reform and Investor 
  Protection Act of 2002, filed by Chairman Sarbanes on June 26, 
  2002...........................................................  1879

S. 2673, Public Company Accounting Reform and Investor Protection 
  Act of 2002, passed by the Senate Committee on Banking, 
  Housing, and Urban Affairs on June 18, 2002, by a vote of 17 
  Yeas to 4 Nays.................................................  1953

Senate Committee on the Judiciary Report on S. 2010, Corporate 
  and Criminal Fraud Accountability Act of 2002, filed by 
  Chairman Leahy on May 6, 2002..................................  2071

S. 2010, Corporate and Criminal Fraud Accountability Act of 2002, 
  passed by the Senate Judiciary Committee on April 25, 2002, by 
  a vote of 19 Yeas to 0 Nays....................................  2109

H.R. 3763, Corporate and Auditing Accountability, Responsibility, 
  and Transparency Act of 2002, passed by the House of 
  Representatives on April 24, 2002, by a vote of 334 Yeas to 90 
  Nays...........................................................  2135

House Committee on Financial Services Report on H.R. 3763, 
  Corporate and Auditing Accountability, Responsibility, and 
  Transparency Act of 2002, dated April 22, 2002.................  2193

H.R. 3763, Corporate and Auditing Accountability, Responsibility, 
  and Transparency Act of 2002, passed by the House Committee on 
  Financial Services on April 16, 2002, by a vote of 49 Yeas to 
  12 Nays........................................................  2257


                        ACCOUNTING REFORM AND

                          INVESTOR PROTECTION

                              ----------                              


                              VOLUME III

                              ----------                              



          VOLUME 148, MONDAY, JULY 8, 2002, NUMBER 90,
                      PAGES [S6327-S6347]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The President pro tempore. Under the previous order, the 
Senate will now proceed to the consideration of S. 2673, which 
the clerk will report.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    The President pro tempore. The Senator from Maryland, Mr. 
Sarbanes, the manager of the bill, is recognized.
    Mr. Sarbanes. I thank the Chair.
    Mr. President, today the Senate turns its attention to S. 
2673, the Public Company Accounting Reform and Investor 
Protection Act of 2002, which was reported from the Senate 
Committee on Banking, Housing, and Urban Affairs on June 18 on 
a strong 17-to-4 vote.
    A unanimous consent agreement was entered into with respect 
to this legislation prior to the Fourth of July recess, which 
provided that at 2 p.m. today, Monday, July 8, the Senate would 
proceed, for debate only, to the consideration of this 
legislation.
    I hope to take a fair amount of time to set out the process 
through which the committee worked and to discuss the 
provisions of this legislation.
    As I understand it, upon convening tomorrow and going back 
to this legislation, amendments will be in order. There are a 
couple of technical amendments that I am hopeful we can approve 
today by unanimous consent. I will be discussing that with the 
distinguished ranking Republican member of the committee in the 
course of the afternoon.
    Mr. President, I rise in very strong support of this 
legislation. This legislation is intended to address systemic 
and structural weaknesses that I think have been revealed in 
recent months and that show failures of audit effectiveness and 
a breakdown in corporate financial and broker-dealer 
responsibility. In fact, it is very clear that much of this has 
been happening over the last few years.
    Hopefully, we have experienced the brunt of it. Who can 
guarantee that, however, when every day you come to read in the 
morning paper yet another story, as witnessed this morning with 
respect to one of the most respected pharmaceutical companies 
in the country.
    I believe this bill is urgently needed. I hope my 
colleagues will agree with that and will support its swift 
passage.
    The House, earlier this year, passed legislation on this 
subject, but I think it is fair to say that the legislation we 
are bringing to the floor of the Senate is more comprehensive, 
more thorough, and, I believe, more effective. But, of course, 
once we complete our work here, we will have the challenge of 
going to conference with our colleagues on the other side of 
the Capitol to work out the differences between the two 
versions of the legislation.
    Let me discuss for a few minutes the backdrop against which 
this bill was crafted. Our financial markets have long been 
regarded as the fairest, the most transparent, and the most 
efficient in the world. In fact, I think it is fair to say--and 
many of us have said it time and time again--that the American 
capital markets are one of the great economic assets of this 
country and a very important source of our economic strength.
    It is becoming increasingly clear that something has gone 
wrong, seriously wrong, with respect to our capital markets. We 
confront an increasing crisis of confidence that is eroding the 
public's trust in those markets. I frankly believe that, if it 
continues, this erosion of trust poses a real threat to our 
economic health.
    Let me begin with one of the most obvious symptoms of this 
problem: the extraordinary increase in restatements of 
corporate earnings. The Wall Street Journal, citing a study 
last year by the research arm of Financial Executives 
International, the organization of the chief financial officers 
of corporations, reported that there were 157 financial 
restatements by companies in 2000, 207 in 1999, and 100 in 
1998. The 3-year total of 464 was higher than the previous 10 
years combined, during which the average number of restatements 
was 46 each year. This is a dramatic increase in the number of 
restatements.
    Last month's revelation by WorldCom is only one example of 
a problem that is becoming increasingly disturbing. In a recent 
article titled ``Tweaking Numbers To Meet Goals Comes Back To 
Haunt Executives,'' the New York Times described a series of 
recent corporate failures or near-failures that were 
characterized by accounting improprieties: Adelphia 
Communications, ``$3 billion in loans to its founding family'' 
had been concealed; Computer Associates was investigated ``on 
suspicion of inflating sales and profits by booking revenue on 
contracts many years before it was paid''--you raise your 
revenues, there is no offsetting cost, you boost your profits. 
Global Crossing is being investigated ``on suspicion of 
inflating sales and profits by making sham transactions with 
other telecom companies''; Enron, ``hiding losses and loans 
with partnerships that were supposedly independent but were 
actually guaranteed by the company''--Enron filed for 
bankruptcy last December--Rite Aid had ``four former top 
executives indicted . . . in what regulators called a 
securities and accounting fraud that led to a $1.6 billion 
restatement of earnings''; Tyco International is under 
investigation ``on suspicion of hiding payments and loans to 
its top executives . . . and its ``shares have plunged 75 
percent this year as investigators question whether it inflated 
its earnings and cashflow''; WorldCom, under investigation for 
``hiding $4 billion in expenses by wrongly classifying short-
term costs as long-term investments.''
    Commentators have made much of the fact that while Enron 
had very complicated dealings, off-balance-sheet special 
entities and a host of other things, WorldCom simply took 
expenses that should have been treated as short-term costs and 
set them up as capital investments to be amortized over a 
period of time. Of course, that was a very substantial 
reduction in WorldCom's costs. As a consequence, its profits 
were boosted by $4 billion. The SEC asked them to come clean, 
and now we think there is probably another billion of faulty 
accounting with respect to their statement.
    Can you imagine--the company went from showing a 
substantial profit to actually having a loss. People are out in 
the marketplace making decisions about whether to purchase this 
stock. Pension plans are making decisions on behalf of their 
members. And they are making the decision in the belief that 
this company is making a good profit. Instead, it is losing 
money.
    I read one story where competitors of WorldCom were 
apparently debating within their own corporate ranks: How do 
they do it? How are these people producing this profit record? 
We can't do it. We are competing against them. We think we are 
doing everything we ought to be doing, and we just can't 
produce the same kind of performance. How are they doing it? 
What is the secret they have discovered?
    The secret they had discovered was to hide their expenses 
by wrongly classifying short-term costs as long-term 
investments.
    The Xerox Corporation, one of the pillars of our economic 
system, paid a $10 million fine to the SEC in April, the 
largest in an enforcement case. They reclassified $6.4 billion 
in revenue and restated financial results for the last 5 years. 
I could go on and on with other companies: Cendant, 
MicroStrategy, Waste Management.
    What has led to this increase in restatements? The practice 
of ``backing into'' the forecast earnings has certainly 
contributed. The New York Times described this practice as 
follows:

    Some companies do whatever they have to do to make sure 
they do not miss a consensus earnings estimate. They start with 
the profit that investors are expecting and manipulate their 
sales and expenses to make sure the numbers come out right. 
During the last decade's boom, as executive pay was 
increasingly based on how the company's stock performed, 
backing in became more widespread and more aggressive. Just how 
much so is only now becoming clear.

    The distinguished Columbia Law School Professor John 
Coffee, noted, in summarizing the trend:

    During the 1990s, the quality of financial reporting and 
analysis appears to have declined. While an earnings 
restatement is not necessarily proof of fraud, this increase 
strongly implies that auditors have deferred excessively to 
their clients.

    Jack Ehnes, the chief executive of the California State 
Teachers Retirement System, which oversees $100 billion in 
investments, put it this way:

    This looks like the year of the restatement. It's certainly 
disturbing for investors who expect financial statements to be 
accurate.

    Clearly, what is transpiring is having a very severe impact 
on hard-working American families. Corporate wrongdoing is 
being felt not just at the boardroom table, but it is now being 
felt at the kitchen table as well.
    First of all, there have been tremendous job losses. The 
Washington Post reported that WorldCom was laying off 17,000 
employees. The companies that are going into bankruptcy are 
shedding employees left and right. Enron laid off 7,000 people 
after it filed for bankruptcy. Global Crossing laid off 9,300 
employees in the last year. Employment at Xerox is down 13,000 
from 2 years ago. So there is a direct impact on many working 
families, simply through the layoffs, as the companies for 
which they work encounter difficult financial times.
    In other words, the company is crashing down, and the 
workers, amongst others, are paying the price.
    Second, the adverse impact on employees clearly extends to 
the impact of these corporate failures on employee pension 
funds, an impact that has led many workers to question the 
security of their retirement. A quick look at the numbers 
demonstrates how badly public pension funds have been hit.
    It is reported that 21 States have combined losses of just 
under $2 billion from their WorldCom investments. The 
California public retirement system reported a loss of $565 
million. And the numbers go on from there. I won't cite them 
all, but all across the country there are tremendous losses 
being incurred. It is said that the loss of value of both 
WorldCom and Enron has cost public State pension funds $2.7 
billion.
    Of course, in addition to their impact on workers and 
pension funds, these revelations have had a negative effect on 
shareholders generally. Average investors are watching their 
portfolios plummet and their retirement prospects decline. 
Worldcom's market capitalization has gone from $180 billion at 
its peak 3 years ago--this is just WorldCom--to $177 million 
last week. Tyco lost $90 billion in market capitalization 
between January 2001 and June 2002, and on and on.
    The bond markets have also been affected. WorldCom, for 
example, has $28 billion in outstanding bonds that are due 
between now and 2025. Investors, including banks and insurance 
companies, stand to lose much of this sum. So you are being hit 
not only if you have a direct connection with WorldCom, but 
also if you have an equity interest in a bank or insurance 
company that owns WorldCom bonds. The current market value of 
these bonds is 15 cents on the dollar.
    The same week that WorldCom's auditing irregularities 
became public, Morgan Stanley observed that the spread between 
corporate bonds and comparable Treasury bonds had widened by 15 
basis points. As the Wall Street Journal wrote on June 27:

    That is a dramatic move that will boost the borrowing costs 
for all kinds of companies.

    Now, the problems that I have described did not develop 
overnight. In many ways, they reflect failures on the part of 
every actor in our system of disclosure and oversight. Auditors 
who are supposed to be independent of the company whose books 
they are reviewing are too often compromised by the fact that 
they provide consulting services to their public company audit 
clients. Securities analysts are not in a position, according 
to observers, to warn investors or direct them to other 
investments.
    As the New York Times reported in an article earlier this 
year entitled ``A Bubble No One Wanted to Pop'':

    Eager to help their firms generate business selling 
securities to investors and reap their own rewards and bonuses, 
Wall Street analysts have made a habit of missing corporate 
misdeeds altogether.

    I will come back to these issues later. But for the moment 
I simply want to note that the problems leading to such 
dramatic lapses are widespread and seem to be built into the 
system of accounting and financial reporting. That is what this 
legislation seeks to address. Our committee did not engage in 
an exercise in finger-pointing and placing blame but we held a 
series of hearings--I will discuss them in a minute--directed 
toward the future; in other words, we focused on the changes we 
can make that will help to clear up this situation. It is 
serious.
    The Wall Street Journal, in a recent comment, said:

    The scope and scale of the corporate transgressions of the 
late 1990s now coming to light exceed anything the U.S. has 
witnessed since the years preceding the Great Depression.

    One can run through the figures and find some support for 
that. Between its peak in 1929 and 1931, the Dow fell 79 
percent. Over the same period since its peak in March 2000, the 
Nasdaq has 
fallen 73 percent. But rather than work through these figures, 
let me simply close this part of my statement with a comment 
from Benjamin Graham's classic textbook on ``security 
analysis'':

    Prior to the SEC legislation . . . it was by no means 
unusual to encounter semi-fraudulent distortions of corporate 
accounts . . . almost always for the purpose of making the 
results look better than they were, and it was generally 
associated with some scheme of stock-market manipulation in 
which the management was participating.

    He was writing about the year 1929. Regrettably, that 
description fits some of today's events. Now, I am certainly 
not suggesting that this is the practice of a majority of our 
business people. In fact, most of them, I think, try very hard 
to play by the rules, and to be honest and straightforward in 
their dealings, and they recognize how important trust is.
    But it is clear, from the number of departures we have 
witnessed from that standard, that what is involved is more 
than just a few bad apples. Those bad apples ought to be 
punished, and punished very severely. I certainly agree with 
the President when he makes that statement. But it seems to me 
we have to move beyond that in order to address the incredible 
loss of investor confidence that is now taking place.
    I have been reading the newspaper articles carefully, and 
sometimes the most apt comments come not from the experts but 
from ordinary citizens. My colleague from Texas knows that very 
well because we have a noted citizen of his State, Dicky Flatt, 
who is constantly cited.
    Karl Graf, a financial planner and accountant in Wayne, NJ, 
is quoted in the Bergen Record as saying:

    The integrity of the game is in question for now, and 
that's a much bigger thing than if the stock market does poorly 
for two years. You have to have faith in the numbers the 
companies are reporting, and if you don't or can't, it makes it 
seem more like gambling all the time. It makes me more cynical, 
and I'm very discouraged. It's going to take a lot to make 
people feel confident.

    Bob Friend, an aerospace engineer from Redondo Beach, CA, a 
stock investor for 20 years, was quoted in the L.A. Times as 
saying:

    There's a complete lack of trust in corporate leadership. I 
think the lack of ethical behavior has destroyed investor 
confidence.

    Morris Hollander, a specialist in financial disclosure 
accounting with a Miami firm, was quoted in the Miami Herald as 
saying:

    We always had the strongest financial markets in the world, 
and that was because of credible accounting standards. When you 
see that confidence eroding, it is not good. It is a real 
serious credibility crisis.

    A recent poll demonstrates that these views are not unique 
or unusual. When asked this question: ``when it comes to 
financial information the major stock brokerage firms and 
corporations provide to you, do you or do you not have 
confidence that the information is straightforward and an 
honest analysis,'' only 29 percent of Americans said they had 
confidence the information was straightforward and an honest 
analysis. A majority, 57 percent, did not have confidence in 
the basic information that undergirds our equities market.
    The Washington Post, on June 26, reported:

    According to economists and market analysts, these still-
unfolding corporate and accounting scandals have begun to weigh 
heavily on the stock market, the dollar, and the U.S. economy. 
And the effects are likely to linger at least through the end 
of the year.

    The same article quoted the chief economist for one of Wall 
Street's major firms as saying:

    The economy and markets right now are in the midst of a 
full-blown corporate governance shock. . . . To presume somehow 
that it's over or that the worst is behind us is naive.

    Furthermore, it is not only American investors who are 
losing confidence in our markets. A recent New York Times 
article entitled ``U.S. Businesses Dim as Models for 
Foreigners'' quoted Wolfram Gerdes, the chief investment 
officer for global equities at Dresdner Investment Trust in 
Frankfurt, as saying:

    There is unanimous agreement that the United States is not 
the best place to invest anymore.

    According to the Federal Reserve Board, foreign direct 
investment in corporate equities has fallen by 45 percent from 
2001 to 2002. And according to a new OECD report, foreign 
inflows from cross-border mergers and acquisitions, which in 
2001 were greater than direct foreign investment into the 
United States, have fallen sharply in 2002.
    The Wall Street Journal said:

    The loss of faith by American and overseas investors in 
U.S. corporate books is churning global financial markets: 
Share prices are plunging in America and the dollar is losing 
value, setting off stock-market plunges in Asia, Europe and 
Latin America. If the flow of foreign capital to the United 
States is disrupted as a result, the world economy could be 
jeopardized, because the U.S. relies on overseas money to 
finance its huge current-account deficit, and Asia and Europe 
rely on America to buy imports.

    As I draw this preliminary overview of the context in which 
we are working to a close, I want to speak for a moment about 
the potential loss of world economic leadership for the United 
States. The Wall Street Journal had an article entitled ``U.S. 
Loses Sparkle as Icon of Marketplace.'' It says:

    The wave of scandals in corporate America is roiling world 
stock markets. But the controversy may have an even greater 
impact in the marketplace of ideas, where the U.S. economic 
model is coming under attack.

    One area of particular importance and now debate is 
adoption of accounting principles. The European Union--and I do 
not think many people yet in this country have focused on this 
matter--has indicated that the rules adopted by the 
International Accounting Standards Board will become mandatory 
for all companies throughout the European Union in 2005.
    Traditionally, the U.S. has been preeminent in the 
accounting field. We have by far the largest economy. We have a 
reputation for high standards for transparency. So generally 
the American argument on behalf of its standards carried great 
influence. Now we have the European Union, comparable in 
economic size to the United States, moving to adopt a uniform 
set of accounting standards, to be promulgated by the 
International Accounting Standards Board, for all of the 
European Union countries. So there is a potential for real 
challenge to American preeminence in this area, given what is 
happening over here.
    In fact, the New York Times reported on June 27:

    There is a groundswell among executives in Europe against 
the American system of corporate accounting--the so-called 
generally accepted accounting principles--that was supposed to 
be the gold standard in disclosure.
    Before Enron, Global Crossing and WorldCom, America had 
been winning the argument on accounting standards. But now, a 
growing number of Europeans are convinced that the American 
system is both too complex and too easy to manipulate.

    Regrettably, in my view, unless we come to grips with this 
current crisis in accounting and corporate governance, we run 
the risk of seriously undermining our long-term world economic 
leadership. Why do countries look to us? They look to our 
capital markets. They say: your capital markets are the most 
transparent; they have the greatest integrity; we can rely upon 
them; we can make rational business decisions using the 
information that is provided through your system. If that is no 
longer the case, we can expect growing difficulties as we 
continue to argue for our preeminence.
    The Wall Street Journal gave this summary of the problem, 
after which I will move onto the bill itself:

    The institutions that were created to check such abuses 
failed. The remnants of a professional ethos in accounting, law 
and securities analysis gave way to the maximum revenue per 
partner. The auditor's signature on a corporate report didn't 
testify that the report was an accurate snapshot, said 
[Treasury Secretary Paul] O'Neill. He says it too often meant 
only that a company had ``cooked the books to generally 
accepted standards.''

    I want to be very clear about this. I believe the vast 
majority of our business leaders and of those in the accounting 
industry are decent, hard-working, and honorable men and women. 
They are, in a sense, tarnished by the burden of these 
scandals. But trust in markets and in the quality of investor 
protection, once shaken, is not easily restored, and I believe 
that this body must act decisively to reaffirm the standards of 
honesty and industry that have made the American economy the 
most powerful in the world. That is what this legislation does, 
and that is why I urge its adoption by my colleagues.
    Let me now turn to the hearings and to the bill. I know 
others are waiting to speak, and I will try to summarize my 
remarks. We have been working on this for a long time, so 
obviously I could go on at some length.
    First, we sought to do a very thorough and careful job in 
developing this legislation. The committee held a total of 10 
substantive hearings and heard from a broad range of experts, 
as well as interested parties. I am not going to name all our 
witnesses, but, for example, we heard from five past Chairmen 
of the SEC; three former SEC chief accountants; former Federal 
Reserve Board Chairman, Paul Volcker; former Comptroller 
General and Chairman of the Public Oversight Board, Charles 
Bowsher; the present Comptroller General, David Walker; a 
number of distinguished academics who have been studying these 
issues throughout their careers; leaders of commissions that 
studied the accounting industry and corporate governance; 
representatives of the accounting industry; representatives of 
the public interest community; representatives of the corporate 
community, and SEC Chairman Pitt.
    It was a very thorough effort to gather the best thinking 
on these issues and to give all interested parties a chance to 
be heard. My colleagues on the committee, and the ranking 
member, Senator Gramm, participated in this effort seriously 
and with commitment. Senators Dodd and Corzine early on 
introduced a bill dealing with oversight of accounting and 
auditor independence. Many of that bill's provisions are 
reflected in this legislation. Senator Enzi, of course, took a 
particular interest. He is the only certified public accountant 
in the Senate. Many other Members made important contributions 
as we moved along the way.
    I will now turn to each title. Title I of the bill creates 
a strong independent board to oversee the auditors of public 
companies. Title II strengthens auditor independence from 
corporate management by limiting the scope of consulting 
services that auditors can offer their public company audit 
clients. This bill applies only to public companies that are 
required to report to the SEC. It says plainly that State 
regulatory authorities should make independent determinations 
of the proper standards and should not presume that the bill's 
standards apply to small- and medium-sized accounting firms 
that do not audit public companies.
    Titles III and IV of the bill enhance the responsibility of 
public company directors and senior managers for the quality of 
the financial reporting and disclosure made by their companies. 
Title V seeks to limit and expose to public view possible 
conflicts of interest affecting securities analysts. Title VI 
increases the SEC's annual authorization from $481 million to 
$776 million and extends the SEC's enforcement authority. Title 
VII of the bill mandates studies of accounting firm 
concentration and the role of credit rating agencies.
    It is my intention to go through the bill title by title in 
a summary fashion, but I will pause for a moment and ask my 
colleague whether he has any time pressures.
    Mr. Gramm. I don't have a time preference as such. My 
suggestion is whenever the Senator gets tired of talking and 
would like me to speak a while, I can speak, and then he can 
come back to it. But I have no objection if you want to go 
through your whole presentation. You certainly have that right. 
If you think it will work better doing it that way, that is 
fine. If you want to break at some point and have me speak, 
that would be fine.
    Mr. Sarbanes. Why don't I move ahead, and I will try to 
compress it a bit.
    Title I creates a public company accounting oversight 
board. This board is subject to SEC review and will establish 
auditing, quality control, ethics, and independence standards 
for public company auditors and will inspect accounting firms 
that conduct those audits. It will investigate potential 
violations of applicable rules and impose sanctions if those 
violations are established.
    Heretofore we have relied on self-policing of the audit 
process, private auditing and accounting standards setting, 
and, for the most part, private disciplinary measures. But 
questionable accounting practices and corporate failures have 
raised serious questions, obviously, about this private 
oversight system. Paul Volcker stated:

    Over the years there have also been repeated efforts to 
provide oversight by industry or industry/public member boards. 
By and large, I think we have to conclude that those efforts at 
self-regulation have been unsatisfactory.

    That is obviously one of the reasons we are moving, in this 
legislation, to an independent public company accounting 
oversight board. We heard extensive testimony in favor of such 
a board.
    The board would have five full-time members. Two of the 
members will have an accounting background. All will have to 
have a demonstrated commitment to the interests of investors, 
as well as an understanding of the financial disclosures 
required by our securities law. The board members would be 
appointed by the SEC after consultation with the Federal 
Reserve and the Department of the Treasury and would serve 
staggered 5-year terms. They could not engage in other business 
while they were doing this work.
    Of course, the board will have a staff. We would expect 
staff salaries to be fully competitive with comparable private-
sector positions in order to ensure a high-quality staff.
    The bill requires that accounting firms that audit public 
companies must register with the board. Failure to register or 
loss of registration would render a firm unable to continue its 
public company audit practice. Upon registering, a company 
would consent to comply with requests by the board for 
documents or testimony made in the course of the board's 
operations.
    The board would possess plenary authority to establish or 
adopt auditing, quality control, ethics, and independence 
standards for the auditing of public companies. But this grant 
of authority is not intended to exclude accountants or other 
interested parties from participating in the standard-setting 
process. So the board may adopt rules that are proposed by 
professional groups of accountants or by one or more advisory 
groups created by the board.
    These provisions reflect an effort to respond to the 
argument that you need the experts to either set the standards 
or help to set the standards. The experts in the industry can 
make these proposals, but the board will have the authority to 
adopt or to modify such proposals or to act of its own 
volition.
    We provide for the inspection of registered accounting 
firms by the board. Firms that audit more than 100 public 
companies are to be inspected by staff of the board each year. 
Firms that audit less than that are inspected every 3 years, 
although the board has the power to adjust these inspection 
schedules.
    The board also has investigative and disciplinary 
authority. Former SEC Chairman Arthur Levitt told the 
committee:

    We need a truly independent oversight body that has the 
power not only to set the standards by which audits are 
performed but also to conduct timely investigations that cannot 
be deferred for any reason and to discipline accountants.

    If the board finds that a registered firm, or one or more 
of its associated persons, has violated the rules or standards, 
it will have the full range of sanctions available.
    The board also has the power to sanction a registered 
accounting firm for failure reasonably to supervise a partner 
or employee, but we allow an accounting firm to defend itself 
from any supervisory liability by showing that its quality 
control and related internal procedures were reasonable and 
were operating fully in the situation at issue. I am mentioning 
this item, even though it may not seem that important in the 
context of a bill this complex, to point again to the effort 
that was made in the committee to balance competing concerns.
    In effect, we say the firms have this supervisory 
responsibility. They should not duck this responsibility. 
Otherwise, how are we going to assure the people working for 
accounting firms are meeting high standards? On the other hand, 
we realize it is extremely difficult in large organizations to 
control right down to the last person. So we provided that if 
accounting firms have quality control and related internal 
procedures in place that are reasonable and that are operating 
fully, the operation of those procedures can serve as a 
defense.
    The bill applies to foreign public accounting firms that 
audit 
financial statements of companies that come under the U.S. 
securities laws. The board is subject to SEC oversight, which 
is important. Finally, we formalize the role of the Financial 
Accounting Standards Board in setting accounting standards 
accounting standards are different than auditing standards, 
which the new oversight board will set. The bill provides for 
guaranteed funding of the new oversight board and the FASB by 
public companies, something I think we all agree is extremely 
important.
    Some have asked, why do we need a statutory board? Why not 
let the SEC do something of this sort by regulation? But others 
have raised questions about the adequacy of the authority the 
SEC has to accomplish all of this by regulation alone. Clearly, 
a firmer base would be established, a stronger reference point, 
if the board were established by statute, and the potential of 
litigation that might arise with respect to some of these 
disciplinary and fee-imposing powers if they were created 
solely by the SEC by regulation would be avoided by a clear 
statutory underpinning.
    Furthermore, I believe, frankly, that we need to establish 
this oversight board in statute in order to provide an extra 
guarantee of its independence and its plenary authority to deal 
with this important situation.
    Let me turn to title II on auditor independence. This is a 
very important issue. Each of the country's Federal securities 
laws requires comprehensive financial statements. That is what 
is now required under the securities laws for public companies. 
They have to have comprehensive financial statements that must 
be prepared--and I now quote from the statute--``by an 
independent public or certified accountant.''
    The statutory requirement of an independent audit has two 
sides to it. It is a private franchise, and it is also a public 
trust.
    The franchise given to the Nation's public accountants is 
clear. Their services must be secured before an issuer of 
securities can go to market, have its securities listed on the 
Nation's stock exchanges, or comply with the reporting 
requirements of the securities law. In other words, the 
accountants have been handed by mandate a major piece of 
business because the statute says to these public companies 
that they must have comprehensive financial statements prepared 
by an independent public or certified accountant.
    So in effect we have directed to them a significant amount 
of business. But the franchise, in a way, is conditional. It 
comes in return for the certified public accountant's 
assumption of a public duty and obligation.
    The Supreme Court stated this well in a decision almost 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.

    Richard Breeden, Former Chairman of the SEC from 1989 to 
1993, under the previous President Bush, said in his testimony 
before the committee:

    While companies in the U.S. do not have to employ a law 
firm, an underwriter, or other types of professionals, Federal 
law requires a publicly-traded company to hire an independent 
accounting firm to perform an annual audit. In addition to this 
shared Federal monopoly, more than 100 million investors in the 
U.S. depend on audited financial statements to make investment 
decisions. That imbues accounting firms with a high level of 
public trust, and also explains why there is a strong Federal 
interest in how well the accounting system functions.

    What has happened in recent years is that a rapid growth in 
management consulting services offered by the major accounting 
firms has created a conflict in the independence that an 
auditor must bring to the audit function. According to the SEC, 
in 1988, 55 percent of the average revenue of the big five 
accounting firms came from accounting and auditing services; 22 
percent came from management consulting services.
    By 1999, 10 years later, these figures had fallen to 31 
percent for accounting and auditing services, and 50 percent 
for management consulting services.
    In fact, a number of experts argue 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 audits that a complete prohibition on the 
provision of consulting services by accounting firms to their 
public audit clients is required--a complete prohibition. 
According to James E. Burton, the CEO of the California Public 
Employees' Retirement System, CalPERS, which manages pension 
and health benefits for more than 1.3 million members and has 
aggregate holdings of $150 billion:

    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, 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 communities, told 
the Committee:

    Because auditors owe their primary duty to the 
shareholders, questions about the primacy of that duty are 
raised if the audit firm provides other, potentially more 
lucrative, consulting services to the company. The board and 
the public auditor should both see to it that, in fact as well 
as in appearance, the auditor reports to the independent board 
audit committee and acts on behalf of shareholders. The key 
reason why awarding consulting contracts and other non-audit 
work to the audit firm is troubling is because it results in 
conflicting loyalties. While the board's audit committee is 
formally responsible for hiring and firing the outside auditor, 
management controls virtually all the other types of non-audit 
work the audit firm may do for the company. Those contracts 
with management blur the reporting relationship it is difficult 
to believe that auditors do not feel pressure for the overall 
success of their firm with the client. Even their own 
compensation packages may be tied to consulting and non-audit 
services being provided by their firm to the company. . . .
    By requiring public companies to use different accounting 
firms for their audit and consulting services, and by 
establishing an independent board with real authority to 
oversee the accounting profession you will be taking important 
steps toward reversing the crisis in confidence in financial 
markets that exists today.

    We looked at this carefully. We had testimony on the other 
side. In the end, we took the approach that is outlined in the 
bill. The bill contains a short list, nine items, of non-audit 
services that an accounting firm doing the audit of a public 
company cannot provide to that company. These include, for 
example, bookkeeping or other services related to the 
accounting records or financial statements of the audit client, 
financial information systems design, appraisal or valuation 
services, actuarial services, management functions or human 
resources, broker or dealer or investment adviser services, and 
legal services.
    The thinking behind drawing this line around a limited list 
of non-audit services, is that provision of those services to a 
public company audit client creates a fundamental conflict of 
interest for the accounting firm in carrying out its audit 
responsibility. If the accounting firm is not the auditor for 
the company, it can do any of these consulting services--it can 
do any consulting service it wants. But if it is the auditor--
so there is a conflict of interest problem--then we take 
certain services and say: those services you can't do. And the 
reason is, first of all, in order to be independent, the 
auditor should not audit its own work, as it would do if it did 
financial information system design or appraisal evaluation 
services or actuarial services. It should not function as part 
of the management or as an employee of the audit company, as it 
would if it were doing human resources services, and it should 
not act as an advocate of the audit client, as it would do if 
it were providing legal and expert services. Nor should it be 
the promoter of the audit client's stock or other financial 
interest, as it would be if it were the broker-dealer or the 
investment adviser.
    They are the public company's auditors. They have a very 
defined responsibility as the auditors. The bill doesn't bar 
accounting firms from offering consulting services. It simply 
says that if a firm wants to audit the company, there are 
certain services it cannot perform. And even in that case, the 
bill provides the board authority to grant case-by-case 
exceptions, so if a case could be made why an auditor's 
performing a consulting service ought to be permitted, there is 
some flexibility to permit it.
    David Walker, the Comptroller General of the United States, 
in a statement on June 18 said:

    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 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 [on this important issue].

    There are a lot of other auditing services, other than the 
nine I mentioned, that an auditor may want to provide and whose 
provision we did not preclude. In other words, the statutory 
system that we are establishing lists certain consulting 
services that, if you are the auditor, you cannot perform for 
the public company that is your audit client, unless you can 
get one of these case-by-case exemptions from the board. And 
those consulting services were the ones which, upon 
examination, seemed clearly to raise the most difficult 
conflict of interest questions that could result in undermining 
the auditor's fulfillment of his auditing responsibility.
    The public company auditor can provide other non-audit 
services; that is, any but those on the proscribed list, if it 
clears them with the audit committee of the public company's 
board of directors. We seek to strengthen the audit committee 
in very substantial ways, including, as I will mention later, 
that they should be the ones to hire and fire the auditors--
that the auditors really work through the audit committee for 
the board of directors and that the auditors do not work for 
the management. I think it is very clear, to some extent, and 
in some instances, it is management working with the auditors 
that have done these clever schemes for which we are now paying 
the price.
    We had the issue of auditor rotation before us. Many 
witnesses thought the audit firm itself should have to rotate 
every 5 years, periodically. We did not go that far. We 
recommend here that the lead partner and the review partner on 
audits must rotate every 5 years--not the audit firm itself. 
But we do provide that audit firm rotation should be further 
studied and direct the General Accounting Office to undertake 
such a study with respect to the mandatory rotation of the 
audit firm.
    I will move more quickly and skip over some sections, but I 
can always, of course, come back to them if there are any 
questions.
    We were concerned about the movement of personnel from 
audit firms to the public company audit clients. There we put a 
1-year cooling off period with respect to the top positions in 
the company, so that you can't hold out to the audit team the 
immediate prospect of an important position in the company. 
Again, we are trying to protect the independence of the audit.
    The next two titles, III and IV, deal with corporate 
responsibility and enhanced financial disclosure. As I said, we 
provide for a strong public company audit committee that would 
be directly responsible for the appointment, compensation, and 
oversight of the work of the public company auditors, which 
makes it clear that the primary duty of the auditors is to the 
public company's board of 
directors and the investing public, and not to the managers. We 
provide that the audit committee members must be independent 
from company management.
    We require that the audit committee develop procedures for 
addressing complaints concerning auditing issues and also that 
they put in place procedures for employee whistleblowers to 
submit their concerns regarding accounting.
    Where does an employee go when he sees a problem and is 
fearful of taking it up with management because his perception 
is that management is involved with the problem? We 
specifically provide that they should be protected in going to 
the audit committee.
    We have a provision prohibiting the coercion of auditors. 
Some have asserted that officers and directors have sought to 
coerce their auditors or to fraudulently influence them to 
provide misleading information. Obviously, the auditors ought 
to be protected from that as well.
    We have a provision that the CEO and the CFO who make large 
profits by selling company stock or receiving company bonuses 
while management is misleading the public about the financial 
health of the company would have to forfeit their profits and 
bonuses realized after the publication of a misleading report.
    We also address the question of remedies against officers 
and directors who violate securities laws, something in which 
the SEC is very interested.
    We have a provision on insider trades during pension fund 
blackout periods. We prohibit the insider trades. So you can't 
have officers and directors free to sell their shares while the 
majority of the employees of the company are required to hold 
theirs--as, of course, has happened in some instances.
    On enhanced financial disclosures, we require that public 
companies must disclose all off-balance-sheet transactions and 
conflicts. We require that pro forma disclosures be done in a 
way that is not misleading and be reconciled with a 
presentation based on generally accepted accounting principles. 
More companies are doing these pro forma disclosures. They 
really are not accurately reflecting the financial conditions 
of the company.
    We require very prompt disclosure of insider trades--
actually, to be reported by the second day following any 
transactions.
    We require the reporting of loans to insiders. There have 
been some enormous loans made. At a minimum, those need to be 
disclosed. Some argue they ought to be prohibited. We didn't go 
that far. Some testified there are some good reasons on 
occasion that a company ought to make a loan to one of its 
officers. But, at a minimum, they ought to be disclosed.
    This is a small item, but it may have a good benefit. We 
require public companies to disclose to the investors whether 
they have adopted a code of ethics for senior financial 
officers and whether their audit committee has among it a 
member who is a financial expert. We don't require them to have 
a code of ethics, although we think they should. We just 
require that they disclose whether they have one or not.
    Title V deals with analyst conflicts of interest. We have 
had this incredible situation that was brought to the public 
attention by the efforts of the Attorney General of the State 
of New York, Eliot Spitzer, in which research reports and stock 
trades of companies that were potential banking clients of a 
major broker-dealer were often distorted to assist the firm in 
obtaining investment banking business. There was one document 
that actually acknowledged the conflict and, as a result, 
stated:

    We are off base on how we rate stocks and how much we bend 
over backwards to accommodate banking.

    These analysts would recommend a buy rating on the stock 
essentially to help out the investment banking firm which was 
trying to get the company's investment banking business. So 
they get the analysts to say good things about the company, 
which will then lead the company to be far more favorably 
inclined and take on that firm in order to do their investment 
banking business.
    In some instances, they were actually recommending buys and 
then they were saying to one another what a turkey the company 
was, but the poor investor was being taken at the time.
    We set out a number of provisions in this regard. I will 
not go through all of them.
    We prevent investment banking staff from supervising 
research analysts or clearing their reports.
    We prohibit analysts from distributing research reports 
about a company they are underwriting.
    We have a provision to protect analysts from retaliation 
for making unfavorable stock recommendations.
    We heard moving testimony from someone who said: If you 
make an unfavorable recommendation, who knows what is going to 
happen to you?
    We also provide--the bill here focuses on disclosure 
instead of prohibition--that an analyst would have to disclose 
if he owned the company stock. If you are doing an analysis and 
if you are doing a report and a recommendation, you ought to 
disclose whether you own the company stocks or bonds, whether 
you have received compensation from the company, whether your 
firm has a client rel-
ationship with the company, and whether you are receiving 
compensation based on investment banking revenues from the 
company. These are not prohibitions, they are just disclosures.
    The thought behind this is, if you are an investor and an 
analyst is making a recommendation and he puts up front in his 
analysis that he owns the company stock, or that he is 
receiving compensation from the company, or that his firm has a 
client relationship with the company, or that he is receiving 
compensation based on investment banking revenues received from 
the company, someone is going to look at this and say: wait a 
second. I have to take his recommendation in the context of his 
involvement.
    Finally, of major importance is the increase we have 
provided for the budget of the SEC to, No. 1, provide pay 
parity for SEC employees; No. 2, enhance information technology 
and security enhancement; and, No. 3, fund more professionals 
to help carry out the important investigative and disciplinary 
efforts of the SEC.
    We provide for two studies. One concerns the consolidation 
of public accounting firms. Senator Akaka was very interested 
in this. There has been a constant consolidation trend. We have 
asked the Comptroller General to do the study. And the other is 
by Senator Bunning directing the SEC to conduct a study of the 
role of credit rating agencies in the operation of the 
securities markets.
    In closing, there has been broad support for this 
legislation. Just a few days ago, the Business Roundtable came 
out in favor of it. The Financial Executives International 
early on in the process was supportive, as well as the Council 
of Institutional Investors.
    We have tried hard to listen to the concerns people raised.
    The procedure here was that before the Memorial Day 
recess--in fact, in early May, we put out a committee print. As 
we approached markup shortly before the Memorial Day recess, a 
number of amendments were proposed. It was urged that we put 
the markup over. We agreed to do that. We took all the 
amendments that had been put forward, and other suggestions 
that were being received with respect to the committee print, 
and went back and reworked it.
    I have to say to you that, in all candor, many of those 
suggestions were meritorious and in fact are now reflected in 
the legislation that is before the Senate.
    So we tried very hard to listen to people at every step of 
the way. We then reworked the print. We came back with another 
committee print. We went to markup on June 18. We made a 
limited number of amendments in markup and brought the bill out 
to the floor of the Senate by a 17-to-4 vote.
    I simply close by saying how strongly I believe that 
financial irresponsibility and deception of the sort that we 
have seen in all of the instances that keep appearing on the 
front pages of our newspapers are a real threat to our economic 
recovery. We cannot afford to wait for the next corporate 
deception, followed by the next round of layoffs, followed by 
the next collapse of a company's pension fund.
    We need to take action to restore public trust in our 
financial markets, and that really begins with restoring public 
confidence in the accuracy of financial information. That is 
what this legislation seeks to accomplish. I urge my colleagues 
to support this critical legislation.
    Mr. President, I yield the floor.
    The Presiding Officer (Mr. Bingaman). The Senator from 
Texas is recognized.
    Mr. Gramm. Mr. President, I begin by thanking Senator 
Sarbanes for working with me as we have considered this bill. I 
congratulate him on this day that we are considering the bill 
in the Senate.
    We had a series of hearings that I wish every Member of the 
Senate could have attended. I am not surprised that at the end 
of those hearings good people with the same facts, as Jefferson 
said so long ago, were prone to disagree.
    I find myself in a position where Senator Sarbanes and I 
agree on many of the key issues of this bill; we differ on 
others. It is not the first time in managing a bill that we 
have been on opposite sides.
    I reminded Senator Sarbanes this morning that it might very 
well be this will be the last bill we will ever manage 
together. Since I am leaving the Senate, and we have something 
like 40 legislative days left, I do not know whether, after 
this bill is dealt with, the Banking Committee will warrant any 
of those 40 days.
    But I would like to say for the record that no one can 
object to the hearings we had, the approach the Chairman has 
taken. Whether you agree with him or whether you do not, I 
think his approach has been reasoned and reasonable.
    It is clear this issue has attracted a great deal of 
attention. It is clear that there is a mind in the Congress, if 
not in the country--Congress is not always reflective of the 
thinking of the country--but there is a sort of collective mind 
that we need to do something, even if it is wrong.
    I lament, as we have gotten into this debate, that the 
media has decided that the tougher bill is the bill with more 
mandates; that if you decided to set up a stronger committee, a 
stronger board with broader powers so they might decide to go 
beyond the legislative mandates, that that is a weaker proposal 
than having 
Congress actually write auditing standards or conflict of 
interest standards.
    I would submit to my colleagues--and I guess I would have 
to say at this point, I do not know that we will follow this 
adage--but I suggest this is a very important bill. I urge my 
colleagues, as you look at this bill, to realize we are not 
just talking about accounting. If this bill were just about 
accounting, it could do some good, it could do some harm, but 
it could not do too much of either.
    But this bill is far more than just a bill about 
accounting. This is a bill that has profound effects on the 
American economy; therefore, I think it is very important that 
we try to look at the problem and that we try to come up with a 
solution that will be good not just for today, not just that 
will bring forth a positive editorial in a newspaper tomorrow, 
but I submit we want to try to find one that meets the front 
porch of the nursing home test. That is the test where, when we 
are all sitting around in rocking chairs in a nursing home, and 
we look back at what has happened under this bill, that we will 
be proud of what we did and how we did it.
    I want to touch on several things. I want to go through and 
make several points, some related to what the distinguished 
chairman said, some just because I want to say them. I want to 
talk about what I believe the problem is. And I want to make it 
clear that I do not know how to fix it. I do not know that this 
bill fixes it. I do not believe it does. I do not believe my 
substitute I offered fixes it either. But I think somebody 
needs to talk a little bit about it. Then I want to talk about 
the bill that we have before us, and where I agree with it and 
where I differ, and what those differences are.
    I think the good news is--from the point of view of if 
consensus is a good thing--there is a consensus, and has been 
from the very beginning, that we need to pass a law. What this 
President cannot do is provide an independent funding source 
and a legal foundation for this independent board.
    I personally believe the President's 10-point program was a 
good program. What the Chairman of the SEC cannot do is provide 
an independent funding source and provide a legislative 
foundation for the board. The Chairman and I agree on that.
    There have been people who have reached a conclusion that 
if you differed from Senator Sarbanes, you did not really want 
a bill. I believe those of us who have differed do want a bill. 
And the one thing that we agree on, which I think is at the 
heart of this whole debate, is a strong, independent board to 
make determinations about conflict of interest and about 
ethics.
    Now, let me touch on the things that I wanted to touch on.
    I personally thank Senator Sarbanes for the approach he 
took in focusing on the problem and on the future. Everybody 
knows this has now become a political issue. We know that 
people are either trying to go back and pin this problem on 
past Presidents or SEC Directors or they are trying to pin the 
problem on the current President and the current SEC Chairman. 
I think it is a testament to Senator Sarbanes' leadership that 
he has had nothing to do with that.
    The plain truth is we have had a succession of great SEC 
Chairmen. Arthur Levitt and I disagreed on many things, but I 
do not think anybody could argue that he was not an effective 
SEC Chairman. It is true that he had the ability, under 
existing law, to go back and change GAAP accounting to set up a 
board, to do anything he wanted to do, and he did not do it. 
But it is always so easy to see these things when you are 
looking with that wonderful hindsight.
    Anybody has to give Arthur Levitt credit that he was the 
first to raise an issue about auditor independence. Whether you 
agreed when he raised it or not that it was a problem, that it 
was proven, it is clear that he saw a problem which may or may 
not be the source of our problem today, but many people believe 
it is. You have to give him credit. And I don't believe anybody 
else in his position would have done a much better job than he 
did.
    Let me also say that I think Harvey Pitt has done an 
outstanding job in the short period of time he has been at the 
SEC. Much is made of the fact that he did legal work for 
accounting firms. I continue to be struck by this approach that 
somehow knowledge is corruption, that somehow the perfect 
regulator is a guy who just came in off a turnip truck and who 
knows absolutely nothing.
    It reminds me of Senator McCain was once telling a story 
about talking to a journalist who was covering the Vietnam War 
and asking the journalist if he had ever read this seminal work 
about the history of Vietnam. And the journalist said: No, he 
had never read it because he wanted to approach the subject 
with a totally unbiased mind.
    There is a big difference, I submit, between an open mind 
and an empty mind. We make a grave mistake when we discount 
knowledge. Everybody today, when they are criticizing Harvey 
Pitt, talks about the fact that he represented accounting firms 
and security firms. I guess if he were being more aggressive 
than is the public mood, people would remember that he was 
probably the most rigorous chief counsel at the SEC in its 
history and, in that process, brought cases against numerous 
major companies. They would be saying that that experience had 
tainted him for his current work.
    The point is, the man has broad experience as chief counsel 
to the SEC, where he prosecuted major firms, and he has vast 
experience as probably the Nation's premier security lawyer 
where he defended associations and businesses. And quite 
frankly, when in doubt, I will go with knowledge. When in 
doubt, I will take experience. I do not believe that experience 
taints you.
    Let me also say that there is this current mood that 
anything having anything to do with accountants is somehow bad. 
Having just praised Harvey Pitt, let me point out an area where 
I disagree with him. When he set up his board to oversee 
accounting ethics and to look at issues such as the 
independence issue, on ethics issues, he does not allow people 
with an accounting background to vote.
    Now I would have to say that I strongly disagree with that 
for two reasons: No. 1, since when is a person's background a 
source of corruption? I will address that a little more in a 
minute. Secondly, when you are looking at what is and what is 
not ethical practice, I am not saying it is absolutely 
essential, but it is helpful to have somebody who knows 
something about what practice is.
    I submit that in all of these approaches, from the SEC 
approach to the approach of this bill, we are probably going 
too far in putting people in positions where they are going to 
have massive unchecked authority and they have no real 
expertise in the subject area.
    Anybody who thinks this board is just going to slap around 
a few accountants does not understand this bill. This board is 
going to have massive power, unchecked power, by design. I 
would have to say the board that Senator Enzi and I set up in 
our bill has massive unchecked power as well. I mean, that is 
the nature of what we are trying to do here. I am not 
criticizing Senator Sarbanes. I am just reminding people that 
there are two edges of this sword. We are setting up a board 
with massive power that is going to make decisions that affect 
all accountants and everybody they work for, which directly or 
indirectly is every breathing person in the country. They are 
going to have massive unchecked powers.
    We need to give some more thought to who is going to be on 
this board and is it going to be something that is attractive 
enough to make people want to serve.
    In the proposal Senator Enzi and I put together, I thought 
we could enhance its prestige by making it a little more 
independent of the SEC. Under the committee bill, which is 
before us, the SEC would appoint the members of the board. I 
thought that given the broad nature of its power, which goes 
far beyond just accounting and far beyond just securities, it 
would be helpful to have the SEC appoint two members--Senator 
Enzi and I suggested that one have an accounting background and 
one not--have the Federal Reserve Board appoint two; have the 
CFTC appoint two; and then have the President appoint the 
chairman. I think that board would have a higher profile. With 
a Presidential appointee as chairman, it would raise the 
prestige of the board, and we would get better people to serve 
on the board.
    I urge my colleagues, think long and hard when you think 
about this board exerting tremendous, unbridled, unchecked 
power, about how many people you want on the board who know 
something about the subject matter. Today, in an environment 
where accountants are the evil people of the world, the enemies 
of the people, having no accountants on this board or 
relatively few and not letting them vote when ethics matters 
are being dealt with, I assert that kind of approach means you 
are not going to have first-rate people who are going to want 
to serve.
    Let me finally get it out of my system by saying: I don't 
know a whole bunch of accountants. I taught at a public 
university. About a third of my students in economics were 
accounting majors. I would have to say that I have a pretty 
high opinion of accountants. If I had to trust the safety and 
sanctity of my children and my wife today, after all these 
revelations about bad accounting, to a politician, a preacher, 
a lawyer, or an accountant drawn at random in America today, 
without any pause I would choose an 
accountant.
    I am not saying that there are not bad people in 
accounting. I am not saying there has not been abuse. But I 
think we have to separate people from professions.
    One of my concerns is, we have already had a decline in the 
number of people majoring in accounting. I am wondering, I 
don't care what kind of law you write, I don't care what kind 
of board you set up, if we don't attract smart young people 
into accounting, people who understand it is not talent, it is 
not personality, it is not cool, it is character that 
ultimately counts, then none of these systems are going to work 
very well.
    Now, I don't buy the idea that legislating something 
instead of setting up a reasoned system to make decisions is a 
tougher approach; and if it is, I don't want it. But what we 
have today is an approach that is largely taken in the media 
that the more mandates you have, that the more things chiseled 
inflexibly into law, that the more it is one-size-fits-all, 
whether it has any rhyme, reason, or responsibility, that that 
is tougher, and therefore it is 
better, that in today's environment is obviously appealing.
    I hope this doesn't happen, but it would not shock me if we 
have a series of amendments offered tomorrow when we start 
dealing with the bill, where people try to out-tough each 
other--maybe one to kill all the accountants and start all over 
and train new ones. Well, nobody would offer such an amendment, 
but I think we could very easily get into this oneupsmanship 
that we can end up regretting. I hope that will not happen. I 
want to discourage that.
    Let me give you an example of where Senator Sarbanes and I 
differ in our opinions. Who is right, I don't know. I think 
maybe being in this business for a while convinces you that 
nobody has a lock on wisdom and nobody knows in each and every 
case what is right and responsible, but I want you to 
understand the difference of our approach. Let me just go right 
to the heart of the matter.
    The substitute that I offered in committee with Senator 
Enzi has an independent board. I think it is better, but you 
can argue that the two boards are pretty similar. Ours is a 
little more independent of the SEC; though, in the end, to meet 
the constitutional test, the SEC has to have authority over it. 
We went a little further in terms of independence and 
appointing members, and I have already talked about that. But 
the whole heart of the difference--let's pick one issue--comes 
down to auditor independence. If you ask me today, should the 
same company that does an external audit for a firm be able to 
do internal audits--and I argue today I don't have the 
knowledge to say this--I would argue today that I really don't 
know enough about accounting practice and how the process 
works, not just at General Motors but at the smallest 
corporation in America, to make that decision. The bill before 
us sets out the law. It is written in the law that if you do an 
external audit, you cannot do any one of these nine different 
things. I don't know, it may well be that after a reasoned 
analysis a competent board would decide they ought to do those 
things. My guess is that if I had to decide today, and you 
forced me to make a decision that was going to be binding on 
the country, which is a little frightening to me, I might well 
agree with most, and in some cases all, of these things. But I 
don't believe we ought to be writing that into law. I don't 
think anything is gained by writing it into law, and I think a 
lot is lost by writing it into law.
    Having read editorials, I know this makes the bill tougher, 
but I don't think it makes it better. What I believe we should 
do is set up the best and strongest board we can, make it 
independent, give it independent funding, and put competent 
people on it. The way Senator Enzi and I did it, and there is 
nothing magic about it other than that we did it, we decided to 
have the SEC, the Fed, and the CFTC appoint two members, one 
with an accounting background and one without, and then have 
the President appoint the chairman, and he could decide.
    I personally think that having more accountants rather than 
fewer is a plus, not a minus. I don't think they all ought to 
have an accounting background. I don't necessarily say a 
majority have to have an accounting background, but I believe 
that day in and day out, 20 years from now when we have all 
left the Senate and we are not paying attention to these 
things, it would help to have people who know what they are 
doing. I don't buy the idea that people who don't know what 
they are doing are more moral, other things being the same, 
than people who do know what they are doing. In any case, I 
believe that rather than writing out these nine things by law 
that you cannot do while you are doing an external audit, we 
ought to set up the strongest board we can, and we ought to 
give them external funding and plenty of power, and we ought to 
say to them: you need to look at these nine things and do a 
reasoned analysis. You need to talk to lots of people, such as 
smart theorists who are accounting professors at our best 
universities, and you probably ought to talk to the bookkeeper 
in Muleshoe who is actually doing bookkeeping work, look at the 
practical, the theoretical, and make a determination.
    Should you be able to do an external audit and do any one 
of these nine things? You make a decision and set it out in 
regulation. Why is that better than writing it into law? It 
seems to me it is better for two reasons: One, if you are 
wrong, or if accounting practices change, or if your perception 
of the problem changes, you can go back and change it by 
regulation. The problem with writing it into law is that 
Congress then has to come back and change the law. As we know 
from Glass-Steagall, it took us 60 years to fix something that 
had it been written in regulation by the 1940s, it would have 
changed. But we didn't change it until 1999.
    The second reason, which I think is equally important, if 
not more important, is the way the bill is now written might 
very well make sense for General Motors. That is, it might make 
perfectly good sense to have a process whereby General Motors 
might have three or four different CPA firms--maybe more--but 
they are operating all over the country and all over the world. 
That is perfectly feasible. But the last time I looked--and I 
don't know, but some of these may have gone out of business 
and, God willing, maybe some new companies have come into 
business--the last time my trusty staff looked, there were 
16,254 publicly held companies in America. I don't care how 
smart you are, I don't care how good your intentions are, you 
cannot write a mandate, if you get too far in the detail, that 
fits General Motors and also fits the 16,254th largest company 
in America. It just doesn't work.
    One of the advantages of setting up an independent board, 
giving them a mandate to look at these areas, but not chiseling 
it into stone in legislation, is because they can then say, 
well, here is the principle and if you are General Motors, here 
is how it applies, but if you are XYZ Paint Company in Montana, 
or Wyoming, or wherever, you might only have one accounting 
firm operating in the town that you are domiciled in. I am not 
saying you cannot hire accountants to come from the Capital 
City, or wherever, to your town to do work for you, and maybe 
you ought not to be operating in a little town in a small 
State; but people choose that, and people who represent small 
States seem to like these companies being there. I am just 
saying that giving the board the ability to set a principle and 
apply it in one way to General Motors and in another way to a 
small company in a small town makes eminently good sense in 
practice.
    Now, I know it is not a mandate in the same sense as 
writing it into law, but I think the result would end up being 
better.
    One of the amendments that I will offer--and I thank 
Senator Sarbanes for trying--and one thing I have to say is 
that nobody on our committee can say that Senator Sarbanes did 
not listen. Nobody can say he failed to try to hear them out on 
their concerns and that, in many cases, he didn't change the 
bill to try to respond to their concerns.
    One of the changes that I support is giving the board, with 
the concurrence of the SEC, the ability to grant waivers to 
these rules and, in fact, to the law. The problem with waivers 
on an individual company basis is a practical problem, and that 
is, if 16,254 companies are trying to get waivers under their 
special conditions--they all come to Washington and hire 
lawyers and lobbyists; they all petition the board and the 
SEC--if that board has 16,254 petitions in 1 year, and it could 
have many times that if people are petitioning for different 
kinds of waivers, we are going to shut it down for any other 
purpose except waivers.
    What will happen, not because anybody wants it to happen 
but because of the very nature of Government, the people who 
will get the waivers will not in general be the most deserving 
people. They will be the people who hired the best lawyers, who 
had the best contacts, who knew how to go about it, and who had 
the money to spend getting the waiver.
    My guess is the smallest companies that need the waiver the 
most will not get them. Surely at some point we are going to 
fix the bill so that the accounting board, with the concurrence 
of the SEC, can say: OK, look, in applying this, if you fall 
into these categories, you have these circumstances, you have a 
waiver to do things in this way. Clearly, something like that 
has to make sense.
    One of the things we have to come to recognize, and I think 
we all recognize it, is that having a beautiful law in a law 
book does not make good law. It has to be practical, and it has 
to take into account the 1,001--in this case, the 16,254 
different circumstances that can apply.
    What is the problem? I guess there are as many theories 
about the problem as there are people. I have my own theory 
about the problem, and I will share it with my colleagues and 
anybody else who is interested.
    Why is all of this happening now? I believe it is happening 
because of the problems in GAAP accounting. There are other 
extenuating circumstances, and I want to touch on them, but 
here is the problem in GAAP accounting. Senator Sarbanes used a 
perfect example of it, and I will just take his example. He 
talked about how WorldCom saw its market capitalization fall 
from $100 billion to $100 million. How is that possible? I 
remember when Enron went bankrupt. People said: Where are the 
assets? When a company goes from $100 billion to $100 million, 
what happened to the 
assets?
    Here is the problem. Increasingly, the asset is a 
combination of know-how, credibility, and a belief by the 
public that you are carrying out your business in an efficient 
and ethical way. Increasingly, the modern corporation does not 
have 12 steel mills. They do not own massive physical assets. 
Many companies have tried, basically, to get out of the asset 
business into the information business. The value of WorldCom 
was a discounted present value of what the public believed its 
revenue stream was relative to its cost. It never had $100 
billion worth of physical assets, anything like it. That is 
what the value of the ideal was as the public perceived it in a 

period where our wise friend, Alan Greenspan, talked about 
irrational exuberance. That is what they thought that company 
was worth, but it never had assets that were anything near $100 
billion. What it had was know-how, knowledge of a market, and 
it had credibility.
    Enron was like a bank in the 19th century before FDIC 
insurance. Their reputation was the source of their value, and 
when they made stupid business decisions that called that 
reputation into question, they collapsed.
    I have a great sympathy for accounting because I used to be 
an economist, and in economics, we have something called 
ceteris parabis. It means ``other things being the same.'' So 
when we do not know what those other things are, we just utter 
this Latin phrase and pretend they do not exist--literally 
pretend they do not exist.
    That is valuable in physics where you talked about force 
equals mass times acceleration, or for every action there is 
equal but op-
posite reaction. That is an assumption. That is a 
simplification because it leaves out friction, and it leaves 
out gravity. There is nothing wrong with it, but the problem 
is, accounting cannot do those things.
    I had a famous and great accounting professor named David 
McCord Wright. Nobody remembers him anymore. I can visualize 
him today easily defining WorldCom. He would have talked about 
the discounted stream of earnings, and he would have talked 
about the value of their equity or market capitalization and 
would have plotted out a projection of revenues and a 
projection of costs and integrating that area to add it up, and 
that is where the $100 million was.
    I doubt if WorldCom's physical assets ever totaled $50 
million, probably not $20 million. You are an accountant and 
you have the job with the directions that are available through 
GAAP, generally accepted accounting principles. You have the 
job of trying to model, for accounting purposes, what WorldCom 
looks like. You do not have the ability to utter a Latin phrase 
and wish away things you do not understand. Our problem today 
is that our GAAP accounting has not kept pace with the world in 
which we live.
    In this world where knowledge is power, in this world where 
know-how is wealth, it is very hard to model with GAAP 
accounting. In the decade of the 1990s, when this new model was 
used on a massive basis in the American economy, accountants 
had to figure up how much all this stuff was worth.
    GAAP accounting has not kept pace with our changing 
economy. Our accounting is based on the old steel mill of the 
1940s where you had how much you paid for the furnaces, and you 
had them a certain period of time, and you have depreciated 
them.
    How do you depreciate an idea? How do you book having 
brilliant young people who are committed to the future in your 
company because they own your stock? How do you put that down 
in value terms?
    So when we are pointing the finger at these people who call 
themselves accountants, when we are blaming them for every 
problem in the world, accountants did not put WorldCom into 
bankruptcy. Accountants did not put Enron into bankruptcy. 
Enron put Enron into bankruptcy by making bad business 
decisions. The accounting was a problem because it was slow to 
show it, but it was there. WorldCom's problems were there. The 
problem was not accounting. The problem was accounting did not 
show the problem soon enough.
    So if anyone is listening to this debate and thinks some 
investment is going to be more valuable because we have better 
accounting, in the long run that is true; in the short run, I 
am not sure that is true. In fact, I argue these companies 
would have gone broke anyway. Clearly, they would have gone 
broke, and they would have gone broke quicker had the 
accounting system been better. It should have been better. It 
needs to be better.
    The point I am trying to make is the following: When you 
are trying to model a company using GAAP accounting, it is 
hard. It is something nobody has ever done before.
    We are learning how to do this, and we will--using concepts 
like goodwill to try to be a proxy for things like intellectual 
capital and know-how. That is the source of our problems.
    I think the fact this came at the end of a financial bubble 
in the 1990s exacerbated the problem. The problem, in my 
opinion, is accounting was easier--maybe it was not easier 
initially. We figured out how to do it on the old model. We 
will figure out how to do it on the new model.
    There is some smart accountant, probably at Texas A&M right 
now, studying accounting, who will probably get an MBA, who 
will figure out how to get all this goodwill off our books--
which is a silly concept in my opinion, but it is the only one 
we have--and come up with models of intellectual capital that 
will have meaning, just as that steel furnace in the 1940s and 
the write-down of it that made sense, but that is not the world 
in which we live. That has to be dealt with.
    Something the Chairman's bill does, something that I very 
much am in favor of, is it gives independent funding to FASB. 
The two things that have to be done and only Congress can do 
them effectively, in my opinion, are: No. 1, we have to have an 
independent, self-funded accounting standards board, FASB, and 
we have to have accountants setting accounting standards. No. 
2, we need to set up this board to oversee ethics in 
accounting.
    I do not think it matters whether it has a majority of 
accountants or not, but it needs to have a reasonable number of 
people who have a background in accounting so they know what 
they are doing and so they have an intellectual stake in it 
being done right. It is a dangerous thing when there are people 
with massive power who do not have any kind of intellectual 
stake in the application of that power, and it concerns me.
    So to conclude, let me say this: Senator Sarbanes and I, 
when we were at this point on the financial services 
modernization bill, were on opposite sides. I was for the bill. 
I saw it as the epitome of all wisdom. He was opposed to the 
bill and saw it in less glowing terms. By the time we got out 
of conference, it was our bill. We were together on it and 90 
Members of the Senate voted for it. It passed the Senate 
initially on a very close vote, a very narrow margin.
    I do not think that will be the case here. I think this 
bill will pass by a very large margin. I also think it is 
possible that by the time we have reconciled this bill with the 
House, that we can have a bill that will be very broadly 
supported. At that point, I hope I will be in a position of 
supporting it.
    There are many good things in the Sarbanes bill. There 
certainly has not been a bill, since I have been in the Senate, 
that was better intended than this bill. I do think it can be 
improved. I think it legislates too much. I think it does one-
size-fits-all mandates. It takes them a little bit too far. 
That, to some guy outside government, does not sound very 
important, but it is very important when one starts talking 
about application. If we do this thing right, and if we build a 
consensus and it works well, that will be the final monument of 
the bill.
    I hope we can offer germane amendments. As of right now, I 
think there will probably be two amendments I will offer. One 
will have to do with this issue about granting waivers on a 
blanket basis so that rather than making every individual 
company that has specific kinds of problems come in and ask for 
an individual waiver, that the SEC and the board, when they 
agree, could simply issue a set of principles, and if you 
qualify you would get the waiver. If you do not, you do not. 
Pretty straightforward amendment.
    The second amendment I believe I will offer will have to do 
with appeals. Under British common law, we have always taken a 
very strong position in affecting the right of a person to earn 
a living. We have set very high standards when it comes to 
taking somebody's livelihood. I believe there are people who 
are practicing accounting, or veterinarians or economists or 
any profession, there is somebody in it who ought not to be in 
it. I think when this board, which is a private entity--and 
again this is not a problem with the Sarbanes bill. This is a 
problem of our substitute as well. It is a strange kind of 
entity. We want it to be private, but we want it to have 
governmental powers. We have tried to structure it in ways to 
try to accommodate this.
    The bottom line is, when this board is taking away 
somebody's livelihood and that person believes they have been 
wronged, they ought to have a right to go to the Federal 
district courthouse. They ought to have a right to say: I do 
not think that was right, and I want my day in court.
    They ought to have to pay for it, and at that point I think 
all the material involved has to be made public, but that is a 
right I think people have to have. Those two amendments are 
very narrowly drawn, and they go to the very heart of the bill. 
I know some of our colleagues are thinking about offering a 
whole bunch of other amendments. I submit that trying to work 
out a compromise with the House is going to be difficult. I 
think we will succeed at it, but I think if we get a whole 
bunch of other issues involved, we are making the mountain 
higher. I believe we are ready to legislate in this area, and I 
think if we can limit what we are doing to this area that we 
can pass this bill, we can go to conference, and we can come 
back and have a bill signed into law before we leave. I think 
if we get into a lot of other areas, I am not saying the world 
comes to an end if you put an amendment on here--having us 
write accounting standards with regard to stock options, for 
example, that is a tax issue. I would probably want to make the 
death tax permanent as a second-degree amendment, but I am not 
saying the world comes to an end if we do that.
    I am saying if we get off into those kind of issues, where 
you have strong feelings on both sides of the aisle--and that 
would not be any kind of partisan vote--I think it is harder 
for our chairman and for the members of this committee to get 
their job done. I hope we will have a limited number of 
amendments. I hope they will be germane to the bill.
    Finally, at some point we are going to take up Yucca 
Mountain. I am not up high enough in the pecking order to have 
gotten the word as to exactly when that is going to be. Other 
things being the same, I would rather finish this bill first 
and then go to Yucca Mountain than to stop in the middle of it. 
But it is a highly privileged motion. Any Member can make it. 
It is not debatable. I assume at some point sometime tomorrow 
that motion will be made. As I figure the time limit under that 
privileged motion, it would take about a day.
    I don't see any reason this bill should not be finished 
this week, and maybe much sooner if we can stay on the bill, if 
we don't drift on into these other areas. When people who are 
for the bill in its current form want to stay pretty close to 
the bill and people who are against it in its current form want 
to stay pretty close to the bill, we ought to stay pretty close 
to the bill.
    I thank my colleagues for their indulgence. I look forward 
to working on this issue. I yield the floor.
    The Presiding Officer (Mr. Dorgan). The Senator from 
Wyoming.
    Mr. Enzi. Mr. President, these are interesting times. I 
hope colleagues have been listening. The two presentations that 
preceded me were outstanding explanations of both the bill and 
the financial problems facing the world today. I don't think 
you can get a clearer explanation of the problems than those 
given by Senators Gramm and Sarbanes. They are very detailed 
and very much to the point and lay the groundwork for what we 
are about to do.
    Usually in this Chamber, we have a solution and we are 
looking for a problem. Today, we have a problem and we are 
looking for a solution. We have a problem before the Senate. 
The way this process works, is that we try to place the 
solution in the best possible form. Under our form of 
government, the Senate will work on its bill; the House works 
on another bill on the same topic. When those two bills have 
been completed, there will be a conference committee and we 
will work out the differences. Through every one of those 
processes, there will be changes to the legislation. We get 100 
different opinions from 100 different backgrounds on any piece 
of legislation. That is what makes our form of government work. 
At the other end of the building, there are 435 people from 
different backgrounds. They all lend their opinion issues that 
come before the House.
    It is sometimes a slow process, but it is the best process 
in the world. It will work on this problem for which we are 
looking for a solution.
    If the economy were different today, we would not have this 
problem. When there are changes in the economy, we realize 
accounting problems--or at least that is when the accounting 
problems become apparent. That is where we are today.
    I am the lone accountant in the Senate. There is a good 
reason for that. Accountants are out there doing very detailed 
work. When you listen to what is in this bill, you are going to 
hear details that you do not hear with other legislation. It is 
the nature of the occupation, of the profession of accounting. 
In the last 6 months, there has been an increased interest in 
the accounting profession. Kids in colleges have been asking 
the Deans about this phenomenon called accounting that nobody 
has talked about for a long time. It is a tremendous 
opportunity for accountants to finally explain what they do.
    Some of the kids are looking into accounting for the wrong 
reasons. They want to be one of the green eyeshade people 
bringing down huge corporations. That is not what it is about. 
It is an opportunity to make sure everyone understands business 
in America. Accountants are the people with the very basis who 
both know it and can explain it. That is their job.
    Somewhere along the line, it is possible for people to get 
distracted from that main goal. We are trying to bring them 
back to that main goal--providing a basis where everyone can 
understand the value of the companies in which they are 
investing.
    Today we are addressing accounting legislation that has 
been reported out of the Banking Committee. It has been through 
initial scrutiny. It has been through the process that leads us 
to the floor. I have talked about the floor process, but so far 
this has only been through the hearings process. We had 13 
hearings in the Banking Committee. They were on very diverse 
topics and a very diverse bunch of people who understood each 
of those topics testified. I commend Senator Sarbanes for the 
way he conducted the process of the hearings, and then the 
process of negotiations that led up to the committee vote. That 
happened over the last several months. On this issue, I can 
think of no other Chairman in either the House or Senate who 
did a more thorough job in conducting hearings. The Banking 
Committee stayed on the substance and did not allow enormous 
outside pressures on this issue to interfere with trying to get 
to the bottom of the real problem. The hearings were not 
finger-pointing. The hearings were an attempt to get valuable 
information to arrive at the best possible solution.
    In addition, the witnesses at the hearings presented 
objective views. Had it been my choice to call the witnesses, I 
would have chosen nearly every person who testified. That shows 
the care and concern that went into choosing the individuals 
who provided this basic information. The witnesses offered 
several different views, and they came from diverse 
backgrounds.
    I also thank the Chairman for the way he and his staff 
conducted themselves through the endless negotiations we had 
during that same timeframe.
    Right now, it seems as if everyone is writing an accounting 
bill--including myself. In fact, I got calls as soon as Enron 
occurred from some of the House Members who said they would 
really like to work on a bill with me. Of course, the first 
question I had to ask them was, What did you find really 
happened with Enron? Usually the answer was, we don't know yet. 
Their response was, but we want to get ahead of the curve.
    I am glad we had the patience to wait, to hold the 
hearings, and then to negotiate through a number of different 
bills to come up with the one before the Senate today. Those 
negotiations by Senator Sarbanes and his staff were both honest 
and fair. Although we were not able to agree on everything, 
which is the basis of negotiation, I believe all negotiations 
took place in good faith. I thank the Chairman for that. I do 
think we have a bill that is a good basis for finishing the 
process and going to conference.
    Enron, Global Crossing, WorldCom, and the other numerous 
restatements that are occurring have caused a ripple effect on 
the trust of corporate executives and their auditors by the 
public. These executives, the persons in whom shareholders put 
their trust, have stained the entire corporate community. A few 
bad apples have spoiled the bunch. As a result, the legislation 
we will be debating this week will restructure the way 
executives operate by increasing accountability and making it 
easier to discipline fraudulent behavior while at the same time 
increasing penalties for illegal activity.
    This legislation will force the management of companies to 
be accountable to their shareholders by requiring that they 
certify the accuracy of their financial statements. In 
addition, the legislation will require that members of 
corporate audit committees are independent directors. We 
provide the audit committee the ability to engage outside 
consultants and advisers and provide them the resources they 
need to determine whether the accounting techniques being used 
are in the best interests of the shareholders.
    In addition, all employees should be subject to the same 
rules when selling company stock. In this regard, the bill 
prevents officers and directors of a company from purchasing or 
selling stock when other employees are restricted. And when 
these officers or directors do sell stock in the companies in 
which they work, they should report the transaction on the next 
business day.
    However, the cornerstone of this legislation will be to 
change the way in which a company's auditors interact with 
their clients, and also to force them to be more accountable. 
While I believe that accountants have extremely high ethics and 
standards, I do believe the current environment has highlighted 
a number of problems inherent in the current oversight 
structure of the accounting industry.
    I do believe it is an awesome task to be the accountant 
trying to explain this to everybody else. I do need to explain 
a little bit why there are not more accountants in legislatures 
or in the Senate or in the House. That is because if you pick 
up experience in legislating, most of that is done during the 
tax season and we need the accountants during the tax season. 
And they need the business during the tax season. If they don't 
earn at least 70 percent of their revenue during that time, 
they are out of business, which precludes them from picking up 
legislative experience. There is no requirement that you have 
to have legislative experience before you come here. There is 
no requirement that you have any kind of experience. But that 
is why there are fewer accountants here than there are a number 
of other professions--it is a matter of timing.
    While I am hesitant to move forward with the number of 
changes included in the bill, I do believe the legislation is 
necessary given the current lack of faith in accountants.
    Make no mistake about it, this legislation is 
Federalization of the accounting industry. This bill places a 
Federal Government bureaucracy at the helm of accounting 
regulation. While the legislation doesn't prevent the State 
accountancy boards from continuing to regulate accountants 
registered in their States, it does establish an overlord 
regulator to oversee the firms which audit publicly traded 
companies. My hope is that this new oversight structure will 
renew the faith the public has in auditors and the financial 
statements which they help prepare.
    In addition to my own proposal, over the past several 
months I have seen a lot of different proposals. I have also 
spoken to and met with many of my colleagues about this issue. 
I have spoken with groups from different industries; I have 
talked to scholars, consumer advocates, and regulators. All the 
groups agree that steps need to be taken to enhance the 
oversight of accountants.
    I have examined several existing models of quasi-public 
regulators such as the New York Stock Exchange and the National 
Association of Securities Dealers. One point is clear: When 
these organizations were established, there was a desire to 
appoint the most informed individuals, those who actually deal 
with the industry on a day-to-day basis, as majority members of 
the boards that oversee the industry.
    For instance, the National Association of Securities 
Dealers, NASD, has a large board which must consist of anywhere 
between 17 and 27 members. Nowhere in the NASD rules does it 
state their board members may not serve if they have previously 
been involved in the securities industry. As such, the majority 
of the NASD board members have worked within the industry.
    Why should the accounting industry be treated so 
differently? Why would we create a board which oversees the 
accounting industry and then require that a minority of its 
members have ever practiced accounting? The NASD plays just as 
important a role in the protection of investors as the 
accounting oversight board will, so why shouldn't the persons 
who sit on this board have the best possible knowledge of the 
accounting industry?
    I do want to thank Senator Sarbanes for the change he made 
in the legislation. Originally it said there could be no more 
than two accountants on this five-person board. He made the 
change so that two will be accountants. It is a very 
significant change so that accountants are represented on the 
board. Previously it would have been possible to have no 
accountants regulating the accounting profession.
    Every piece of legislation has its handful of unintended 
consequences, despite how well-meaning Congress can be. I fear 
the way in which the accounting industry will change when a 
group of non-accountants set the standards which accountants 
must follow. Lawyers do not have non-lawyers setting ethical 
and professional standards which they must follow, yet I would 
argue that those standards are as important as accounting 
standards and ethics.
    I don't want my message to be misconstrued. I do believe 
that a board should be established to oversee the accounting 
industry. I also agree the board members should have all the 
tools necessary to effectively oversee the industry. I agree 
that the board members should be full-time and independent from 
the accounting firms. I agree that they should be appointed by 
government and not by industry. But I do not agree that the 
members of the board should be excluded just because they may 
have passed a CPA exam 25 years ago.
    To the contrary, because I believe this board should be as 
effective as possible, I believe the board members should know 
how an audit engagement works and they should know the 
pressures that are applied to an auditor from a client. I 
believe with this knowledge the board may in fact apply 
stricter standards than a board of non-accountants.
    As I said, I believe accounting firms should be subject to 
strict scrutiny. However, I do not believe this legislation 
should pave the road for the trial bar to open frivolous 
lawsuits against accounting firms. Arthur Andersen no longer 
exists. Can we really afford to lose another one or two of the 
final four firms? We used to call them the big five. Now we 
call them the final four.
    It was mentioned earlier that there are 16,254 SEC-filed 
corporations. That is 16,254 to be reviewed, primarily by four 
accounting firms. If the trial lawyers pick off one after 
another after another of the firms because the Board provides 
information and because they are handed that information, how 
will we have those 16,254 audited at all?
    I am hoping there are a lot of young people listening who 
are going into accounting who may start firms and grow the firm 
themselves so they can handle an audit of a Fortune 500 
company. But it doesn't happen overnight. And we have to make 
sure that there is auditing, and not just consulting, which 
some people will point out is where most of the money is these 
days.
    It makes me nervous to know that essentially only four 
accounting firms now have the resources and expertise to audit 
the world's largest companies. We rely on these firms to verify 
the books of diverse and complex companies because they are the 
only firms that can provide this service. If we subject them to 
the will of the trial bar, they will surely continue to be 
driven from existence, one firm at a time.
    Instead, we should punish the wrongdoers to the fullest 
extent possible and rely on good managers of companies to do 
their jobs effectively. In the end, we are going to end up 
making the audit committee members full-time employees, and 
then there will not be any independence--another problem about 
which we have to worry.
    Having said this, I do believe this legislation is needed 
at this time. Congress must produce a remedy to help restore 
investor confidence. We have seen that real penalties, or at 
least a threat of strong penalties, need to be hung over the 
heads of corporate executives to assure they maintain their 
obligations and responsibilities. The moral and ethical 
breakdown among some of those executives is disgraceful, and 
investors must know these executives will be punished severely 
when they make selfish judgments.
    A major concern, as we have gone through this legislation, 
trying to put the bill in its present form, has been the 
relationship to small business. As I mentioned 16,254 companies 
are the ones that are registered with the SEC. There are 
thousands of companies out there that are not SEC registered 
businesses. There are thousands of entities out there that hire 
auditors to give confidence in the financial statements they 
have that are not SEC filed.
    One of our concerns has been that we not change business so 
drastically that these small businesses will no longer be able 
to afford auditors. So we built in protections for the small 
businesses. Our intent with this bill is not to have the same 
principles that apply to the Fortune 500 companies apply to the 
mom-and-pop business. When they hire an auditor, they want that 
auditor to give them every bit of information they possibly can 
so the information they get improves their business and doesn't 
hide anything from investors. Mom and pop are the investors.
    We have taken a lot of care to be sure we are not cascading 
the provisions down into small business. We will look at 
additional ways, I am sure, to make sure that does not happen. 
This is not a license to States to do the same thing that we 
are doing on a Federal basis. There is recognition that on a 
Federal basis there is a bigger problem than on a State-by-
State basis.
    I also want to point out there is also a responsibility by 
the individual investor. They have to learn to diversify and 
not to keep all of their eggs in one basket. I hope we can turn 
this situation into a chance to educate small investors as to 
how best to manage and invest their money. Nothing will bring 
back the billions of dollars employees of some of these 
companies have lost. But hopefully the collapse in confidence 
will ensure that individuals will never again lose their life 
savings because of a lack of diversification or knowledge of 
finance.
    What will this legislation provide? It will provide a 
strong oversight body to watch the accounting industry. It will 
provide a set of corporate governance laws that will require 
corporate executives to become accountable for their financial 
statements. It will provide assurances that corporate boards 
watch the management of the company with a more critical eye--
no longer will board memberships be cushy jobs with no 
responsibility.
    It will also provide assurances to the American people that 
Congress will not allow these millionaire and billionaire 
executives to steamroll their obligations to the shareholders. 
It will also ensure that research analysts aren't being told 
what to say by the investment bankers.
    To a great extent, I believe the marketplace has made 
remarkable changes to address a number of the issues which were 
highlighted by these corporate failures. First and foremost, 
corporate boards and audit committees will no longer turn their 
head when management wants to engage in questionable ethical 
engagements. Also, credit rating agencies will impose much more 
scrutiny on the companies they rate to protect financial 
institutions and other lenders. Lenders themselves will require 
more information about the stability of the companies in which 
they invest. Research analysts will ask more questions about 
the company, and more importantly, they will demand more 
answers from executives. But perhaps, most important of all, is 
the fact that investors, both institutional and individual, 
will be more critical.
    Shareholders will wake up and learn about the power of 
their votes on corporate actions. We've already seen great 
strides from some institutional investors in that they plan to 
use their votes in shareholder meeting to keep executives 
honest and accountable. They also plan to use their votes to 
impact executive compensation packages. These private sector 
solutions will be more effective than any legislation which can 
be passed out of Washington.
    One of our country's greatest strengths rests in the 
dominance of our capital markets. But the strength of our 
markets is only as strong as the underlying confidence in the 
listed companies. When these companies build facades instead of 
standing on principle, it shatters the entire system. Congress 
and the SEC must find a middle ground where we allow the 
marketplace to continue to operate in the capital markets to 
the greatest extent possible but also assures investors, both 
domestic and internationally, that the U.S. capital markets 
will continue to be worthy of their investments. We must 
continue to convince investors, that at the core of the 
American capital markets, there must be a high level of 
integrity and ethics by all players.
    I want to reiterate another message that has been prevalent 
this afternoon.
    As we get into this bill, there are virtually no limits on 
what amendments can be put on--at least unless there is a 
cloture motion.
    I hope people will recognize the need to have something 
done, the need to get it done quickly, and not try and make 
this a vehicle for everything they ever thought needed to be 
done with corporations.
    The purpose of this bill is not to solve the international 
problems of business for everything that we ever thought of.
    I hope my colleagues will constrain their amendments, keep 
them to the corporate governance and accounting area we are 
working on, and help us to get this bill finished as quickly as 
possible.
    Again, I thank Chairman Sarbanes and Senator Gramm for 
their tremendous efforts and insight which they provided in the 
previous explanation of this, and for the hours of work they 
have put into the solution that is before us today. I hope we 
can keep it to a limited solution, take care of the problems 
that are recognizable, and reach agreement so we can get this 
to conference and get a bill to the President for his 
signature.
    Thank you, Mr. President. I yield the floor.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Mr. President, I ask unanimous consent that 
it be in order to send an amendment to the desk and have it 
immediately considered. This amendment makes two simple changes 
to the bill. One is a technical change to conform to the budget 
rules, and a conforming change involving the definition of 
``issuers.'' We have discussed this. It has been cleared. I 
would like to go ahead and take care of that business, if I 
could.
    The Presiding Officer. Is there objection?
    Mr. Gramm. Mr. President, there isn't any objection. I 
think this clarifies the bill. I think it is something that 
both sides are for, even though we had a previous agreement not 
to do any amendments today. It is simply so technical that I 
don't think anybody would have any concerns.
    The Presiding Officer. Without objection, it is so ordered.


                           AMENDMENT NO. 4173


    The Presiding Officer. The clerk will report.
    The assistant legislative clerk read as follows:

    The Senator from Maryland [Mr. Sarbanes] proposes an 
amendment numbered 4173.

    Mr. Sarbanes. Mr. President, I ask unanimous consent that 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To make technical and conforming amendments)

    On page 65, line 11, strike ``All'' and insert ``Subject to 
the availability in advance in an appropriations Act, and 
notwithstanding subsection (h), all''.
    On page 76, between lines 16 and 17, insert the following:
    (d) Conforming Amendment.--Section 10A(f) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78k(f)) is amended--
    (1) by striking ``Definition'' and inserting 
``Definitions''; and
    (2) by adding at the end the following: ``As used in this 
section, the term `issuer' means an issuer (as defined in 
section 3), the securities of which are registered under 
section 12, or that is required to file reports pursuant to 
section 15(d), or that will be required to file such reports at 
the end of a fiscal year of the issuer in which a registration 
statement filed by such issuer has become effective pursuant to 
the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its 
securities are registered under section 12 of this title on or 
before the end of such fiscal year.''.

    The Presiding Officer. If there is no further debate, 
without objection, the amendment is agreed to.
    The amendment (No. 4173) was agreed to.
    Mr. Sarbanes. Mr. President, I move to reconsider the vote, 
and I move to lay that motion on the table.
    The motion to lay on the table was agreed to.
    Mr. Sarbanes. Mr. President, 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. Reid. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. Mr. President, I first want to extend my 
appreciation to the Senator from Maryland for this bill. It is 
really well timed and well done.
    I received a letter today from the Secretary of State of 
the State of Nevada, a Republican.
    By the way--the Senator from Connecticut is in the 
Chamber--the Secretary of State worked very closely with the 
Senator from Connecticut. As the Senator will recall, he is a 
very fine man. I wish he were a member of the Democratic Party. 
He is not. But he is an outstanding public servant.
    He wrote me a letter, which said:

    Dear Senator Reid: Investor confidence in the integrity of 
U.S. securities markets has been badly shaken as a result of 
Enron, Global Crossing, WorldCom, and other alleged wrongdoing. 
The failure of several large corporations to police themselves 
cries out for reform before the negative impact on our markets 
damages our national economy.
    The Senate is to begin consideration of S. 2673, The Public 
Company Accounting Reform and Investor Protection Act of 2002, 
on Monday, July 8. I fully support 
S. 2673 and oppose any efforts to weaken its provisions.

    If I could have the attention of the Senator from Maryland, 
the manager of this bill, I have here a letter from the 
Secretary of State of the State of Nevada, who says:

    I fully support S. 2673 and oppose any efforts to weaken 
its provisions.

    I say to the Senator, one of the things the Secretary of 
State of Nevada is worried about is someone attempting to 
weaken the bill that you have brought forward to prevent State 
securities agencies from looking at wrongdoings in the State of 
Nevada.
    As the Senator from Maryland knows, the Attorney General 
from New York, who has been here, is very concerned about this. 
It is my understanding this bill does nothing to weaken that; 
is that true?
    Mr. Sarbanes. If the Senator would yield.
    Mr. Reid. I would be happy to yield.
    Mr. Sarbanes. That is correct. At one point there was talk 
of an amendment floating around but----
    Mr. Reid. But the point is, it is not in the bill?
    Mr. Sarbanes. No, it is not in the bill.
    Mr. Reid. On behalf of the Secretary of State of Nevada, 
who I indicated earlier worked closely with the Senator from 
Connecticut in bringing forward a very good election reform 
bill--he is very progressive, and a fine Secretary of State--
throughout this letter, he acknowledges how important this 
legislation is. I wanted this to be spread on the Record before 
my friend's attention was diverted.
    Mr. Sarbanes. I appreciate the Senator's comments.
    Mr. Reid. My friend, Secretary of state Heller, goes on to 
say:

    As Nevada's chief securities regulator, I believe there is 
an immediate need to restore investor confidence in our 
securities markets.
    I stand with my fellow State securities regulators in 
endorsing Title V, Analyst Conflicts of Interest, in its 
current form and strongly oppose any amendment to this title 
that would reduce our ability to investigate wrongdoing and 
take appropriate enforcement actions against securities 
analysts. However, an industry amendment has been circulated 
that would prohibit state securities regulators from imposing 
remedies upon firms that commit fraud if it involves securities 
analysts and perhaps even broker-dealers that serve individual 
investors. If Nevada's investigative and enforcement authority 
in this area are weakened, so too will the confidence of Nevada 
investors.

    He certainly opposes this.
    Mr. President, I ask unanimous consent that the letter from 
our Secretary of State be printed in the Record.
    There being no objection, the letter was ordered to be 
printed in the Record, as follows:


                          Office of the Secretary of State,

                                                      July 8, 2002.

Hon. Harry Reid,
U.S. Senator, Hart Senate Office Building, Washington, DC

    Dear Senator Reid: Investor confidence in the integrity of U.S. 
securities markets has been badly shaken as a result of Enron, Global 
Crossing, WorldCom, and other alleged wrongdoing. The failure of 
several large corporations to police themselves cries out for reform 
before the negative impact on our markets damages our national economy.
    The Senate is to begin consideration of S. 2673, The Public Company 
Accounting Reform and Investor Protection Act of 2002, on Monday, July 
8. I fully support S. 2673 and oppose any efforts to weaken its 
provisions. As Nevada's chief securities regulator, I believe there is 
an immediate need to restore investor confidence in our securities 
markets.
    I stand with my fellow state securities regulators in endorsing 
Title V, Analyst Conflicts of Interest, in its current form and 
strongly oppose any amendment to this title that would reduce our 
ability to investigate wrongdoing and take appropriate enforcement 
actions against securities analysts. However, an industry amendment has 
been circulated that will prohibit state securities regulators from 
imposing remedies upon firms that commit fraud if it involves 
securities analysts and perhaps even broker-dealers that serve 
individual investors. If Nevada's investigative and enforcement 
authority in this area are weakened, so too will the confidence of 
Nevada investors.
    An amendment may be offered on the Senate floor under the guise of 
creating national uniform standards for securities analysts. Its real 
intent, I fear, is to eliminate remedies that state securities 
regulators may impose on firms should fraudulent activity be unearthed 
in an investigation. This approach is clearly ill-advised in today's 
climate of investor uncertainty.
    As Nevada's Secretary of State, my office is charged with 
administering the Nevada Uniform Securities Act. My office is in 
current negotiations with Merrill Lynch regarding a possible settlement 
of analyst conflicts discovered in a lengthy investigation by the New 
York Attorney General's office. My staff is also participating in a 
task force investigation of UBS Paine Webber/UBS Warburg. This 
amendment would greatly hamper our ability to investigate analyst 
conflicts and would have a detrimental effect on Nevada investors.
    I urge you to support S. 2673 and to vote against any amendment to 
weaken the enforcement powers of state securities regulators. The 
result of an amendment such as this could be that virtually every one 
of the thousands of actions brought by state securities regulators 
every year would be preempted, as well as all civil suits and 
arbitrations under state law. In light of the recent Enron and WorldCom 
debacles, it simply does not make sense to limit or preempt the state's 
ability to bring enforcement actions against analysts who lie to Nevada 
investors. The public is looking for elected officials to help them 
regain their confidence in corporate America.
    As Nevada's Secretary of State, I have a duty to protect our 
state's investors. Any measure that dilutes my authority as the state's 
chief securities regulator is counter to the mission of my office and 
to state securities regulators nationwide. Accordingly, I again urge 
you to vote against any amendment to S. 2673 that would weaken the 
enforcement powers of state securities regulators.
    Please call me at (775) 684-5709 if you have any questions or need 
additional information
            Sincerely,
                                               Dean Heller,
                                                Secretary of State.

    Mr. Reid. Mr. President, our Nation is experiencing a 
crisis in confidence among the investing public. Americans hear 
on the news and read in the papers every day more and more 
cases of corporate executives bilking employees and investors, 
and of auditors who looked the other way, of boards of 
directors failing to provide the oversight expected of them, 
and of well-connected investors buying and selling stock based 
on insider information. Investors do not know who they can 
trust.
    We have been in a mad rush the last many years to make sure 
that the quarter you are involved in has a good financial 
statement. People go to whatever ends they can to make sure 
that that quarterly statement looks good to keep the stock 
price up. That is all that matters. It does not matter whether 
the company is losing money. It does not matter if their 
employees are being laid off. It does not matter, as long as 
they do everything they can to do what can be done to make sure 
that stock price stays the same or goes up.
    I have spoken previously on efforts of Senators to secure 
the future for American families. In fact, Senate Democrats are 
using that as a theme: to secure the future for all American 
families. Securing our future means not only making sure our 
borders are safe but also securing educational opportunities 
for all our children and access to affordable prescription 
drugs and affordable health care.
    We must also provide pension protection for American 
families. In part, that means extending pension coverage. There 
will be an opportunity, before this legislative year ends, 
where we can have a good debate.
    The vast majority of workers in Nevada have no pensions. As 
a consequence, they face their retirement years with inadequate 
resources. Senator Bingaman, chairman of a task force, has 
raised awareness of the lack of pension coverage for American 
workers and is working on legislation to address that problem.
    My colleagues have also led the way with other legislative 
initiatives to restore investor confidence and provide 
safeguards to secure Americans' investments, pensions, and 
retirement savings.
    Chairman Sarbanes has introduced important legislation that 
will create a strong, independent oversight board to oversee 
the conduct of auditors of public companies, and he has done 
this on a bipartisan basis. That bill was reported out of 
committee, as I recall, by a vote of 17-to-4, with overwhelming 
bipartisan support.
    This legislation would establish guidelines and procedures 
to assure that auditors of public companies do not engage in 
activities that could undermine the integrity of the audit. It 
ensures greater corporate responsibility by setting standards 
for audit committees and for corporate executives, but it 
would, we would hope, impose penalties when standards are 
violated. It would establish additional criteria for financial 
statements and require enhanced disclosures regarding conflicts 
of interest.
    This legislation also directs the Securities and Exchange 
Commission to adopt rules to improve the independence or 
research and disclose potential conflicts of interest. It also 
would provide a significant boost in funding for the SEC, the 
Securities and Exchange Commission, to help it carry out its 
responsibilities in a fashion that would help restore 
investors' confidence in the markets.
    This legislation goes a tremendous distance in addressing 
some of the major concerns I have heard from people in Nevada. 
And I am pleased this bill has gained, as I have indicated, 
bipartisan support.
    Indeed, it seems that after staying silent for so long, and 
after allowing a permissive atmosphere where businesses could 
do no wrong, the President, our President, and Republicans in 
Congress, quite frankly, are now reversing course. Some are 
falling all over themselves to jump on the bandwagon and 
support this legislation. They have done it after hearing from 
an outraged public. And that is good.
    Tomorrow I will be eager to hear what the President has to 
say in New York. I hope that he does not say we are going to 
have to enforce the law that we have, because the law we have 
has not been enforced, especially by the people who surround 
this President and his Administration.
    For him to go to New York and say we need to enforce the 
law more strongly will not do the trick. He needs to jump on 
the bandwagon with this legislation. We need additional 
legislation.
    The President ran a campaign based on themes such as 
responsibility and accountability, but recent news reports 
suggest that both have been lacking in his explanations of his 
past dealings in the business world.
    Prior to holding public office, our President has parlayed 
his connections as a member of a wealthy and powerful family to 
arrange a number of, some would call, sweetheart deals. In 
editorials they have been referred to that way for the past 
several days. Despite a string of business failures, our 
President always seemed to land on his feet and seemed to 
profit.
    Now there are disturbing indicators that he has played fast 
and loose with some of the rules that he is now being asked, 
through his Administration, to enforce. When asked about his 
business dealings, the President has not accepted personal 
responsibility, instead shifting blame to accountants and 
lawyers or implying that he was just doing business as usual.
    I would have to say there are questions not only about the 
Harken business dealings but about the business and accounting 
practices of Halliburton, where Vice President Cheney enriched 
himself, walking away with tens of millions of dollars.
    So the problems we have heard go far beyond Enron and the 
President's friend, as he referred to him, ``Kenny boy,'' Kenny 
Lay. They are not limited to the handful of companies getting 
most of the media coverage in recent weeks. Instead, there are 
fundamental and systematic problems that have to be corrected. 
That is what this legislation is all about.
    I applaud the chairman and the committee for reporting out 
this bipartisan legislation.
    I hope, I repeat, that the President will join in 
supporting this legislation. We need to make sure that those 
who serve as corporate executives and on boards accept the 
responsibility of their roles when they sign their name on a 
financial report. The American people need to be able to trust 
corporate leaders.
    Likewise, the President, and those in his administration 
who came to office from the corporate world, need to show more 
transparency in letting the American people know how they are 
making policy decisions, who has access to them, who is 
influencing them, who is meeting with them.
    I joined in an amicus brief with the General Accounting 
Office to have the Vice President disclose who he met with to 
come up with energy policy that this Administration enumerated. 
We need to know with whom he met, when he met with them, and 
why he met with them. They refused to give us that information. 
That is why I joined in that litigation.
    This administration must set aside what I believe and agree 
with some--again, it is replete in the editorials of the last 
few days--is their arrogance and secrecy and instead be open 
and forthcoming public servants.
    This legislation is timely. The Banking Committee jumped 
right on it. Most of us thought the Enron thing was something 
that was a rare dealing in corporate America. We have come to 
find out it is not a rare dealing in corporate America. It has 
happened since then time and time again. We have only seen the 
beginning of it, I am sure.
    The Banking Committee is to be applauded for moving this 
legislation forward on a bipartisan basis. By a vote of 17-to-
4, it was reported out of committee. I would hope we can get 
this bill out of the Senate as quickly as possible. It is good 
legislation. It is legislation that the American people need to 
reestablish confidence in corporate America and those people 
they rely on so that they feel better about having their 
pensions supplemented with investments made in the stock 
market.
    The stock market is an indication, as far as I am 
concerned, of how people feel about what is going on in 
business. As we know from recent days, people have not felt 
very good about it. We have had tremendous losses. I heard the 
chairman of the committee, Senator Sarbanes, speak about the 
Nasdaq losing some 74 percent of its value. That is a 
significant loss to our country.
    I know the Members of the Senate understand the importance 
of this legislation. I hope that they understand why it is 
important to move it as quickly as possible. We have a few 
short weeks to complete lots of extremely important legislation 
prior to the August recess. As I have said on four separate 
occasions, this legislation is as important as anything we 
could do, and it is very timely.
    The Presiding Officer. The Senator from Connecticut.
    Mr. Dodd. Mr. President, let me begin my remarks by 
commending the distinguished chairman of the Banking Committee. 
I have said on other occasions and in other places that for 
students of the Congress who wish to find a good example of how 
to prepare a committee and ultimately the Chamber for a moment 
such as this, a good model to use would be the hearings 
conducted by the chairman of the committee on this very 
question.
    There were 10 hearings--there may have been more, certainly 
10 full hearings--to which were invited virtually everyone from 
across the spectrum on this question. This was hardly a set of 
hearings where we heard from one side. We literally invited the 
best experts in the country; they came and shared with us their 
views and thoughts on what sort of steps we should be taking to 
reform the accounting profession, to reform the rules affecting 
the accounting profession.
    I begin by extending my compliments to the chairman and his 
staff for the tremendous job done to lay the groundwork. 
Oftentimes we will see, particularly in light of a crisis that 
occurs, there is a rush to judgment. We will come very quickly 
to the floor with a sort of a cut-and-paste job with the 
legislation. I am not suggesting intentions are not good, but 
that is oftentimes how we react.
    This set of hearings did, very deliberately, with a great 
deal of patience and thought, lay out the foundation for the 
legislation now before the Senate.
    Certainly, while there will be ideas offered to improve the 
legislation, we think the committee has produced a very fine 
product. The best evidence of that is the fact that 17 of us in 
the committee found this proposal to be worthy of our support. 
There were four dissenters. I think even among dissenters, 
there was a sense that we were heading in the right direction. 
Some may have fundamentally disagreed, but if there were one in 
the four, I don't know which one it would have been. Most 
thought we were doing the right thing, either that we went a 
little too far or didn't go far enough possibly, but this is a 
very balanced approach.
    I urge our colleagues to be careful of two potential 
actions in the coming days. One would be to dilute this product 
in some way. We are not suggesting we have written perfection 
here, but we think this is a well-balanced proposal.
    Senator Sarbanes has worked closely with our colleague from 
Wyoming, Senator Enzi, who is the only Member of this body who 
is actually a former member of the accounting profession. He 
brings a wealth of personal knowledge and awareness to the 
issue. He worked very closely with him and other members of the 
minority, as well as with those of us on the majority side, to 
finally bring this product to the Chamber. It already has 
involved some compromise.
    At this hour, when investor confidence is going to be 
absolutely critical and the steps that we take and the language 
we use will in no small measure contribute to the restoration 
of confidence, it can just as easily do the opposite, if we are 
not careful. This is a critical moment in the economic history 
of our country.
    The steps taken by those who are in significant positions 
to affect the outcome of the course we are on are going to be 
critically important.
    The second caution I express is that we don't try to also 
overburden this bill to say that this is the only opportunity 
for us to deal with every other issue affecting corporate 
business life in America. I am not suggesting the ideas Members 
will want to bring to the table are bad. But we can so load 
down a good bill that we can sink this effort if we are not 
careful. I urge my colleagues as well to be restrained in the 
temptation to bring up every other idea and incorporate it as 
part of an accounting reform proposal. Those are the two 
cautionary notes I have.
    Let me also add my voice to those who have expressed theirs 
earlier today. Tomorrow I know the President of the United 
States is going to give a very important speech on Wall Street 
in New York, the financial capital of our country. I commend 
him for doing so. I think it is extremely important that he 
actually go to Wall Street to share his views.
    My hope would be that this evening, as he makes the final 
preparations for his remarks, he would come out four square and 
endorse this proposal that we have brought out of our committee 
by a vote of 17 to 4. I can't think of anything more the 
President could do in the next 24 hours, aside from the 
rhetoric he will offer, than to endorse this bill and to say 
this was a good effort and to talk about the laborious hearings 
we have held to learn exactly what was necessary to incorporate 
in this legislation.
    Lastly, I would hope we would get this bill done fairly 
soon and not let this go on too long. We would love to be able 
to not only finish our work here but to go to conference with 
the House, which has another proposal. It is a weaker proposal, 
in my view, but nonetheless we will have to work with them to 
resolve our differences and to send a bill to the President for 
his signature.
    I would hope that before we leave for our August break less 
than 3 weeks from today we would actually be able to give to 
the President a bill for his signature and not let it drag on 
over into September and October. It is important we act in a 
timely fashion.
    With those background thoughts, I would like to share some 
general comments about the bill itself. The importance of this 
issue cannot be overstated. Anyone who has read a paper or 
turned on the news or flipped on their computer is aware of the 
crisis in our financial markets and, in fact, beyond that, in 
our Nation. No rule or regulation is enough to address this 
fundamental problem.
    The issue causing all of this turmoil is about the simple 
word of ``trust.'' The question that the world is asking is not 
whether our companies or corporations or the workers who toil 
in them or the products and services are competitive, but 
simply whether we are telling the truth. Are we telling the 
truth?
    The reason people of the world so often have come here and 
invested their hard-earned resources is not because there is a 
better deal to be made financially speaking. It is because 
there is a sense that our structures are sound, transparent, 
and they are fair. You may end up losing your investment; you 
may make money on your investment. That is always a risk when 
you make a financial investment. But the one thing you could 
always say about the United States, as opposed to almost any 
other place around the globe, is that when you come to America 
and invest your money, there is a sense of fairness and trust 
and soundness to our financial institutions and the structures 
that we created to protect them.
    That trust has been fractured by the events that have 
occurred over the last 9 months, And it continues to be 
fractured with daily reports. So it is vitally important that 
we respond in an appropriate and thoughtful manner as the 
Congress of the United States. We have done so, in my view, 
with the proposal the chairman has brought to our attention. 
The very integrity of our markets is being questioned, and the 
Congress must respond cautiously, prudently, and also 
expeditiously.
    Enron's collapse in December was, of course, an enormous 
shock to all of us. Seven or eight months later, we have seen 
that Enron was not an isolated incident. There have been a 
whole host of corporate accounting scandals and collapses--
names such as WorldCom, Global Crossing, Tyco, Adelphia, the 
list goes on and on. I fear, as my colleagues do, that the 
latest corporate accounting scandal with WorldCom will not be 
the last. I hope it will be, but my fear is it will not be.
    The Congress should address the critical issue of 
accounting reforms as quickly as we can. America's financial 
engine does not need a tuneup, it needs an overhaul. We must 
disassemble it in some ways, examine every nut, bolt, and 
working part, and reassemble it to reflect the days in which we 
live.
    The fact is, if we fail to act on serious reforms, America 
will see a continuation of the dangerous and discredited 
corporate accounting practices that have, in the past 7 months 
alone, cost American shareholders and workers billions of 
dollars in their savings and pensions. This has deeply shaken 
investor confidence, and that serves as a cornerstone of our 
economic system.
    It is important to note that in the dozens of hearings 
surrounding Enron's collapse, no committee has engaged in a 
more nonpartisan examination, focused not just on what went 
wrong with Enron but, far more important, what Congress can do 
to prevent future Enrons from occurring in the days ahead.
    On March 8 of this year, Senator Jon Corzine and I 
introduced legislation, S. 2004, that addressed what we thought 
were some of the tough issues on improving regulatory oversight 
of the accounting profession and restoring investor confidence. 
I worked closely with the chairman, as did Senator Corzine, to 
incorporate some of the language and spirit of S. 2004 in the 
legislation before us today.
    I thank the chairman for including in the product before us 
much of what we wrote in S. 2004. I thank his staff, and I also 
thank my colleague from Wyoming.
    Congress must act quickly. If nothing else, we must address 
the most prominent cause of the recent corporate scandals, the 
practices inherent and common to the accounting profession, and 
particularly the ability to audit a company's books while 
simultaneously providing other services to that same 
corporation. We saw this with Enron and Andersen. Now we see it 
with WorldCom and the pending investigations that have greatly 
contributed to the public's loss of confidence in our financial 
marketplace.
    Since the beginning of the year, while our economy has been 
rebounding from last year's economic downturn and most economic 
indicators point to a bull market, the Nasdaq is down more than 
20 percent, the Dow is down more than 3 percent, and trading 
volume has declined. One reason may be investor skepticism that 
companies are not as financially healthy as they have said they 
were. More restatements on corporate earnings have been filed 
in the past 7 months than in the last 10 years combined. Most 
of these restatements dramatically downgrade the financial 
health of the companies in question.
    Not surprisingly, the public is quickly losing trust in 
disclosed corporate financial information. Although the 
investing public may be reacting to the bad behavior of a few, 
the possibility of conflicts of interest between accounting 
firms and the companies they audit creates a perception that 
this aggressive accounting is commonplace, even when it may not 
be. This perception, which takes on its own sense of reality, 
has led to a very dangerous, least-common-denominator thinking 
in which the estimated worth of all public companies may become 
undervalued because some are proven to be seriously overvalued.
    The fact is, a few key reforms included in this bill can go 
a very long way toward shoring up the public's confidence in 
the integrity of America's financial marketplace.
    Most importantly, to enhance auditor independence, the 
legislation restricts the ability of accounting firms to audit 
a company's books while simultaneously providing other 
services. It also addresses the revolving door through which 
executives from one firm leave to work for the companies they 
audit.
    This reform legislation includes the creation of an 
independent body to oversee the accounting profession, with 
substantial authority to ensure auditor discipline and improve 
audit quality. The Securities and Exchange Commission will also 
be given the resources to hire more accounting ``cops'' to 
handle increasingly complex oversight responsibilities and 
improve the agency's investigative and disciplinary 
capabilities. The Government must be able to assure the public 
that audits meet the high standards of independence and 
objectivity that have been the hallmark of America's accounting 
profession.
    The accounting profession is a great profession. There are 
thousands of highly qualified, talented, ethical people in the 
accounting profession. I feel for them at this hour. Because of 
the malfeasance and fraud committed by some, the many who work 
in this profession feel tainted by it. I regret that. The best 
way I know to recover the confidence people have in this 
profession is to provide some regulatory framework that would 
allow for auditor independence and for professionalism to be 
restored at a time when it has been so badly damaged.
    Investors are depending upon us to act on this issue and 
set aside partisan conflicts. As I said, we should not dilute 
this legislation and make it far less important, less 
meaningful, or overburden it by trying to add too much to the 
bill. It is not an easy path to walk down. I urge my colleagues 
to listen to those of us who worked on this bill, particularly 
the chairman, as we try to balance the particular needs of our 
members and the desire to come up with a good, competent, 
bipartisan piece of legislation. This is not an easy path to 
walk down, but it is critically important if we are going to 
contribute to the restoration of investor confidence as part of 
our responsibilities as members of this historic Chamber.
    The purpose of the original securities laws of the 1930s 
was to increase public trust in America's financial markets, 
the reliability of disclosed corporate financial information. 
The resulting openness and accuracy of corporate disclosures to 
the investing public paved the very way for America's rise as 
the unrivaled economic superpower that we had achieved. The 
collapses of Enron, WorldCom, and other corporations, and the 
accounting scandals have ended any question about whether these 
laws need reexamination. They do. We know that reforms are 
mostly needed to protect and strengthen the public trust in 
America's financial markets, and the time to enact them is now. 
I am confident and hopeful that we will do just that in the 
ensuing days.
    I yield the floor.
    The Presiding Officer. The Senator from Maryland is 
recognized.
    Mr. Sarbanes. Mr. President, I thank the very able Senator 
from Connecticut for his kind remarks about our work together 
on the committee as we tried to move this legislation forward. 
I particularly want to underscore the very substantial and 
significant contribution that the Senator from Connecticut and 
his colleague from New Jersey, Senator Corzine, made when they 
came forward fairly early on in the process with S. 2004.
    Much of that legislation is included in this legislation, 
and it was a seminal contribution early on in our consideration 
and it helped us to move ahead. I am grateful to him for that 
and for his efforts and support throughout this process as we 
have tried to move this legislation forward.
    The Senator from Connecticut, of course, is a chairman of 
one of our subcommittees and has been enormously effective 
within the committee in his efforts on this legislation, and I 
appreciate that. I am very hopeful that we are going to get a 
good product at the end of the path--of course, we are not 
there yet--which the President will sign and which will make a 
substantial difference.
    It is a tragedy, in a sense. The founder of the accounting 
firm Arthur Andersen was a man of great rectitude and very high 
principles. He had the slogan ``think straight and talk 
straight'' to guide him.
    His successor, Leonard Spacek, also was a man of very high 
principle. For that company with those origins, in that 
tradition, to in effect have happen what has happened to it is 
a tragedy, there is no question about it.
    We are anxious to reassure accountants all across the 
country that we think this legislation will help bring the 
profession back to the standards that marked it at an earlier 
time and which standards more thoughtful and more responsible 
members hope will mark it once again.
    The point the Senator from Connecticut made in that regard 
is an interesting and important one.
    Mr. Dodd. I thank the chairman.
    Mr. Sarbanes. Mr. President, 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. Dorgan. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer (Mr. Dodd). Without objection, it is 
so ordered. The Senator from North Dakota.
    Mr. Dorgan. Mr. President, I begin by saying the Senator 
from Maryland has done this Senate and this country a great 
service, along with his colleagues, including the Presiding 
Officer, by writing legislation that addresses a critically 
important topic at a very important time in this country.
    As much as I appreciate the work done on this bill, I would 
still like to speak about a few ways in which we can strengthen 
it. I listened with some attention in the last hour or so as I 
presided in the Senate to the suggestion that we ought not 
change it much. I do not disagree with that assessment, but we 
ought to change it some, in my judgment. There are some areas 
we can strengthen, and I hope we can strengthen this 
legislation and send it on to the President and have the 
expectation the President will sign it.
    This Chamber has long been the site of debates about 
excesses and abuses, especially in America's poverty programs. 
We have heard over a couple of decades, and appropriately so, 
anecdotal stories about the Cadillac welfare queen who spends 
food stamp money to buy cigarettes. Congress has clamped down 
on all of that and said: Shame on you, you cannot do that, that 
is abusing the public trust. And it is. So we have taken 
aggressive action as we have seen these abuses.
    Today this discussion is not about the abuse of the poverty 
program or the abuse at the bottom, this is about fraud in the 
boardroom; it is about abuse at the top. It is important for 
all of us to understand that accountability and responsibility 
do not just apply to poor people in this country, 
accountability and responsibility apply to everyone, and that 
includes the people at the top of the corporate structure.
    I wish to talk about fraud in the boardroom, about 
deceiving investors, about cooking the books, about accounting 
firms that cannot account, about law firms that turn a blind 
eye. I wish to talk about the situations the country has seen 
in recent weeks and months that we have not seen for many 
decades in this country.
    The victims, of course, are the people in this country who 
have invested in stocks, who believed in the certification of 
financial statements by some of the biggest accounting firms in 
the country that these were good corporations, that they had 
good income, that they were moving in the right direction, 
taking steps so that the funds in corporations were accounted 
for properly. And now we discover that was not necessarily the 
case in all too many instances.
    Of course, there are a lot of wonderful corporations in 
this country, wonderful companies with terrific top executive 
officers who do the right thing, always do the right thing. 
Yes, they take some risks, but they do it in anticipation of 
gain for the stockholders. We ought not tarnish with the same 
brush all American corporations, but we ought to determine what 
is happening within some of these corporations that has caused 
the collapse and the devastation of a lifetime of savings for 
many Americans.
    Let me use Enron as an example. We spent a fair amount of 
time with Enron hearings in the Commerce Committee. We had top 
executives of that company who had been cashing out prior to 
Enron going bankrupt. I have a chart that shows the way in 
which the top management of Enron made fortunes on the sale of 
Enron stock, from 1998 to the present, at the same time that 
they were driving their company into the ground.
    Contrast this with a call I received from a fellow in North 
Dakota one day who said: I worked for Enron for a good number 
of years. I had a retirement plan, and all my retirement plan 
was in Enron stock. Mr. Lay and others repeatedly encouraged us 
to do that. My retirement plan was in Enron stock. It was worth 
$330,000. Now it is worth $1,700. He said: That is what 
happened to my life savings--$330,000 to $1,700.
    What happened to the folks at the top of the ladder in 
Enron? Mr. Lay, the chairman of Enron, from 1998 to the 
present, sold $101 million worth of stock. That is what he 
received. Mr. Rice, $72.7 million; Mr. Skilling, $66.9 million; 
Mr. Fastow, $30 million.
    Mr. Fastow was able to have an equity role in the special 
purpose entities, the off-the-books partnerships, and in one of 
them he actually invested $25,000 of his own money. He invested 
$25,000, and 2 months later paid himself $4.5 million. I do not 
know anybody who gets returns like that anywhere in America, 
except by cheating.
    In the year 2001 in American corporations, the average pay 
for top CEOs increased by 7 percent, despite falling profits 
and stock values. Is there a relationship at the top between 
people who run the companies and the performance of the 
companies themselves? It does not look like it, does it?
    In 1981, the average executive compensation of the top 10 
highest paid CEOs was $3.5 million. In the year 2001, the 
average was $155 million. So we can see what has happened in 
this country at the top in the boardroom.
    Let's look at the number of times that CEO pay exceeds 
average worker pay: In 1980, they made 42 times the pay of the 
average worker in the company. In 1990, they made 85 times the 
pay of the average worker in the company. But in the year 2000, 
it was 531 times. So forty-twofold to five hundred and thirty-
onefold. That is what has happened to executive compensation at 
the top of the corporate ladder.
    We have seen story after story about what is happening in 
some of the boardrooms. There are a lot of wonderful companies, 
and I do not think this ought to tarnish all American 
corporations, but we ought to be very concerned about what is 
happening inside some publicly traded corporations and why the 
safeguards have not been able to provide early warning to 
investors and others.
    Adelphia: The drop in their stock value is 99 percent. The 
question is whether it failed to properly disclose $3.1 billion 
in loans and guarantees to the family of the founder.
    Dynegy: Whether the Project Alpha transactions served 
primarily to cut taxes and artificially increase cashflow, 67 
percent of their value lost.
    Enron lost 99.8 percent of its value. In fact, as I have 
mentioned before, the Enron board of directors commissioned a 
report called the Powers Report which looked at only three 
partnerships, and they described what was happening inside this 
company was ``appalling.'' The board of directors of the 
company itself said what was happening inside the company was 
appalling. They said that in one year they reported $1 billion 
of income they did not have.
    Global Crossing: Whether it sold its telecom capacity in a 
way that artificially boosted 2001 cash revenue, 99.8 percent 
loss in value.
    Halliburton: Whether it improperly recorded revenue from 
cost overruns on big construction jobs.
    The list, of course, goes on.
    Qwest: Whether it inflated revenue for 2000 and 2001 
through capacity swaps and equipment sales.
    On the weekend talk shows, I heard a panel discussion about 
this, and one of the panelists who is kind of an academician 
said the market is just adjusting. That is an antiseptic way, 
by an economist I suppose, to ignore the fact that families are 
losing their life savings.
    Sure, the market is adjusting, but it means families are 
losing everything they have. It means investors with 401(k)s 
see that 401(k) shrink so their life savings are disappearing 
right before their eyes.
    The question with all of these issues is: What has changed? 
Why, with big accounting firms taking a look at what is going 
on--and today there is a hearing on WorldCom in the House of 
Representatives--why, with big accounting firms looking over 
their shoulder, has this sort of thing occurred?
    With Arthur Andersen and Enron, they had a $25 million 
relationship by which Arthur Andersen audited the Enron 
Corporation, and Arthur Andersen was also paid $27 million by 
the Enron Corporation for consulting services. That is one of 
the things that is at the root of this bill: Is that not a 
clear conflict of interest? Is there not enormous pressure on 
the accounting firm then to become an enabler for that 
corporation? The answer clearly is yes, and that is why this 
legislation takes action to deal with some of those issues.
    I was driving in the car over the weekend in North Dakota 
and saw that the Xerox Corporation had a substantial 
restatement of earnings. It indicated that the SEC had 
previously taken a look at it and fined Xerox $10 million, 
which seems to me like pretty much a slap on the wrist when you 
consider the billions of dollars involved in the restatement. 
Then we hear this big story this weekend about yet another 
restatement. So what we have is a restatement, and then a 
restatement of the restatement of earnings.
    What is the cause of all of this, and what is enabling it? 
With Enron, for example, it was an accounting firm that became 
an enabler; it was a law firm that became an enabler; it was 
CEOs who became greedy, officers of the corporation who did not 
pay much attention, who also, incidentally, were making a great 
deal of money selling stock, board members selling stock. It 
all became a carnival of greed.
    I indicated, after having spent a lot of time looking at 
Enron, that there was a culture of corruption inside that 
corporation. The CEO of Enron took great exception to that, but 
it is clear every passing day, with more and more evidence of 
what happened inside that company, that there was in fact a 
culture of corruption.
    How do we respond to that, and how do we deal with that? I 
think that, first of all, the rules have to be changed some, 
and that is what this legislation attempts to do. Second, even 
if there are changes in the rules, there must be an effective 
referee, a regulator. In this system of ours, we have to have 
effective regulation. And frankly, that has been lacking.
    Mr. Pitt, who is the head of the SEC, I know has taken 
great exception to statements that have been made by my 
colleagues and myself. But the fact is that a system like this 
cannot work unless there is effective oversight and regulation, 
and that has been lacking.
    Consider some of the statements that Mr. Pitt has made. 
This is Mr. Pitt speaking at the AICPA, which represents the 
accounting industry:

    For the past two decades, I have been privileged to 
represent this fine organization and each of the big five 
accounting firms that are among its members. Somewhere along 
the way, accountants became afraid to talk to the SEC. Those 
days are ended.

    That was to the American Institute of Certified Public 
Accountants.
    Then Mr. Pitt, who is, again, the head of the SEC, said:

    The agency I am privileged to lead has not, of late, always 
been a kinder and gentler place for accountants; and the audit 
profession, in turn, has not always had nice things to say 
about it.

    So Mr. Pitt was concerned about ensuring a ``kinder and 
gentler'' SEC.
    The New York Times did a story as a result of the initial 
speeches Mr. Pitt gave when coming to the SEC. It noted that 
Pitt ``spoke favorably of pro forma earnings reports in ways 
that no doubt heartened accountants who have worked so hard to 
find ways to make even the worst profit figures look pretty.''
    It also noted that ``A major embarrassment for accountants 
is having the SEC force a client to restate its numbers. Mr. 
Pitt and his chief accountant, Robert Herdman, are sending 
signals that fewer such demands will be made.''
    We can change the law, but if we do not have a tough, no-
nonsense regulator, then it will not work.
    We all watch basketball games, and we see referees. They 
are the ones who enforce the rules in basketball. We see a game 
from time to time where it is quite clear right at the start 
the referees are not going to call them close, and then pretty 
much it is ``Katy bar the door,'' and things get out of hand. 
Then we see other games in which it is quite clear they are 
going to call up close, and nothing gets out of hand. The same 
is true with the attitude and mindset of Federal regulators. We 
have regulatory agencies for a purpose. That purpose is to 
enforce the rules. Fairly, yes, but also aggressively.
    If someone who comes from that industry and says, I 
represented all of you, and suggests it will be a kinder and 
gentler place, I wonder whether that is the regulator we ought 
to have.
    No matter who is heading the SEC, I want that person to be 
a fierce advocate on behalf of the rules that protect 
investors. I want someone that can make this system work and 
require everyone to own up to their responsibilities. So people 
who never enter a corporate office or know nothing about a 
corporation but who want to invest in American business, can 
buy a share of stock, having never met an officer of the 
company, having never visited the company, and can have 
confidence that what the accounting firm has said about that 
company, what the financial statements represent about that 
company, are absolutely fair and accurate.
    That is the only way in which the American people can 
participate in the raising of capital for America's business. 
If we do not do that and do that quickly, we undermine the 
entire system by which we raise capital in this country. We 
undermine the entire system. That is why this piece of 
legislation is important and timely.
    There are several amendments I would like to have 
considered, some I hope will be accepted, and some, perhaps, we 
will discuss at some length, and I may or may not prevail. 
There are some amendments that can strengthen and improve this 
legislation.
    One of the provisions in the legislation calls for CEOs to 
return profits and bonuses they wrongfully reaped in the 12 
months following a published earnings report that require a 
restatement. I would propose that this provision apply when a 
company goes bankrupt, as well. This idea has been endorsed by 
former SEC Chairman Richard Breeden, Goldman Sach CEO Henry 
Paulson, and others.
    There also ought to be some provision with respect to loans 
to CEOs by corporate boards of directors. I don't know what 
that limit ought to be, but I mentioned one corporation where 
over $3 billion was loaned to one family of the founder. This 
is a publicly traded corporation. I believe we ought to discuss 
that.
    I may offer a provision dealing with something called 
inversion, a mechanism whereby some American corporations have 
decided they want to renounce their American citizenship and 
move their official headquarters to another country--Bermuda, 
for example. I want to be certain that CEOs of such companies 
cannot escape the requirement of this bill that they certify 
the accuracy of their financial statements. I do not think 
that, in addition to avoiding their fair share of U.S. taxes, 
these companies ought to be held to a lesser standard of 
reporting accuracy than U.S.-based firms. So I will offer an 
amendment, if needed, and visit with the chairman and the 
ranking member about that subject.
    Another issue, one requiring disciplinary proceedings to be 
open to the public was discussed in committee. Transparency and 
having those hearings open to the public are important. I hope 
we can consider an amendment on that.
    The other issue that was discussed in the committee at 
great length: What is the definition of the division of 
responsibilities between auditing and consulting? That 
definition, determined by the SEC or the Congress, is critical 
to determining whether there is a conflict.
    Having said all that, let me say to the Senator from 
Maryland, we are in the Senate the first week after the Fourth 
of July. I listened to the Senators from Texas and Wyoming and 
Connecticut and others speak about this bill. This is a good 
start. If this legislation passed without one word changed, it 
would make a magnificent contribution to a problem we face, a 
gripping problem in this country.
    Having said that, I do not subscribe to those on the 
committee who say not to change anything. That is not what the 
chairman said. There are some suggestions that will come from 
other parts of the Senate that can strengthen and improve this 
legislation, a couple of which I suggested. When it goes to 
conference with the House, we will have something we can be 
proud of.
    The most important thing is to show to the investors in 
this country who have lost, in many cases, their life savings, 
that we are taking action to respond to the conditions that 
caused this to happen.
    When we talk about the people at the top getting rich and 
the people at the bottom losing their life savings, the 
American people have every right to ask: By whose authority can 
this happen in this kind of economy? It cannot happen if the 
rules are fair. It cannot happen if the rules are enforced.
    The American people have a right to expect the regulators, 
the SEC, and the Congress to take action now to address these 
issues.
    I yield the floor.
    The Presiding Officer (Mr. Wellstone). The Senator from 
Missouri is recognized.
    Mr. Bond. Mr. President, I initially came to the floor to 
talk about this bill and another issue. The Water and Power 
Subcommittee of the Energy and Natural Resources Committee is 
holding a hearing on Wednesday, and I asked to testify about 
the views of Missouri on the Missouri River issue. Initially, 
the staff said I was not going to be able to testify, and I was 
going to therefore have to share my testimony with the entire 
body. However, I have now been advised by the chairman of the 
committee I will have an opportunity to testify, so I will save 
my comments for the committee hearing.
    I thank the chairman for giving me that opportunity.
    Mr. Dorgan. Will the Senator yield?
    Mr. Bond. I am happy to yield.
    Mr. Dorgan. Let me explain to the Senator what my hope was. 
The Senator asked to testify, quite properly. The Missouri 
River manual issue is a highly controversial issue. The Senator 
has been involved with it for some long while. We are having a 
hearings. The Corps of Engineers and many others are 
testifying. My hope had been we could hold a hearing with all 
of those groups, then have a separate meeting, hearing from all 
Members of Congress who want to testify. It appears that that 
will not be the case.
    We will hear from Senators at the front end of that 
hearing. I assume it will take some time. As the Senator from 
Missouri knows, having indicated, yes, we would entertain his 
testimony, there are a number of other Senators who have 
already gotten in line saying, if that is the case, please hear 
my statement, as well. Of course we will.
    It was never a case where we would not hear testimony. The 
question was whether we would have a separate hearing and hear 
Members of the Senate. I understand the Senator's concern. 
Senators Daschle, Johnson, Conrad, Carnahan, and many, many 
other Senators have great concerns about this issue.
    I will lose some sleep Tuesday night with great 
anticipation hearing your testimony on Wednesday morning.
    Mr. Bond. I thank my good friend from North Dakota and 
assure him I hope to be brief and to the point. I am somewhat 
disappointed I will not share all that testimony with my 
colleagues, but there will be another opportunity.
    I thank the chairman of the subcommittee for his kind 
indulgence.
    Today I rise to join in expressing my concern about recent 
accounting practices in publicly held companies and their 
auditors. As a former State auditor, I have an interest in that 
profession being performed properly. Obviously, something is 
seriously broken. We hear about Enron, Global Crossing, 
WorldCom, and Arthur Andersen. The people of America are very 
concerned. We have seen millions of families with their 
investments diminished or even wiped out. That is not 
acceptable. The vast majority of investments were not in the 
volatile sectors, or not what we thought were the volatile 
sectors of the stock market. They were invested in the so-
called blue chip companies. The families who made those 
investments on their strong belief in the integrity of our 
financial markets and accounting industry now find that because 
of corporate shams, accounting gimmicks, and inadequate 
auditing, they have lost significantly the investments they 
planned for education or retirement--for their families.
    As far as we know, overall the overwhelming majority of 
publicly traded companies are in full compliance with corporate 
accounting standards. But the fact that there has been a 
significant deception by a handful of companies raises 
suspicions of all companies. In addition, we don't know how 
many others will come forward in coming weeks.
    We must restore the public's confidence in the market. 
Without this, the economic recovery which should be beginning 
will remain elusive.
    While much of the focus in the debate here and in the news 
media is on the auditing problems of the big conglomerate 
companies, unfortunately little attention has been paid in this 
bill to how the impact will fall on small publicly traded 
companies and small auditing firms. As the ranking member on 
the Committee on Small Business and Entrepreneurship, I have 
some concerns, after reviewing this bill, that we may be 
pushing ahead without considering the serious effect and the 
unintended consequences the bill could have on smaller firms--
both small auditing firms and small publicly traded companies.
    The bill is clearly targeted towards abuses in extremely 
large businesses, which we all think should be dealt with. I 
personally hope it will result in prison sentences for people 
who are proven to have committed criminal acts in their 
accounting activities.
    But the SEC is not even aware of how many small auditing 
firms there are auditing small, publicly traded companies. 
There are some 2,500 small companies, and we believe many of 
them are audited by small- and medium-size auditing firms. For 
small auditors, the bill will require many new elements 
including registration, annual filing requirements, as well as 
partnership rotation of lead auditors. In addition, the bill 
would codify a list of banned services or nonauditing services 
that an auditing company might conduct for a company that it 
audits.
    While some of these elements clearly are necessary to 
restore confidence, and I think are going to be dealt with by 
regulatory action and maybe even by the industry itself, no one 
knows how these requirements will affect the small firms. It 
has been argued that the bill allows for a case-by-case 
exemption, but that exemption process itself could be extremely 
costly and untimely for small firms and lead to inconsistent 
results.
    I fear that some of these small auditing firms will not 
have the resources to implement these requirements and will 
stop auditing services or just go out of business. The result 
may be that small, publicly traded companies may not be able to 
obtain auditing services at reasonable cost. As a result, the 
bill might be setting up a hurdle for small companies to reach 
the public markets, one that is too expensive and too great to 
overcome.
    Clearly, when we deal with the major problems we ought not 
cause significant problems for the smaller, growing 
entrepreneurial sector of our country.
    As for publicly traded companies, the bill also places new 
requirements for auditing committees and for corporate 
responsibility. Again, many of these may be necessary. However, 
we need to look at how these requirements will affect the 
small, publicly traded companies.
    The entrepreneurial spirit of our country is really the 
envy of the world. People know that entrepreneurship works in 
America. That is where we get the new ideas. That is where we 
get the growth. That is where we get the new services and the 
products. We should be careful as we adopt reforms not to put a 
disproportionate burden on these companies, dampening the 
entrepreneurial spirit or impeding access to the public 
markets.
    I fully support accounting reform and the taking of steps 
necessary to restore investor confidence in the market. I think 
we should pass a balanced bill that will not overburden small 
firms and not create additional hurdles that will impede them 
from growing. We don't want an incidental consequence of this 
bill to be a monopoly of large accounting firms when it comes 
to corporate audits.
    I agree with the other speakers that the American public is 
looking to us for answers. I intend to work to see that the 
needs of the small businesses, publicly traded small companies, 
and small auditing firms are protected. I am committed, and I 
think we all are committed, to restoring the public's 
confidence in the markets so families can feel safe once again 
in investing in America and in America's future.
    I look forward to working with my colleagues to secure a 
balanced bill which will do that without bringing unnecessary 
hardship on the entrepreneurial sector of our economy.
    I thank my colleague from Wyoming for the courtesy in 
allowing me to go ahead. I yield the floor.
    Mr. Enzi. Mr. President, I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Specter. Mr. President, during the course of the Fourth 
of July recess, I traveled through Pennsylvania holding some 16 
town meetings, and I found many concerns among my constituents: 
The issue of prescription drugs; the concern about what is 
happening with respect to Iraq; the issue of terrorism, which 
confronts the United States; the concern about what might 
happen on July 4; concern about the suicide bombers from the 
Palestinians terrorizing Israel.
    But high on the list of public concern was what has 
happened with Enron, WorldCom, and many other companies on the 
stock exchange, where so many of my constituents in 
Pennsylvania--like tens of millions of Americans, really, and 
even more--have had their savings decimated in their retirement 
accounts of a variety of sorts. The issue that was raised 
consistently was: What happens next?
    I think it is very good that the Senate is now considering 
legislation to deal with the fraudulent conduct that has 
plagued so many companies in corporate America. There is no 
doubt that there is a clear-cut conflict of interest for an 
accounting firm to be both an adviser and an auditor. An 
adviser has a close relationship with a company--call it cozy, 
or intimate, or friendly--but that is very different from the 
function of an auditor, which ought to be at arm's length, 
scrutinizing what the company has done. That kind of a conflict 
should certainly be prohibited in the future. If the accounting 
firms do not have enough understanding of the ethics, then laws 
have to be enacted, with very tough penalties to follow. When 
you find companies having so much debt off the books, 
subsidiary corporations, that is a matter of fraud. Fraud is a 
misrepresentation of a fact where someone relies to their 
detriment, and that is a crime. When you have companies putting 
expenses in, say, a capital account that shows billions of 
dollars in additional income or assets of the corporation, that 
too is fraud.
    A good part of my career has been as an assistant DA and 
then as district attorney. I believe this kind of white-collar 
crime is certainly susceptible of deterrence, providing that 
standards are established and penalties are provided for a 
breach. It is my hope that from the Senate's current 
consideration, some very tough legislation will follow.
    (Mr. Dayton assumed the Chair.)
    
    
         VOLUME 148, TUESDAY, JULY 9, 2002, NUMBER 91,
                      PAGES [S6436-S6444]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The Presiding Officer. Under the previous order, the Senate 
will resume consideration of S. 2673, which the clerk will 
report.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    The Presiding Officer. The majority leader is recognized.


                           amendment no. 4174

(Purpose: To provide for criminal prosecution of persons who alter or 
    destroy evidence in Federal investigations or defraud investors of 
    publicly traded securities, and for other purposes)

    Mr. Daschle. Madam President, I have an amendment at the 
desk.
    The Presiding Officer. The clerk will report.
    The assistant legislative clerk read as follows:

    The Senator from North Dakota [Mr. Daschle], for Mr. Leahy, 
for himself, Mr. McCain, Mr. Daschle, Mr. Durbin, Mr. Harkin, 
Mr. Cleland, Mr. Levin, Mr. Kennedy, Mr. Biden, Mr. Feingold, 
Mr. Miller, Mr. Edwards, Mrs. Boxer, Mr. Corzine, and Mr. 
Kerry, proposes an amendment numbered 4174.

    (The amendment is printed in today's Record under ``Text of 
Amendments.'')
    Mr. Daschle. Madam President, on behalf of Senator Leahy 
and others, I offer this amendment which is identical to the 
Corporate and Criminal Fraud Accountability Act, S. 2010, 
passed unanimously by the Judiciary Committee some time ago.
    I view the Leahy amendment as a necessary complement to the 
Sarbanes bill. In fact, I think of them as two parts of a vital 
whole--one element guarantees the truth and honesty of 
corporate accounting. The other is a deterrent. It says that 
corporate misrepresentation will be forcefully punished--with 
jail time.
    We need both. We need to improve oversight and independence 
of the accounting profession and hold corporate wrongdoers 
accountable for their actions.
    We need to act comprehensively to fulfill our promise to 
the American people that integrity, honesty, and accountability 
will be restored to our markets.
    Last week Senator Leahy and I wrote to the President 
requesting his views on this bill and the Sarbanes accounting 
reform bill.
    Unfortunately, the President has not answered our letter 
yet. But I hope to hear today--and I think we need to hear 
today--that he supports and will sign both.
    We welcome the President's apparent new enthusiasm for 
reforming our corporate culture, and we look forward to working 
with him.
    The Administration needs to understand that the time for 
half measures has long passed. The American people expect and 
deserve comprehensive reform.
    Combining the Leahy bill and the Sarbanes bill accomplishes 
just that. The Sarbanes bill revamps the regulatory structure 
that protects our markets. There will be better rules and a new 
oversight body to send corporations and accountants a clear 
message that they must tell the truth on their balance sheets.
    The Leahy bill is every bit as vital. Let me summarize a 
few of its provisions very quickly. The amendment has three 
aims: punishing criminals; preserving evidence; and protecting 
victims.
    The Leahy amendment punishes criminals by creating a tough 
new 10-year felony for securities fraud. It provides 
prosecutors with a new tool that is flexible enough to keep up 
with the most complex new fraud schemes and tough enough to 
deter violations on the front end. It also provides a mechanism 
to raise the fraud sentences that are already on the books.
    The amendment also preserves evidence of fraud. It creates 
two new criminal anti-shredding provisions in Federal law. As 
we say in the Arthur Andersen case, even the most straight-
forward obstruction of justice cases can be difficult to prove 
under current law.
    Senator Leahy's bill closes the loopholes and makes 
document destruction in fraud cases an unambiguous crime.
    The amendment does not just protect ``paper evidence,'' it 
also protects valuable testimony from people. For the first 
time, the Leahy bill creates Federal protection for 
whistleblowers. People like Sherron Watkins of Enron will be 
protected from reprisal for the first time under Federal law. 
This bill is going to help prosecutors gain important insider 
testimony on fraud and put a permanent dent in the ``corporate 
code of silence.''
    Finally, the amendment will protect victims of fraud. By 
extending the time period during which victims can bring cases 
to recoup their losses, the Leahy bill removes the reward for 
those fraud artists who are especially gifted at concealing 
what they've done for lengthy periods of time.
    Cases where victims have lost their entire life savings 
should be decided on the merits, not based on procedural 
hurdles that may now be used to throw legitimate victims out of 
court.
    The Leahy bill also prevents fraud artists from declaring 
bankruptcy to shut out their victims. The amendment would 
accomplish this by making security fraud debts nondischargeable 
in bankruptcy.
    Again, the Leahy provisions enjoyed broad bipartisan 
support in the Judiciary Committee when passed unanimously in 
April. They are needed now more than ever, as the number and 
magnitude of corporate misstatements continues to pile up and 
the lost jobs, lost pensions, and ruined lives continue to 
mount.
    We must act to punish criminals, no matter what color their 
collar. I hope all Senators will support this amendment.
    Madam President, the country will be listening intently to 
what the President says this morning. A crucial test will be 
whether he explicitly supports--and pledges to sign--the 
Sarbanes bill with the Leahy legislation attached. We cannot 
restore confidence in the integrity of our markets with 
anything else.
    Senator Leahy is on the floor.
    Mr. Leahy. Will the majority leader yield?
    Mr. Daschle. Yes.
    The Presiding Officer. The Senator from Vermont is 
recognized.
    Mr. Leahy. Madam President, I very much appreciate what my 
good friend, the distinguished majority leader, has said. I 
also 
compliment him for his leadership on corporate accountability. 
Sometime ago, he asked the Chairs of the various committees 
with possible jurisdiction in this area to get together and 
craft comprehensive legislation. I recall that meeting very 
well. I recall the majority leader--back at the time of Enron, 
before WorldCom and these other business scandals came 
forward--expressing his concern that not only is this a blight 
on the business community, it is a blight on our system of 
doing things. He also spoke about how terrible it was for those 
people, not only workers who had their pensions tied up in the 
fortunes of the companies they are working with and are relying 
on for truthfulness--what they assumed is the truthfulness--of 
the accounting statements of those companies, but also many 
other people who invest, whether it is a farmer in South Dakota 
or a merchant in a small town in Vermont who is putting savings 
in and hoping this will be part of his retirement.
    The majority leader made it very clear to all of us that we 
were to set politics aside, we were to set any kind of special 
interests aside, and we were to bring up the best legislation 
possible for the people of America. That was what Senator 
Daschle charged us to do, and that is what I am trying to do 
with this amendment.
    We have excellent accounting reform legislation, S. 2673, 
crafted by Chairman Sarbanes and the Senate Banking Committee. 
I commend Senator Sarbanes and the other members of the Banking 
Committee--for their bipartisan leadership. Senator Sarbanes 
had people on both sides of the aisle come out with this 
legislation, and I am proud to cosponsor it.
    My amendment is to add to Senator Sarbanes' legislation, 
not to detract from it. As he knows, I offered to add a 
criminal penalty and other provisions that are within the 
jurisdiction of the Judiciary Committee.
    My amendment is cosponsored by Senator McCain and the 
majority leader, Senators Durbin, Harkin, Cleland, Levin, 
Kennedy, Biden, Feingold, Miller, Edwards, Boxer, Corzine, 
Kerry, Schumer and Brownback. Our amendment is identical to S. 
2010, the Corporate and Criminal Fraud Accountability Act that 
was reported unanimously by both Republicans and Democrats in 
the Judiciary Committee on April 25.
    Again, following the very clear direction the distinguished 
majority leader gave us when he said we have to protect the 
people of this country, we have to make sure corporate America 
can do its best to help our economy, this would create tough 
new penalties for securities fraud and would preserve evidence 
of fraud to make sure there is accountability for crimes that 
not only cheat investors but rob the markets themselves of the 
public trust. The markets have stolen the public's trust.
    According to press reports, President Bush has changed his 
mind on corporate reform and may support new penalties for 
corporate fraud, and I welcome the President's change of heart. 
The Corporate and Criminal Fraud Accountability Act creates 
tough, new, criminal penalties for corporate fraud, and Senator 
Daschle and I have written to the President asking for his 
support.
    The time for watching and hand-wringing is over. We have to 
take action to start the slow but critical process of restoring 
confidence in the books of our publicly traded companies.
    The collapse of Enron has become a symbol of a corporate 
culture where greed has been inflated and accountability 
devalued. Unfortunately, Enron is no longer alone. Joined by 
Arthur Andersen, Global Crossing, Tyco, Xerox, and, most 
recently, WorldCom, the misrepresentations about the financial 
health of our Nation's largest companies have shaken confidence 
in our financial markets.
    If we do nothing to learn and apply the repeated lessons of 
the last months, we are only going to compound the problem. 
That was obviously the belief of the unanimous Judiciary 
Committee vote when the Committee approved S. 2010. Innocent 
consumers, investors, and employees depend on stock investments 
for their children's college funds, for their retirement nest 
eggs, and for their savings. Every week brings news of a new 
financial scandal. Just look at the effect on the stock market. 
It has been devastating. This has repercussions not just for 
companies that depend on our capital markets to grow their 
businesses and our economy, but certainly also for the average 
American family. More than one in every two Americans invest in 
our financial markets, and they are watching what we do here. 
They deserve action.
    Those who defraud investors should be held accountable for 
their crimes. The Leahy-McCain amendment, the Corporate and 
Criminal Fraud Accountability Act, is all about accountability 
and transparency--two bedrocks of our market.
    The Presiding Officer. The Chair states that the majority
leader has yielded for a question only while retaining the 
floor. Is that the intent of the majority leader?
    Mr. Daschle. Madam President, it was my intention to yield 
for a question, but I thank the distinguished Chair of the 
Judiciary Committee for his extraordinary leadership and the 
effort he has made to bring this legislation to the floor.
    This is the Leahy amendment and, as I noted, it passed 
unanimously in large measure because I think he was able to 
work with our colleagues on both sides of the aisle.
    I am happy to yield the floor so he and others may seek 
recognition.
    Mr. Leahy. My question would be this to the majority 
leader: Would he agree, in his experience, that nothing would 
focus the attention more of those executives who have defrauded 
their own companies and investors than the idea that they would 
actually go to jail for it, and not walk off with hundreds of 
millions of dollars?
    Mr. Daschle. Madam President, it is for that reason that I 
believe this package ought to be viewed in its entirety. The 
Sarbanes bill lays out the framework. The Leahy bill lays out 
the penalties for violating that framework. So I don't know 
that you can have one without the other and not have a complete 
package.
    So I appreciate very much the work of the Judiciary 
Committee, and the Chair of the Judiciary Committee especially, 
for the work in allowing this package to come to the floor. I 
thank him again for the contributions he made.
    Several Senators addressed the Chair.
    Mr. Leahy. Madam President, I seek recognition in my own 
right.
    The Presiding Officer. The Senator from Texas is 
recognized.

                AMENDMENT NO. 4175 TO AMENDMENT NO. 4174

    Mr. Gramm. Madam President, I send an amendment to the 
desk.
    The Presiding Officer. The clerk will report.
    Mr. Leahy. Madam President, parliamentary inquiry.
    The Presiding Officer. The Senator from Vermont.
    Mr. Leahy. What is the rule on recognition? Is it not the 
Senator who seeks recognition first?
    The Presiding Officer. The Chair understands that the 
managers of the amendment are entitled to be recognized.
    Mr. Leahy. On my amendment? May I be recognized on my own 
amendment which is pending before the Chair? Is that correct?
    The Presiding Officer. The managers of the legislation have 
priority.
    Mr. Leahy addressed the Chair.
    The Presiding Officer. The Senator from Texas, the manager 
of the underlying bill.
    Mr. Leahy. Would the managers of the amendment include the 
distinguished senior Senator from Kentucky? Is he one of the 
managers?
    The Presiding Officer. The managers of the legislation are 
the Senator from Maryland and the Senator from Texas.
    Mr. Leahy. The distinguished Presiding Officer has 
recognized, however, the Senator from Kentucky.
    The Presiding Officer. The Chair has recognized the Senator 
from Texas. The clerk will report the amendment.
    The assistant legislative clerk read as follows:

    The Senator from Texas [Mr. Gramm], for Mr. McConnell, 
proposes an amendment numbered 4175 to amendment No. 4174.

    Mr. Gramm. Madam President, I ask unanimous consent that 
the reading of the amendment be dispensed with.
    The Presiding Officer. Is there objection?
    Mr. Leahy. I object.
    The Presiding Officer. Objection is heard. The clerk will 
continue.
    The assistant legislative clerk continued with the reading 
of the amendment.
    The Presiding Officer. The Senator from Vermont.
    Mr. Leahy. Madam President, I want to make sure people 
understand what the Leahy-McCain amendment is. I realize there 
may be those who want to amend it to make life easier.
    The Presiding Officer. Will the Senator from Vermont 
suspend? The regular order is the reading of the amendment.
    Mr. Leahy. I ask unanimous consent that the reading of the 
amendment be dispensed with.
    The Presiding Officer. Is there objection to calling off 
the reading of the amendment? Without objection, it is so 
ordered.
    The amendment is as follows:

(Purpose: To provide for certification of financial reports by labor 
    organizations and to improve quality and transparency in financial 
    reporting and independent audits and accounting services for labor 
    organizations)

    At the end of the amendment add the following:

SEC. 302. CORPORATE AND LABOR ORGANIZATION RESPONSIBILITY FOR FINANCIAL 
                    REPORTS AND DISCLOSURE REQUIREMENTS.

    (a) Financial Reports.--
    (1) Certification of reports.--
    (A) Certification of periodic reports.--Each periodic 
report containing financial statements filed by an issuer with 
the Commission pursuant to section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) 
shall be accompanied by a written statement by the chief 
executive officer and chief financial officer (or the 
equivalent thereof) of the issuer.
    (B) Certification of financial reports by labor 
organizations.--
    (i) In general.--Each financial report filed by a labor 
organization with the Secretary of Labor pursuant to section 
201(b) of the Labor-Management Reporting and Disclosure Act of 
1959 (29 U.S.C. 431(b)) shall be accompanied by a written 
statement by the president and secretary-treasurer (or the 
equivalent thereof) of the labor organization.
    (ii) Definition.--In this subparagraph, the term ``labor 
organization'' has the meaning given the term in section 3 of 
the Labor-Management Reporting and Disclosure Act of 1959 (29 
U.S.C. 402).
    (2) Content.--The statement required by paragraph (1) shall 
certify the appropriateness of the financial statements and 
disclosures contained in the periodic report or financial 
report, and that those financial statements and disclosures 
fairly present, in all material respects, the operations and 
financial condition of the issuer or labor organization.
    (3) Conforming amendment.--Section 201(b) of the Labor-
Management Reporting and Disclosure Act of 1959 is amended, in 
the matter preceding paragraph (1), by inserting ``(and 
accompanied by the statement described in section 302(a)(1)(B) 
of the Public Company Accounting Reform and Investor Protection 
Act of 2002)'' after ``officers''.
    (b) Reporting Requirements.--
    (1) Financial reporting for labor organizations equivalent 
to required reporting of public companies.--Section 201 of the 
Labor-Management Reporting and Disclosure Act of 1959 (29 
U.S.C. 431) is amended by adding at the end the following:
    ``(d)(1) In the case of a labor organization with gross 
annual receipts for the fiscal year in an amount equal to 
$200,000 or more, the information required under this section 
shall be reported using financial reporting procedures 
comparable to procedures required for periodic and annual 
reports of public companies pursuant to sections 12(g), 13, and 
15 of the Securities and Exchange Act of 1934 (15 U.S.C. 
78l(g), 78m, and 78o).
    ``(2)(A) Such information shall be reviewed by a certified 
public accountant using generally accepted auditing standards 
applicable to reporting companies under the Securities and 
Exchange Act of 1934.
    ``(B) Such audit shall be conducted subject to requirements 
comparable to the 
requirements under section 10A of the Securities Exchange Act 
of 1934 (15 U.S.C. 78j-1).
    ``(3) Such information shall be reported using generally 
accepted accounting procedures comparable to the procedures 
required for public companies under sections 12(g), 13, and 15 
of the Securities and Exchange Act of 1934 (15 U.S.C. 78l(g), 
78m, and 78o).
    ``(4) The authority provided under this subsection shall be 
in addition to the authority provided under subsection (b) and 
section 208, regarding reporting procedures and review of 
information required under this section.''.
    (2) Remedies and penalties for violations of reporting 
requirements.--Section 210 of the Labor-Management Reporting 
and Disclosure Act of 1959 (29 U.S.C. 440) is amended--
    (A) by striking ``Whenever'' and inserting ``(a) 
Whenever''; and
    (B) by adding at the end the following:
    ``(b)(1) If the Secretary finds, on the record after notice 
and opportunity for hearing, that any person has willfully 
violated any provision of section 201(d), the Secretary may 
impose a civil monetary penalty in an amount not to exceed the 
amount for any comparable violation under section 21B(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u-2).
    ``(2) In the case of a violation of an auditing requirement 
under section 201(d)(2) by a public accountant, the Secretary 
may impose a civil monetary penalty in the same manner as 
penalties are imposed under section 10A(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78j-1(d)).
    ``(3) For purposes of any action brought by the Secretary 
under paragraph (1), any person who knowingly provides 
substantial assistance to another person in violation of a 
provision of section 201(d), or of any rule or regulation 
issued under such section (including aiding, abetting, 
counseling, commanding, or inducing such violation) shall be 
deemed to be in violation of such provision to the same extent 
as the person to whom such assistance is provided.
    ``(c)(1) Any person who makes or causes to be made any 
statement in any report or document required to be filed under 
section 201(d) which statement was at the time, and in the 
light of the circumstances under which it was made, false or 
misleading with respect to any material fact, shall be liable 
to any person (not knowing that such statement was false or 
misleading) who relied upon such statement. A person seeking to 
enforce such liability may sue at law or in equity in any court 
of competent jurisdiction.
    ``(2) In any such suit the court may, in its discretion, 
require an undertaking for the payment of the costs of such 
suit, and assess reasonable costs, including reasonable 
attorneys' fees, against either party litigant.
    ``(3) The recovery and statute of limitation provisions of 
subsections (b) and (c) of section 18 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78r) shall apply for purposes 
of any action under this subsection.
    ``(d) In any action arising under subsection (c) or (d) or 
in connection with any provision of section 201(d), the 
provisions of section 27(c) of the Securities Act of 1933 (15 
U.S.C. 77z-1(c)) regarding abusive litigation shall apply.''.
    (3) Regulations.--Not later than 1 year after the date of 
enactment of this Act, the Secretary of Labor, shall promulgate 
such regulations as the Secretary determines necessary to carry 
out the provisions and purposes of this subsection (including 
the amendments made by this subsection) and to ensure the 
provisions of this subsection are carried out in a manner 
comparable to the manner any similar provisions are carried out 
by the Securities and Exchange Commission.

    The Presiding Officer. The Senator from Vermont.
    Mr. Leahy. Madam President, so people understand what the 
Leahy-McCain amendment is, it is the Corporate and Criminal 
Accountability Act. It is about accountability, and it is about 
transparency. I think everybody--investors, corporate managers, 
or anybody else--will tell you that accountability and 
transparency are the bedrock of our economy, of our markets.
    If one is going to invest in a company, one wants to know 
what the company does and what the books say. One wants to be 
able to rely upon their reports.
    Transparency will instill confidence, and accountability 
helps enforce transparency and forthright financial decisions. 
We do not just rely on the better angels of our nature; we rely 
on the fact that somebody is going to be there to enforce it.
    We cannot stop greed, but we can stop greed from 
succeeding. This bipartisan amendment is going to send 
wrongdoers to jail and save documents from the shredder, and 
that sends a powerful and clear message to potential 
wrongdoers: Don't do it.
    The measure enjoys wide support. The amendment is supported 
by law enforcement officials, regulators, and numerous 
whistleblowers, and consumer protection advocates. I have 
letters of support from these advocates, and I will, at the end 
of my statement, ask consent to print them in the Record.
    Let me summarize some of the provisions. This bipartisan 
amendment has three prongs to restore accountability: punishing 
and preventing fraud, preserving the evidence of fraud, and 
protecting victims of fraud.
    S. 2010, as unanimously reported, accomplishes these goals 
in a number of ways. It is going to create a tough new Federal 
felony for securities fraud for a 10-year maximum penalty. The 
idea of 10 years in the slammer is going to focus the attention 
of those who are more interested in taking their money and 
hiding it in offshore bank accounts.
    As one who was a prosecutor, I was surprised to learn that 
unlike bank fraud, health care fraud, and even bankruptcy 
fraud, there is no specific Federal crime of securities fraud 
to protect victims of fraud related to publicly traded 
companies.
    Can you imagine, Madam President, while all this talk has 
been going on, it turns out there is no specific crime of 
securities fraud. This bill would create such a felony with a 
tough 10-year jail sentence.
    The amendment provides for a review of the existing 
sentencing guidelines for fraud cases and for organizational 
misconduct to make them tougher as well.
    The new crimes and enhanced criminal penalties in this bill 
were worked out among Senators Hatch, Schumer, and me, and 
unanimously supported by the Judiciary Committee, and I thank 
Senators Hatch and Schumer for their support.
    The Leahy-McCain amendment also creates two new anti-
shredding penalties which set clear requirements for preserving 
financial audit guides and close loopholes in current anti-
shredding laws.
    These provisions close loopholes in current laws and set a 
clear requirement that corporate audit documents must be saved 
for 5 years. We, incidentally, picked that time period because 
that is the statute of limitation for most Federal crimes.
    These provisions are crucial in preventing recurrences of 
what happened at Arthur Andersen.
    These provisions will preserve evidence that helps law 
enforcement officers and prosecutors focus immediately on the 
evidence. It takes a few minutes to warm up the shredder, but 
it can take years for prosecutors and victims to put together a 
case without key documents.
    The amendment protects corporate whistleblowers. Senator 
Grassley and I worked out these bipartisan measures in the 
Judiciary Committee. I thank the Senator from Iowa for his 
assistance and his constant leadership over the years on 
whistleblower rights.
    When sophisticated corporations set up complex fraud 
schemes, corporate insiders are often the only ones who can 
disclose what happened and why.
    Unfortunately, the Enron case also demonstrates the 
vulnerability of corporate whistleblowers to retaliation under 
current law. This is a memo from outside counsel to Enron 
management. They were afraid there might be a whistleblower. It 
said:

    You also asked that I include in this communication a 
summary of the possible risks associated with discharging (or 
constructively discharging) employees who report allegations of 
improper accounting practices.

    Then he goes on to give them the good news:

    Texas law does not currently protect corporate 
whistleblowers. The supreme court has twice declined to create 
a cause of action for whistleblowers who are dis-
charged. . . .

    In other words, if they dare tell about corporate misdeeds, 
fire them, it is not going to hurt.
    After this high-level employee of Enron reported improper 
accounting practices, the Enron executives were not thinking 
about firing the accountants who were doing wrong; they wanted 
to fire the whistleblower, their own employee. Why? Because 
they were pocketing the money. They were getting that money out 
to their bank accounts as fast as they could, and they did not 
want anybody to say so.
    The bipartisan whistleblower protections are supported by 
the national Whistleblower Center, the Government 
Accountability Project, and Taxpayers Against Fraud. They call 
S. 2010 ``the single most effective measure possible to prevent 
further recur-
rences. . . . ''
    The measure lengthens the statute of limitation by 
extending it from the earlier of 1 year from discovery or 3 
years from the fraud to 2 years from discovery or 5 years from 
the fraud.
    Senators Feinstein and Cantwell worked hard to craft a fair 
compromise on this provision in the Judiciary Committee.
    Indeed, the last two SEC Chairmen from both parties, Arthur 
Levitt and Richard Breeden, both agreed that the current short 
statute of limitations is unfair to fraud victims.
    Attorney General Christine Gregoire testified before the 
Judiciary Committee in the Enron State pension fund litigation 
that the current short statute has forced some States to forego 
claims against Enron.
    In Washington State alone, the short statute of limitations 
could cost hard-working State employees--firefighters and 
police officers--nearly $50 million in lost Enron investments.
    Last week, Xerox announced it was restating its revenue 
back 5 years by $6.4 billion. Madam President, as a law 
student, I remember sitting in the gallery listening to the 
distinguished Senator from Illinois, Mr. Dirksen, give his 
well-known speech: ``A billion here and a billion there, and 
soon you're talking about real money.''
    Imagine a corporation claiming they made a mistake in their 
revenue of $6.4 billion for the past 5 years. The disclosures 
raise the specter of innocent investors who, through no fault 
of their own, will be barred from recouping losses.
    We make the debt from security law violations 
nondischargeable in bankruptcy. We protect fraud victims by 
amending the bankruptcy code to make judgments and settlements 
based upon security law violations nondischargeable. Corporate 
leaders should not be allowed to take the money, run, file 
bankruptcy, and keep from ever paying any securities fraud 
judgment. The State security regulators strongly support this 
change. You cannot have one set of rules which say if you steal 
$500 from a store, you can go to jail. But if you steal $50 
million from the corporate boardroom, keep the money. That 
makes no sense. Everywhere I went in the State of Vermont last 
week, people were saying: If I committed an act, if I stole 
something, if I cash a bad check for $100, I run the risk of 
going to jail.
    But what do you do if you get $50 million or $100 million? 
You are home free.
    Criminal conduct deserves criminal penalties. Corporate 
CEOs who rob their company, who rob the pension funds of their 
employees, who rob the trust of the American people, are 
criminals. They ought to go to jail.
    The steel bars, maybe that will give a conscience to some 
of these people like Kenneth Lay and others who obviously do 
not have one. This gives prosecutors, the investigators, and 
victims the tools to hold corporate wrongdoers accountable.
    The people who are involved in such massive criminal 
activity ought to pay. The American people ought to know they 
will have to pay. If they don't, there will be a whole lot more 
fraud.
    I ask unanimous consent to have a number of letters printed 
in the Record.
    There being no objection, the letters were ordered to be 
printed in the Record, as follows:

                                   Taxpayers Against Fraud,
                                                    Washington, DC.
                         Government Accountability Project,
                                      Washington, DC, July 5, 2002.
    Dear Senator: The Government Accountability Project (GAP) and the 
Taxpayers Against Fraud (TAF) reaffirm our support for the Leahy 
Corporate and Criminal Fraud Accountability amendment to S. 2673, the 
Public Company Accounting Reform and Investor Protection Act of 2002.
    Initially introduced as S. 2010, the Corporate and Criminal Fraud 
Accountability Act, was unanimously reported by the Senate Judiciary 
Committee on May 6, 2002. This amendment is a landmark proposal. It 
promises to make whistleblower protection the rule rather than the 
exception for those challenging betrayals of corporate fiduciary duty 
enforced by the Securities and Exchange Commission. It would be the 
single most effective measure to prevent recurrences of the Enron and 
Worldcom debacles as well as similar threats to the Nation's financial 
markets, shareholders and pension holders.
    GAP is a nonprofit, nonpartisan public interest law firm dedicate 
since 1976 to helping whistleblowers, those employees who exercise 
freedom of speech to bear witness against betrayals of public trust 
that they discover on the job. GAP has led the campaign for passage of 
nearly all Federal whistleblower laws over the last two decades. TAF is 
a nonprofit, nonpartisan public interest organization dedicated to 
combating fraud against the Federal Government through promotion and 
use of the Federal False Claims Act and its qui tam whistleblower 
provisions. TAF supports effective anti-fraud legislation at the 
Federal and state level.
    The Leahy amendment to S. 2673 is outstanding good government 
legislation. It closes the loopholes that have meant whistleblowers 
proceed at their own risk when warning Congress, shareholders, and 
their own management's Board Audit Committees of financial misconduct 
threatening the health of their own company, investor confidence and 
the Nation's economy. We hope we can count on your support to add this 
state of the art whistleblower protection system in S. 2673. If you 
have any questions regarding the Leahy amendment, please call Tom 
Devine at GAP (202-408-0034 ext. 124), or Doug Hartnett (ext. 136).
            Sincerely,
                                               Jim Moorman,
                                           Executive Director, TAF.
                                                Tom Devine,
                                               Legal Director, GAP.
                               ----------
    North American Securities Administrators Associations, 
                                                      Inc.,
                                      Washington, DC, July 5, 2002.
Hon. Patrick Leahy,
Washington, DC.

    Dear Senator Leahy: NASAA supports S. 2673, The Public Company 
Accounting Reform and Investor Protection Act of 2002, and opposes 
efforts to weaken its provisions. State securities regulators believe 
there is an immediate need to restore investor confidence in our 
securities markets.
    Passage of the Leahy amendment, which incorporates S. 2010, the 
Corporate and Criminal Fraud and Accountability Act of 2002, into the 
accounting reform bill would send a strong deterrent message to 
potential securities violators by providing prosecutors with new and 
better tools to punish those who defraud our Nation's investors. Our 
focus is on Section 4, which would prevent the discharge of certain 
debts in bankruptcy proceedings. At the present time, the bankruptcy 
code enables defendants who are guilty of fraud and other securities 
violations to thwart enforcement of the judgments and other awards that 
are issued in these cases.
    We support passage of the Leahy amendment because it strengthens 
the ability of regulators and individual investors to prevent the 
discharge of certain debts and hold defendants financially responsible 
for violations of securities laws. This issue is of great interest to 
State securities regulators, and we hope you'll support it on the 
Senate floor.
    In addition, State securities regulators enclose Title V of S. 
2673--Analyst Conflicts of Interest--in its current form and strongly 
oppose any amendment to this title that would reduce our ability to 
investigate wrongdoing and take appropriate enforcement actions against 
securities analysts. An amendment drafted by Morgan Stanley was 
circulated that, we believe, would have prohibited State securities 
regulators from imposing remedies upon firms that committed fraud, if 
it involved securities analysts and perhaps even broker-dealers that 
deal with individual investors. Clearly this approach is ill-advised, 
especially in today's climate. What message would be sent to Main 
Street investors if the States' investigative and enforcement authority 
were weakened? (Additional information on this proposal was delivered 
to your office last week.)
    Please vote for passage of S. 2673, for the Leahy amendment, and 
against any amendments to curtail State securities enforcement actions.
            Sincerely,
                                            Joseph P. Borg,
                      NASAA President, Alabama Securities Director.
                                       Christine A. Bruenn,
             NASAA President-elect, Maine Securities Administrator.
                               ----------
                   American Federation of Labor and
                       Congress of Industrial Organization,
                                    Washington, DC, April 17, 2002.
Hon. Patrick Leahy,
Senate Judiciary Committee, Washington, DC.
Legislative Alert!

    Dear Senator Leahy: The sudden and spectacular collapse of Enron 
has jeopardized the retirement security of millions of hardworking 
Americans and exposed systemic failures of our securities laws. If we 
are to prevent future Enrons and restore the credibility of America's 
capital markets, aggressive reform is required. This week the Judiciary 
Committee will markup S. 2010, the Corporate and Criminal Fraud 
Accountability Act of 2002, which is an important part of this effort 
and deserves your support.
    The measures embodied in S. 2010 will help protect working families 
and their retirement funds from future Enrons by strengthening the 
penalties for securities and accounting fraud, and destruction of audit 
papers. The bill provides strong civil and criminal penalties for 
conduct such as document shredding by auditors and conspiracies to 
defraud investors; and bars those who commit securities fraud from 
using the bankruptcy system to avoid compensating the victims of such 
fraud. It also lengthens the statute of limitations for civil lawsuits 
by the victims of securities fraud, making it more difficult for those 
who commit these crimes to escape having to compensate their victims.
    S. 2010 is an important part of the comprehensive reforms Congress 
needs to enact in response to the conflicts in the capital markets 
exposed by the collapse of Enron. The AFL-CIO urges you to support S. 
2010 at this week's Judiciary Committee markup.
            Sincerely,
                                             William Samuel
                               Director, Department of Legislation.
                               ----------
                                           Consumers Union,
                                                    Washington, DC.
Re Support for S. 2010, the Corporate and Criminal Fraud Accountability 
        Act of 2002
                            Consumer Federation of America,
                                    Washington, DC, April 16, 2002.
    Dear Senator: Consumers Union and the Consumer Federation of 
America urge your support for S. 2010, the Corporate and Criminal Fraud 
Accountability Act of 2002, sponsored by Senator Patrick Leahy, when it 
comes before the Judiciary Committee for markup on Thursday. This 
proposal adds important provisions to the civil and criminal laws, 
which will both, deter and when necessary, punish securities fraud.
        enhancing enforcement and sanctions for securities fraud
    S. 2010 takes the following important steps to strengthen 
enforcement and penalties for securities fraud:
    It creates a new felony for the act of defrauding shareholders of 
publicly traded companies.
    It creates a new felony for destruction of evidence or creation of 
evidence with intent to obstruct a Federal agency or criminal 
investigation.
    It provides whistleblower protection to employees of publicly 
traded companies when they act lawfully to disclose information about 
fraudulent activities within their company.
    It enhances the ability of State attorneys general and the SEC to 
use civil RICO to enforce existing law; currently only the U.S. 
Attorney General has such authority currently under RICO.
              adopting a realistic statute of limitations
    S. 2010 also increases the ability of defrauded investors to 
recover their losses by lengthening the statute of limitations. The 
bill would set the statute of limitations to the earlier of 5 years 
after the date of the fraud or 3 years after the fraud was discovered.
    The current statute of limitations, the result of a 5-4 vote in a 
1991 Supreme Court decision, sets up an unrealistically short timetable 
for bringing private suits and needs to be corrected. Former President 
Bush's SEC Chairman Richard Breeden, former President Clinton's SEC 
Chairman Arthur Levitt, and State securities regulators have all 
supported an extension of the statute of limitations.
    Suits by defrauded investors have long been recognized by 
securities regulators, including former SEC Chairman Levitt, as an 
important deterrent against fraud. Moreover, securities fraud is often 
well-concealed and not readily apparent to investors until, in some 
cases, years after the fraud has been committed. As Chairman Levitt 
testified in 1995 before the Senate Banking Committee, ``Extending the 
statute of limitations is warranted because many securities frauds are 
inherently complex, and the law should not reward the perpetrator of a 
fraud who successfully conceals its existence for more than 3 years.''
    Justices O'Connor and Kennedy, in their vigorous dissent in the 
1991 Supreme Court case, also supported a longer statute of 
limitations. Justice Kennedy wrote, ``The most extensive and corrupt 
schemes may not be discovered within the time allowed for bringing an 
express cause of action under the 1934 Act. Ponzi schemes, for example, 
can maintain the illusion of a profit-making enterprise for years, and 
sophisticated investors may not be able to discover the fraud until 
long after its perpetration . . . By adoption of a 3 year period of 
response, the Court makes a 10(b) action all but a dead letter for many 
injured investors who by no conceivable standard of fairness or 
practicality can be expected to file suit within 3 years after the 
violation occurred. In so doing, the Court also turns its back on the 
almost uniform rule rejecting short periods of response for fraud-based 
actions.''
    Indeed, some States' pension funds may have to forego claims 
against Enron for securities fraud that occurred in the late 1990s 
because of this short statute of limitations. Washington State's 
Attorney General discussed this problem when she testified before your 
Committee in February of this year. ``In fact, for Washington State, 
our claim in the [Enron] case is for approximately $50 million, when in 
fact our losses are in excess of $100 million. But because of the 
statute of limitations, we're not able to make that claim.'' 
(underlining added).
    The current statute of limitations rewards those who are able to 
conceal their fraud for a relatively short time with immunity from 
private liability. It also includes a limit of 1 year from the time of 
discovery, which encourages a rush to the courthouse.
    The criminal conduct surrounding the collapse of Enron, and the 
fact that many claims for fraud will be time-barred by the current 
short statute of limitations, have drawn attention to the need for 
reform. S. 2010 includes important investor pro-
tection measures. We urge your support for this bill in the Judiciary 
Committee April 18.
            Sincerely,
                                           Sally Greenberg,
                                                    Senior Counsel.
                                           Travis Plunkett,
                                              Legislative Director.
                               ----------
                       U.S. Public Interest Research Group,
                                    Washington, DC, April 17, 2002.
No More Enrons--Support S. 2010, the Corporate and Criminal Fraud 
        Accountability Act of 2002

    Dear Member of the Senate Judiciary Committee: We are writing on 
behalf of the members of State Public Interest Research Groups to urge 
your strong support for S. 2010, the Corporate and Criminal Fraud 
Accountability Act of 2002, sponsored by Senator Patrick Leahy, when it 
comes before the Judiciary Committee for markup on Tuesday. This 
proposal adds important provisions to the civil and criminal law to 
both deter and, when necessary, punish securities fraud. Please oppose 
weakening amendments.
    S. 2010 takes the following important steps to strengthen 
enforcement and penalties for securities fraud:
    It creates a new felony for the act of defrauding shareholders of 
publicly traded companies.
    It creates a new felony for destruction of evidence or creation of 
evidence with intent to obstruct a Federal agency or criminal 
investigation.
    It provides whistleblower protection to employees of publicly 
traded companies when they act lawfully to disclose information about 
fraudulent activities within their company.
    It enhances the ability of State attorneys general and the SEC to 
use civil RICO to enforce existing law; currently only the U.S. 
Attorney General has such authority currently under RICO.
    Importantly, S. 2010 also increases the ability of defrauded 
investors to recover their losses by lengthening the statute of 
limitations. The bill would reasonably and sensibly set the statute of 
limitations to the earlier of 5 years after the date the fraud occurred 
or 3 years after the fraud was discovered. A securities law violation 
is often a complex, multi-year enterprise. Indeed, Enron's recent 
accounting restatements went back 5 years. Under the fraudster-friendly 
current law, some state pension fund claims against Enron may be time-
barred.
    S. 2010 includes numerous important investor protection measures to 
assist whistleblowers, fraud victims, and law enforcement agencies. We 
urge your strong support for this bill to help restore investor 
confidence in the Judiciary Committee April 18. Please oppose weakening 
amendments. For more information about the full State PIRG platform to 
protect employees, investors and taxpayers from future Enron/Andersen 
debacles, please visit http://www.enronwatchdog.org. Please contact me 
with questions at either 202-546-9707x314 or ed@pirg.org.
            Sincerely,
                                        Edmund Mierzwinski,
                                         Consumer Program Director.
                               ----------
                             National Whistleblower Center,
                                    Washington, DC, April 17, 2002.
Hon. Maria Cantwell,
Senate Judiciary Committee, Washington, DC.

    Dear Senator Cantwell: The National Whistleblower Center strongly 
supports S. 2010, the Corporate and Criminal Fraud Accountability Act 
of 2002. This law would protect employees who disclose Enron-related 
fraud to the appropriate authorities.
    One of the most notorious loopholes in current whistleblower 
protection law exists under the securities laws, in which employees who 
report fraud against stockholders have no protection under Federal law. 
It is truly tragic that employees who are wrongfully discharged merely 
for reporting violations of law, which may threaten the integrity of 
pension funds or education-based savings accounts, have no Federal 
protection.
    This point was made abundantly clear by the recently released 
internal memorandum from attorneys for Enron. According to Enron's own 
counsel, employees who were blowing the whistle on Enron's misconduct 
were not protected under Federal law, and could be subject to 
termination. Unfortunately, the Enron attorney was correct.
    It is imperative that the next time a company like Enron seeks 
advice from counsel as to whether they can fire an employee, like 
Sharon Watkins (who merely disclosed potential fraud on shareholders), 
the answer must be a resounding ``no.'' That can only happen if the 
Corporate and Criminal Fraud Accountability Act is enacted into law.
            Respectfully submitted,
                                          Kris J. Kolesnik,
                                                Executive Director.
                               ----------
                 National Association of Attorneys General,
                                      Washington, DC, July 3, 2002.
    Dear Senator: It has come to my attention that the substance of S. 
2010, the Corporation and Criminal Fraud Accountability Act of 2002, 
will be offered as an amendment to S. 2673, the Public Company 
Accounting Reform and Investor Protection Act of 2002, as early as next 
week.
    I have attached a letter to Senator Leahy from seven Attorneys 
General written last April in support of the substance of S. 2010, in 
order to make these views known as you consider this legislation.
    If you have any questions or concerns, please feel free to call 
Blair Tinkle, NAAG's Legislative Director at 202-326-6258.
            Sincerely,
                                                Lynne Ross,
                                                Executive Director.
                               ----------
                 National Association of Attorneys General,
                                    Washington, DC, April 17, 2002.
Hon. Patrick Leahy,
Chairman, Senate Judiciary Committee, U.S. Senate, Washington, DC.

    Dear Chairman Leahy: We would like to take this opportunity to 
express our support for your bill, S. 2010, the Corporate and Criminal 
Fraud Accountability Act of 2002, which is pending before the Senate.
    As you know, the proposal would allow state Attorney's General to 
seek to enjoin racketeering activities under the Federal RICO statute. 
Such added authority would enhance the ability of Attorneys General to 
protect their citizens from unlawful activities by organizations both 
within and outside the borders of our individual states.
    In addition, to restore accountability, S. 2010 provides 
prosecutors new and better tools to effectively prosecute and punish 
criminals who defraud investors by:
    Creating a new, 10-year felony specifically aimed at securities 
fraud.
    Enhancing fraud and obstruction of justice statutes where evidence 
is destroyed and in fraud cases, where there are many victims or where 
any victim is financially devastated.
    Creating two new document destruction felonies establishing a new 
felony shredding crime and requiring the preservation of audit 
documents for 5 years.
    Creating new protections for corporate whistleblowers.
    Finally, the bill protects victims' rights by:
    Protecting securities fraud victims from discharge of their debts 
in bankruptcy.
    Extending the statute of limitations in securities fraud cases.
    We appreciate your efforts to enact this important legislation. 
Please feel free to contact us if we can provide further assistance in 
this effort.
            Sincerely,

    Carla J. Stovall, Attorney General of Kansas, President of NAAG; 
            Hardyress, Attorney General of Oregon, Chairman, Enron 
            Bankruptcy Working Group; Christine Gregsire, Attorney 
            General of Washington; William H. Sorrell, Attorney General 
            of Vermont; Ms. Edmonds, Attorney General of Oklahoma, 
            President-Elect of NAAG; Thurbert E. Baker, Attorney 
            General of Georgia; Betty D. Montgomery, Attorney General 
            of Ohio.

    Mr. Leahy. I appreciate the distinguished majority leader 
introducing this amendment and yielding to me.
    I yield the floor.
    The Presiding Officer. The Senator from Georgia.
    Mr. Miller. I was going to send an amendment to the desk 
but I understand there is one pending. I ask unanimous consent 
I have up to 8 minutes to discuss this amendment now, which I 
will send later.
    Mr. McConnell. Reserving the right to object, and I 
probably will not, I hoped for an opportunity to briefly 
explain the second-degree amendment that is pending at the 
desk. If the Senator thinks it might be helpful just to 
determine the order of discussion, perhaps it is more 
appropriate to discuss the amendment that is pending over one 
that might have been pending.
    Mr. Miller. The Senator from Kentucky is correct. I would 
like to get in the queue somewhere along the line.
    Mr. Reid. I ask the question of the Senator from Kentucky, 
How long does the Senator from Kentucky wish to speak?
    Mr. McConnell. I will be happy to wrap up in 5 or 6 
minutes. I want to summarize what the amendment is about.
    Mr. Sarbanes. Madam President, I ask unanimous consent the 
Senator from Kentucky be recognized for 5 minutes to speak to 
the second-degree amendment that has been offered, that is 
pending, and that be followed by the Senator from Georgia to 
speak for 8 minutes.
    Mr. Murkowski. Madam President, I wonder if I may be 
recognized after the sequence that has been discussed for about 
1 minute.
    Mr. Reid. I object.
    The Presiding Officer. Is there an objection to the 
original request of the Senator from Maryland?
    Mr. Reid. I do not object to the original 13 minutes.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from Kentucky will proceed.
    Mr. McConnell. I thank my friend from Georgia. I will 
briefly discuss the second-degree amendment. I expect to vote 
for the underlying bill, but we ought to, in the name of 
equity, apply the same principles in the underlying bill we are 
seeking to apply to corporations to labor unions.
    The amendment I sent to the desk requires union financial 
statements to be audited by an independent accountant using 
procedures that mirror those of public companies under Federal 
securities laws. It imposes civil penalties for violations of 
these new 
auditing requirements that mirror those imposed on the Security 
Exchange Act of 1934. Third, it requires that the Union 
President and Secretary-Treasurer certify the accuracy of 
financial reports, mirroring a similar requirement for CEOs and 
CFOs in the Sarbanes bill.
    We are debating how to better oversee and enforce the audit 
requirements for large corporations that were first established 
under the Securities Act of 1933. It may shock many to learn 
that labor unions are not even required to have independent 
audits of the financial statements they file with the 
Department of Labor--or should I say that they are required to 
file. Many unions apparently thumb their nose at the 
requirement. A study by the Office of Labor Management 
Standards found that 34 percent of all unions filed late 
financial reports or no reports at all.
    If we are serious about protecting the investing public 
from the financial fraud of corporations and accountants, we 
should be equally serious about protecting the day-to-day 
American worker--the plumbers, the machinists, the 
longshoremen, and the steelworkers--from the financial fraud of 
union officials.
    One prominent union official recently said that:

    Over the coming months you will no doubt hear more about 
the Enron scandal and the many thousands of people who have 
lost their pensions because of corporate greed.

    I agree with that. What we do not hear enough of are the 
stories of union greed. It is only fair to share some of them 
today. I have a rather long list I will discuss later in the 
debate, but let me cover a few of them in my allotted time. We 
have heard of Arthur Andersen, but has anyone heard of Thomas 
Havey? That is the accounting firm where a partner confessed to 
helping a bookkeeper conceal the embezzlement of hundreds of 
thousands of dollars from a worker training fund of the 
International Association of Ironworkers. And in an eerie 
parallel to the Enron scandal, the Havey accountants revealed 
startling information--10 years ago, the then General Counsel 
for the Ironworkers Union said that if the accounting firm 
refused to assist in the union scheme to conceal financial 
mismanagement, the accounting firm should be fired. Sadly, the 
accounting firm complied.
    We have all heard of Global Crossing, but has anyone heard 
of ULLICO? That is the multibillion-dollar insurance company 
owned primarily by unions and their members' pension funds that 
invested $7.6 million in Global Crossing. Apparently, ULLICO 
directors received a sweetheart investment deal that allowed 
them to make millions on the sale of stock. The union pension 
funds, however, dried up with Global Crossing's demise.
    There is much more. An accountant within the National 
Association of Letter Carriers embezzled more than $3.2 million 
from union funds over an 8 year period to buy 8 cars, 2 boats, 
3 jet skis, a riding mower, and 105 collectable dolls. A former 
official of the Laborers' Union District Council in Oregon, 
Idaho, and Wyoming is in jail for accepting hundreds of 
thousands of dollars in kickbacks for directing money into a 
ponzi-like investment scheme that defrauded Oregon labor unions 
of $355 million.
    I have a number of additional examples that I wish to get 
to later, but I do want to say in summary, again, what my 
amendment is about, just so everyone will understand as we move 
subsequently to a vote. It first requires union financial 
statements to be audited by an independent accountant using 
procedures that mirror those of public companies under the 
Federal securities laws; second, it imposes civil penalties for 
violations of these new auditing requirements that mirror those 
imposed under the Securities Exchange Act of 1934; and, third 
and finally, it requires that the Union President and 
Secretary-Treasurer certify the accuracy of their financial 
reports, which mirrors a similar requirement for CEOs and CFOs 
in the Sarbanes bill.
    I yield the floor.
    Mr. Sarbanes. Will the Senator yield for a question?
    Mr. McConnell. Yes.
    Mr. Sarbanes. Of course, there is a special statutory 
arrangement that governs labor organizations. I take it this 
proposal--has this come to us from the Department of Labor?
    Mr. McConnell. I say to the Senator from Maryland, it did 
not come from the Department of Labor. It came from my office. 
This is something we have been looking at over the last week or 
10 days, thinking that, since the very worthwhile requirements 
of corporations and accounting firms, under the bill of the 
Senator from Maryland, make sense if we are looking to protect 
investors, we should also protect union members from similar 
kinds of casual exploitation.
    Mr. Sarbanes. But under the Labor Management Reporting and 
Disclosure Act, the Department has certain authorities it can 
invoke in dealing with the kind of problems the Senator has 
outlined. At least that is my understanding under the current 
state of the law. Is that correct?
    Mr. McConnell. I don't know what the position of the 
Department of Labor is on the amendment I am offering. But it 
is my belief that if the amendment were not necessary, we would 
not be offering it here today. This is something I am sure we 
are going to discuss further as we move along.
    Mr. Sarbanes. I am sure the Senator would be able to find 
out from the Secretary.
    Mr. McConnell. I expect I could find out from the Secretary 
of Labor, but I chose not to do that.
    Mr. Gramm. I don't know whether you could or not.
    Mr. McConnell. She has her job and I have mine.

                           AMENDMENT NO. 4176

    The Presiding Officer. The Senator from Georgia is 
recognized under the previous order.
    Mr. Miller. Madam President, I ask unanimous consent the 
pending amendment be temporarily set aside so I be allowed to 
offer an amendment.
    The Presiding Officer. Is there objection to the request? 
Without objection, it is so ordered.
    The clerk will report.
    The bill clerk read as follows:

    The Senator from Georgia [Mr. Miller] proposes an amendment 
numbered 4176.

    Mr. Miller. Madam President, I ask unanimous consent the 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To amend the Internal Revenue Code of 1986 to require the 
    signing of corporate tax returns by the chief executive officer of 
    the corporation)

    At the end add the following new title:

                   TITLE VIII--CORPORATE TAX RETURNS

SEC. 801. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICER.

    (a) In General.--Section 6062 of the Internal Revenue Code 
of 1986 (relating to signing of corporation returns) is amended 
by striking the first sentence and inserting the following new 
sentence: ``The return of a corporation with respect to income 
shall be signed by the chief executive officer of such 
corporation.''.
    (b) Executive Date.--The amendment made by this section 
shall apply to returns filed after the date of the enactment of 
this Act.

    Mr. Gramm. Will the Senator yield?
    There is a little bit of confusion. I want to be sure he is 
setting aside the entire amendment, the Leahy and the McConnell 
amendment, and he is offering a first-degree amendment? That is 
what I understood when I talked to the Senator and to what I 
had agreed.
    The Presiding Officer. That is the Chair's understanding.
    Mr. Sarbanes. No. What was the request? I thought the 
unanimous consent request was to set aside the McConnell 
amendment and offer the Miller amendment to the Leahy 
amendment.
    Mr. Gramm. It was the pending amendment.
    Madam President, I wanted to be sure that we set aside both 
Leahy and McConnell. This is a new issue, a first-degree 
amendment. That was the basis that I understood it on and on 
the basis of that I had no objection to it.
    The Presiding Officer. The Chair understands the Senator 
from Georgia was going to offer an amendment that would be 
considered at a different time, an independent first-degree 
amendment, to be spoken about now and considered at a later 
time. Is that the understanding of the Senator from Vermont?
    Mr. Leahy. Reserving the right to object, I want to make 
sure I fully understand. What is the request?
    The Presiding Officer. There is no request pending.
    Mr. Leahy. I am sorry. I thought there was a request to lay 
aside my amendment.
    The Presiding Officer. That request has been granted.
    Mr. Leahy. But then my--what is the parliamentary situation 
with my amendment? Maybe that is the best way to ask it.
    The Presiding Officer. The Senator from Georgia obtained 
the consent to set aside the pending amendment in order to 
offer a first-degree amendment.
    Mr. Leahy. I understand.
    Mr. Sarbanes. Would the call for the regular order at the 
completion of the statement of the Senator from Georgia, or 
disposition of his amendment, bring back before the body the 
Leahy amendment?
    The Presiding Officer. Yes, it would.
    Mr. Leahy. The Senator from Georgia spoke to me earlier. I 
do not want in any way to interfere with that. I do want to 
accommodate him. I just wanted to make sure, also for my own 
schedule, where we stood.
    I thank the distinguished Presiding Officer and I thank the 
distinguished Chairman of the Committee and of course I thank 
the distinguished Senator from Georgia.
    Mr. Miller. I thank the Senator from Vermont and the 
Senator from Texas.
    Madam President, there is a good old boy from down in 
Georgia named Jerry Reed, who went to Nashville several years 
ago and made it big as a tremendous guitar picker, singer, and 
songwriter. He had a big hit a while back. Maybe some of you 
remember it. It was called ``She Got the Gold Mine and I Got 
the Shaft.''
    I thought about that song of Jerry Reed's as I watched what 
has happened lately on the corporate scene. The big shots of 
Enron and WorldCom and others, they got the gold mine while the 
poor employees and the innocent stockholders got the shaft.
    If a picture is worth a thousand words, take a look at this 
gold mine. It was built partly on the backs of those Georgia 
schoolteachers who, each month, put their hard-earned money 
into the Georgia teachers' retirement fund. The fund in Georgia 
lost $78 million from Enron and another $6 million from 
WorldCom. Think how many monthly contributions by how many 
struggling teachers that represents. And think about those 
other thousands of employees who have lost their life savings, 
not even to mention the thousands of employees who have lost 
their jobs--at least 450 jobs were wiped out in Georgia alone 
so far.
    Yes, a few big shots got the gold mine and a lot of little 
folks got the shaft.
    I am as probusiness as anyone in this body. I yield to no 
officeholder when it comes to supporting business issues. As 
Governor and Senator, I have worked to give tax cuts and tax 
incentives and pay for the training of their employees--all to 
provide a probusiness environment in which the entrepreneurial 
spirit can thrive and prosper and create jobs. But, folks, 
there comes a time when so much greed and so many lies become 
so bad--even if it is only by a few--that something meaningful 
has to be done. We must act quickly to protect the investor, 
provide some security for the worker, and restore confidence in 
the marketplace because, make no mistake about it, today we 
have a crisis in the integrity of corporate America.
    That is why I have worked with Senator Sarbanes in 
perfecting his bill, and I strongly support it. I am pleased 
that it is before us this week. I also commend President Bush 
for making the strong recommendations he is going to be making 
in New York.
    But I think we need to do at least one other thing, so I 
have a simple amendment. It is only two short paragraphs in 
length, but it goes to the very essence of fairness. It simply 
says that, when the taxman cometh, we all--workers and high-
dollar bosses alike--must face him just alike, without any go-
betweens or liability firewalls or corporate veils.
    This is how it would work. There is a standard tax form 
called 1040. I know there are more sophisticated ones for big 
business, but the principle I am getting at is the same. This 
is what it says:

    Under penalties of perjury, I declare that I have examined 
this return and accompanying schedules and statements, and to 
the best of my knowledge and belief they are true, correct and 
complete.

    And then it is signed here by Joe Sixpack. Joe Sixpack of 
America signs those kinds of forms. There were more than 14 
million of those forms filed in April. If Joe Sixpack is 
required to sign this oath for his family, why shouldn't 
Josepheus Chardonnay be required to sign that same oath for his 
corporation?
    So my little amendment simply requires that henceforth the 
chief executive officer of all publicly owned and publicly 
traded corporations must sign the corporation's annual Federal 
tax return.
    Currently, there is an IRS rule that corporations can 
designate any corporate officer to sign their tax return. That 
will not get it. Let's be specific. Let's put it into law: The 
CEO is the one who is to sign the tax return and must be 
accountable for it.
    Where I come from it is expected that those being paid ``to 
mind the store'' should at least know whether the store is 
losing or making money.
    Harry Truman had a sign on his desk in the Oval Office that 
said, ``The Buck Stops Here.'' For Truman, it meant that he was 
accountable.
    He took the blame. He suffered the consequences when things 
went bad.
    For some of today's CEOs, it is just the opposite. They 
want no accountability. They shift the blame to others. They 
hide behind that corporate veil. And, it seems, they rarely if 
ever pay the consequences.
    Their former workers cancel plans for their children to go 
to college while they sip from champagne flutes in their 
mansions in Boca and Aspen.
    For these CEOs, Truman's famous sign has changed from ``The 
Buck Stops Here'' to ``The Bucks Go Here.''
    Our system of collecting taxes is based upon the premise 
that individual taxpayers will take all steps necessary to 
ensure that the financial information in the tax return is 
accurate.
    If Joe Sixpack fudges the numbers, he doesn't get a pass 
from paying penalties or going to jail. I find it outrageous 
that the same is not a part of the mind set for those in the 
corporate culture.
    If any CEO is not willing to sign the company tax return--
if they are not willing to take steps to satisfy themselves 
that their corporation is accurately reporting financial 
information--then those CEOs have no right to the prestige and 
respect that goes with the position they hold.
    What is good for the goose is good for the gander. So I 
urge my colleagues to simply hold our CEOs to the same standard 
that we now impose upon our average wage earners.
    Treat them the same, ``Treat 'em'' the same. That is the 
American way. That is what the voters out there want us to do 
and that is what they expect us to do. ``Treat 'em'' the same.
    And you can take that back home this summer and explain it. 
Some of these other reforms, I fear, will be more difficult to 
explain.
    Treat 'em the same.
    I yield the floor.
    The Presiding Officer. The Senator from Alaska.
    
    
         VOLUME 148, TUESDAY, JULY 9, 2002, NUMBER 91,
                      PAGES [S6491-S6496]

 Public Company Accounting Reform and Investor Protection Act of 2002--
                               Continued

    The Presiding Officer. The clerk will report the pending 
business.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    Mr. Sarbanes. What is now pending before the Senate?
    The Presiding Officer. The Miller amendment, No. 4176.
    Mr. Sarbanes. I ask for the regular order.
    Mr. Gramm. May we have order, Madam President.
    The Presiding Officer. Members will take their 
conversations off the floor of the Senate.
    Mr. Sarbanes. There is a procedural question following the 
Miller amendment. We have been discussing that. We may be able 
to resolve it, but we need to do that overnight.
    I call for the regular order which, as I understand it, 
would take us back to the Leahy amendment, with the McConnell 
amendment pending to Leahy?
    The Presiding Officer. The Senator is correct.
    Mr. Sarbanes. I call for the regular order.


                           amendment no. 4175


    The Presiding Officer. The amendment is now pending. The 
Senator from Massachusetts.
    Mr. Leahy. Will the Senator yield for a question? We are 
on, am I correct, the Leahy amendment which was pending to it 
the McConnell amendment?
    The Presiding Officer. That is correct.
    Mr. Leahy. I thank the Senator from Massachusetts.
    The Presiding Officer. The Senator from Massachusetts.
    Mr. Kennedy. As I understand it, the matter before the 
Senate now is the McConnell amendment; am I correct?
    The Presiding Officer. That is correct.
    Mr. Kennedy. Madam President, this amendment of the Senator 
from Kentucky is what we call around here and everywhere a 
poison pill amendment intended to prevent serious action on 
corporate accountability. Just as a few Republicans sought to 
stop campaign finance reform with similar amendments, now they 
are trying to block action to make executives accountable. The 
lack of corporate responsibility in the United States has 
undermined the credibility of our markets and devastated the 
retirement savings of millions of Americans.
    This widespread abuse of corporate power has jeopardized 
our Nation's economic recovery and hurt the legitimacy of our 
fundamental institutions. We must not call for the 
obstructionism of Senate Republicans. Instead, we must heed the 
call of the American people and insist on bold action this week 
to ensure that corporations are made accountable and that 
workers and investors are protected against these abuses.
    The Leahy amendment, which my Republican colleagues seek to 
block, was unanimously approved by the Judiciary Committee in 
April. It includes critical measures to strengthen the ability 
of Federal prosecutors to detect, prevent, and prosecute 
corporate fraud. It makes acts of document shredding and 
corporate fraud punishable by 10 years in prison. It lengthens 
the statute of limitations for victims of security fraud.
    Finally, the bill directs the U.S. Sentencing Commission to 
review criminal penalties for obstruction of justice and 
corporate fraud.
    Today, Americans are outraged by the endless corporate 
scandals, and Congress must act to hold corporate crooks fully 
accountable and to restore confidence in our markets.
    Defeating the ``poison pill'' amendment offered by Senator 
McConnell is the first step toward that goal. Senator 
McConnell's amendment would put America's workers in double 
jeopardy. The amendment puts new requirements on workers' 
representatives, despite the fact that these officials 
currently face disclosure and reporting requirements which 
surpass those of public companies.
    This amendment would subject small local unions with annual 
receipts of only $200,000, which are already subject to labor 
reporting requirements, to the same SEC reporting requirements 
as large public companies which typically have resources in the 
millions.
    The reality is that union finances are already more heavily 
regulated than those of most public companies. The Department 
of Labor under current law can investigate and audit union 
financial records at any time, including conducting random 
audits. There is no comparable requirement for public companies 
today.
    There are many other examples of current labor laws 
requiring much stricter disclosure by unions than the SEC 
requires of publicly traded companies. Unions have to list 
every employee who receives more than $10,000. But the SEC does 
not require this of companies. Unions have to provide more 
detailed information regarding their loans than do public 
companies under SEC requirements. Unions have to provide more 
detailed lists of their investment today than do public 
companies under the SEC requirements.
    The list goes on and on and on.
    For over 40 years under labor laws, union officials have 
been required to certify the annual financial reporting of 
their unions under penalty of perjury.
    The McConnell amendment certification requirement ignores 
the safeguards that already exist under our labor laws. Union 
officials are already subject to criminal penalties, which 
include jail time for willfully failing to file reports, or 
knowingly making false statements, or willfully concealing 
documents. Union officials who violate these provisions are 
subject to jail time as well as substantial fines.
    It is misguided to apply SEC requirements and penalties 
which were designed for publicly traded companies to not-for-
profit groups such as unions. Even the Department of Labor 
recognizes this.
    Don Todd, Deputy Assistant Secretary in charge of the 
Department's Union Reporting Office, wrote last August 
regarding SEC requirements that the Department of Labor does 
not have the expertise to provide more than a very general 
overview of this complex area of law. Why in the world would we 
want to force the labor unions to comply with SEC filing 
requirements when the relevant oversight agency doesn't 
understand this area of the law?
    The bottom line here is that the Republicans fear corporate 
responsibility. They know the American people are outraged by 
the endless series of corporate scandals that are hurting 
workers, retirees, and our economic recovery. Rather than admit 
the scope of corporate corruption and the urgency of criminal 
penalties for corrupt executives proposed by Senator Leahy, the 
Republicans are seeking to poison the well. If we allow this, 
the American people will never forgive us for passing up this 
unique opportunity to bring accountability to corporate 
executives. Corporate criminals must be made to pay for their 
misdeeds.
    I urge my colleagues to vote against the McConnell 
amendment.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Madam President, first of all, let me point out 
something. Senator McConnell's amendment changes nothing in the 
Leahy amendment. The adoption of Senator McConnell's amendment 
does nothing to change the Leahy amendment. I understand that 
Senator McConnell tomorrow is going to come over and speak at 
great length on his amendment. But I don't want anyone to be 
deceived as to what the amendment is about.
    The amendment has nothing to do with the Leahy amendment in 
terms of its adoption in any way delaying or changing the Leahy 
amendment.
    The Senator from Kentucky has proposed a simple proposition 
that I believe is unassailable logically. That proposition is 
we are going to put penalties on filing false reports by 
corporations, and we are going to in the process send people to 
prison for it. I support that provision. I think there are 
probably 100 Members of the Senate who support that part of 
Senator Leahy's amendment.
    The Senator from Kentucky simply asks the question: Why 
don't we require that labor unions, when they submit financial 
statements once a year, have them audited by CPAs? Second, why 
don't we have them sign those reports and be accountable for 
their accuracy?
    I am sure that people who do not want unions subjected to 
transparency and to accountability are going to say: Well, this 
is an effort to circumvent requirements on corporate America. 
Nothing could be further from the truth. This amendment does 
not strike the Leahy amendment. It simply adds a simple 
provision to it that applies parallel standards to unions.
    Senator Kennedy says this neglects existing law. The point 
is that the existing law is not very strong. Many unions don't 
even submit these reports. You could argue on the corporate 
side that we already have a body of law; why are we writing new 
laws? We are writing new laws because we need stronger and 
better laws. We have a bipartisan consensus that we do it.
    Also, Senator Kennedy says the veracity of these reports 
should follow under another jurisdiction. We are talking about 
accounting. We are talking about accuracy in reporting. We are 
talking about transparency. We are talking about 
accountability. Surely union members, in reading a report, 
should have the same confidence that it is valid, that a 
certified public accountant who is subject to high ethical 
standards wrote the report, and that the president of the 
unions certifies it, and that the president is going to be held 
accountable if it doesn't meet the standards we are setting.
    Let me just summarize, since we are going to debate this 
amendment tomorrow, by saying:
    No. 1, this amendment does not change the Leahy amendment. 
If you are for the Leahy amendment, that is fine.
    The question the Senator from Kentucky poses is, should 
similar parallel requirements be imposed on unions that issue a 
financial statement annually, and should they have to be 
certified by a certified public accountant? And should the 
president of the union have to sign the report as the president 
of a corporation does? Should they be held liable if the report 
is not accurate and if they knowingly file an inaccurate 
report?
    That is the question.
    No. 2, it seems to me it is perfectly reasonable. You might 
be for it, and you might be against it, but you can't say it 
has anything to do with trying to undo the Leahy amendment.
    It seems to me that if you are against it, you have to 
explain why unions should not be required to meet high 
standards in filing 
reports.
    I haven't spoken on the Leahy amendment. It is my 
understanding we are going to be debating it tomorrow. I would 
like to simply outline what is in the amendment that I am for 
and what is in the amendment that I am against. I can do it 
very briefly.
    If people knowingly and willfully violate the law, I 
support putting them in prison. The President has proposed 
doubling the sentence. I am for that. I hope at some point the 
administration will give us legislative language to implement 
the changes the President proposed today. I am hopeful that on 
a bipartisan basis we can adopt it on the floor of the Senate 
as part of this bill.
    If we do not have time to do it, I have every reason to 
believe there will be bipartisan support to make those changes 
and those additions, those strengthening amendments in 
conference.
    There is only one part of the Leahy amendment to which I 
object. Unfortunately, it is a very important part of the 
amendment that no one is focusing on when they are talking 
about the Leahy amendment. In fact, I would move that we simply 
accept the Leahy amendment except for this small but important 
provision.
    I remind my colleagues that in 1995, on a bipartisan basis, 
we adopted the Private Securities Litigation Reform Act, 
legislation that basically amended securities laws to deal with 
the whole issue of predatory strike suits where one law firm 
was filing 80 percent of the lawsuits against corporate America 
and we had a reform of corporate liability. That bill was 
adopted on a bipartisan vote. It is the only bill that we 
overrode President Clinton's veto on in 8 years in office.
    One of the reforms was to set statute of limitations 
requirements that basically paralleled the securities acts from 
the 1930s. What we said is, if you want to file a lawsuit, you 
have to do it within a year of when you know there was a 
violation or within 3 years of when the violation occurred.
    The whole point of statute of limitations is, that beyond 
some point it is very difficult to maintain records. You do not 
know what happened. People's memories fade. People die. This 
was part of this important reform.
    The Leahy amendment effectively throws out the 1 year and 
the 3 year statute of limitations and adopts a 5 year 
limitation. Now, he claims it is a 2 year and 5 year, but the 2 
year applies only if you can prove that the person who filed 
the lawsuit knew that the violation occurred outside of the 2 
years. I would assert that is virtually impossible to prove.
    It is interesting, in statute of limitations, where you are 
saying you have to act on a timely basis because people do not 
have knowledge after periods of time expire, under this, you 
have to have enough knowledge to prove that they knew, which I 
think is a standard that could not possibly work. No one really 
believes it could work.
    So the reality is, we are striking the 1-year and the 3-
year statute of limitations in the securities litigation reform 
bill, and we are substituting a 5-year statute of limitations 
for it. That is a provision that I oppose. Every other part of 
the Leahy amendment I support. I personally would be willing to 
see it accepted by unanimous consent save that one provision in 
the bill. I think it is an important provision.
    But I want people to know, as we go into the debate, that 
my support for the McConnell amendment has nothing to do with 
the Leahy amendment; it simply has to do with having been 
convinced that there is logic to the McConnell position.
    If we are trying to get transparency in financial 
reporting, if we are trying to hold people accountable, if we 
want honest numbers, it seems to me the logical place would be 
to start with Government, which we have not done. But the 
second point, it seems to me, is to apply the same standard to 
business and to labor. That is what McConnell has done.
    Tomorrow we will have the debate on it, but I wanted to 
outline what the amendment did and did not do and my position 
on the Leahy amendment.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, I am prompted to enter this 
debate by the comments of my colleague from Texas. You cannot 
evaluate the parallelism of the McConnell amendment without 
evaluating the requirements that are now imposed upon labor 
unions under the Labor-Management Reporting and Disclosure Act 
of 1959. The argument that this is logical is only if you drop 
out of the picture or the context the fact that the unions are 
now under extensive reporting requirements in the law, 
requirements that significantly exceed, in many respects, 
anything that is required of corporations.
    Now, the Department of Labor has the authority to conduct 
audits of labor unions.
    Mr. Kennedy. Will the Senator yield on that point?
    Mr. Sarbanes. Yes.
    Mr. Kennedy. According to the statute, it can conduct those 
audits randomly, as I understand. Does the Senator agree with 
me that these audits can be done randomly? According to the 
statute, it says right here, in section 601(a):

    The Secretary shall have power when he believes it 
necessary in order to determine whether any person has violated 
. . . any provision of [the legislation] . . . to make an 
investigation and in connection therewith. . . .

    And they may enter such places to inspect such records and 
accounts in question.
    Does the current underlying legislation permit the SEC to 
conduct random auditing of public entities?
    Mr. Sarbanes. The auditing is done by the independent 
public accountants.
    Mr. Kennedy. The point I am making is, at the current time, 
the Department of Labor can conduct an independent audit at any 
particular time on any occasion, according to the Labor-
Management Reporting Act.
    Beyond that, it has the provision:

    Every labor organization shall file annually with the 
Secretary a financial report signed by its president and 
treasurer or corresponding principal officers containing the 
following information. . . .

    And it lists all of that information. It already exists.
    Mr. Sarbanes. Will the Senator yield on that point?
    Mr. Kennedy. Yes.
    Mr. Sarbanes. The Senator from Kentucky says they are not 
filing these reports. What are the Secretary of Labor and the 
Department of Labor doing, because they have the power to make 
them file their reports. In fact, they can impose penalties, as 
I understand it, including not only fines but also imprisonment 
for the failure of union officials to meet the requirements 
under the statute.
    My dear colleague from Texas says, well, look, this thing 
is on all fours. This is what we are doing to the corporations. 
And all the McConnell amendment does is it does it to the 
unions. Now, who could be against that?
    But let's look at what is already being done to the unions. 
Let's look at the requirements under which they already have to 
function. Let's look at the powers that the Department of Labor 
and the Secretary of Labor have with respect to this matter.
    Mr. Gramm. Will the Senator yield?
    Mr. Sarbanes. Certainly.
    Mr. Gramm. You can make the same argument the SEC has the 
power to audit any company in America today. Any exchange they 
are a member of has the power to audit them today. We are 
saying we need better, stronger, more powerful laws. We need 
better reporting. People need better information.
    All the Senator from Kentucky is saying is, why don't we 
apply the same thing to the reports that are filed by labor 
unions.
    Mr. Sarbanes. Will the Senator yield?
    Mr. Gramm. Yes. You have the floor.
    Mr. Sarbanes. Has the Senator examined, with any care, the 
reporting requirements and the other matters that govern labor 
union reporting under the Labor-Management Reporting and 
Disclosure Act?
    Mr. Gramm. Only to the degree that I can say that all the 
arguments that are being made, saying we do not need to improve 
reporting, are arguments that someone could make with regard to 
corporate America. They are already subject to random audits by 
the SEC. They are already subject to random audits by 
exchanges. I am not making that argument because I do not 
believe it.
    Mr. Sarbanes. What about the requirement on unions that 
they list the employees whose total of salaries and other 
disbursements exceed $10,000, including position, gross salary, 
allowances, and disbursements? What about that requirement that 
is imposed on the unions to make that kind of disclosure? Where 
is a comparable disclosure in that regard with respect to 
corporations?
    Mr. Gramm. Will the Senator yield?
    Mr. Sarbanes. Certainly.
    Mr. Gramm. I say, if the Senator wanted to offer an 
amendment to impose that, he certainly could. And I will stop 
asking him to yield, but let me make this point.
    Mr. Sarbanes. To impose it on corporations, you support 
that?
    Mr. Gramm. If you offer that amendment, I would have to 
read it. I probably wouldn't.
    Mr. Sarbanes. All right.
    Mr. Gramm. But the point I am making is, we are talking 
about two things. One thing that you have to have is a CPA do 
the audit, and, two, the president of the union and the 
president of the company has to sign the report. They are 
liable if they knowingly are misleading people. Those are the 
only two things the McConnell amendment does.
    I just can't see what is wrong with it and why it doesn't 
make sense. Not that there is anything wrong with that part of 
the Leahy amendment; I support that part of the Leahy 
amendment. I just don't understand why this does violence to 
organized labor. It seems to me it makes perfectly good sense.
    Mr. Sarbanes. I simply say that a statutory structure has 
been worked out for labor which is quite extensive and exceeds 
in many respects anything that applies to corporations. You 
can't make a judgment about whether you should do anything 
additional to the unions until you examine carefully what is 
already required from them under the existing statutory scheme. 
That is not happening here.
    Mr. Dodd. Will my colleague yield for a question?
    Mr. Sarbanes. I yield.
    Mr. Dodd. It occurs to me as well, in this bill, we are not 
requiring for all businesses these requirements. These are for 
businesses that have to file with the SEC.
    Mr. Sarbanes. That is right, which is a limited universe.
    Mr. Dodd. It is a limited universe. My point is, we are not 
talking about every entity that conducts business for profit. 
We excluded the overwhelming majority of businesses that are 
private entities, that have no filing requirements with the 
SEC. Our colleague from Wyoming felt very strongly about this 
point, that we only deal with public companies, the 16,000 
public companies.
    Let me ask my colleague this question: Is a labor union a 
for-profit business or are they a different kind of an entity? 
I have always understood a labor union was not a business and 
therefore to require of the labor union that which we require 
of a for-profit company that is required to file with the SEC 
seems to be mixing apples and oranges. There is no parallelism 
here at all.
    Mr. Sarbanes. The Senator is absolutely correct. The unions 
ought to have reporting requirements and they ought to file.
    Mr. Dodd. Correct.
    Mr. Sarbanes. Those have been put into law. There are 
extensive authorities in the Secretary of Labor and the 
Department with respect to the unions--quite extensive 
authorities, I might add.
    We have established one statutory framework to control the 
reporting requirements and disclosure on the part of unions, 
which is a completely separate universe from what we are trying 
to address in this legislation.
    The Senator is absolutely right. It is in a sense apples 
and oranges. You are dealing with two different universes, and 
you have established two different statutory frameworks within 
which to address that.
    Mr. Dodd. If the Senator from Texas were interested in 
creating a sense of uniformity, I could see him offering an 
amendment--I wouldn't agree with it--which would require that 
all businesses that are conducting their operations for profit 
be subjected to an accounting standard that was equal. Again, 
my friend from Wyoming would strenuously object to such an 
amendment. I would as well because of the reasons that smaller 
companies just could not possibly afford the costs associated 
with that. But to suggest somehow that a nonprofit organization 
ought to be subjected to the same rules as a for-profit public 
company where shareholders and so forth are involved is 
stretching logic.
    I appreciate my colleague yielding.
    Mr. Sarbanes. It is obvious that one of the distinctions we 
sought to make in the underlying bill that is before us is that 
when a company becomes public, you then have an investor 
interest that has to be protected. Otherwise, manipulation 
destroys investor confidence and affects the confidence in our 
capital markets. That is the issue we are confronting now and 
the impact it is having on the economy.
    That was the universe we tried to deal with in this 
legislation. We were very careful that the legislation does not 
apply to most businesses in America and doesn't apply to most 
accountants in America, since most of them don't audit public 
companies.
    Mr. Gramm. Will the Senator yield?
    The Presiding Officer (Mr. Dayton). The Senator from Texas.
    Mr. Gramm. I remind my colleagues that in some 40 States in 
the Union, you can't work unless you are a member of a union. 
If unions are not public organizations, when you have mandatory 
requirements, I can't work in Maryland in an area that is 
unionized without either joining the union or paying union 
dues. To suggest that unions are somehow private when you have 
mandatory membership I think won't hold water.
    Mr. Sarbanes. If the Senator would yield, you don't have 
mandatory membership. You may have a requirement that you pay a 
union fee, but the union then has an obligation, if you are in 
a union shop, to represent you in the collective bargaining 
efforts 
and with grievances, and so forth and so on. So the union has 
to, in effect, provide you a service for the fact that you get 
charged that fee.
    Mr. Gramm. I am not saying you are not getting anything for 
it. I am just saying that it is mandatory, and I don't see how 
you cannot say that unions are public institutions.
    Secondly, why do we require CPAs to do audits of companies? 
We can't audit every company in America. We don't have enough 
resources. So you try to get a system where the auditor has 
some degree of responsibility for helping to enforce the 
standards. I don't see why you wouldn't have CPAs required to 
do the audits of unions.
    I was handed this by Senator McConnell's staff. I am sorry 
he had an appointment tonight, but the OLMS, which does the 
compliance audits, did a high of 1,583 audits in 1984. Last 
year, that was only 238. So I don't know why you wouldn't want 
a union that has mandatory membership to have its reports done 
by CPAs who we are holding to a high standard in this bill. 
That is all I am saying.
    Mr. Sarbanes. What is the explanation by the Department of 
Labor for this rather stunning drop in the number of audits? 
Was it from 1,500 to 200 in 1 year's time or 2 years' time?
    Mr. Gramm. It is from 1984 to 2001.
    I would say on that issue, if the Senator will yield, that 
the President's 2003 budget asked for an additional $3.4 
million for 40 full-time positions. It will be very interesting 
to see if we provide the money for them to have it.
    Mr. Sarbanes. That is the way to go at this problem; 
otherwise, it seems to me that the Department of Labor needs to 
do the job that it has been charged to do. I think that is what 
those figures amply demonstrate.
    I am gratified that the Administration's budget is seeking 
more money in order to meet these responsibilities, but that is 
where it ought to be done.
    Mr. Gramm. My final point--and I appreciate the generosity 
of the chairman--it seems to me the most fundamental 
requirement is if you are going to make a public report and you 
have mandatory membership so you are a public institution, you 
ought to have a certified public accountant do that report and 
sign that they have done it.
    We have decided--I think it is one of the best things in 
our bill; whatever bill is adopted will have it--to require the 
heads of companies to sign these reports. I don't know why you 
wouldn't want the head of the union to sign these reports.
    Mr. Sarbanes. Would the Senator support a provision that 
required all companies with annual receipts of $200,000 or more 
to meet all of these auditing requirements?
    Mr. Gramm. I would if the companies were companies that 
people had to do business with. If we had anything equivalent 
in the marketplace to a provision that said you have to buy 
things from this company or you can't buy them, which in 
essence we do in States that don't have right-to-work laws; we 
say that you have to pay the union dues in order to work--you 
don't have to join, but you have to pay the dues--I think when 
you have that mandatory element, having to report publicly is 
logical.
    Mr. Sarbanes. They do have to report publicly. They are now 
required to report publicly under the legislation that governs 
reporting and disclosure. The Senator is speaking as though 
there are no such requirements.
    The fact of it is that there is an elaborately developed 
framework. Now, the Department of Labor may not be carrying it 
out fully, as the statute would require. They may be falling 
short in that regard, but if that is the case, the way to 
remedy the situation is to provide the resources to the 
Department of Labor and call upon them to do their job.
    Mr. Gramm. Mr. President, this is Mr. McConnell's 
amendment, and I will let him debate it. But the whole purpose 
of having CPAs, the whole purpose of having licensing and the 
taking of oaths is we cannot audit every company by the 
Government. I am pleased to say that nobody has proposed to 
have the Government take over the auditing function. We have 
proposed to strengthen the CPA process and impose higher 
standards because that is really our fundamental line of 
defense.
    I just don't understand. It seems to me this would be a 
logical amendment to take. It only says two things: When unions 
file a report, it has to be done by a CPA. You have a mandatory 
membership of unions in some 40 States, and they are public 
institutions. Secondly, the president of the union, as the 
president of the company, ought to have to verify the veracity 
of the statement and be liable if he knowingly is certifying it 
when he knows it is not valid. I mean you are not holding him 
accountable if somebody has not told him the truth.
    Senator McConnell is going to present case and verse of all 
of the problems. I don't know the problems, but it seems to me 
that when we are trying to improve reporting and improve 
transparency and improve accountability, the simple proposal 
that when unions file their annual report, as corporations do, 
a CPA should prepare the report--I just cannot imagine not 
requiring that.
    Secondly, the president of the union ought to have to sign 
the report and be accountable if he knowingly is saying 
something that is not true.
    Finally, the argument that there are other requirements--
well, there are more requirements on corporate America. We just 
concluded there were not enough. So Senator McConnell is simply 
saying while you are improving one, improve both. If I were a 
member of a union, I would like having certified by a CPA a 
report showing how my money was spent. I think it would give me 
more confidence. I would think if the rank-and-file union 
members in my State would vote on this, there would be an 
overwhelming vote for it. I don't even know why we are debating 
this. This is sort of a no-brainer, in my opinion. But my 
opinion may not be the majority opinion.
    I yield the floor.
    The Presiding Officer. The Senator from Illinois is 
recognized.
    Mr. Durbin. Mr. President, I agree with the Senator from 
Texas, this is a no-brainer amendment because I cannot quite 
understand why we would be establishing a standard here for 
labor unions. It reminds me of when I was raising my kids and 
my wife and I had to give one of our children medicine that 
they didn't want. My daughter would say: I would feel a lot 
better if my brother had to take it, too. That is what we are 
having here--businesses faced with corporate corruption. 
Frankly, we have people on the Senate floor saying, as painful 
as it is for us to make more disclosures, we would feel better 
if you could also hurt the labor unions while you are at it. Is 
that what this is about--to try to find a parity of pain 
between business and labor? I didn't think so.
    The point made by the Senator from Maryland is that labor 
unions already face extraordinary reporting requirements in a 
law that has been in place for 43 years--requirements not made 
of many businesses. In the McConnell-Gramm amendment, it 
suggests that if your labor union has receipts of $200,000 a 
year, they are going to add a new burden to the labor unions--
even beyond this 43-year-old law.
    I listened closely as the Senator from Maryland explained 
the bill before us. He has worked closely with the Senator from 
Wyoming to make sure it just applies to public corporations, 
where there is public investment in stockholders and where 
there is an item of public trust involved. That is 
understandable.
    So if I would stand before the Members here and say, if you 

really believe in transparency and disclosure, you ought to 
apply these requirements to every business in America, many 
people would say that is an onerous and unnecessary burden; it 
goes beyond the issue of public trust; now you are going after 
every business, large and small. That is what the McConnell-
Gramm amendment does when it comes to labor unions. They say if 
a labor union has receipts of $200,000, they have a brandnew 
set of requirements. The Senator from Texas says these unions 
are public institutions, they should not be treated as if they 
are private. Well, they are not. They are subject to the 1959 
Labor-Management Reporting and Disclosure Act.
    The thing that also concerns me is that many requirements 
of the labor unions under current law are far stricter than 
what is required under the SEC for public corporations. I 
cannot understand why we would want to increase the burden on 
labor unions when the issue appears to be, at Enron, not a 
union problem but a business problem. The issue at Enron had to 
do with members of the board of directors being paid--according 
to the Governmental Affairs recent report--$350,000 a year to 
serve on the board and, frankly, missing it completely, or 
didn't report it when things were being done that defrauded 
stockholders, pensioners, and ultimately cost employees their 
jobs.
    That, I thought, was what this debate was about. Instead, 
we are talking about right-to-work and labor unions. I am 
sorry, but I don't think people across America believe the 
problems of Enron and WorldCom and Global Crossing had anything 
to do with labor unions. They didn't. They had to do with 
corporate greed and corruption.
    I commend Senators Sarbanes and Enzi for bringing to the 
floor a bill that addresses this in a straightforward manner. 
The McConnell-Gramm amendment wants to get us on another track 
to discuss other things. I find this interesting. There is no 
proposal that this new requirement be applied to any other 
organization than labor unions. I don't hear anybody coming 
before us and suggesting that the Boy Scouts of America should 
be subject to SEC filing. That is a large organization. They 
certainly have receipts beyond $200,000. I don't hear the 
suggestion that associations and organizations like the Boy 
Scouts of America, or the American Legion--I don't want to go 
too far with this--or the Federalist Society should have more 
transparency and disclosure and, therefore, should be subject 
to SEC filings. Nobody brought that up. Is that part of the 
problem in America, the lack of confidence in our economy? Not 
at all.
    The problem relates to corporations and businesses that 
have gone too far and lied to the stockholders and the American 
people. If we get off the track here and decide we are going to 
go after other battles to be fought, whether labor unions or 
other organizations, we have missed the point. I think this 
amendment misses the point.
    Let me also say that the McConnell amendment holds labor 
unions to standards to which not even businesses are being 
held. In 1995, I happened to be a Member of the House when the 
so-called Newt Gingrich ``Contract on America'' came through. 
One of the things we did there, I am afraid, turned out to be a 
precursor to what we are going through today in what was known 
then as securities litigation reform. We basically said we 
think some of these plaintiff lawyers, class action lawyers, 
have gone too far and therefore we are going to protect many 
corporations from liability when it comes to securities 
transactions. I was 1 of 99 in the House of Representatives who 
voted against that bill and wanted to sustain President 
Clinton's veto. We did not prevail. We lost in the House and in 
the Senate.
    It really, sadly, set the stage for where we are today. 
Another watchdog was gone. Corporations such as Enron and 
WorldCom didn't have to worry about somebody bringing an action 
against them for securities misdeeds.
    One of the things that was included in the 1995 law was to 
take away liability for aiding and abetting, in terms of rights 
of action, causes of action involving corporate fraud. We 
exempted a whole category of people who, up until that time, 
had been liable for aiding and abetting fraud. We said in the 
name of securities litigation reform, we would exempt this 
category of individuals.
    Senator McConnell comes up with this amendment and says: We 
want to reinstate that aiding and abetting liability, not for 
businesses, but we want to put it on labor unions. What is 
wrong with this picture? We are not imposing it on corporations 
despite all the scandals we have read about; instead, we are 
going to impose this new obligation on labor unions.
    I am afraid, frankly, that is not a matter of public 
policy, it is a matter of retribution. I also think we should 
take a look at how many labor unions could be liable for this 
audit that is required. There are 70 national and international 
unions, but the McConnell-Gramm amendment would apply to 5,000 
different unions, large and small, across America. It goes way 
too far.
    The amendment certification requirements are also 
redundant. For more than 40 years, union officers have been 
required to sign annual financial reports, under penalty of 
perjury, attesting that the report's information accurately 
describes the union's financial condition and operations. That 
is a pretty reasonable standard for labor unions under current 
law.
    We are trying to impose similar standards on corporations 
so when they file their accounting audit statements, someone 
puts their name on it and accepts responsibility for the truth 
and accuracy of the statement.
    Frankly, I think Senator McConnell and Senator Gramm have 
this totally upside down. The problems we face--the corporate 
corruption, the lack of confidence in the economy, which even 
the President spoke about today--have nothing to do with labor 
unions. They really have to do with corporations that have an 
obligation to the public.
    I believe the vast majority of businesses and corporations 
in America are run by honest people, working hard to make a 
profit to provide goods, services, and jobs to make America a 
better place. I do believe that. But there are some who have 
violated the public trust. The underlying bill addresses that. 
To bring in an argument now about imposing new obligations on 
labor unions not only misses the point completely as to why we 
are here this evening but misses the point about why we are 
facing this crisis in America.
    I stand in opposition to the McConnell-Gramm amendment, and 
I hope all of my colleagues will join me in remembering why 
this debate got started.
    Mr. President, I yield the floor.
    The Presiding Officer. The Senator from New Jersey.
    Mr. Corzine. Mr. President, I, too, wish to verbalize my 
opposition to this amendment that tries to draw in a completely 
extraneous item which has not been debated in the context of 
this bill in the 10 Committee hearings we had with regard to 
putting together the Corporate Corruption and Investor 
Protection Act.
    It has not been involved in any of the President's 
discussions about corporate abuse or fraud that we have heard 
discussed. It is not in any way related to the group of 
organizations with which we are attempting to deal, which are 
large, publicly traded corporations, and really ignores the 
fact that there is already a body of law that deals with union 
organizations and union officers with regard to their 
responsibility to their memberships and for their reporting 
requirements.
    For a whole host of reasons, I do not understand how this 
even relates to the issue that is the fundamental part of the 
underlying bill, and there certainly is not any evidence in the 
marketplace of ideas and activities across America that would 
justify pulling labor unions by their actions into the fish net 
about which we are talking. This is about corporate corruption. 
It is about investor protection. It is about making sure 
corporate fraud is properly dealt with in the legal system, one 
that puts everyone on notice that they have serious 
responsibilities to certify that what is reported is real, and 
if it is not real, then people are held accountable.
    We are off on the wrong track, and if we end up having too 
many of these diversionary tactics away from the underlying 
principles of what we are trying to accomplish, which is to 
have measured, reasonable, and thoughtful progress with regard 
to corporate responsibility, corporate accountability, 
accounting reform, and investor protection, public protection, 
then I think we are going to miss the opportunity to secure our 
economy, to secure the steps that are necessary for most people 
to restart this engine of investment that drives our economy. 
This is completely off point.
    I hope my colleagues in the Senate will recognize it for 
what it is and move on, turn this down, and get on with the 
underlying amendment that Senator Leahy has so appropriately 
brought to bear in this case.
    I yield the floor.
    Mr. Sarbanes. Mr. President, 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.
    
    
        VOLUME 148, WEDNESDAY, JULY 10, 2002, NUMBER 92,
                      PAGES [S6524-S6560]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The Presiding Officer. Under the previous order, the Senate 
will resume consideration of S. 2673, which the clerk will 
report by title.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    Pending:

    Daschle (for Leahy) amendment No. 4174, to provide for 
criminal prosecution of persons who alter or destroy evidence 
in certain Federal investigations or defraud investors of 
publicly traded securities.
    Gramm (for McConnell) amendment No. 4175 (to amendment No. 
4174), to provide for certification of financial reports by 
labor organizations to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for labor organizations.
    Miller amendment 4176, to amend the Internal Revenue Code 
of 1986 to require the signing of corporate tax returns by the 
chief executive officer of the corporation.

    The Presiding Officer. The Senator from Minnesota.
    Mr. Wellstone. Mr. President, I ask unanimous consent to be 
added as a cosponsor of the Leahy amendment.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Wellstone. Mr. President, I wanted to come out here on 
the floor and thank Senator Sarbanes for his leadership in 
putting together a piece of legislation that deals with 
structural reform of corporate governance and auditing 
independence.
    I also think what the Chairman didn't do is very important. 
Senator Sarbanes didn't just call for a roundup of the usual 
suspects but for the prosecution of the worst offenders who 
deliberately have enriched themselves at the expense of the 
employees, investors, and creditors, and then try to claim that 
it is the end of the matter. This bill does hold bad actors 
accountable for their fraud and deception. And it is probably 
going to be stronger by the time it leaves the Senate Chamber.
    The legislation goes much further, and it should because 
the problem goes much deeper. We are faced with much more than 
just the wrongdoing of individual executives. We are faced with 
a crisis in confidence in America's capital markets and in 
American business.
    These corporate insider scandals are threatening the 
economic security of families all across Minnesota, North 
Dakota, New Jersey, Maryland, and all across the country. It is 
heartbreaking. You have people who have taken their savings and 
put them into stock. This is what was going to be their 
resources to help send their 
kids to college or to meet other family needs. The value of 
that has eroded.
    Other people have 401(k) plans and are counting on that for 
retirement security. The value of that has eroded.
    But I think the other big issue is really important, which 
is above and beyond hundreds of billions of dollars wiped out. 
That is what has happened already. You do not have investor 
confidence. Without investor confidence, we will not have the 
economic recovery that we need. Jobs aren't being created. 
Frankly, this affects all of us.
    It is this last problem on which I want to focus. I see my 
colleague from New Jersey who knows much more about finance 
than I do.
    There is a business cycle. Some years are good and some 
years are bad. Sometimes companies do well and sometimes 
companies don't do well. Sometimes people invest more and 
sometimes they invest less. That is the risk they take.
    If the only problem was that executives at Enron were 
corrupt and their business failed--all of which is true--or 
WorldCom officers were fudging the books and the company really 
wasn't all that profitable--which is true--and that a lot of 
businesses, such as Global Crossing--what they were doing, to 
be blunt, was just fake--which is true--even with all of that, 
I don't think we would be out here on the floor with this 
legislation.
    In other words, if the story was only that a bunch of 
companies did badly, lost money, went bankrupt, and a whole lot 
of other people were hurt, frankly, I still don't think we 
would feel this sense of urgency. But that is not the end of 
the story.
    The reason we need this legislation goes way beyond Enron 
and WorldCom. It is not just because of Global Crossing. It is 
not just because of MicroStrategy. We need this legislation, 
and it ought not be cluttered with extraneous amendments, or 
with delay, because the American investing public has lost its 
confidence in this corporate system.
    I want to emphasize this point because I think some 
colleagues--some, not all of my colleagues--on the other side 
of the aisle don't seem to get it. I hate to say it, but I 
don't think the President or the Administration gets what this 
is really about.
    Again, the President yesterday basically focused on a 
handful of corporate executives who deliberately misled 
investors. He talked about a few bad apples. It goes much 
deeper than that.
    Listen to the words of some other Members of the 
Administration, such as Donald Evans, Secretary of Commerce, 
who 2 days ago said:

    The system has not failed us, but a few have failed the 
system.

    The President said the same thing yesterday.
    Treasury Secretary O'Neil said last year that Enron's 
collapse was ``capitalism working.'' Now, if these individuals 
didn't have substantial responsibility for the economy, then 
their comments would be comical. I guess if we asked these guys 
about Watergate, they would say it was just a burglary. But we 
are dealing with more structural and deeper issues.
    The crisis is a crisis in faith. Investors who thought that 
if a corporation was doing badly and making poor decisions it 
would show up on their financial reports now have found out 
that is not the case. By the way, we should not be shocked by 
this. In fact, this should be old news to us.
    Almost 2 years ago, the then-Chairman of the SEC, Arthur 
Levitt, approached many of us--I remember the discussion with 
him in my office--and he said: ``Paul, we are on the brink of a 
crisis in accounting.''
    What Levitt was saying is, I want to put into effect a rule 
which is basically going to say that the Andersens of this 
world cannot be pulling in all these luxurious contracts and 
money for their internal auditing and all the rest, because 
once they get all the money, they are going to be reluctant to 
bite the hand that feeds them. Secondly, they will be put in a 
position of auditing their own auditing. That is a conflict of 
interest, and the consequences of it could be tragic for a lot 
of innocent people.
    Arthur Levitt was right. Of the decisions I have made in 
the Senate, one of the best decisions I ever made was 2 years 
ago in writing a strong letter of support for the then-Chair of 
the SEC for what he was trying to do. The auditors haven't done 
a good job because they have been too close to the firms that 
they were supposed to be auditing. That is what Arthur Levitt 
was talking about. He fought for greater auditor independence. 
His solution looked a lot like what is in this bill.
    I am glad I supported his reform. That was a pretty lonely 
position back then for Chairman Levitt. I am glad the Sarbanes 
bill is going to get a lot more support. I believe it is going 
to pass overwhelmingly.
    The Sarbanes bill does a number of different things. No. 1, 
at the core of this crisis is the need to have auditor 
independence. That is part of what the Sarbanes bill is all 
about. One hundred years ago, we had politicians and business 
leaders who were willing to take on entrenched corporate 
interests that were stifling competition--sound familiar--that 
were bilking customers and bilking consumers and that basically 
were enslaving their workers. We are dealing with similar kinds 
of issues now.
    We are now in a new century. This is going to be a real 
interesting case study--I was a political science teacher--as 
to whether or not the Senate and the Congress and this 
Administration will, in fact, be there for strong reform.
    The other part of this legislation which is also important 
is to hold the corporate insiders accountable for their abusive 
actions. That is why I am so supportive of the Leahy amendment.
    If you ask people in any coffee shop in Minnesota, should 
there be criminal penalties for altering the documents, such as 
a 10-year felony, they will say, absolutely. If you ask people 
in Minnesota, should there be whistleblower protection for 
employees of public companies who actually blow the whistle on 
these kinds of abuses of power and corruption, people in 
Minnesota say, absolutely. If you ask, should there be criminal 
penalties for securities fraud, create a new 10-year felony for 
defrauding shareholders of a publicly traded company, people in 
Minnesota will answer, absolutely.
    The President spoke yesterday, and the problem is, he did 
not call for enough resources. He has a lot of tough rhetoric, 
but then when you look at what is behind the rhetoric you don't 
see the resources the SEC needs for the oversight. You don't 
see an oversight board that is set up, as the Sarbanes bill 
does, with authority and independence. Most importantly, from 
the President we don't get any proposals that insist on auditor 
independence.
    If we have learned one thing, it is that Chairman Levitt 
was right. Two years ago, Arthur Levitt tried to warn all of 
us. All of these big companies, accounting companies and all 
these other people who are tied into this finance, some of the 
biggest investors, frankly, in politics in the country--I know 
of no other way to say it--all lobbied hard. Arthur Levitt was 
clobbered by a whole bunch of people, but he was right. Now we 
have a chance to do the right thing.
    If you were to go back over the last decade, we have passed 
too much legislation that has taken away some of the individual 
investor rights, that has made it harder for us to have 
Government oversight, that refused to look at these blatant 
conflict of interest situations. As a result of that, we have 
these corporate insider scandals.
    I will say one more time, it is heartbreaking, hundreds of 
billions of dollars have been lost. It is heartbreaking to see 
what this has done to people's savings who invested in stock. 
It is heartbreaking to see what it has done to 401(k) plans, 
heartbreaking to see the ways in which families are terrified 
in Minnesota and around the country. Most fundamental of all 
is, we don't have investor confidence any longer.
    I say to my colleague from Maryland, the best thing he did, 
above and beyond this bill, is he didn't just say, let's go 
after a few bad apples. He didn't just say that. That would be 
the end of it. He has dealt with the underlying structural 
issues so we can prevent this from happening again.
    I am extremely proud to support this bill. I can think of 
some zinger amendments. When I think of these guys who got the 
golden parachutes, I am amazed. Look at WorldCom.
    Mr. Sarbanes. Will the Senator yield for a moment?
    Mr. Wellstone. I will just finish one quick point.
    With WorldCom, you are looking at a situation where at the 
very time--the same old story--they are getting employees to do 
away with defined benefit packages and then they put their 
employees in 401(k)s, cheerleading the 401(k)s, while they are 
doing that, they are dumping their stock. They got out with 
golden parachutes, all this money. It is outrageous what has 
happened at the individual abuse level.
    It is much deeper than the wrongdoing of these individual 
corporate chieftains and governance. It gets to the structural 
issues. That is what is so important about this bill.
    Mr. Sarbanes. If the Senator will yield, I thank him for 
that observation because he is absolutely on point. The bad 
apples ought to be punished. There is no question about it. 
They ought to be punished severely. But it is very clear, as 
this issue has unfolded, that we need to make structural 
changes. We need to change the system so that the so-called 
gatekeepers are doing the job they are supposed to be doing. 
That has not been happening. That is why we need to remove 
these conflicts of interest on the part of auditors who are 
also consultants for the same company, collecting huge fees. 
And they are supposed to come in as outside auditors and be 
very tough on the company, which at the same time is giving 
them large fees for consultancy.
    The Senator is absolutely on point. We have to put in place 
a framework, a system which tightens up and begins to screen 
out these things.
    Furthermore, if you go after the bad apples, fine; but the 
damage has already been done, as the Senator just observed, for 
instance, WorldCom and the collapse of the whole pension 
program and pension provisions.
    Punishing a bad apple may have something of a deterrent 
effect, but there is nothing like putting a system into place 
that gives a heightened assurance that you are going to be 
accountable. That is what investors are looking for.
    Mr. Wellstone. One more minute. What I said earlier, the 
problem with rounding up the usual suspects is quite often you 
then say that is the end of the matter. That is why the 
President's proposals yesterday come in for strong constructive 
criticism.
    The story in the Post today in the business section is 
another outrageous example of what happened. WorldCom swallows 
MCI and tells the MCI employees they don't have a defined 
benefit any longer and puts them on the 401(k), cheerleads them 
on to put the investment into the company, cooks the books, and 
doesn't give them any accurate information on what happened to 
them. Now what happens to all these MCI employees? They don't 
have any of the savings any longer.
    So do you know what. We have to hold these people 
accountable, absolutely, but at the same time don't let 
anybody--people in Minnesota--get away with saying it is a few 
bad apples and that is all we are going to deal with. No. We 
are going to deal with the conflict of interest and we are 
going to have structural reforms. We are going to have 
oversight. We are going to protect consumers, the little 
people, and give the business community more confidence so they 
do the investing in the economy. That is what is at stake with 
this legislation.
    I yield the floor.
    Mr. Sarbanes. Mr. President, I ask unanimous consent that 
following Senator McCain, who will speak later, Senator Corzine 
be recognized to speak for up to 15 minutes.
    The Presiding Officer. Is there objection?
    Without objection, it is so ordered.


                           amendment no. 4175


    The Presiding Officer (Mr. Reed). Under the previous order, 
the Senator from Kentucky is recognized for up to 30 minutes.
    Mr. McConnell. Mr. President, I wish to take the 
opportunity now to describe in detail the amendment currently 
pending before us, that which I was unable to do yesterday.
    There are two fundamental points to the amendment. What it 
seeks to do is require independent audits of union funds which, 
of course, are raised from union members in the vast majority 
of our States. You don't have a choice; you must belong to a 
union, and those dues are taken. So we have mandatory auditing 
of those funds to ensure they are being accurately accounted 
for, civil penalties for violating those auditing requirements, 
and, third--this is all the amendment is about, these three 
points--the president and the secretary of the union must 
certify as to the accuracy of the audit.
    We are talking about guaranteeing the integrity of the 
funds raised from union members. The reason we require 
corporations to file financial statements is so corporate 
shareholders know how their money is being spent. As a second 
layer of protection for shareholders, we also require those 
financial statements to be independently audited. Why? So 
investors know that information filed is actually correct, so 
they know it is not just the creative writing of a crooked 
bookkeeper or a corrupt executive.
    We take this independent audit requirement, or this second 
layer, very seriously--so seriously, in fact, that we are 
creating a third layer in the Sarbanes bill, an entirely new 
audit oversight board to better police these required audits 
for the benefit of corporate shareholders.
    This third layer is a good idea, especially given today's 
stories of corporate fraud, deception, and outright theft that 
we all cite as the real motivation behind the underlying bill. 
My colleagues have cited the well-publicized financial failures 
and the endless corporate scandals and the need to hold 
corporate crooks accountable. I could not agree more. But we 
also have union corruption, union greed, union scandals.
    My amendment will give American workers the assurances that 
their labor unions' books have been independently audited--the 
same second layer of protection we have given to corporate 
shareholders since 1933.
    Unions already have to file financial statements. They do 
so with the Department of Labor on a form called the LM-2. Why? 
For the same reason corporations do: So American workers, the 
card-carrying, dues-paying union workers can see where their 
money goes. But we don't currently require independent audits 
of union financial statements. Unlike the corporate 
shareholder, the rank-and-file American worker has no earthly 
idea if the financial information they rely on is correct--no 
idea at all. So why shouldn't the American steelworker or 
longshoreman be entitled to the same assurances as the 
corporate shareholder who has recklessly overinvested in a 
bundle of Internet stocks? Isn't the workers' money just as 
hard earned and deserving of protection--maybe even more so?
    I cannot imagine that anyone in this body would argue that 
American workers do not suffer from the same type of greed and 
corruption that plagues our corporate and accounting culture, 
nor can I imagine that as a result of these scandals anybody in 
this body believes that American workers do not deserve the 
very same assurances that their unions' financial statements 
are correct.
    But just in case, let me read for my colleagues a few 
recent accounts of union corruption. I am going to read quite a 
few, and I will do so for a specific reason--so nobody can 
stand up and say that greed and corruption only affects 
corporate shareholders, so no one can say the only stories here 
are Enron and WorldCom, and so no one can stand up and say we 
are wasting time by trying to protect the American workers from 
being cheated out of their money.
    We have all heard of Arthur Andersen, but has anybody heard 
of Thomas Havey? That is the accounting firm where a partner 
confessed last month to helping a bookkeeper conceal her 
embezzlement of hundreds of thousands of dollars from a worker 
training fund of the International Association of Iron Workers.
    Yesterday, a colleague of mine said that the problem at 
Global Crossing had nothing to do with labor unions. Maybe he 
hasn't heard of ULLICO. That is the multibillion-dollar 
insurance company owned primarily by unions and their members' 
pension funds that invested $7.6 million in Global Crossing. 
Apparently, ULLICO directors received a sweetheart stock 
investment deal that allowed them to make millions on the sale 
of the stock. All the while, union pension funds, however, 
suffered the fate of Global Crossing.
    There is plenty more, beginning with a couple of stories I 
briefly mentioned yesterday. An accountant with the National 
Association of Letter Carriers embezzled more than $3.2 million 
from union funds over an 8-year period to buy 8 cars, 2 boats, 
3 jet skis, a riding mower, and 105 collectible dolls.
    A former official of the Laborers' Union District Council 
in Oregon, Idaho, and Wyoming is in jail for accepting hundreds 
of thousands of dollars in kickbacks for directing money into a 
Ponzi-like investment scheme that defrauded Oregon labor unions 
of $355 million.
    A former business manager and financial secretary of the 
International Association of Heat and Frost Insulators and 
Asbestos Workers Local 87 was indicted by the U.S. attorney for 
the Western District of Texas for embezzling tens of thousands 
of dollars in union funds.
    Mr. President, a comptroller of the American Federation of 
State, County and Municipal Employees, Council 71 of New 
Jersey, was sentenced to 13 months in prison and fined for 
embezzling tens of thousands of dollars from the union.
    A trustee of Glass, Molders, Pottery, Plastics & Allied 
Workers International Union Local 63B, headquartered in 
Minneapolis, was charged with forgery and embezzlement in 
connection with the theft of thousands of dollars from the 
union.
    Fourteen officers and members of Local 91 of the Laborers 
International Union in Niagara Falls were arrested on charges 
of labor racketeering, extortion, assault, vandalism, and 
bombing a dissenting union member's home and stabbing a worker.
    A former business manager of IBEW Local 16 in Evansville, 
IN, was indicted for diverting union dues checks to his 
personal bank account.
    A Federal grand jury recently indicted an ex-business 
manager of the United Association of Plumbers and Pipefitters 
Local 15 in Minneapolis in connection with the theft of tens of 
thousands of dollars from the union.
    A former officer of United Food and Commercial Workers 
Local 1288, in Fresno, CA, was sentenced to 18 months in prison 
for embezzling almost $300,000 from the union's credit union.
    An ex-business manager and financial secretary of the 
United Union of Roofers, Waterproofers and Allied Workers Local 
86, in Columbus, OH, was sentenced to 21 months in prison for 
embezzling $130,000 from the union to pay his gambling debts.
    An ex-president of the American Postal Workers Union Local 
1616, in Roanoke Rapids, NC, was indicted for embezzling 
thousands in union funds and making false entries in union 
records.
    Laborers International Union of North America Local 2, in 
Chicago, which recently came out of Federal trusteeship imposed 
because of its close ties to organized crime, failed an 
oversight audit and is again having significant accounting and 
bookkeeping problems.
    An ex-secretary-treasurer of the American Postal Workers 
Union Local 761 in Las Vegas and ex-treasurer of the Postal 
Workers Nevada State Association pled guilty to embezzling 
$200,000 in union funds.
    Two former officers of Steelworkers Local 9339 in Virginia 
and a former administrator of the local union's disaster relief 
fund were indicted for conspiracy to embezzle union funds and 
make false recordkeeping entries.
    A grand jury is investigating claims that a local United 
Auto Workers Union ended an 87-day strike against General 
Motors only after union officials received phony overtime 
payments and jobs for their relatives. Union members have also 
filed civil suits to recover over half a billion dollars--half 
a billion dollars--from alleged self-dealers.
    My good friend, the senior Senator from Texas, always says 
you cannot argue about facts. Facts are a powerful thing. These 
are the cold hard facts of union corruption. Just like Enron, 
just like WorldCom, just like Global Crossing, these are the 
cold hard facts, and there are plenty more of these facts.
    I have a stack of papers filled with what is called a union 
corruption update. If you look at this stack, this is just for 
the year 2002. This stack is just for the year 2002--this whole 
stack--and 2002 is only half over. It is compiled by the 
National Legal Policy Center. The Department of Labor's Office 
of Labor Management Standards reports 12 new indictments and 11 
convictions of union fraud per month over the last 4 years.
    Let's go over that one more time. DOL's Office of Labor 
Management Standards reports 12 new indictments and 11 
convictions of union fraud per month over the last 4 years. 
This is a serious problem, and the Senate should not let 
whatever allegiance some Members may have to the leaders of 
organized labor affect their concern about the workers 
themselves, and that is what this amendment is about: Providing 
the same protection for union members that we insist on 
providing for investors in corporations.
    We have a choice before us. Who should bear the cost of 
union corruption against the rank-and-file, dues-paying 
American workers? The unions, the perpetrators of much of this 
fraud, by bearing an incremental cost of an audit that will 
help prevent future workers from being cheated out of their 
money? Or the workers, whose money will continue to be 
embezzled, concealed? And if we do not provide them with 
minimal assurances of an independent audit, it will go on and 
on.
    To me, this choice is identical--absolutely identical--to 
the choice in the Sarbanes bill. Who should bear the cost of 
the corporate and accounting corruption against shareholders, 
the corporations and accountants, obviously, through improved 
oversight, enforcement, and corporate responsibility or the 
investing public whose stock holdings will continue to be 
embezzled, concealed, if we do not provide them a new 
accounting oversight board?
    Choosing the unions over the workers in this case is no 
different than siding with the accountants and corporate 
executives who quietly oppose the Sarbanes bill.
    Mr. President, about the complaints I have heard of the 
burdens and costs associated with this bill. It would not 
surprise me if the leaders of organized labor have been on the 
phone calling particularly our Democratic colleagues over the 
last 24 hours concerned about the burdens and costs associated 
with this bill.
    First of all, I find it absolutely astounding, given the 
pervasiveness of union corruption, that some of our colleagues 
are worried about the incremental cost of stopping that 
corruption, the cost of giving union workers the same quality 
assurance answers that we are prepared to give corporate 
shareholders in the underlying bill.
    I do not hear any complaints about the cost of a new 
accounting oversight board or the cost of corporate 
responsibility or enhanced disclosure requirements in the 
Sarbanes bill. Why not? Because the accountants and executives 
are the ones responsible for the fraud and deception of 
investors. But for some reason, when it comes to unions, some 
of our colleagues speak less about the cost to the workers 
being ripped off and more about the burdens this amendment will 
place on unions whose officials are responsible for the greed 
and corruption documented in the binder I just held up a few 
minutes ago which represented only half of the year 2002.
    We hear that unions are saddled with too many requirements 
on their financial statements. I am not concerned with the 
quantity of disclosure requirements. I am only concerned about 
the quality of that disclosure, specifically whether the 
information is accurate and certified as such for the benefit 
of the dues-paying American union workers.
    We hear that we do not need audits. Some have said we do 
not need audits because the Department of Labor can conduct 
enforcement audits, if necessary. Well, let's play with that 
logic a little. If that is the case, we do not need public 
corporations to be audited either. Let's get the SEC to conduct 
enforcement audits. Could you imagine the uproar if someone 
suggested that? And no one has.
    Think about the message this would send to American workers 
that it is not worth requiring your union to assure you that 
your money is going where they say it is; just take a number 
and hope the Department conducts an audit of your union.
    At any rate, the Department, as most Federal agencies, 
needs more money to conduct the few enforcement audits that 
they conduct. The Deputy Secretary of the Department of Labor 
testified recently that the number of departmental audits has 
fallen from 1,583 in 1984 to a mere 238 last year, and the 
President has requested an additional $3.4 million and 40 new 
staff positions to combat union fraud.
    We hear that audits will be too expensive. Here is an easy 
tip for union officials to save money: Stop stealing it. That 
is a good way to save money. My amendment only requires audits 
to any union that already bears the cost of filing financial 
disclosure statements. In other words, this would apply only to 
unions that already have to file financial disclosure 
statements. That is unions with
receipts topping $200,000 annually. It goes to my original 
point. If you have to file an annual report, it ought to be 
verified as accurate.
    We hear that smaller unions will be hit hardest by having 
to conduct an audit. Well, there is no national one-rate plan 
for audits of which I am aware. As any professional service, 
the rates are proportional to the size and scope of the client. 
Obviously, a union with $500,000 is not going to pay in audit 
fees what a $60 million corporation pays for an audit.
    Let me close this part of my remarks with a simple 
suggestion for my colleagues who have been tricked into 
worrying about the cost this amendment would impose on unions. 
Just imagine this: The cost to American workers of not 
requiring audits. Let us think about the cost to American 
workers of not requiring audits: More embezzlement, more 
crooked bookkeeping, more abuse and concealment of workers' 
hard-earned money.
    We do not need more embezzlement, more crooked bookkeeping, 
and more concealment of workers' hard-earned money. We have a 
choice. We can extend to American workers the same financial 
protection afforded corporate shareholders, or we can extend to 
unions the ability to continue to pilfer and profit off the 
workers' money. That is the choice.
    How much time do I have remaining?
    The Presiding Officer. The Senator from Kentucky has 8 
minutes 30 seconds remaining.
    Mr. McConnell. I know the Senator from Arizona has been 
waiting patiently. I would like to reserve my 8 minutes because 
I am not clear how long this debate is going to go on. We do 
not have a time agreement yet for a vote. Is that correct? I 
guess I am asking my friend from Maryland what his plans are 
for the disposition of the McConnell amendment.
    Mr. Sarbanes. If the Senator will yield, we have people 
lined up to speak once the Senator has concluded, Senator 
McCain and then Senator Corzine. After that, I anticipate then 
dealing with the McConnell amendment.
    Mr. McConnell. So is it the plan of the Senator from 
Maryland to have a vote sometime in the next hour or so?
    Mr. Sarbanes. I would anticipate a vote in relation to the 
McConnell amendment--well, we have 30 minutes.
    Mr. McConnell. Could we do this, then? I ask unanimous 
consent that I have 2 minutes prior to the vote to sum up what 
I think this amendment is about.
    Mr. Sarbanes. I certainly think that could be done. I 
intend to speak to it for a few minutes.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. McConnell. Therefore, I yield the floor.


                           amendment no. 4174


    The Presiding Officer. Under the previous order, the 
Senator from Arizona is recognized for up to 15 minutes.
    The Senator from Arizona.
    Mr. McCain. Mr. President, for the benefit of the managers, 
I do not intend to consume all 15 minutes.
    I rise in strong support of the underlying Leahy amendment, 
and I hope we can dispose of that amendment within a reasonable 
length of time and move on to other changes that need to be 
made to this very important legislation.
    Our publicly owned companies are an essential component to 
the economic health of our country. As we have seen over the 
past few months, the continued lapses of our corporate leaders, 
whether they are ethical, criminal or just plain ignorant, have 
a significant, sometimes crippling, effect on the welfare of 
our Nation. We must make some fundamental changes in the 
current system of corporate oversight to protect Americans from 
avarice, greed, ignorance and criminal behavior. Now is the 
time for Congress to restore investor confidence and take the 
necessary action to protect the interests of the public 
shareholders and place those interests above the personal 
interests of those entrusted with managing and advising those 
companies. The deterioration of the checks and balances that 
safeguard the public against corporate abuses must be reversed.
    We have to address the shortcomings in Federal law and send 
the message that prosecutors now have the tools to incarcerate 
persons who defraud investors or alter or destroy evidence in 
certain Federal investigations. This amendment is a step in the 
right direction. It creates two new criminal states that would 
clarify current criminal laws relating to the destruction or 
fabrication of evidence and the preservation of financial and 
audit records. The Enron debacle clearly indicated that there 
were gaping holes in the current framework. There will be a 10 
year criminal penalty for the destruction or creation of 
evidence with the intent to obstruct a Federal investigation. 
There will be a new 5 year criminal penalty for the willful 
failure to preserve, for a minimum of five years, audit papers 
of companies that issue securities.
    The amendment also provides for the review and enhancement 
of criminal penalties in cases involving obstruction of justice 
and serious fraud cases. All of these actions are necessary to 
deter future criminal action. Until somebody responsible goes 
to jail for a significant amount of time, I am not sure that 
these people are going to get the message. Defrauding the 
shareholder has to carry a meaningful penalty. Corporate 
decision-makers can make millions, tens of millions, even 
hundreds of millions of dollars by cheating investors. A 
relatively small fine or short prison term is not a deterrent; 
it's a slap on the wrist. The threat of real time in jail is a 
deterrent that will make people pay attention.
    This amendment also creates a new securities fraud offense. 
The provision makes it easier, in a limited class of cases, to 
prove securities fraud. Currently prosecutors are forced to 
resort to a patchwork of technical offenses and regulations 
that criminalize particular violations of securities law, or to 
treat the cases as generic mail or wire fraud that results in a 
five-year maximum penalty. This new provision would criminalize 
any scheme or artifice to defraud persons in connection with 
securities of publicly traded companies or to obtain their 
money or property. This new ten-year felony is comparable to 
existing bank and health care fraud statutes. To those who 
would say that it's hard to define a scheme or artifice to 
defraud, I would say that full and honest disclosure of 
material dealings and accounting treatments is the best way for 
the officers who run America's corporations to protect 
themselves and those who invest in their companies. There are 
plenty of felony laws on the books that provide long prison 
terms for crimes that cause less damage than the losses to 
shareholders in Enron or WorldCom.
    It is important to emphasize that when criminal charges are 
pursued, it is not necessarily the firm that should be charged 
but the individuals at the helm of the corporate ship who 
should be prosecuted. If they are the ones making the decisions 
out of self-interest, they are the ones that should be held 
accountable. I also believe that we must protect the 
``corporate whistleblower'' from being punished for having the 
moral courage to break the corporate code of silence. This 
amendment does that.
    This amendment also extends the current statute of 
limitations for matters concerning securities fraud, deceit or 
manipulation. The current statute of limitations for securities 
fraud cases is short given the complexity of many of these 
matters, and defrauded investors may be wrongly stopped short 
in their attempts to recoup their losses under current law. The 
existing statute of limitations for most securities fraud cases 
is one year after the fraud was discovered but no more than 
three years from the date of the fraud regardless of when it 
was discovered. Because this statute of limitations is so 
short, the worst offenders may avoid accountability and be 
rewarded if they can successfully cover up their misconduct for 
merely three years. The more complex the case, the easier it 
will be for these wrongdoers to get away with fraud. According 
to at least one state Attorney General, the current short 
statute of limitations has forced some states to forgo claims 
against Enron based on alleged securities fraud in 1997 and 
1998.
    This situation essentially encourages offenders to attempt 
to cover up their misdeeds however they can, including by using 
questionable accounting procedures and financial shell games. 
Furthermore, in some cases, the facts of a case simply do not 
come to light until years after the fraud. If a person does not 
and cannot know they have been defrauded, it is unfair to bar 
them from the courthouse. We need to recognize the 
sophistication and complexity of modern-day schemes designed to 
defraud investors. The Leahy amendment does this.
    Finally, this provision amends the Federal bankruptcy code 
to prevent the corporate wrongdoer, the CEO or CFO, from 
sheltering their assets under the umbrella of bankruptcy and 
protecting them from judgments and settlements arising from 
Federal and state securities law violations. Too many of these 
highly paid corporate officers are using bankruptcy laws to 
protect their assets while maintaining their high-rise 
penthouses and ski chalets. It is time to force accountability 
and punish the person, not the institution, who is not willing 
to abide by the moral and legal codes that accompany leadership 
and public trust.
    I hope we will have an early and overwhelming vote in favor 
of the Leahy amendment.
    I yield the floor.
    Mr. Sarbanes. Mr. President, so Members may have a sense of 
what the program is in the short term, I will propound a 
unanimous consent request and I hope it will be accepted and 
then we can move forward.
    I ask unanimous consent that following Senator Corzine, 
there be 15 minutes allotted to Senator Gramm, 5 minutes 
allotted to Senator McConnell, 10 minutes to myself as the 
manager of the bill--or up to these amounts of time; hopefully, 
they won't all be used--and at the conclusion thereof, there be 
a vote on or in relation to the McConnell amendment.
    The Presiding Officer. Without objection, it is so ordered.
    Under the previous order, the Senator from New Jersey is 
recognized for up to 10 minutes.
    Mr. Corzine. Mr. President, today I rise to speak on both 
the amendment proposed by Senator Leahy and also to the 
underlying bill which I feel quite strongly about.
    I am quite pleased to support Senator Leahy's amendment. It 
creates tough new securities fraud penalties and punishes 
corporate wrongdoers we have just heard the Senator from 
Arizona speak to. It is a meaningful and appropriate response 
to the kind of corruption we have seen and makes sure that 
punishment meets the nature of the act. It also protects 
corporate whistleblowers, prohibits corporate executives who 
violate securities laws from hiding behind the bankruptcy code.
    In summary, this is more than mere lip service with regard 
to enforcement and punishment of corporate fraud. It is real 
reform. It is real response as a methodology to deter criminal 
conduct. It will go a long way toward providing incentives that 
are necessary to protect investors and pensioners and others 
who operate in the marketplace, in contrast to strong rhetoric 
from some with regard to what we need to do about punishment 
but not putting reality into place to deal with the issues. I 
am proud to cosponsor the Leahy amendment, and I urge all 
colleagues to do so as well.
    Mr. President, we need to speak clearly and directly in the 
Senate about restoring and sustaining the trust in America's 
capital markets, trust in America's economic security going 
forward. For several days leading up to yesterday morning's 
Presidential speech on Wall Street, there was a buzz of 
anticipation that we would see a real embracing of change. Some 
went so far as to suggest the President's speech might lead to 
a Roosevelt moment, an embrace, a change in policy, a change in 
direction, maybe counterintuitive to the history of the man 
because it was in the Nation's best interests.
    In retrospect, it is safe to say, while the President's 
speech was good with respect to rhetoric, it was hardly 
Rooseveltian or a Ruthian moment in the home of the New York 
Yankees. Unfortunately, it was far from a home run, in my view, 
and did emphasize rhetoric as a substitute for reform. Its lack 
of specifics or detail I found unfortunate.
    It is not to say that the President's speech did not 
include some important themes, or, by the way, embrace an 
initiative that is quite important; that is, the corporate 
fraud task force in the Justice Department which will be a 
strong step in carrying out pursuit of wrongdoers.
    However, stating the commitment of his Administration 
pursuing these folks, while an important message, needs to be 
more substantive. We need specific undertakings to protect 
investors and shareholders. It was what the President did not 
say in terms of offering specifics, particularly specifics with 
regard to structural changes that will solve the problems, deal 
with the problems, provide checks and balances to the problems 
that we have seen from the Enrons, WorldComs, Global Crossings, 
et cetera. That is why the speech fell short of what many 
expected.
    The best way, in my view, the President could have 
accomplished that simple important message would have been to 
acknowledge the comprehensive structural reform that needs to 
be put in place and is expressed most clearly, most 
effectively, by the legislation we are considering on this 
floor right now, the Public Company Accounting Reform and 
Investor Protection Act.
    The Sarbanes bill, the bill we are talking about on this 
floor, comprehensively reforms our accounting profession. It is 
detailed, it is specific, and it is quite a strong element with 
regard to accounting professionals' responsibilities. It 
enhances corporate accountability, improves transparency of 
corporate financial statements, truly strengthens the ability 
of the SEC to operate as an enforcement agency, and as a 
regulatory agency to a significant degree. In combination, all 
those factors together will go a long way to restore investor 
confidence in American capital markets and, more importantly, 
restore faith in our economic system.
    I think this is the direction it should take. But before I 
discuss the merits of the legislation in specific, I take a 
moment to pay tribute to the leadership of the distinguished 
Chairman of the Banking Committee, Senator Sarbanes. In 
shepherding this bipartisan legislation to the floor of the 
Senate, he has really done an outstanding job of bringing 
together a lot of disparate views on a very difficult and 
complex problem, synthesized into a terrific response to a real 
problem.
    I see Senator Enzi in the Chamber. I also congratulate him 
for his help in making sure we have a bipartisan effort in this 
process. His contributions have been enormous. There are a 
number of people on staff who I think have done a terrific job 
to make sure this happens.
    But Paul Sarbanes, Chairman of the Banking Committee, has 
done an incredible job, a thorough job, making sure we have 
measured, balanced, deliberate steps to be taken to meet a 
crisis of confidence. I think the American people will be 
grateful that we have responded in a proper way. It has been a 
privilege for me to work with all my colleagues in the Banking 
Committee, but particularly the Chairman. Particularly as a 
freshman, I learned so much of how this legislative process 
works.
    I must say, after 30 years in business, working my way up, 
the 10 days of hearings we had with respect to this particular 
subject, with exhaustive testimony, thoughtful testimony 
provided from a large range of perspectives, was one of the 
best graduate seminars I have ever had in business. I hope 
actually somebody will take the time to try to publish these, 
and they will be used as an example both of how the legislative 
process should work but also how the structure and nature of 
public policy debates with regard to business policy will 
occur. It is extraordinary. I think it forms an enormously 
positive foundation for the kind of thoughtful legislation the 
Chairman has brought to bear.
    With that as backdrop, we all know that there are serious 
problems in our system. The list of companies involved is way 
too long and way too important--many of them supposed models of 
the new economy. But I want to move a little bit away from just 
some of the simple concepts we talk about, the most headlined, 
the name concepts or companies, to focus on the fact that we 
are going to have almost 300 restatements of earnings this 
year, this year in our economy--300 restatements. There have 
been almost 1,100 restatements since 1997 of company earnings 
reports. This is a problem.
    It is not just the individual headline companies, it is the 
fact that this is going on every day in our marketplace. It is 
no wonder that investors--institutional, retail, foreign, 
pensioners--do not have a sense of where we should be or how 
they should make their commitments to markets. That is because 
they cannot trust the numbers. There have been broken 
retirement dreams, lost jobs, and companies shut down. This 
really needs to change.
    Roughly 10 percent of major companies--of the 12,000 
actively traded companies, almost 10 percent of them have had 
statements of change in the last 4 years. That is just bad. 
That is why investors worldwide have developed some skepticism 
about our markets. Some might even say that is why our dollar 
has depreciated as sharply as it has in the last 2 or 3 months. 
Confidence is shaken--it is real.
    American financial markets have been a tremendous engine 
for economic growth. We have had a highly efficient capital 
market, and that has fueled our economy. We need to act.
    While the depth and breadth of efficiency of our markets is 
still substantial, if we continue to have this kind of erosion 
of confidence, we are going to be missing one of the important 
drivers of America's great success in leadership in the world. 
While I will not go through every detail of this bill, if we do 
not come up with a strong oversight of our accounting industry, 
make sure the information that people make their decisions and 
take their decisions to the marketplace with is sound and 
secure, then we will not have those strong capital markets and 
strong economy. I think we can all agree upon that, in the 
nature of a bipartisan initiative, to make sure we are moving 
in the right direction.
    I hope we can focus on the reality that some of the 
conflicts of interest that exist in our practices in the 
accounting world have been part of the cause and the focus. 
Some of the conflicts of interest in the investment banking 
business, the world I came from, with regard to our analysts, 
have undermined our security with regard to how people analyze 
and understand where companies fit.
    Other issues that need to be dealt with are the ``revolving 
doors''--executives from accounting firms going to companies 
they worked for--and the lack of independence of audit 
committees. All of these factors underlie a growing public 
distrust in the corporate financial information. It really 
needs to be acted upon.
    While these things are real, I think we need structural 
response. We cannot just identify a few bad apples. This is 
more than that. Remember: 1,100 corporate restatements in the 
last 4 years. There is a structural problem, a systemic problem 
that is undermining the health security of our economy. I hope 
people will realize that in the context of the kind of debates 
we are going to have with regard to this bill--but maybe even 
more important, when we get into a conference and try to put it 
together with the House response, and get it to the President.
    Unfortunately, I think the other elements of proposals on 
the table just do not meet the kind of standards that the 
Sarbanes proposal, the Banking Committee proposal, brings to 
bear. I hope we will be able to deal with that going forward.
    I would be happy to talk about the specifics as we go 
forward. I know others need to get into this aspect. Other than 
we need to have a real reform of the accounting industry, we 
need a strong oversight board. We need to really deal with the 
corporate accountability issues, which I think the Leahy 
amendment goes a long way to strengthen in this bill. There are 
many elements inside it.
    We need to give the SEC the kinds of resources so it can 
actually do the job it is expected to do. The President talked 
about giving them $100 million additional resources. Even the 
House has talked about $300 million increments. We do not 
provide for pay parity. There are just so many weaknesses in 
some of the proposals that are watered down relative to what we 
have on the table before the Senate.
    I can only say I hope we can keep this bipartisan effort 
together because I think what we need is a final product that 
will deal with the reality of the undermining of confidence we 
have across the board, in a whole host of ways with regard to 
our financial markets, with regard to our accounting statements 
and with regard to the economy itself. This is too important to 
make a political issue. This is one to make sure we move 
forward in a way that we secure America's economic future.
    The continued vitality of America's markets is at stake. We 
need to make this a priority. We need to move quickly. We need 
to understand it is systemic, it is not just anecdotal, it is 
not just a few bad apples. I think the bill we have on this 
floor will go a long way. Some of the amendments that are 
brought forward can strengthen it.
    We need real reform. We need it now. We do not need 
rhetoric. We need to be able to restore the confidence the 
American people want to see, move away from the era of Enron 
and WorldCom, and get to an era where we have markets that are 
balanced and fair, where they have the checks and balances in 
them to give people the confidence that when they make an 
investment, that investment is what they thought it was when 
they entered into it.
    I thank the Chairman for an extraordinary effort in 
bringing together an exceptional bill. I am proud to be part of 
this effort. I look forward to continued debate and hopefully 
bringing it to the President's desk as soon as possible.
    The Presiding Officer. The Senator's time has expired.
    Mr. Sarbanes. Mr. President, I ask unanimous consent to 
speak for 30 seconds.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Sarbanes. Mr. President, I thank the able Senator for 
his very kind comments.
    I underscore, as I said last night on the floor when 
Senator Dodd was here, my deep appreciation for the very 
positive and constructive contribution which Senator Dodd and 
Senator Corzine have made to this legislation. Early on, they 
introduced S. 2004, the Dodd-Corzine bill that formed the basis 
of a great deal of what is now before the Senate. I really 
appreciate the tremendous effort on the part of the two 
Senators.
    I think it is very important that I make it very clear how 
much I appreciate the Senator's continuing, very strong 
contributions in the committee and now as we consider this 
legislation.
    The Presiding Officer. Who yields time?
    Mr. Sarbanes. Mr. President, I think under the agreement 
there are 15 minutes allotted to Senator Gramm, 5 minutes to 
Senator McConnell, and I have reserved 10 minutes before we go 
to a vote on or in relation to the McConnell amendment.
    Mr. Leahy. Mr. President, I ask unanimous consent to 
proceed for 30 seconds without taking the time reserved for my 
colleagues.
    The Presiding Officer. Is there objection?
    Without objection, it is so ordered.
    The Senator from Vermont is recognized.
    Mr. Leahy. Mr. President, I thank the distinguished Senator 
from Arizona, Mr. McCain, for his kind words earlier this 
morning. He is the supporter of the Leahy-McCain-Daschle, et 
al, amendment pending before the body. I will speak further at 
an appropriate time when I am not imposing on the time reserved 
by our colleagues. I wanted to thank Senator McCain for his 
support of the amendment and for his kind remarks.
    I yield the floor.
    The Presiding Officer. Who yields time?
    The Senator from Kentucky.
    Mr. McConnell. Mr. President, I believe the Senator from 
Texas is on the way. He is not here yet, so I will go ahead 
with my closing remarks.
    Let me describe again what the McConnell amendment does. It 
is really quite simple. I think the first thing to remember is 
that it doesn't change in any way the Leahy proposal. It 
doesn't change in any way the Sarbanes proposal. It does not 
alter either of those. This is an addition to the underlying 
Sarbanes bill, and to the Leahy amendment, which I assume is 
going to be adopted sometime today. This doesn't in any way 
detract from the efforts underway to get greater accountability 
in corporate America.
    The McConnell amendment is about adding to that union 
accountability so that rank-and-file union members can be 
assured--just as shareholders will now be assured in the 
underlying bill--that independent audits are being done. They 
can be assured that there will be civil penalties for violating 
these new auditing standards. They will be further assured by 
the fact that the president and the secretary-treasurers of the 
unions will have to certify as to the accuracy of the financial 
reports for unions just as we are requiring that for corporate 
CEOs and CFOs for publicly traded corporations.
    We are simply completing the circle of protection for 
Americans, whether they be investors in corporations or union 
members whose dues are being paid every payday and who have a 
right to expect that those funds are going to be treated 
carefully and correctly.
    It has been suggested--I expect it will be suggested 
again--that this is going to be expensive for the unions. My 
amendment has been carefully crafted to ensure that it does not 
impose any egregious new costs, especially on labor. And it 
only applies to unions with annual receipts over $200,000.
    Why did I pick that number for unions that already file 
financial information with the Department of Labor? They are 
already having to file. This amendment simply requires that 
labor organizations with over $200,000 in annual receipts incur 
the incremental costs of running their financial statement and 
pass an independent audit, and abide by generally accepted 
accounting principles. This is a cost borne by any public 
company with as little as $1 million in total assets.
    The additional costs here only apply to the larger unions 
that already have to file with the Department of Labor in any 
event.
    I want to say again that this is the union corruption 
update. This massive stack is just for the first half of 2002. 
There are numerous examples of the problems about which I have 
been talking. This stack here represents just the first half of 
2002.
    Some will suggest that the examples I have given show how 
well DOL is catching and prosecuting union fraud. 
Unfortunately, that is not the case. The Department of Labor 
auditing of unions accounts for just 9 percent of all 
embezzlement cases. The other 91 percent of embezzlement comes 
from other sources. Without a required audit, union officials 
do not have to contend with the threat of an annual independent 
audit hanging over their heads.
    The stories speak for themselves. Union corruption is 
rampant. It is absolutely rampant on the local, national, and 
pension fund levels all across our country. In the last 2 
years, there has been a union embezzlement or closely related 
case in 40 out of our 50 States. This is a huge problem.
    With regard to the financial information already required 
to be filed, it is not verified by an independent auditor. The 
current union filings are not verified by an independent 
auditor. The independent audits required in the McConnell 
amendment will help verify that the information is indeed 
accurate. Unions in many instances have not been complying with 
the filing requirement.
    The Presiding Officer. The Senator has used 5 minutes.
    Mr. McConnell. I ask unanimous consent for a couple of more 
minutes of Senator Gramm's time.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. McConnell. Unions have not been complying with the 
filing requirements. Up to 40 percent of unions required to 
file LM-2 reports filed late or not at all. The Department of 
Labor, under current law, can't even fine these organizations 
for noncompliance. My amendment would at least give them the 
ability to fine these organizations for noncompliance.
    Let me summarize what this is about. We have decided in the 
Sarbanes bill and in the Leahy amendment that we want 
accountability in corporate America. We want to hold the CEOs 
and the CFOs responsible. We want the auditing done accurately. 
If it is not done accurately, somebody needs to be held 
responsible.
    Why are we doing that? We are doing that because we want to 
reassure the shareholders that somebody is not cooking the 
books, that we don't have more WorldComs and Enrons and Global 
Crossings and the like.
    The McConnell amendment seeks to provide those very same 
protections to rank-and-file citizens who may or may not be big 
enough to invest in the market. But they are investing their 
dues every week in the majority of our States where they do not 
have a choice to not pay their dues. And they have every right 
to expect independent audits of their funds to make sure they 
are not being stolen and not being misused. They have every 
right to expect the presidents of those unions and the 
secretary-treasurers of those unions to certify as to the 
accuracy of those audits.
    That is what this amendment is about. It is about providing 
the same fairness to the union member as we provide to the 
shareholder. Simple justice. I urge that the McConnell 
amendment be adopted.
    I yield the floor.
    The Presiding Officer (Mr. Johnson). Who yields time?
    The Senator from Texas.
    Mr. Gramm. Mr. President, how much time do I have?
    The Presiding Officer. Thirteen minutes.
    Mr. Gramm. Mr. President, first, I thank Senator McConnell. 
I do not think anybody who listened to Senator McConnell is 
going to believe the assertion that somehow this amendment has 
nothing to do with the logic of this bill. You can take a view 
that business is for real and that standards should apply 
there, but organized labor is a different kind of institution 
and they should not apply there; but if you are making that 
argument, you have to argue it on the basis of politics. You 
cannot argue it on the basis of logic. You cannot argue it on 
the basis of justice or fairness.
    What Senator McConnell has done, it seems to me--and I 
think it is a service to the process that he has done it--is 
that his amendment in no way changes Senator Leahy's amendment. 
So whether you are for or against the Leahy amendment is not a 
relevant factor in whether you are for or against Senator 
McConnell's amendment because he does not change the Leahy 
amendment. He simply says, at that moment in history where we 
are trying to enhance the quality of financial reporting in 
corporate America, to protect the investor and to strengthen 
the economy, that we should make the same changes with regard 
to financial reporting by labor unions.
    There have been several arguments made against this 
amendment, but I do not believe any of them hold water, at 
least in terms of my ability to understand the amendment and 
the arguments.
    The first argument that has been made is: There are already 
requirements that apply to unions, that they have this vast 
array of reporting requirements.
    The same thing is true with corporate America. If you 
accept that argument that there already is a body of law, and 
if that means that it should not be improved or strengthened, 
then what are we doing here?
    There are differences over this bill, differences about how 
the board should be structured, differences about what the 
board should decide and what Congress should decide, but there 
is no difference over the issue that we need higher standards 
in accounting. There is no difference over the issue that 
people who knowingly violate the law ought to be held 
accountable.
    So to say that unions are subject to requirements is not an 
argument that we should not have better requirements, because 
if it were an argument, that would be an argument against the 
bill; and not one Member of the Senate has bought that argument 
or made it or believes it.
    The fact that there are requirements today does not mean, 
in a time when we are enhancing transparency and efficiency and 
honesty in reporting, that we should not improve it for both 
corporate America and for organized labor.
    The second argument that is made is: Companies are public 
and unions are private. Not only is that argument invalid, but 
unions are more public than private investments, more public 
than public companies. Nobody made anybody invest in WorldCom. 
Nobody made them do that. But in some 40 States of the Union 
you have to pay union dues in order to work.
    I do not think that is right. I think that is fundamentally 
wrong. I thank God every day that in Texas we have right-to-
work laws that say I do not have to join a union to earn a 
livelihood. But in some 40 States you do.
    I think the case is even stronger than the Senator from 
Kentucky made because nobody made anybody buy WorldCom, but in 
some 40 States you have to pay union dues. Surely, there is a 
public interest, in a mandatory institution, in seeing that it 
keeps straight books.
    So this argument that we are talking about, public 
companies and private unions, what is private about a union 
that I have to join in order to have a job? Nothing is private 
about that union. It is as public as something can be public.
    It seems to me--and Senator McConnell made the point--
nobody made people invest in WorldCom, but people are forced 
every day to pay union dues. Every day they are forced to pay 
them. So they are as public as public companies are, I would 
argue more public, and we have a stronger interest in 
protecting that money which was involuntarily taken, it seems 
to me, or just as strong an interest in protecting that money 
that was involuntarily taken versus money that was voluntarily 
invested.
    The strongest argument of this amendment--and something 
that is absolutely breathtaking to me--is that the annual 
report that is required of unions does not have to be certified 
and prepared by a CPA.
    We are going to great lengths in every bill that has been 
proposed to set up an independent body to proctor high 
standards in accounting for CPAs. Shouldn't a union that is 
handling my money that they took from me involuntarily have its 
books audited by a CPA?
    Why is that important? In fact, why do we care about 
accounting ethics? We care about them because there is no way 
the Government has enough resources to spot audit every company 
in America. So we have to rely on the integrity of the CPA. And 
it is the problem we have with that today that brings us to the 
floor of the Senate.
    While we are enhancing that integrity through this 
oversight board, shouldn't we require organized labor that is 
taking people's money involuntarily to have their annual report 
certified and prepared by a certified public accountant? How 
can anybody--how can anybody--argue against requiring a CPA to 
do these audits?
    You could say the Labor Department ought to go out and 
audit every one of these unions. Clearly, they do not have the 
resources to do it. The President has asked for more money to 
do it. I would guess this Congress will not provide that money. 
I will be watching the appropriations to see if they do. But 
even if they provide it, it is not enough money to audit every 
union in America.
    What we have to do to bring honesty to union financial 
reports, as we bring honesty to corporate reports, is to 
require a CPA to do the audit. I can see no logic whatsoever to 
opposing requiring a CPA to certify.
    Finally, we have gone to great lengths--and I think 
appropriately--to require the guy who is drawing the big check, 
the head man or head woman, to sign this annual financial 
statement to put their credibility on the line and give them 
nobody to hide behind. Should we not require the president of 
the union sign this audited report? And shouldn't the annual 
report be done by a certified public accountant?
    Now, it is astounding to me--and, boy, it shows you the 
different level of enforcement of the law. If anybody does not 
believe that politics play a part in law enforcement in 
America, look at the fact that was given to us by the Senator 
from Kentucky, that 34 percent of unions are out of compliance 
in terms of filing these reports. Some of them just don't file 
the report.
    It seems to me if 34 percent of the companies in America 
didn't file reports, we would be outraged, and rightly so. In 
fact, you couldn't trade your stock on the New York Stock 
Exchange or the American Stock Exchange or the Nasdaq because 
of the enforcement that exists in private entities.
    The McConnell requirement that the reports be filed is 
straightforward and reasonable.
    I reserve the remainder of my time by simply saying, what 
harm can come from requiring unions to have CPAs do these 
reports? I see good can come. I can see no possible harm that 
could come.
    Secondly, why not have the union president certify the 
veracity of that report just as the corporate president does? 
Some people say this is punitive. Some people say this is 
political. If this were being used to try to kill the Leahy 
amendment, you might be able to make that argument. But this 
amendment in no way takes away any part of the Leahy amendment. 
It simply adds to it that the high standards we set for 
corporate America should apply likewise to unions.
    I reserve the remainder of my time.
    The Presiding Officer. Who yields time? The Senator from 
Maryland.
    Mr. Sarbanes. Could I ask what the time situation is?
    The Presiding Officer. The Senator from Maryland has 10 
minutes.
    Mr. Sarbanes. And how much time is left to the Senator from 
Texas?
    The Presiding Officer. The Senator from Texas has a minute 
and a half.
    Mr. Sarbanes. Mr. President, it is important, in 
considering this amendment, to realize there exists now, under 
the labor management reporting and disclosure procedure, 
extensive and intensive provisions for reporting by labor 
organizations, officers, and employees of labor organizations.
    If all of these provisions are not being carried out fully, 
the responsibility rests with the Secretary of Labor. The 
Secretary of Labor ought to be doing her job. If the Congress 
is not providing sufficient resources for that, that is an 
issue for the Congress. We ought to address that issue.
    This supposed parallelism that is being argued completely 
misses the mark in the sense that there is already an existing 
statutory scheme covering reporting and disclosure by labor 
organizations.
    I want to go through some of those provisions so Members 
appreciate how extensive they are and the amount of review and 
oversight that now exists.
    I am now reading from the statute:

    Every labor organization shall file annually with the 
secretary a financial report signed by its president and 
treasurer--

    So much for this argument about they ought to sign, put 
their signature on the report--

or corresponding principal officers containing the following 
information in such detail as may be necessary accurately to 
disclose its financial condition and operations for its 
preceding fiscal year.

    Listen to what they have to set out: Assets and liabilities 
at the beginning and end of the fiscal year; receipts of any 
kind and the sources thereof; salaries, allowances, and other 
direct or indirect disbursements, including reimbursed expenses 
to each officer and also to each employee who, during the 
fiscal year, received more than $10,000 in the aggregate from 
such labor organization and any other labor organization.
    Ten thousand dollars? Ken Lay of Enron got $177 million. 
Twenty executives of Enron got over $3 million in salary. Here 
we are talking about a $10,000 figure which they have to 
report.
    I am reading from the statute that governs labor 
organizations on their reporting and disclosure: Direct and 
indirect loans made to any officer, employee, or member which 
aggregated more than $250 during the fiscal year, together with 
a statement of the purpose, security, if any, and arrangement 
for repayment. A $250 loan, $250. Bernard Ebbers of WorldCom 
got a $366 million loan. This is just to underscore in a sense 
the tightness of this framework governing the labor 
organizations--a $250 loan. WorldCom executive Ebbers, $366 
million? The Adelphia situation with the Rigas family, $3 
billion in loans.
    Let's look at the power of the Secretary of Labor to 
enforce these requirements: Any person who willfully violates 
this subchapter shall be fined not more than $10,000 or 
imprisoned for not more than 1 year. Any person who makes a 
false statement or representation of a material fact or who 
knowingly fails to disclose a material fact in any document, 
report required under the provisions of this subchapter shall 
be fined not more than $10,000 or imprisoned for not more than 
1 year. Any person who makes a false entry or willfully 
conceals, withholds or destroys books, records, reports shall 
be fined not more than $10,000 or imprisoned for not more than 
1 year.
    ``Personal responsibility of individuals required to sign 
report,'' I earlier said the president and the treasurer of the 
labor organization had to sign the reports. Listen to this:

    Each individual required to sign reports under sections 431 
and 433 of this title shall be personally responsible for the 
filing of such reports and for any statement contained therein 
which he knows to be false.

    Of course, we have just noted from the previous provisions, 
that is a fine and possible imprisonment for up to 1 year. So 
we have a statutory scheme in place to control the labor 
organizations. If it is not fully adequate, it needs to be 
addressed in that context. But clearly, it goes well beyond 
many of the provisions that apply to corporate officers. It has 
been carefully worked out over the years. The Labor-Management 
Reporting and Disclosure Act dates from 1959 originally, with 
subsequent modifications and adjustments, as we have proceeded.
    There is a system in place to govern labor organizations. 
It has been asserted: Well, the Labor Department has not been 
able to do everything it needs to do. That burden is on the 
Labor Department. In a sense, what has been raised represents a 
challenge to the Secretary of Labor.
    If, in fact, the Congress hasn't given her adequate 
resources, that point needs to be made to the Congress and we 
need to address that.
    But we have established a well-thought-out, comprehensive 
scheme with respect to the reporting and disclosure of the 
labor organizations, and if they are falling short of the 
statutory requirements, that needs to be addressed in the 
context of the statute.
    The Labor Department has enormous authority over the labor 
organizations. Make no mistake about it, the powers and the 
authorities that reside in the Secretary of Labor and the 
Department are quite extensive to deal with the labor 
organizations. I mentioned only some of them, including these 
imprisonment for 1-year provisions.
    So I am in opposition to the amendment. I think any 
shortcomings that one might perceive need to be addressed in 
the context of the reporting and disclosure provisions 
applicable to labor organizations; and I must say to you--and 
the Senator from Kentucky has outlined some of the problems--
the Department needs to come to grips with them and come to the 
Congress, if it deems that necessary, to seek an appropriate 
congressional response in order to deal with them.
    I very much hope my colleagues, when the time comes, will 
not be supportive of this amendment. When all time is used, I 
am prepared to make a motion with respect to the amendment.
    Mr. Specter. Mr. President, I am voting against the 
McConnell amendment because existing law already accomplishes 
what he seeks to do. There exists now under the Labor 
Management Reporting and Disclosure Act of 1959 extensive and 
intensive provisions for reporting by the President and 
Treasurer of labor organizations.
    Furthermore, the audit requirements of this amendment, 
which apply to union filers with receipts of $200,000 or more, 
impose under regulation of small entities. Public corporations 
subject to the SEC typically have many more assets with initial 
public offerings are customarily in the range of $40 million. 
The annual costs of compliance might exceed the annual receipts 
of many filers who would be subjected to these requirements. To 
require audits of all unions regardless of size or complexity 
of financial reports would cause an unreasonable burden on many 
smaller locals who already must file LM-2 reports. Unions with 
annual receipts of $200,000 or more covered by the McConnell 
amendment come in an extremely wide range of types, sizes, and 
of performing services. Of the more than 5,000 labor 
organizations that currently meet this criterion and file LM-2 
reports, only about 70 are national or international unions. 
The rest are locals--largely voluntary organizations, many with 
no or few full-time employees. The current Department of Labor 
reporting requirements take this ``no one-size-fits-all'' 
approach into account and build in some flexibility that the 
McConnell amendment does not allow. For example, many smaller 
locals do not need to retain outside CPAs because their 
financial statements are very simple and consistent from year 
to year.
    The amendment's certification requirements are also 
redundant. For more than 40 years, union officers have been 
required to sign annual financial reports under penalty of 
perjury, attesting that the report's information accurately 
describes the union's financial condition and operations.
    The Presiding Officer. The Senator from Texas is 
recognized.
    Mr. Gramm. Mr. President, let me paraphrase our colleague 
from Maryland. The SEC already has power. Let them do their 
job. We are not saying that. We are saying they need more power 
and they need help doing their job because the job is not 
getting done.
    The same is true for unions. The Senator from Maryland said 
there is already a regulatory scheme. There is already a 
regulatory scheme for corporate America, but we are saying it 
is not good enough, not tough enough, it is not working, and we 
need to improve it.
    The same is true for unions. The president of a corporation 
already has to sign an annual report. We are trying to expand 
that in this bill. Why not require the president--not other 
officers, but the president--to sign the report? I submit that 
illegality, whether it is $100 million or $10,000, is still 
theft. The President has asked us to bar loans.
    The issue here is, should we have the same integrity 
standards for unions? I believe the answer is yes.
    I yield the remainder of my time.
    The Presiding Officer. The Senator from Texas has 17 
seconds and the Senator from Maryland has 50 seconds.
    Mr. McConnell. Mr. President, it is true that unions file a 
lot of papers. The problem is that accuracy is not required. 
This requires certified records--certified by a CPA--and it 
requires the presidents and secretaries of their treasuries to 
certify that the records are accurate.
    Union corruption is a serious problem. This will help 
correct it. I urge colleagues to support the amendment.
    Mr. Sarbanes. Mr. President, I only observe that if they 
file a false statement of representation, they can be fined and 
sent to jail for up to 1 year. That is a pretty heavy remedy if 
you stop and think about it.
    Mr. President, I yield back the remainder of my time.
    Mr. Gramm. Mr. President, is any time remaining?
    The Presiding Officer. No time remains.
    Mr. Sarbanes. Mr. President, I move to table the McConnell 
amendment, and I ask for the yeas and nays.
    The Presiding Officer. Is there a sufficient second?
    There is a sufficient second.
    The question is on agreeing to the motion. The clerk will 
call the roll.
    The assistant legislative clerk called the roll.
    Mr. Nickles. I announce that the Senator from North 
Carolina (Mr. Helms) and the Senator from Ohio (Mr. Voinovich), 
are necessarily absent.
    I further announce that if present and voting the Senator 
from North Carolina (Mr. Helms) would vote ``nay.''
    The Presiding Officer. Are there any other Senators in the 
Chamber desiring to vote?
    The result was announced--yeas 55, nays 43, as follows:
                      [Rollcall Vote No. 168 Leg.]
    Yeas--55: Akaka, Baucus, Bayh, Biden, Bingaman, Boxer, Breaux, 
Byrd, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, Conrad, 
Corzine, Daschle, Dayton, Dodd, Dorgan, Durbin, Edwards, Feingold, 
Feinstein, Graham, Harkin, Hollings, Inouye, Jeffords, Johnson, 
Kennedy, Kerry, Kohl, Landrieu, Leahy, Levin, Lieberman, Lincoln, 
Mikulski, Miller, Murkowski, Murray, Nelson (FL), Nelson (NE), Reed, 
Reid, Rockefeller, Sarbanes, Schumer, Smith (OR), Specter, Stabenow, 
Torricelli, Wellstone, Wyden,
    Nays--43: Allard, Allen, Bennett, Bond, Brownback, Bunning, Burns, 
Campbell, Cochran, Collins, Craig, Crapo, DeWine, Domenici, Ensign, 
Enzi, Fitzgerald, Frist, Gramm, Grassley, Gregg, Hagel, Hatch, 
Hutchinson, Hutchison, Inhofe, Kyl, Lott, Lugar, McCain, McConnell, 
Nickles, Roberts, Santorum, Sessions, Shelby, Smith (NH), Snowe, 
Stevens, Thomas, Thompson, Thurmond, Warner
    Not Voting--2: Helms, Voinovich

    The motion was agreed to.
    Mr. Sarbanes. I move to reconsider the vote.
    Mr. Gramm. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.

                       DIVISION OF AMENDMENT 4174

    Mr. Gramm. Mr. President, I ask for a division of the 
amendment with sections 801, 802, and 803 in division 1, 
section 804 in division 2, and the remainder of the amendment 
in division 3.
    The Presiding Officer (Mrs. Carnahan). The amendment is 
divisible and is so divided.
    Mr. Gramm. I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Sarbanes. Madam President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Sarbanes. Madam President, I would like to put forward 
a couple of inquiries. Could the Senator outline what his 
division of the amendment does?
    Mr. Gramm. The amendment was divisible, and my division 
divided it into three amendments. The amendment having to do 
with statute of limitations in filing a lawsuit is now division 
2. So division 1 would be the pending business, as I understand 
it. Then division 2, and then division 3, seriatim, unless 
there was some other agreement that took us to another order or 
other amendments.
    Mr. Sarbanes. What does division 3 provide for?
    Mr. Gramm. I sent the division to the desk. Basically, 
division 1 was everything up to section 804. Then division 2 is 
804. And then division 3 is 805 through the end of the bill.
    Mr. Sarbanes. Did the Senator consider dividing it only for 
section 804?
    Mr. Gramm. The way it was done, the easiest division was to 
do it in three parts.
    Mr. Sarbanes. It is that division you want a separate vote 
on, I take it?
    Mr. Gramm. It is that division on which I want an 
opportunity for the Senate to work its will, as well as the 
others.
    Mr. Leahy. Madam President, if the Senator will yield, 
there is another way, of course, for the Senate to work its 
will. The reason I mention it, this is a critical part of the 
legislation. It is nice to say, and we should say, my cosponsor 
of the Sarbanes bill, which I think is superb--we should say we 
should have better accounting methods, we should say we should 
have more accountability, but we have a lot of these executives 
who have proven by their past behavior they are not going to do 
squat unless they think they are going to go to jail for what 
they do.
    The Leahy-McCain, et al, amendment makes it very clear that 
these people are going to face jail terms if they loot the 
pension funds, if they defraud their investors, if they defraud 
the people of their own company. And I might suggest if the 
Senator from Texas agrees, there ought to be real penalties; 
let's vote on Leahy-McCain. Let's vote on it, not divide it up. 
If he believes there is something he may want to do better--
such as shield some of these people with a shorter statute of 
limitations or with a more restrictive statute of limitations--
he has every right to do whatever he wants to shield these 
people. But bring it up as a separate amendment and let the 
Senate vote up or down on that.
    When I look at places such as Washington State alone where 
the pension funds of firefighters and police lost $50 million 
because of the fraud of the leaders of Enron, I don't feel too 
sympathetic. We already have a very short statute of 
limitations in here anyway. We ought to at least have that so 
people might be able to recover some of the money they have 
lost, if it is at all possible, instead of just a few 
executives going up and building their $50 million mansions and 
hiding it there.
    There ought to be some way for the people who lost their 
pensions, lost their life savings, to get it back. We ought to 
have criminal penalties for those who did this in the first 
place so they end up in the slammer.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Madam President, a wonderful speech, and it 
might be appropriate for another occasion, but what has 
happened is that a comprehensive bill has been offered as an 
amendment to the pending bill. All I asked for, which every 
Senator has the right to ask for, was a division of the 
question so that the Senate could work its will on individual 
parts.
    I know of no living person, at least anyone who is in the 
Senate or the executive branch of Government--I don't know 
about the judicial branch of Government--who is not for the 
provision related to putting people in jail for knowing and 
willful behavior where they violate the law.
    This bill which has been offered, however, has many 
different sections. The part I am concerned about has to do 
with statute of limitations and the security reform legislation 
we adopted in 1995.
    I remind my colleagues that in 1995 we had these massive 
strike lawsuits. One firm filed 80 percent of them. Almost all 
were settled out of court. It created an abuse that generated a 
bipartisan consensus that something should be done about it.
    We passed a law, and then, incredibly, with Democratic 
support, we overrode President Clinton's veto of the bill. The 
only veto override of the Clinton Administration was on this 
issue.
    One of the reforms had to do with shortening the statute of 
limitations. I remind my colleagues, this has nothing to do 
with the SEC or the Justice Department. We are not shortening 
their statute of limitations. In 1995, when we passed this bill 
with a strong bipartisan vote, we said: If I want to sue 
Senator Sarbanes, I have to file the suit within a year of 
discovering that I believe I have been wronged, or I have to 
file it within 3 years of when I was wronged. That was the 
decision we made then.
    Now, hidden away in this bill, which has been offered as an 
amendment, is a provision that effectively extends that to 5 
years.
    All my division of the amendment did was to say this ought 
to be dealt with separately so that those who are for mandatory 
prison sentences for knowing and willful behavior that violates 
the law can be for that without being for repealing our Private 
Securities Litigation Reform Act. The reason behind the rules 
of the Senate that give Members the ability to divide bills 
goes to exactly the heart of this point; that is, if someone 
could take a bill--if someone could take----
    Mr. Sarbanes. Will the Senator yield on that point?
    Mr. Gramm. Let me just finish my point and I will be happy 
to yield, as I try to always do.
    Someone could take the securities bill of 1933 and they 
could put in it all kinds of things that the vast majority of 
Members of the Senate are for, and then they could put one 
little provision in one line in that virtually nobody is for, 
and they could send it as an amendment to the desk and then we 
would have no recourse except to vote against all the things 
that we are for in order to vote against the one little thing 
that we are against.
    It seems to me there is nothing worse in public life than 
to have someone attack you for voting against a great big old 
bill and say: Well, you were against. It says here motherhood 
and the flag and Christmas and Easter--you were against that 
because you voted against a bill that busted the budget and 
bankrupt the public.
    So in writing the rules of the Senate, we wrote the rules 
in such a way that when someone offered such a bill as an 
amendment that had different parts, any Member could ask for a 
division so it could be dealt with separately. All I have done 
is exercise that right.
    We now have three amendments pending before the Senate--I 
guess four, counting the Miller amendment--but that is all I 
have done. Two of these amendments I am supportive of, one of 
them I am not supportive of, but that is where we are.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, let me say, first of all, 
the Senator is obviously within his rights to divide the 
amendment. The Senator could have offered an amendment striking 
section 804, which is the section to which he objects. As I 
understand it, he approves of the remainder of the bill. By 
dividing it, he gains a one-vote advantage because if he moved 
to strike and we had a tie vote, he would lose. By dividing the 
bill, if there is a tie vote on section 804 the proponents of 
that provision lose. So by the division the Senator from Texas 
has gained a one-vote step up. I recognize that. That is 
permitted under the rules. I am not complaining about it.
    I think it is inaccurate to use an example of the whole 
bill and say I either have to vote for all of the amendment or 
none of it because certainly he hasn't been in that position.
    He could have offered an amendment to strike the section--
am I right; 804 is the section on which the Senator is focused?
    I make the following suggestion in order to try to move 
matters forward, if I could have the attention of my colleague.
    Why don't we proceed and adopt the two divisions other than 
804 right now and get those taken care of. Then we can address 
804, which is the division to which the Senator objects. We can 
have an appropriate debate with respect to that division.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Madam President, we do have someone who wishes 
to speak. I am not sure whether it is on one of these sections 
or not. I am not ready to do that right now. We may reach a 
point where I will be ready to do that, but I am not ready to 
do that at this point.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, given that the Senator has 
indicated he is supportive of the Leahy amendment--I think he 
said that on more than one occasion--except for section 804, 
what is it that would have to transpire?
    Mr. Leahy. Madam President, if I might step in for just a 
moment, if the Senator from Maryland will not mind?
    The Presiding Officer. The Senator from Vermont.
    Mr. Leahy. I keep hearing this discussion by the senior 
Senator from Texas that my bill somehow changed the Securities 
Litigation Reform Act. It does not. It does not do that at all. 
It changes no provision in it at all.
    The PSLRA did not establish the current statute of 
limitations. It did not deal with that issue at all. The Leahy 
bill does not impact on these provisions. It was a 5-to-4 
Supreme Court case that overturned years of established law to 
set the current limitation periods in Lampf v. Gilbertson.
    In fact, interestingly enough, former Secretary General 
Kenneth Starr and I take the same position on these statutes of 
limitations. In the dissent in that case, two of the 
dissenters, Justices Kennedy and O'Connor, said the one in 
three statute of limitation makes the possibility of injured 
investors recovering basically a dead letter.
    Here are some numbers. Florida lost $335 million because of 
Enron; the University of California, $144 million--all the way 
down to Vermont; we lost millions of dollars. These are people 
who would like, in these kinds of cases, at least to have a 
statute of limitations such that we can go after them.
    We are not suggesting changing in any way--I want everybody 
to be clear on this--we are not suggesting changing the basic 
standards of the law on a statute of limitation. We are talking 
about extending the time. We are talking about extending the 
time so it will not be, as the Supreme Court said, with a short 
statute of limitations, a dead letter. We are saying we want 
enough of a statute of limitation--still very short but a long 
enough one so people can recover. We are perfectly willing to 
have exactly the same words as the law says now, with the 
exception the statute is slightly longer.
    I cannot speak for an activist Supreme Court that seems to 
be meddling in most of our laws, but their case law, their 
stare decisis impacts on every single Federal court in this 
country--district level, court of appeals level. So there, with 
the exact same law, the stare decisis is Lampf v. Gilbertson. 
That would be controlling except it would be a longer statute 
of limitations.
    The Senator from Texas, or anybody else, if they think that 
statute of limitations is too long, fine, vote against it. But 
I am here to try to protect people and give them an 
opportunity--when there has been such enormous fraud and all 
the pension funds have been lost, and all the people who have 
lost their life savings--give them at least some chance to 
recover something, especially as the executives of these 
companies walk off with tens of millions of dollars. We go two-
five instead of one-three.
    It makes sense to me. That was negotiated and voted on in 
the Judiciary Committee, and the final bill was passed 
unanimously.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, I want to resume my 
discussion with the Senator from Texas. I am not going to 
engage in a substantive debate with respect to section 804 of 
the Leahy amendment, which is division 1 of the divisions the 
Senator has made.
    I want to go back to the prospects of getting division 1 
and division 3 accepted, to which the Senator has repeatedly 
indicated he has no objection. In fact, as I understand it, he 
is supportive of it.
    I renew my inquiry as to whether we could move ahead and 
accomplish that, since in our previous discussions the Senator 
has indicated concurrence with the notion that we need to move 
this legislation along. I don't understand what the objection 
would be to doing that. The Senator has divided the amendments. 
He has improved his holding position by doing so with respect 
to section 804. He has accomplished that objective under the 
rules. But as I understood it, he does not object to all of the 
matters in division 1 and division 3. I think it would help 
move the work along if we could adopt those two divisions, and 
then we could address divi-
sion 2.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Madam President, first of all, let me say as the 
ranking member of the committee that I have yet to have an 
opportunity to offer an amendment. I only have two amendments I 
want to offer. No one is more eager to get this bill to 
conference where we might come up with something for which 
there would be virtually unanimous support. But I assume at 
some point during the deliberations we will have votes on 
division 1 and division 3. But I would like to have an 
opportunity to offer amendments myself.
    All I want to do is follow the rules of the Senate.
    Let me say that I am concerned, as I listen to colleagues 
on both sides of the aisle, that we are going to have a literal 
blizzard of amendments not directly related to this bill. I 
continue to believe that at some point, in order to finish the 
bill, we are going to have to file cloture.
    I intend, as I said at the beginning of the debate, to 
support that cloture motion. I think someone would have a hard 
time portraying me as someone who is slowing down the process 
when I am ready to vote to bring debate on this bill to an end 
and force amendments to be germane to the bill itself.
    My proposal is that we simply go on with the business of 
the Senate. I am ready to offer an amendment. I am ready to 
deal with the amendment of the Senator from Georgia. That 
amendment is amendable. All of these amendments are amendable. 
I suggest we simply proceed, let Members be recognized, and 
have those Members move forward.
    In light of that, I send an amendment to the desk in the 
form of a second-degree amendment to division 1. It is a very 
short amendment. I think the best thing to do is to have it 
read.
    Madam President, I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Reid. Madam President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. Madam President, I have spoken to the manager of 
the bill. He has indicated he has no problem with someone 
speaking on the bill as long as there is no effort to do 
anything in a parliamentary fashion because there are 
negotiations pending at the present time. We understand that. I 
ask unanimous consent that the Senator from Illinois be 
recognized to speak for purposes of debate only.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. Following his remarks, the quorum call will be 
reinstituted.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from Illinois.
    Mr. Durbin. I thank my colleague from Nevada as well as the 
Senator from Wyoming for allowing me to speak to the bill.
    I am happy to be an original cosponsor of this amendment 
with Senators Leahy and Daschle. The Public Company Accounting 
Reform and Investor Protection Act is a long title, but what it 
basically seeks to do is to address what most Americans view as 
one of the most dangerous developments in our Nation's economy 
in the last several years, if not longer.
    When you ask the average American what they think of all 
this corporate corruption, all of the disclosures about 
corporations that have literally lied to the public, to their 
shareholders, to their employees, and to pensioners, people 
across America say it does not give them much hope for recovery 
for our economy. It does not give them much confidence in terms 
of investing in the stock market. And it makes them feel very 
sad and worried about their own pension and retirement.
    We were proud to announce several years ago that almost 
half of Americans owned stock. We had developed to that point 
where the average person thought owning stock was a normal 
thing to do.
    I grew up in a family with a mother and father who never 
once purchased a share of stock until my mother in her later 
years decided ``to gamble,'' as she called it. But it was 
unthinkable in their working years to buy stock. They were 
working people. They worked for a railroad. Workers didn't buy 
stock.
    That has changed. More and more people across America buy 
mutual funds and stocks, 401(k)s, retirement plans. And why 
wouldn't they? Look at what happened over the last 10 years. If 
you were smart enough to buy yourself a dart board and put the 
Wall Street Journal up on it and throw the dart, just about any 
stock you hit was going to give you more money.
    People came to realize that. They bought their mutual funds 
and stocks and sat back and relaxed and said: This is easy. I 
will be able to retire a lot sooner than I ever dreamed, and we 
have more financial security in our family than ever before.
    Boy, have things changed in the last 2 or 3 years. We have 
seen a recession, the economy slow down, and then we watch as 
day after painful day reports come of the Dow Jones and the 
Nasdaq, all the rest of them, hitting new lows every single 
day.
    It has to do with the state of the economy, the recession, 
but it has to do as much with consumer confidence, the belief 
that you just can't trust the corporate big boys.
    There are too many instances where they decided to cash in 
with big stock options and walk away with millions--sometimes 
hundreds of millions--of dollars and leave a floundering 
corporation. They call it ``restatement.'' When I went to grade 
school, if I tried to tell the nuns I wanted to restate 
something I had said, I never got by with it. I got slapped on 
the back of the hand with a ruler. They knew it was an 
admission that you lied, misrepresented something. Now that is 
commonplace when you deal with corporations across America. 
Every week, there is some new disclosure.
    Senator Leahy, Senator Daschle, and I sat down to say we 
have to get to the heart of this issue and try to resolve it, 
in terms of making certain there are penalties in place for 
those who are deceitful, misleading, lying to the American 
people about the status of corporations. From Wall Street to 
Main Street, confidence has been shaken. It started off with 
Enron, the poster child of runaway corporate greed. Isn't it 
curious that today, as we debate corporate corruption, and 
isn't it an oddity that there is an actress in Hollywood who is 
facing possible jail time for shoplifting and she is facing 
more time in jail than any officer of the Enron Corporation? 
What is wrong with this picture? Somebody who shoplifts might 
go to jail, but not the first person has been indicted at 
Enron, the seventh largest corporation in America, which goes 
bankrupt.
    We had a series of hearings, and everybody on Capitol Hill 
was wringing their hands and calling in the cameras, saying we 
have to do something about it. Yet the Department of Justice 
has yet to indict the first person at Enron.
    So what we are saying with this amendment is that we want 
to establish standards and practices so that those who violate 
the law, who are guilty of corporate corruption, will pay a 
price for it, not just a fine that may be ignored or paid off 
by the corporation but more.
    In our criminal code, we establish mandatory minimum 
sentences for people who are caught with a thimbleful of 
cocaine. We will put them in jail, and we won't give the judge 
any flexibility. They go to jail for x number of years, no ifs, 
ands, or buts. But if a person is engaged in ripping off 
stockholders of a major corporation, lying about their books, 
causing tens of thousands of people to lose their jobs, 
jeopardizing the retirement plans of millions of Americans, 
then, frankly, we say to them that yours is going to be a much 
easier punishment.
    What is wrong with this picture? Where are the scales of 
justice? We should have known, when you have executives and 
board members who stand to gain millions of dollars from acting 
on insider information in the corporations they serve, that 
many would be tempted to do exactly that--especially when they 
knew there weren't any cops on the beat to keep an eye on 
them--no auditors, accountants, or government agencies.
    In the Gingrich revolution that occurred a few years ago, 
we passed something called the ``Contract on America.'' One of 
its provisions said, we are going to take away the power of 
individuals to sue corporations when there has been securities 
fraud. The argument was made that there were too many litigious 
people and greedy lawyers who were meddling in the corporate 
business and that we had to really close the door to that 
opportunity. Well, that law was enacted. I voted against it 
because it took away one more safeguard, one more protection 
for the public.
    Isn't it coincidental that now we stand here and talk about 
the disintegration of corporate confidence? There were fewer 
people watching then, and some of these corporate leaders were 
reaching into the cookie jar and pulling out with both hands. 
It happened over and over again. We should have known that when 
you condition the salary of executives on potential gains from 
how the company's stock prices will rise--known as options--
that would be a temptation to raise the stock prices 
artificially, especially when those on the inside knew that, as 
the prices would fall, they would already have their money.
    We should have known that when you have auditors and 
accountants shifting numbers to come up with the right set of 
bottom-line figures they need to produce for Wall Street, they 
would be tempted to do that even when the audited numbers 
didn't add up. We should have known that when you have the 
smartest lawyers and bankers in the country scheming all night 
to come up with borderline legal ways to avoid paying taxes 
through a maze of fictitious straw companies, they would be 
tempted to do just that, especially when they knew Congress 
wrote the laws with plenty of loopholes for which their 
lobbyists paid.
    We stand in the Senate and reflect upon the sad state of 
business in America, and we have to wonder who is really at 
fault.
    Let me add that the vast majority of business leaders in 
America are honest, hard-working people who have taken a risk 
in our free enterprise system to produce goods and services of 
value to our country and to the world, to create jobs and 
wealth. They deserve our admiration and respect. But, clearly, 
day after day, week after week, month after month, we read on 
the front pages of our major newspapers about the exceptions to 
what I just said.
    Is it the executives who are responsible as the bad actors, 
or their accountants, their auditors, their bankers? The answer 
is all of the above. Every one of these must face up to their 
responsibilities.
    In due course, I hope we will enact stricter rules for 
these corporate players. But we have to accept our 
responsibility; Government and Congress has a responsibility.
    I salute Senator Sarbanes of Maryland for what he has done 
with Senator Enzi in bringing this bill to the floor. There is 
an effort to divide up this bill in the hopes of changing a 
statute of limitations.
    Why is a statute of limitations of importance in this 
debate? It really defines the reach of the law. If you tell me 
there is a statute of limitations that limits the liability of 
these corporate bad actors, I can tell you some people are 
going to get off the hook. The Leahy amendment to Senator 
Sarbanes' bill broadens the statute of limitations so that more 
wrongdoers will be held accountable; those who have lied, 
cheated, and stolen will be held accountable.
    The opponents of this approach are now suggesting we need 
to shorten the statute of limitations, limit the inquiry and 
investigation of the Government, and limit the liability of the 
bad actors. This is an answer to the prayers of many corporate 
big wigs who have ripped off their stockholders, employees, and 
pensioners across America.
    This suggestion that we would lessen and shorten the 
statute of limitations is what they want to hear. Some will now 
be able to retire to their mansions, and they will be able to 
live in the lap of luxury with the hundreds of millions of 
dollars they have taken from these corporations and never be 
called to answer for their violations of the law. That is what 
happens when you shorten a statute of limitations. It is an 
answer to the prayer of the corporate big wigs' defense 
attorneys. Why in the world would we be doing that?
    Why do we want to insulate from liability the very people 
who are guilty of wrongdoing? Why would we not support Senator 
Leahy's amendment to say that those who have violated the 
public trust, those who have lied, misled, and been deceitful 
should be held accountable both on a criminal and civil 
standard?
    So I certainly hope that at the end of this debate the 
Senate, on a bipartisan basis, will stand by Senator Sarbanes 
and his bill. I also hope that when it is all said and done, 
the underlying amendment I have offered with Senator Leahy and 
Senator Daschle will be accepted.
    Let me tell you what the amendment does, in brief. It 
punishes corporate criminals and creates a 10-year securities 
fraud felony for any ``scheme or artifice'' to defraud 
shareholders, and directs the U.S. Sentencing Commission to 
raise penalties in obstruction of justice cases.
    Two, it preserves evidence of fraud, establishes a new 
felony for destroying evidence when records are under subpoena. 
It requires key financial audit documents to be retained for 5 
years, and it creates a new 5-year felony for intentional 
destruction of documents.
    Do you know what happened? As soon as Enron got in trouble, 
they called some of their buddies at Arthur Andersen, and the 
next thing you know, the documents are being shredded, evidence 
is disappearing. This underlying amendment, the Leahy-Daschle-
Durbin amendment, addresses that specifically.
    The third thing is that it protects victims. It creates 
protections for corporate whistleblowers. We need them. If 
insiders don't come forward, many times you don't know what is 
happening in large corporations. It lengthens the statute of 
limitations to 5 years from the date of fraud and 2 years from 
the date of discovery for victims to bring claims against the 
corporations. It prevents securities laws violators from using 
bankruptcy to shield debts based on fraud judgments.
    What they are trying to do--I see Senator Leahy in the 
Chamber; he is the major sponsor of this amendment--is to gut 
the provision that extends the statute of limitations and say 
that these people will not have to be held accountable for 
their wrongdoing.
    I urge my colleagues in the Senate to resist this effort. 
We have to hold these corporate wrongdoers accountable. We 
should not be party to any kind of effort to reduce their 
liability; otherwise, what message are we sending? Mandatory 
minimum sentences for a thimbleful of cocaine, but allowing 
those guilty of corporate wrongdoing to get off the hook. What 
is wrong with this picture of justice?
    I urge my colleagues to resist the change in the statute of 
limitations, and I yield the floor.
    Mr. Gramm addressed the Chair.
    The Presiding Officer. The Senator from Texas.
    Mr. Sarbanes. Madam President, I suggest the absence of a 
quorum.
    Mr. Gramm. Madam President, was I recognized?
    The Presiding Officer. The Senator from Texas was 
recognized.
    Mr. Gramm. Madam President, let me answer what has just 
been said and straighten out the facts. In 1995, we had a major 
problem in America in that we had strike lawsuits being filed 
against high-tech industries where one firm filed 80 percent of 
the cases and settled almost all the cases out of court.
    We had a bipartisan consensus that this represented abuse. 
So under the leadership of Senator Dodd, Senator Domenici, and 
others, we passed a bill which President Clinton vetoed. We 
then overrode the veto. An important part of that reform was to 
say--and let me make it clear, this does not have anything to 
do with committing a crime where you can be put in jail. It has 
nothing to do with the SEC's jurisdiction. It has nothing to do 
with the Justice Department's jurisdiction. It simply has to do 
with my right to file a lawsuit against you and anybody else's 
right to file a lawsuit against anybody else.
    We had a lot of reforms in that bill. You had to actually 
have a client. The lawyer who was the lead lawyer in 80 percent 
of these cases said he loved these type lawsuits because he did 
not have to fool with a client. In essence, he was suing on 
behalf of himself. Virtually a huge percent of the money went 
to the lawyer filing the suit, not to the people who supposedly 
had been harmed.
    Part of the reform was to set a statute of limitation that 
if you believe I have done something wrong, and you want to sue 
me for it, you have 1 year from the time you find it out, or 3 
years from when it happens to file a lawsuit.
    When the Senator was talking about letting people off the 
hook, surely everybody understands that our system has no ex 
post facto laws. So if the provision raising that statute of 
limitation to 5 years became law, it would have no effect on 
anybody who has committed one of these violations about which 
we are talking.

         AMENDMENT NO. 4184 TO DIVISION 1 OF AMENDMENT NO. 4174

    Mr. Gramm. Mr. President, having straightened that out, 
that is not even the subject about which we are talking. We now 
have three amendments pending, and I send a second-degree 
amendment to the first amendment and ask for its immediate 
consideration.
    This is a very short amendment and I ask it be read because 
the language of it is so clear that a lot of times we have an 
amendment, and what we say does not have much to do with the 
amendment. I want people to read the language.
    The Presiding Officer (Mr. Carper). The clerk will report.
    The legislative clerk read as follows:

    The Senator from Texas [Mr. Gramm], for himself and Mr. 
Santorum, proposes an amendment numbered 4184 to division 1 of 
amendment No. 4174:
(Purpose: To provide the Board with appropriate flexibility in applying 
    non-audit services restrictions to small businesses)

    At the end of the division, insert the following new section:

``SEC. . EXEMPTION AUTHORITY.

    ``(1) Case-by-Case Waivers.--Notwithstanding section 201(b) 
of this Act. The Board may, on a case by case basis, exempt any 
person, issuer, public accounting firm, or transaction from the 
prohibition on the provision of services under section 10A(g) 
of the Securities Exchange Act of 1934 (as added by this 
section), to the extent that such exemption is necessary or 
appropriate in the public interest and is consistent with the 
protection of investors, and subject to review by the 
Commission in the same manner as for rules of the Board under 
section 107.
    ``(2) Small Business Exemption.--The Board may, by rule 
exempt any person, issuer or public accounting firm (or classes 
of such persons, issuers or public accounting firms) from the 
prohibition on the provision of services under section 10A(g) 
of the Securities Exchange Act of 1934 (as added by this 
section), based upon the small business nature of such person, 
issuer or public accounting firm, taking into consideration 
applicable factors such as total asset size, availability and 
cost of retaining multiple service providers, number of public 
company audits performed, and such other factors and conditions 
as the Board deems appropriate consistent with the purposes of 
this Act.''.

    The Presiding Officer. The Senator from Nevada.
    Mr. Reid. Mr. President, I ask unanimous consent that I be 
allowed to yield to the Senator from Georgia.
    The Presiding Officer. Without objection, it is so ordered. 
The Senator from Georgia.

                      AMENDMENT NO. 4176 WITHDRAWN

    Mr. Miller. Mr. President, I ask unanimous consent that the 
Miller amendment be withdrawn.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The senior assistant bill clerk proceeded to call the roll.
    Mr. Daschle. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.

               DIVISION 1 OF AMENDMENT NO. 4174 WITHDRAWN

    Mr. Daschle. Mr. President, I withdraw Division 1 of the 
amendment.
    The Presiding Officer. The division is withdrawn.

               DIVISION 2 OF AMENDMENT NO. 4174 WITHDRAWN

    Mr. Daschle. I withdraw Division 2 of the amendment.
    The Presiding Officer. The division is withdrawn.

               DIVISION 3 OF AMENDMENT NO. 4174 WITHDRAWN

    Mr. Daschle. I withdraw Division 3 of the amendment.
    The Presiding Officer. The division is withdrawn.

                           AMENDMENT NO. 4185

(Purpose: To provide for criminal prosecution of persons who alter or 
    destroy evidence in certain Federal investigations or defraud 
    investors of publicly traded securities, and for other purposes.)

    Mr. Daschle. Mr. President, I send an amendment to the 
desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from South Dakota [Mr. Daschle], for Mr. Leahy, 
for himself, Mr. McCain, Mr. Daschle, Mr. Durbin, Mr. Harkin, 
Mr. Cleland, Mr. Levin, Mr. Kennedy, Mr. Biden, Mr. Feingold, 
Mr. Miller, Mr. Edwards, Mrs. Boxer, Mr. Corzine, and Mr. 
Kerry, proposes an amendment numbered 4185.

    Mr. Daschle. Mr. President, I ask unanimous consent that 
the reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    (The amendment is printed in today's Record under ``Text of 
Amendments.'')
    Mr. Daschle. I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Daschle. Mr. President, I ask unanimous consent the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Daschle. Mr. President, first, let me say that we have 
had a very productive period over the last several minutes, and 
I think we now are in a position to move to a vote on the Leahy 
amendment.
    Mr. President, I ask unanimous consent that a vote occur on 
the Leahy amendment at 3:15 this afternoon, and that there be 
no amendments offered prior to the vote.
    The Presiding Officer. Is there objection?
    The Chair hears none, and it is so ordered.
    Mr. Daschle. I thank the Chair.
    Mr. Leahy. Mr. President, I ask for the yeas and nays.
    The Presiding Officer. Is there a sufficient second?
    There appears to be.
    The yeas and nays were ordered.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Mr. President, first, let me say, I am pleased 
we have reached an agreement on the Leahy amendment. This is 
one of these little technical things that does not mean much to 
many people, and it is one where, in fact, there is a dispute, 
but we have reached an agreement that will allow the Leahy 
amendment to go forward with certainty on our part that the 2-
year statute of limitation is a real statute of limitation, 
that we simply change the number and that in the process, by 
the way we do it, we do not do anything that would challenge 
the current court ruling.
    Mr. Reid. Will my friend yield for a unanimous consent 
request?
    Mr. Gramm. I am happy to yield.
    Mr. Reid. Mr. President, I ask unanimous consent that the 
time from now until 3:15 be divided equally between the two 
managers of the bill.
    The Presiding Officer. Is there objection?
    The Chair hears none, and it is so ordered.
    Mr. Gramm. Mr. President, I thank the majority leader for 
helping us work this out. I think this will give us the ability 
now to move forward. As part of this agreement, we will have 
cloture filed on the bill. While that cloture is ripening, we 
will continue to consider amendments.
    I think this agreement guarantees we will have an 
opportunity, if not to finish the bill this week, the 
opportunity to assure that it would be finished early next 
week.
    Let me also say, for the record, I would not object to a 
unanimous consent request to have the cloture vote today or 
tomorrow. From my point of view, we do not need to wait until 
Friday to have the cloture vote. I would be willing to ask 
unanimous consent that it be moved up, if that were 
appropriate. I think that is up to the majority leader, 
obviously. But from my point of view, we are ready to move and 
head to conference with this bill.
    This one small part of the Leahy amendment I do not think 
is prudent policy, but there is greater certainty about what it 
means in terms of the statute of limitations. So I am more 
satisfied at least in terms of certainty.
    I thank Senator Leahy for working this out. There is no 
doubt about the fact that he had the votes if we could have 
brought it all to a vote, but I think what we are doing, by 
working out this simple compromise, is guaranteeing that we are 
going to pass this bill in short order.
    I am hopeful in conference we will be able to bring in the 
changes the President has proposed. I understand the Republican 
leader will offer them as an amendment. I will support them. I 
hope they are adopted unanimously.
    But in any case, I think this agreement paves the way to 
guarantee we will pass this bill, hopefully, this week if not 
early next week.
    Let me say to my colleagues on the Republican side of the 
aisle, I intend to vote for cloture. I think this is an 
important piece of legislation. I would do important parts of 
it differently than Senator Sarbanes, but he is Chairman and I 
am ranking member; and we have been in the different positions. 
There is a difference between the two, but we cannot get a bill 
which I want unless we go to conference.
    The House bill is very different. I think we have an 
opportunity to work out a compromise, just as we did on 
financial services modernization. Senator Sarbanes opposed it 
when we dealt with it on the floor of the Senate, but by the 
time we came back from conference, we got 90 votes. My guess 
is, we will do as well or better on this bill after going to 
conference.
    So I think we have taken a major step toward moving on. I 
think it is important. I think the American people want this 
bill passed. If we were willing to move up the cloture vote, 
which I am willing to do, we could pass it this week. If not, 
we will pass it next week.
    The Presiding Officer. Who yields time?
    Mr. Leahy. Mr. President, would the distinguished senior 
Senator from Maryland yield me, say, 5 minutes?
    Mr. Sarbanes. Would the Senator mind if I made a very short 
statement?
    Mr. Leahy. I would be delighted if the distinguished 
Chairman did.
    Mr. Sarbanes. Mr. President, I rise to commend the 
distinguished Senator from Vermont for the excellent work that 
he and the Committee on the Judiciary did with respect to the 
amendment that is now pending at the desk.
    This amendment will create tough new penalties to punish 
corporate fraud. It has very important provisions to protect 
corporate whistleblowers. Previously, they have been acting 
under wire and mail fraud provisions. And those are not 
adequate to deal with securities fraud. The committee 
recognized that and dealt directly with that question.
    The President is talking about doubling the penalties for 
wire and mail fraud, as I understand it, but did not have a 
proposal to actually have a securities fraud offense. And that 
is very important because it would have been very difficult 
under those other statutes because they are not directly 
focused on securities fraud.
    I think the committee has stepped into what was clearly a 
vacuum and has filled it in an exceedingly effective and 
craftsmanlike way.
    There are also important provisions in this amendment to 
prohibit individuals from destroying documents or falsifying 
records with the intent to obstruct or influence a Federal 
investigation or a matter in bankruptcy. That is also very 
important. We have some provisions of that sort but, once 
again, they are not fully developed or fully focused. The 
committee, again, has applied itself in order to do that and 
obviously made a very substantial contribution in that regard.
    I also want to touch, very briefly, on the provisions for 
whistleblower protection for employees of public companies. The 
legislation, as reported out of the Banking Committee, requires 
audit committees to have in place procedures to receive and 
address complaints regarding accounting and internal control or 
auditing issues and to establish procedures for employees' 
anonymous submissions of concerns regarding accounting or 
auditing matters. That was a provision championed by Senator 
Stabenow. We were very pleased to adopt it.
    But Senator Leahy and his colleagues on the Judiciary 
Committee have moved ahead to provide additional protections 
and remedies for corporate whistleblowers that I think will 
help to ensure that employees will not be punished for taking 
steps to prevent corporate malfeasance.
    There are a number of other very important provisions in 
this legislation of which I am very strongly supportive, but I, 
in deference to the limitation on time, will withhold with 
respect to those.
    But, again, I thank the able Chairman of the Judiciary 
Committee and his colleagues for this very important 
contribution to the legislation we are trying to develop.
    Let me simply say it is a pleasure, once again, as we did 
back in the fall when we did money laundering, to be able to 
work closely with the committee in furthering the public 
interest.
    I yield the remainder of my time to the Senator from 
Vermont.
    The Presiding Officer. Thirteen minutes remain for the 
majority. The Senator from Vermont.
    Mr. Leahy. I thank the distinguished Senator from Maryland. 
I appreciate his comments also about last fall after the 
tragedies of September 11. He and I and our committees worked 
closely on the terrorism legislation. Realizing it was more 
than simply having a penalty against terrorism, we had to have 
the tools against terrorism, and the distinguished senior 
Senator from Maryland was very helpful in putting together the 
money-laundering legislation so we could come out with a 
counterterrorism package on which the Senate could vote for 99-
1.
    That is what we are trying to do today. I am a proud 
cosponsor of Senator Sarbanes' legislation before the body. 
After years of experience in this body, I know how helpful it 
is if you have bills where the jurisdiction of various aspects 
may be in different committees. And considering having turf 
battles, when you work together, as we have in the Banking and 
Judiciary Committees, and others worked, you usually end up 
with a better package for the Senate.
    The final product becomes better and more complete because 
of our joint work. Having served here for a quarter of a 
century with the Senator from Maryland, I know such things can 
be done.
    With the members of his committee, he has had to craft a 
very complex, worthwhile bill on the issue of how do you 
account, how do you keep records, of all the various things to 
come under the SEC, to come under the jurisdiction of his 
committee.
    What I am concerned about, from the Judiciary Committee, 
is, if you get these people, you get them; that if you have 
somebody who has gone and spent all their efforts to defraud 
their own company and the pension holders in their company and 
the investors in their company, that they not walk off scot-
free with their mansions in protected States and their offshore 
money.
    When you look at what has happened, when you look at the 
out-and-out fraud of some of these executives as they have 
ruined their own company, actually damaged their own country as 
well, at the same time lining their pockets as if anybody could 
even have pockets as huge as the amounts of money they have put 
in, and they walk away scot-free and they say: This is such a 
tragedy. I hate to see my company collapse like that and tens 
of thousands of people out of work and all those pensioners 
gone and all those States defrauded. And I am just going to 
have to comfort myself for the rest of my life with my $100 or 
$200 or $300 million I have absconded with.
    Their comfort might be a little bit less if they find that 
those same pension holders and stockholders have the ability to 
go after the money they are walking away with, and their 
comfort might be a little bit less if instead of a very large 
mansion they are in a 12-by-12 cell behind steel doors. Instead 
of a complacent board of directors, they may have to be dealing 
with their fellow inmates who may not take very kindly to them.
    Why do we have to have that kind of a tough law, and why do 
we have to have the statute of limitations? Just take a look at 
this chart. This is what Enron did. Does this look like a 
company that wants to be transparent in their dealings? Does 
this look like a company that wants to be on the up and up? 
These are their off-the-book transactions, hidden debt, fake 
profits, inflated stock.
    What were some of the companies they were hiding this 
behind? Here is one named Ponderosa. If you look at that, you 
do not know it belongs to Enron. Or Jedi Capital or Big Doe--
that is not D-O-U-G-H--or Sundance or Little River or Yosemite 
or OB-1 Holdings or Peregrine or Kenobe. I guess Kenobe is a 
different company than OB-1. And we have Braveheart and Mojave 
and Chewco and Condor. It seems the only time they had free 
between trying to hide the money was going to movies, when you 
look at some of the secret partnerships they created here, Jedi 
II, OB-1, Kenobe.
    My point is, do you think if anybody stumbled across one of 
these companies they would think for even 1 minute that it 
belonged to Enron? Of course not. If you were the person who 
was to protect the pension rights of the employees, do you 
think if you found Ospry or Zenith or Egret or Cactus or Big 
River or Raptor you would think the money that was being tucked 
away and hidden in there could actually belong to the employees 
of Enron?
    But Kenneth Lay comes up here, sidles up to the table where 
he is going to be called to testify and says: I wish you could 
know the whole story, but not from me. I am taking the fifth.
    Well, he has that constitutional right. But he doesn't have 
a constitutional right to steal and defraud, and other people 
like him don't have the constitutional right to steal and 
defraud and hide the money.
    This isn't a question of whether they walk away with only 
$100 million instead of $200 million. It is a question of a 
middle-age couple reaching retirement time and having virtually 
all their retirement save Social Security tied up in a pension 
fund such as this and seeing it wiped out that day. They are 
not facing a question of whether they will have $200 million or 
$100 million. They are going to face the question of whether 
they can even keep their home, whether they will have the money 
to visit their grandchildren, or have the money to take care of 
their medical needs in their old age. That is what we are 
talking about. Or the people who work so hard, show up for work 
every single day, help make the fortune for the Ken Lays of the 
world, but they suddenly find they can't make the mortgage 
payment, they can't make the car payment, they can't pay for 
their children's braces. They can't do any of these other 
things because the big guys have walked off with all the money.
    That is why I wrote the legislation I did. I wrote 
legislation that is going to punish criminals. I wrote 
legislation that will preserve the evidence of fraud and 
protect victims.
    As one who has prosecuted people, I know nothing focuses 
their attention more than knowing they will not go to jail. 
Suddenly that overlooked ethics course when they were getting 
their MBA, or that overlooked ethics course in the accounting 
school or law school, they are going to start looking at it 
again. If they think, because they can walk away from this, 
they will go to jail, they are going to go to jail. It is not 
going to be a complacent board of directors they will deal 
with. It will be a criminal in the cell next door. That is what 
they have to worry about.
    These people deserve to go to jail. They have ruined the 
lives of thousands of people, good people, hard-working people, 
honest 
people. They have destroyed much of the confidence in Wall 
Street. They have destroyed the confidence in people who should 
be investing.
    I am proud to be an American and proud to be in a country 
such as ours where you can invest, where people can grow 
companies, where they can make money if they do the right 
thing. But I am not proud of these kinds of people who destroy 
that sort of American dream.
    The President says he is outraged. I suspect he is. But I 
am also outraged. I would hope the President's outrage will go 
to the point of supporting this kind of legislation, this kind 
of legislation which doesn't just say it is wrong for you to do 
that, but if you do it, you are going to go to jail. Those iron 
bars are going to close.
    We have worked hard on this legislation. That is why I 
compliment the distinguished senior Senator from Maryland. He 
and the members of his committee worked very hard. The people 
of my staff, including Ed Pagano, Steve Dettelbach, Jessica 
Berry, and Bruce Cohen worked so hard. They brought in people 
from across the political spectrum, Republicans and Democrats 
alike, to join us. I think all of those who joined it joined in 
one basic thing. They set aside their philosophical or partisan 
differences. They set aside their feelings of party and said 
they were overwhelmed with feelings of outrage.
    Even in my own little State of Vermont, pension funds were 
damaged because of the excesses of Enron. And then we see 
WorldCom and Tyco and Xerox, and we say we had better look back 
5 years.
    That is not the American way. That is the way of some of 
the most arrogant, self-centered, spoiled criminals. That is 
what they are; they are criminals. They cooked the books in 
California during an energy crisis, so millions of people in 
California paid more for their electricity. Their arrogance was 
such that they did not care because all of those offshore 
corporations were hiding the money. Lord knows how much money 
is still there. You are not going to find out from these 
executives because they will take the fifth. They have the 
constitutional right to do that, and I will defend that right, 
as I will the rights of everybody else. But let us not shed 
tears for them. Just as Democrats and Republicans will join in 
voting for this, I call on the President and the Attorney 
General to step forward and say they support it. And I call on 
our Justice Department to go forward and find some of these 
people not just to say maybe we will find a corporation guilty 
of a crime; let's send some of these people to jail for what 
they have done. Let's send them to jail, and let's do 
everything we can to let the people defrauded by them recover 
some of their ill-gotten gains.
    I see the Senator from Michigan has taken over the chair. 
Madam President, I reserve the remainder of my time.
    The Presiding Officer. The Senator's time has expired.
    Mr. Leahy. I note that the Senator from Michigan is a 
cosponsor of this amendment.
    The Presiding Officer. The Senator from Texas is 
recognized.
    Mr. Gramm. Madam President, I think all time has expired on 
the majority side. I think I have about 13 minutes. I have said 
all I intended to say. I think we have cleared the way for this 
bill to be passed. I want to reiterate that when cloture is 
filed in a few minutes, I will be supportive of having that 
cloture vote earlier than Friday, which would be the normal 
time it would ripen. Maybe others would not be supportive of 
having the vote, and they are perfectly within their rights. I 
think the agreement we worked out has guaranteed we are going 
to pass this bill either this week or very early next week.
    The net result is that we can go to conference with the 
House, and we will have an opportunity, I believe, to come back 
with a strong bipartisan bill. I have to say that I think we 
have sort of reached the point where a lot of debate on this 
issue is more about the next election than it is about 
corporate integrity. I wonder if the debate has not reached the 
point where we are hurting equity values by making people fear 
not only the disease, but the absurd prescription of the doctor 
that might come from the Government.
    I think the sooner we can finish this bill and go to 
conference and come out with a final product so that people 
know with certainty what the new rules are and how we are going 
to go about them, everybody will benefit. I think the only 
thing that will be lost by invoking cloture is that we will 
have fewer speeches, we will have fewer opportunities to 
denounce evil, however we define it, and we will be less likely 
to get on the 6 o'clock news; but we will also be less likely 
to spook the markets and more likely to get our job done; we 
will be more likely to produce a good bill we can all be proud 
of, not just when we read the editorial in the Washington Post, 
but when we submit it all to the front-porch-of-the-nursing-
home test, as to how we feel about it someday when we are 
sitting on the front porch of the nursing home.
    Mr. Harkin. Mr. President, our economic system is based on 
transparency. Investors need accurate financial information 
about a company so that they can make informed investment 
decisions. They need information they can trust. Getting honest 
information requires accountability and honesty from three 
entities: corporate executives, stock brokers, and public 
auditors. Clearly, we are seeing breakdowns, if not outright 
criminality, at all three levels. And it requires additional 
accountability at all three levels in order to restore investor 
confidence.
    First, we must expect that corporations present an honest 
portrait of the companies economic health and well-being. 
Corporate executives who cooks the books are no different than 
used car salesmen who roll back the car odometers, both are 
engaged in a fraud. They must be held accountable for their 
actions and severely punished.
    Second, we must expect brokers provide their investors with 
honest, accurate, and unbiased advice. I stress unbiased. 
Unfortunately, many brokerage firms have a conflict of interest 
because they bring in businesses and increase their own profits 
by pushing bad stocks. One recent report indicated that 94 
percent of Wall Street firms continued to recommend stocks for 
companies that went bankrupt this year up to the very day that 
companies filed for Chapter 11.
    Third, we have to expect that public accounting firms are 
acting as watchdogs over corporate financial statements. Yet 
many of the auditing firms, not just Arthur Andersen, have had 
major failures.
    Accounting firms gave a clean bill of health to over 93 
percent of publicly traded companies that were subsequently 
involved in 
accounting problems within the year. And 42 percent of publicly 
traded companies that filed for bankruptcy were given a clean 
bill of health. Clearly, we need fundamental reform at all 
three levels to restore investor confidence and punish criminal 
behavior. Some say may say that Enron, Worldcom and the others 
are a few bad apples. That ignores the much wider, systemic 
problems that now plague corporate America.
    Advocating half measures or saying that we do not need to 
strengthen the law is like saying that bank robbery should not 
be severely punished and banks should not have vaults because 
most people do not rob banks. Well, some people do rob banks. 
And some corporate executives rip off investors. But they are 
both criminals and both should be punished accordingly.
    I commend Chairman Sarbanes for his accounting reform bill, 

S. 2673, which is an excellent start at providing for stronger 
rules regarding accounting procedures. I am also pleased to be 
an original cosponsor of Senator Leahy's ``Corporate and 
Criminal Fraud Accountability Act,'' that is now being offered 
as an amendment. Will some key executives go to jail if this 
amendment passes? If they are guilty of fraud or destroying 
evidence of wrong doing, I certainly hope so.
    First, the amendment creates a new crime for security fraud 
and helps prosecutors punish corporate criminality. This 
amendment is a lot like the ``Go to Jail'' card in the board 
game ``Monopoly.'' It says to corporate criminals ``go to jail, 
do not pass go and do not collect $200.'' The amendment also 
increases penalties for obstruction of justice. The people who 
would shred documents to cover up criminal behavior are not 
better than the ``wheel man'' in a robbery. They may not have 
pulled the robbery, but the crook cannot getaway without them. 
This amendment would make sure the shredders are held 
accountable as well.
    Incidentally, the amendment also lengthens the statute of 
limitations on these crimes and protects corporate 
whistleblowers. Corporate criminals should not be allowed to 
run out the clock and avoid prosecution. And workers who 
discover corporate fraud should be protected just as we protect 
government whistleblowers. I believe this amendment will go a 
long way toward preventing corporate crime and prosecuting 
those who would rip off their stock holders and employees. 
Restoring confidence and punishing criminal behavior is in 
everyone's best interest--honest corporate executives, their 
employees, investors, and the public at large. I urge adoption 
of the amendment and look forward to seeing it become law.
    I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Sarbanes. Madam President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer (Ms. Stabenow). Without objection, it 
is so ordered.
    Under the previous order, the question is on agreeing to 
amendment No. 4185. The yeas and nays have been ordered. The 
clerk will call the roll.
    The legislative clerk called the roll.
    Mr. Nickles. I announce that the Senator from North 
Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich), 
and the Senator from Idaho (Mr. Crapo), are necessarily absent.
    I further announce that if present and voting the Senator 
from North Carolina (Mr. Helms) would vote ``yea.''
    The Presiding Officer. Are there any other Senators in the 
Chamber desiring to vote?
    The result was announced--yeas 97, nays 0, as follows:
                      [Rollcall Vote No. 169 Leg.]
    Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden, 
Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd, 
Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, 
Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine, 
Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, 
Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, 
Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, 
Jeffords, Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, 
Lieberman, Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, 
Murkowski, Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, 
Roberts, Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, 
Smith (NH), Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, 
Thompson, Thurmond, Torricelli, Warner, Wellstone, Wyden
    Not Voting--3: Crapo, Helms, Voinovich

    The amendment (No. 4185) was agreed to.
    Mr. Daschle. Madam President, I move to reconsider the 
vote.
    Mr. Sarbanes. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.

                           AMENDMENT NO. 4186

    Mr. Daschle. Madam President, I send an amendment to the 
desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from South Dakota [Mr. Daschle], for Mr. Biden 
and Mr. Hatch, proposes an amendment numbered 4186.

    Mr. Daschle. Madam President, I ask unanimous consent that 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To increase criminal penalties relating to conspiracy, mail 
    fraud, wire fraud, and certain ERISA violations, and for other 
    purposes)

    At the end, add the following:

          TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 801 SHORT TITLE.

    This title may be cited as the ``White-Collar Crime Penalty 
Enhancement Act of 2002''.

SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO 
                    DEFRAUD THE UNITED STATES.

    Section 371 of title 18, United States Code, is amended by 
striking ``If two or more'' and all that follows through ``If, 
however,'' and inserting the following:
    ``(a) In General.--If 2 or more persons--
    ``(1) conspire to commit any offense against the United 
States, in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined or imprisoned, or both, as set forth in 
the specific substantive offense which was the object of the 
conspiracy; or
    ``(2) conspire to defraud the United States, or any agency 
thereof in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined under this title, or imprisoned not more 
than 10 years, or both.
    ``(b) Misdemeanor Offense.--If, however,''.

SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.

SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT 
                    INCOME SECURITY ACT OF 1974.

    Section 501 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1131) is amended--
    (1) by striking ``$5,000'' and inserting ``$100,000'';
    (2) by striking ``one year'' and inserting ``10 years''; 
and
    (3) by striking ``$100,000'' and inserting ``$500,000''.

SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                    COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18, 
United States Code, and in accordance with this section, the 
United States Sentencing Commission shall review and, as 
appropriate, amend the Federal Sentencing Guidelines and 
related policy statements to implement the provisions of this 
title.
    (b) Requirements.--In carrying out this section, the 
Sentencing Commission shall--
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of the offenses and the 
penalties set forth in this title, the growing incidence of 
serious fraud offenses which are identified above, and the need 
to modify the sentencing guidelines and policy statements to 
deter, prevent, and punish such offenses;
    (2) consider the extent to which the guidelines and policy 
statements adequately address--
    (A) whether the guideline offense levels and enhancements 
for violations of the sections amended by this title are 
sufficient to deter and punish such offenses, and specifically, 
are adequate in view of the statutory increases in penalties 
contained in this title; and
    (B) whether a specific offense characteristic should be 
added in United States Sentencing Guideline section 2B1.1 in 
order to provide for stronger penalties for fraud when the 
crime is committed by a corporate officer or director;
    (3) assure reasonable consistency with other relevant 
directives and sentencing guidelines;
    (4) account for any additional aggravating or mitigating 
circumstances that might justify exceptions to the generally 
applicable sentencing ranges;
    (5) make any necessary conforming changes to the sentencing 
guidelines; and
    (6) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.

SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following:

``Sec. 1348. Failure of corporate officers to certify financial reports

    ``(a) Certification of Periodic Financial Reports.--Each periodic 
report containing financial statements filed by an issuer with the 
Securities Exchange Commission pursuant to section 13(a) or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall 
be accompanied by a written statement by the Chairman of the board, 
chief executive officer, and chief financial officer (or equivalent 
thereof) of the issuer.
    ``(b) Content.--The statement required under subsection (a) shall 
certify the appropriateness of the financial statements and disclosures 
contained in the periodic report or financial report, and that those 
financial statements and disclosures fairly present, in all material 
respects, the operations and financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other provision of 
law--
    ``(1) any person who recklessly violates any provision of this 
section shall upon conviction be fined not more than $500,000, or 
imprisoned not more than 5 years, or both; or
    ``(2) any person who willfully violates any provision of this 
section shall upon conviction be fined not more than $1,000,000, or 
imprisoned not more than 10 years, or both.''.
    (b) Technical and Conforming Amendment.--The section analysis for 
chapter 63 of title 18, United States Code, is amended by adding at the 
end the following:

 ``1348. Failure of corporate officers to certify financial reports.''.

    Mr. Daschle. Madam President, I know there are a number of 
Senators who wish to be recognized to offer amendments. I think 
Senator Lott would like very much to offer an amendment as 
well. What I would like to do is to propound a unanimous 
consent request involving a number of Senators who have 
amendments to be offered so they will know the sequence. I know 
Senator Edwards has been waiting a long time to offer an 
amendment, as well as Senator Levin, Senator Schumer, Senator 
Gramm, and Senator McCain. Perhaps in the next couple of 
minutes we can put together a unanimous consent request which 
will sequence these amendments so Senators will know they are 
protected and have the opportunity to then have their 
amendments called up. I ask that all of our colleagues work 
with us over the course of the next few minutes.
    I yield the floor to accommodate Senator Lott's interest in 
offering his amendment. We will lay aside the Biden amendment 
temporarily as that amendment is considered as well.
    The Presiding Officer. The Republican leader.
    Mr. Lott. Madam President, first, I thank Senators 
Sarbanes, Gramm, and Leahy for the work they have put into 
moving through the amendment on which we just voted. That 
allows us to move on to other germane or important amendments 
that will be offered.

                           AMENDMENT NO. 4188

    Madam President, I understand the Biden amendment will be 
set aside. So I send to the desk my amendment.
    The Presiding Officer. Without objection, the pending 
amendment is set aside, and the clerk will report.
    The legislative clerk read as follows:

    The Senator from Mississippi [Mr. Lott] proposes an 
amendment numbered 4188.

    Mr. Lott. Madam President, I ask unanimous consent that 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To deter fraud and abuse by corporate executives)

    At the appropriate place, insert the following:

SEC. . HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 is amended by striking 
``five'' and inserting ``ten''.
    (b) Wire Fraud.--Section 1343 is amended by striking 
``five'' and inserting ``ten''.

SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL 
                    PROCEEDING.

    Section 1512 of title 18, United States Code is amended--
    (a) by re-designating subsections (c), (d), (e), (f), (g), 
(h), and (i) as subsections (d), (e), (f), (g), (h), (i) and 
(j);
    (b) by inserting after subsection (b) the following new 
subsection:
    ``(c) Whoever corruptly--
    ``(1) alters, destroys, mutilates or conceals a record, 
document or other object, or attempts to do so, with the intent 
to impair the object's integrity or availability for use in an 
official proceeding; or
    ``(2) otherwise obstructs, influences, or impedes any 
official proceeding, or attempts to do so;
    ``shall be fined under this title or imprisoned not more 
than ten years, or both.''

SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE 
                    COMMISSION.

    (a) In General.--The Securities Exchange Act of 1934 is 
amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
3(c)(2)) the following:
    ``(3) Temporary freeze.--
    ``(A) Whenever during the course of a lawful investigation 
involving possible violations of the Federal securities laws by 
an issuer of publicly traded securities or any of its 
directors, officers, partners, controlling persons, agents or 
employees, it shall appear to the Commission that it is likely 
that the issuer will make extraordinary payments (whether 
compensation or otherwise) to any of the foregoing persons, the 
Commission may petition a Federal district court for a 
temporary order requiring the issuer to escrow, subject to 
court supervision, those payments in an interest-bearing 
account for 45 days. Such an order shall be entered, if the 
court finds that the issuer is likely to make such 
extraordinary payments, only after notice and opportunity for a 
hearing, unless the court determines that notice and hearing 
prior to entry of the order would be impracticable or contrary 
to the public interest. A temporary order shall become 
effective immediately and shall be served upon the parties 
subject to it and, unless set aside, limited or suspended by 
court of competent jurisdiction, shall remain effective and 
enforceable for 45 days. The period of the order may be 
extended by the court upon good cause shown for not longer than 
45 days, provided that the combined period of the order not 
exceed 90 days.
    ``(B) If the individual affected by such order is charged 
with violations of the Federal securities laws by the 
expiration of the 45 days (or the expiration of any extended 
period), the escrow would continue, subject to court approval, 
until the conclusion of any legal proceedings. The issuer and 
the affected director, officer, partner, controlling person, 
agent or employee would have the right to petition the court 
for review of the order. If the individual affected by such 
order is not charged, the escrow will terminate at the 
expiration of the 45 days (or the expiration of any extended 
period), and the payments (with accrued interest) returned to 
the issuer.
    (b) Technical Amendment.--Section 21C(c)(2) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is 
amended by striking ``This'' and inserting ``Paragraph (1) of 
this''.

SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

    (a) Request for Immediate Consideration by the United 
States Sentencing Commission.--Pursuant to its authority under 
section 994(p) of title 28, United States Code, and in 
accordance with this section, the United States Sentencing 
Commission is requested to--
    (1) promptly review the sentencing guidelines applicable to 
securities and accounting fraud and related offenses;
    (2) expeditiously consider promulgation of new sentencing 
guidelines or amendments to existing sentencing guidelines to 
provide an enhancement for officers or directors of publicly 
traded corporations who commit fraud and related offenses; and
    (3) submit to Congress an explanation of actions taken by 
the Commission pursuant to paragraph (2) and any additional 
policy recommendations the Commission may have for combating 
offenses described in paragraph (1).
    (b) Other.--In carrying out this section, the Sentencing 
Commission is requested to:
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of securities, pension, 
and accounting fraud and the need for aggressive and 
appropriate law enforcement action to prevent such offenses;
    (2) assure reasonable consistency with other relevant 
directives and with other guidelines;
    (3) account for any aggravating or mitigating circumstances 
that might justify exceptions, including circumstances for 
which the sentencing guidelines currently provide sentencing 
enhancements;
    (4) make any necessary conforming changes to the sentencing 
guidelines; and
    (5) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.
    (c) Emergency Authority and Deadline for Commission 
Action.--The Commission is requested to promulgate the 
guidelines or amendments provided for under this section as 
soon as practicable, and in any event not later than the 120 
days after the date of the enactment of this Act, in accordance 
with the procedures set forth in section 21(a) of the 
Sentencing Reform Act of 1987, as though the authority under 
that Act had not yet expired.

SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS 
                    OFFICERS OR DIRECTORS.

    (a) In section 21C of the Exchange Act of 1934, add at the 
end a new subsection as follows:
    ``( ) Authority of the Commission To Prohibit Persons From 
Serving as Officers or Directors.--In any cease-and-desist 
proceeding under subsection (a), the Commission may issue an 
order to prohibit, conditionally or unconditionally, and 
permanently or for such period of time as it shall determine, 
any person who has violated section 10(b) of this title or the 
rules or regulations thereunder from acting as an officer or 
director of any issuer that has a class of securities 
registered pursuant to section 12 of this title or that is 
required to file reports pursuant to section 15(d) of this 
title if the person's conduct demonstrates unfitness to serve 
as an officer or director of any such issuer.''
    (b) In section 8A of the Securities Act add at the end a 
new subsection as follows:
    ``( ) Authority of the Commission To Prohibit Persons From 
Serving as Officers or Directors.--In any cease-and-desist 
proceeding under subsection (a), the Commission may issue an 
order to prohibit, conditionally or unconditionally, and 
permanently or for such period of time as it shall determine, 
any person who has violated section 17(a)(1) of this title from 
acting as an officer or director of any issuer that has a class 
of securities registered pursuant to section 12 of the 
Securities Exchange Act of 1934 or that is required to file 
reports pursuant to section 15(d) of that Act if the person's 
conduct demonstrates unfitness to serve as an officer or 
director of any such issuer.''

                AMENDMENT NO. 4189 TO AMENDMENT NO. 4188

    Mr. Gramm. Madam President, I send a second-degree 
amendment to the desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from Texas [Mr. Gramm] proposes an amendment 
numbered 4189 to amendment No. 4188.

    Mr. Gramm. Madam President, I ask unanimous consent that 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To deter fraud and abuse by corporate executives)

    Strike all after the first word, and insert the following:

           HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 is amended by striking ``five'' and 
inserting ``ten''.
    (b) Wire Fraud.--Section 1343 is amended by striking ``five'' and 
inserting ``ten''.

SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL 
                    PROCEEDING.

    Section 1512 of title 18, United States Code is amended--
    (a) by re-designating subsections (c), (d), (e), (f), (g), 
(h), and (i) as subsections (d), (e), (f), (g), (h), (i) and 
(j);
    (b) by inserting after subsection (b) the following new 
subsection:
    ``(c) Whoever corruptly--
    ``(1) alters, destroys, mutilates or conceals a record, 
document or other object, or attempts to do so, with the intent 
to impair the object's integrity or availability for use in an 
official proceeding; or
    ``(2) otherwise obstructs, influences, or impedes any 
official proceeding, or attempts to do so;
``shall be fined under this title or imprisoned not more than 
ten years, or both.''

SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE 
                    COMMISSION.

    (a) In General.--The Securities Exchange Act of 1934 is 
amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
3(c)(2)) the following:
    ``(3) Temporary freeze.--
    ``(A) Whenever during the course of a lawful investigation 
involving possible violations of the Federal securities laws by 
an issuer of publicly traded securities or any of its 
directors, officers, partners, controlling persons, agents or 
employees, it shall appear to the Commission that it is likely 
that the issuer will make extraordinary payments (whether 
compensation or otherwise) to any of the foregoing persons, the 
Commission may petition a Federal district court for a 
temporary order requiring the issuer to escrow, subject to 
court supervision, those payments in an interest-bearing 
account for 45 days. Such an order shall be entered, if the 
court finds that the issuer is likely to make such 
extraordinary payments, only after notice and opportunity for a 
hearing, unless the court determines that notice and hearing 
prior to entry of the order would be impracticable or contrary 
to the public interest. A temporary order shall become 
effective immediately and shall be served upon the parties 
subject to it and, unless set aside, limited or suspended by 
court of competent jurisdiction, shall remain effective and 
enforceable for 45 days. The period of the order may be 
extended by the court upon good cause shown for not longer than 
45 days, provided that the combined period of the order not 
exceed 90 days.
    ``(B) If the individual affected by such order is charged 
with violations of the Federal securities laws by the 
expiration of the 45 days (or the expiration of any extended 
period), the escrow would continue, subject to court approval, 
until the conclusion of any legal proceedings. The issuer and 
the affected director, officer, partner, controlling person, 
agent or employee would have the right to petition the court 
for review of the order. If the individual affected by such 
order is not charged, the escrow will terminate at the 
expiration of the 46 days (or the expiration of any extended 
period), and the payments (with accrued interest) returned to 
the issuer.
    (b) Technical Amendment.--Section 21C(c)(2) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is 
amended by striking ``This'' and inserting ``Paragraph (1) of 
this''.

SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

    (a) Request for Immediate Consideration by the United 
States Sentencing Commission.--Pursuant to its authority under 
section 994(p) of title 28, United States Code, and in 
accordance with this section, the United States Sentencing 
Commission is requested to--
    (1) promptly review the sentencing guidelines applicable to 
securities and accounting fraud and related offenses;
    (2) expeditiously consider promulgation of new sentencing 
guidelines or amendments to existing sentencing guidelines to 
provide an enhancement for officers or directors of publicly 
traded corporations who commit fraud and related offenses; and
    (3) submit to Congress an explanation of actions taken by 
the Commission pursuant to paragraph (2) and any additional 
policy recommendations the Commission may have for combating 
offenses described in paragraph (1).
    (b) Other.--In carrying out this section, the Sentencing 
Commission is requested to:
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of securities, pension, 
and accounting fraud and the need for aggressive and 
appropriate law enforcement action to prevent such offenses;
    (2) assure reasonable consistency with other relevant 
directives and with other guidelines;
    (3) account for any aggravating or mitigating circumstances 
that might justify exceptions, including circumstances for 
which the sentencing guidelines currently provide sentencing 
enhancements;
    (4) make any necessary conforming changes to the sentencing 
guidelines; and
    (5) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.
    (c) Emergency Authority and Deadline for Commission 
Action.--The Commission is requested to promulgate the 
guidelines or amendments provided for under this section as 
soon as practicable, and in any event not later than the 120 
days after the date of the enactment of this Act, in accordance 
with the procedures set forth in section 21(a) of the 
Sentencing Reform Act of 1987, as though the authority under 
that Act had not yet expired.

SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS 
                    OFFICERS OR DIRECTORS.

    (a) In section 21C of the Exchange Act of 1934, add at the 
end a new subsection as follows:
    ``( ) Authority of the Commission To Prohibit Persons From 
Serving as Officers or Directors.--In any cease-and-desist 
proceeding under subsection (a), the Commission may issue an 
order to prohibit, conditionally or unconditionally, and 
permanently or for such period of time as it shall determine, 
any person who has violated section 10(b) of this title or the 
rules or regulations thereunder from acting as an officer or 
director of any issuer that has a class of securities 
registered pursuant to section 12 of this title or that is 
required to file reports pursuant to section 15(d) of this 
title if the person's conduct demonstrates unfitness to serve 
as an officer or director of any such issuer.''
    (b) In section 8A of the Securities Act add at the end a 
new subsection as follows:
    ``( ) Authority of the Commission To Prohibit Persons From 
Serving as Officers or Directors.--In any cease-and-desist 
proceeding under subsection (a), the Commission may issue an 
order to prohibit, conditionally or unconditionally, and 
permanently or for such period of time as it shall determine, 
any person who has violated section 17(a)(1) of this title from 
acting as an officer or director of any issuer that has a class 
of securities registered pursuant to section 12 of the 
Securities Exchange Act of 1934 or that is required to file 
reports pursuant to section 15(d) of that Act if the person's 
conduct demonstrates unfitness to serve as an officer or 
director of any such issuer.''

    Mr. Daschle. Madam President, I suggest the absence of a 
quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Daschle. Madam President, I ask unanimous consent the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.

                    AMENDMENT NO. 4186, AS MODIFIED

    Mr. Daschle. Madam President, I think we are working 
through the number of procedural issues with which we have to 
deal. I want to make sure we are in a position to be able to 
complete that work. So I call for the regular order.
    The Presiding Officer. Amendment No. 4186 is pending.
    Mr. Daschle. I modify the original amendment that I offered 
with the changes that are at the desk.
    The Presiding Officer. The amendment is so modified.
    The amendment, as modified, is as follows:

    On page 117 in line 12 strike ``Act'' and insert the 
following: Act.

          TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 801 SHORT TITLE.

    This title may be cited as the ``White-Collar Crime Penalty 
Enhancement Act of 2002''.

SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO 
                    DEFRAUD THE UNITED STATES.

    Section 371 of title 18, United States Code, is amended by 
striking ``If two or more'' and all that follows through ``If, 
however,'' and inserting the following:
    ``(a) In General.--If 2 or more persons--
    ``(1) conspire to commit any offense against the United 
States, in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined or imprisoned, or both, as set forth in 
the specific substantive offense which was the object of the 
conspiracy; or
    ``(2) conspire to defraud the United States, or any agency 
thereof in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined under this title, or imprisoned not more 
than 10 years, or both.
    ``(b) Misdemeanor Offense.--If, however,''.

SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.

SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT 
                    INCOME SECURITY ACT OF 1974.

    Section 501 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1131) is amended--
    (1) by striking ``$5,000'' and inserting ``$100,000'';
    (2) by striking ``one year'' and inserting ``10 years''; 
and
    (3) by striking ``$100,000'' and inserting ``$500,000''.

SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                    COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18, 
United States Code, and in accordance with this section, the 
United States Sentencing Commission shall review and, as 
appropriate, amend the Federal Sentencing Guidelines and 
related policy statements to implement the provisions of this 
title.
    (b) Requirements.--In carrying out this section, the 
Sentencing Commission shall--
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of the offenses and the 
penalties set forth in this title, the growing incidence of 
serious fraud offenses which are identified above, and the need 
to modify the sentencing guidelines and policy statements to 
deter, prevent, and punish such offenses;
    (2) consider the extent to which the guidelines and policy 
statements adequately address--
    (A) whether the guideline offense levels and enhancements 
for violations of the sections amended by this title are 
sufficient to deter and punish such offenses, and specifically, 
are adequate in view of the statutory increases in penalties 
contained in this title; and
    (B) whether a specific offense characteristic should be 
added in United States Sentencing Guideline section 2B1.1 in 
order to provide for stronger penalties for fraud when the 
crime is committed by a corporate officer or director;
    (3) assure reasonable consistency with other relevant 
directives and sentencing guidelines;
    (4) account for any additional aggravating or mitigating 
circumstances that might justify exceptions to the generally 
applicable sentencing ranges;
    (5) make any necessary conforming changes to the sentencing 
guidelines; and
    (6) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.

SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following:

``Sec. 1348. Failure of corporate officers to certify financial reports

    ``(a) Certification of Periodic Financial Reports.--Each 
periodic report containing financial statements filed by an 
issuer with the Securities Exchange Commission pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written 
statement by the Chairman of the board, chief executive 
officer, and chief financial officer (or equivalent thereof) of 
the issuer.
    ``(b) Content.--The statement required under subsection (a) 
shall certify the appropriateness of the financial statements 
and disclosures contained in the periodic report or financial 
report, and that those financial statements and disclosures 
fairly present, in all material respects, the operations and 
financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other 
provision of law--
    ``(1) any person who recklessly violates any provision of 
this section shall upon conviction be fined not more than 
$500,000, or imprisoned not more than 5 years, or both; or
    ``(2) any person who willfully violates any provision of 
this section shall upon conviction be fined not more than 
$1,000,000, or imprisoned not more than 10 years, or both.''.
    (b) Technical and Conforming Amendment.--The section 
analysis for chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:

 ``1348. Failure of corporate officers to certify financial reports.''.

    Mr. Daschle. Madam President, I ask for the yeas and nays.
    The Presiding Officer. Is there a sufficient second?
    There appears to be a sufficient second.
    The yeas and nays were ordered.

         AMENDMENT NO. 4190 TO AMENDMENT NO. 4186, AS MODIFIED

    Mr. DASCHLE. Madam President, I send up an amendment in the 
second degree.
    What we have done now is to assure that both the Biden 
amendment and the Lott amendment will have an opportunity to be 
considered and debated. I am hoping we might even be able to 
continue to work to see if we can have one vote rather than 
two.
    The Presiding Officer. The clerk will report the amendment.
    The legislative clerk read as follows:

    The Senator from South Dakota [Mr. Daschle], for Mr. Biden, 
proposes an amendment numbered 4190 to amendment No. 4186, as 
modified.

    The amendment is as follows:
(Purpose: To increase criminal penalties relating to conspiracy, mail 
    fraud, wire fraud, and certain ERISA violations, and for other 
    purposes)

    Strike all after the first word and insert the following:

             VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 801 SHORT TITLE.

    This title may be cited as the ``White-Collar Crime Penalty 
Enhancement Act of 2002''.

SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO 
                    DEFRAUD THE UNITED STATES.

    Section 371 of title 18, United States Code, is amended by 
striking ``If two or more'' and all that follows through ``If, 
however,'' and inserting the following:
    ``(a) In General.--If 2 or more persons--
    ``(1) conspire to commit any offense against the United 
States, in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined or imprisoned, or both, as set forth in 
the specific substantive offense which was the object of the 
conspiracy; or
    ``(2) conspire to defraud the United States, or any agency 
thereof in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined under this title, or imprisoned not more 
than 10 years, or both.
    ``(b) Misdemeanor Offense.--If, however,''.

SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.

SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT 
                    INCOME SECURITY ACT OF 1974.

    Section 501 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1131) is amended--
    (1) by striking ``$5,000'' and inserting ``$100,000'';
    (2) by striking ``one year'' and inserting ``10 years''; 
and
    (3) by striking ``$100,000'' and inserting ``$500,000''.

SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                    COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18, 
United States Code, and in accordance with this section, the 
United States Sentencing Commission shall review and, as 
appropriate, amend the Federal Sentencing Guidelines and 
related policy statements to implement the provisions of this 
title.
    (b) Requirements.--In carrying out this section, the 
Sentencing Commission shall--
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of the offenses and the 
penalties set forth in this title, the growing incidence of 
serious fraud offenses which are identified above, and the need 
to modify the sentencing guidelines and policy statements to 
deter, prevent, and punish such offenses;
    (2) consider the extent to which the guidelines and policy 
statements adequately address--
    (A) whether the guideline offense levels and enhancements 
for violations of the sections amended by this title are 
sufficient to deter and punish such offenses, and specifically, 
are adequate in view of the statutory increases in penalties 
contained in this title; and
    (B) whether a specific offense characteristic should be 
added in United States Sentencing Guideline section 2B1.1 in 
order to provide for stronger penalties for fraud when the 
crime is committed by a corporate officer or director;
    (3) assure reasonable consistency with other relevant 
directives and sentencing guidelines;
    (4) account for any additional aggravating or mitigating 
circumstances that might justify exceptions to the generally 
applicable sentencing ranges;
    (5) make any necessary conforming changes to the sentencing 
guidelines; and
    (6) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.

SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following:

``Sec. 1348. Failure of corporate officers to certify financial reports

    ``(a) Certification of Periodic Financial Reports.--Each 
periodic report containing financial statements filed by an 
issuer with the Securities Exchange Commission pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written 
statement by the Chairman of the board, chief executive 
officer, and chief financial officer (or equivalent thereof) of 
the issuer.
    ``(b) Content.--The statement required under subsection (a) 
shall certify the appropriateness of the financial statements 
and disclosures contained in the periodic report or financial 
report, and that those financial statements and disclosures 
fairly present, in all material respects, the operations and 
financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other 
provision of law--
    ``(1) any person who recklessly violates any provision of 
this section shall upon conviction be fined not more than 
$500,000, or imprisoned not more than 5 years, or both; or
    ``(2) any person who willfully violates any provision of 
this section shall upon conviction be fined not more than 
$1,000,000, or imprisoned not more than 10 years, or both.''.
    (b) Technical and Conforming Amendment.--The section 
analysis for chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:

 ``1348. Failure of corporate officers to certify financial reports.''.

    This section shall take effect one day after date of this 
bill's enactment.

    Mr. Daschle. Madam President, I yield the floor. It is my 
understanding Senator Biden and Senator Lott would both like to 
address their amendments. I yield for that purpose now.
    The Presiding Officer. The Republican leader.

                           AMENDMENT NO. 4188

    Mr. Lott. Madam President, if I could describe my amendment 
briefly. I understand Senator Biden is prepared to do the same 
thing.
    First, I should note, in at least one area they overlap in 
what they propose. In some other areas, there are some 
differences. But I don't see there are major problems.
    Senator Biden's amendment, as I understand it, just from 
looking at it quickly, would increase penalties in some areas 
that are not included in my amendment. What this amendment 
would do, though, is increase penalties for corporate fraud.
    Section 1 would increase maximum sentences for fraud. Mail 
fraud and wire fraud statutes are often used in criminal cases 
involving corporate wrongdoing. So obviously this is an area 
that is of concern and needs to be addressed. This section 
proposes doubling the maximum prison term for these crimes from 
5 years to 10 years by amending 18 U.S.C. sections 1341 and 
1343.
    The second section would enact stronger laws against 
document shredding. Current law prohibits obstruction of 
justice by a defendant acting alone, but only if a proceeding 
is pending and a subpoena has been issued for the evidence that 
has been destroyed or altered. Timing is very important.
    Most people understand that shredding documents is a very 
bad thing to do. Obviously, you cannot do it if there is 
something pending or if there is a subpoena. But as was the 
case recently, they knew that an investigation was underway and 
a subpoena was likely, and the shredding of documents went 
forward.
    So this section would allow the Government to charge 
obstruction against individuals who acted alone, even if the 
tampering took place prior to the issuance of a grand jury 
subpoena. I think this is something we need to make clear so we 
do not have a repeat of what we saw with the Enron matter 
earlier this year.
    Section 3 freezes payments of potential wrongdoers. This 
section would allow the SEC, during an investigation, to seek 
an order in Federal court imposing a 45-day freeze on 
extraordinary payments to corporate executives.
    Again, this year we have seen just that sort of thing 
happening. While an investigation is underway, basically 
rewards were given to these corporate executives. While it 
would require a court order, there would be this 45-day freeze.
    The targeted payments would be placed in escrow, ensuring 
that corporate assets are not improperly taken from an 
executive's personal benefit.
    If an executive is charged with violations of Federal 
securities laws prior to the expiration of the court order, the 
escrow would continue until the conclusion of legal 
proceedings, again, with court approval.
    Section 4 involves sentencing guideline enhancements for 
crimes committed by corporate officers and directors. This 
section would implement President Bush's call on the Sentencing 
Commission to quickly adopt the new ``aggravating factor'' to 
provide stronger penalties for fraud when the crime is 
committed by a corporate officer or director. This 
``aggravating factor'' is a term of art used in the law. It 
would provide, under this section, stronger penalties for such 
fraud.
    Section 5 would bar corporate officers and directors who 
engage in serious misconduct. Under current law, only a Federal 
court can issue an order prohibiting a person from acting as an 
officer or director of a public company.
    The SEC cannot order this remedy in its own administrative 
cease-and-desist proceedings, even in a case of securities 
fraud where the person's conduct would otherwise meet the 
standards for imposing such a bar. This section would grant the 
SEC the authority to issue such orders if a person had 
committed securities law violation and his or her conduct 
demonstrated unfitness to serve as an officer or a director.
    These points are all points that were made by the 
President, asking that legislation be provided to provide for 
these additional increases and strengthening of the law. We 
have found clearly that in recent events there has been 
improper conduct. There have been questionable accounting 
procedures, and there has probably been some illegal conduct. 
So you can put all the laws in the world on the books, but if 
people act in bad faith, violate the law, you can never 
legislate morality.
    We have also seen that there are some cases where the law 
had some loopholes or where it was not timely or where it was 
not strong enough. One example, of course, is where there has 
been shredding. Another example is the very bad image of 
corporate executives taking increased payments, extraordinary 
payments, while they are being investigated. You can't have 
that sort of thing.
    I think these are basic things that should be added to this 
bill. It would strengthen the bill. I have checked with a 
number of Senators on both sides of the aisle. There is general 
support for this legislation.
    I thank Senator Biden for allowing me to make this brief 
statement about the amendment. Again, I emphasize that there 
are some similarities between this amendment and his amendment, 
but he does add additional penalties beyond what is in this 
proposal. But I did want to put into the bill what the 
President specifically recommended.
    The Presiding Officer (Mr. Dayton). The Senator from 
Delaware.
    Mr. Biden. Mr. President, this amendment is from Senator 
Hatch and me. He had as much input in this as I had. Let me 
respond in the spirit in which I was asked to do this and 
explain what the Biden-Hatch amendment does and then yield to 
my colleague to make any additional statements.
    Based on what Senator Lott has just pointed out, he has 
indicated that there are four basic sections to his amendment. 
On the first one, doubling the penalties for title 18, sections 
1341 and 1343, that is exactly the same provision that is in 
the Biden-Hatch bill.
    Secondly, making it a crime for document shredding: If I am 
not mistaken, that is in the Leahy amendment we just passed and 
that I cosponsored, as well as many others.
    The third part of the amendment discussed by the Republican 
leader is something with which I happen to agree. It is not in 
either the Leahy bill just passed or in the Biden-Hatch 
amendment. That is the 45-day freeze on corporate executives' 
extraordinary income based upon the SEC being able to hold that 
in escrow and freeze it for 45 days while they look at it. I, 
for one, would be willing--I will yield to my colleague from 
Utah at the appropriate time--to accept that or join that in 
our amendment.
    Fourth, the Sentencing Commission provisions that were 
referred to by my friend from Mississippi are in the Biden-
Hatch bill. There is only one piece of the legislation of the 
Senator from Mississippi, as I understand it, based on the 
summary, that is not either already passed or included in 
Biden-Hatch.
    But there are three areas that are not included which we 
think are very important. One is in section 2 of our 
legislation, which relates to conspiracy. Under title 18, 
section 371, the maximum penalty for general conspiracy to 
commit a crime is 5 years in prison regardless of whether the 
penalty for the predicate offense--that is, the thing they are 
conspiring to do--is considerably more than 5 years. So what 
Senator Hatch and I do is we allow the penalty for conspiracy 
to be consistent with what the penalty would be for the 
underlying crime; that is, the predicate crime. That is not 
included in the amendment of the Senator from Mississippi.
    Also, a very important provision of Biden-Hatch is that 
right now, under ERISA, the Employment Retirement Security Act 
of 1974--we were both here to vote for that--under current law, 
a violation for essentially squandering someone's pension to 
the tune of tens of millions, maybe billions, of dollars is a 
misdemeanor with a maximum penalty of 1 year. If you were to 
steal an automobile from my driveway, which is about 2 miles 
from the Pennsylvania line, drive it across the Pennsylvania 
line, under Federal law, it is a 10-year sentence. There is 
obviously a bizarre disparity.
    What we do is we increase the penalty for criminal 
violation of ERISA to 1 to 10 years, based upon the value of 
what is stolen in ERISA. If the loss in ERISA is a $20,000 
pension versus several billion dollars' worth, the Sentencing 
Commission can make that judgment, as they do now, to have the 
penalty be from 1 but up to 10 years. That is not in Senator 
Lott's amendment.
    Lastly, section 6 of Biden-Hatch. Currently, the Securities 
and Exchange Commission requires regulated companies to file 
periodic financial reports with the SEC. This section of Biden-
Hatch creates a new section in title 18 of the United States 
Code to require certification, signed by the top officials of 
that corporation, that the financial reports being filed 
accurately reflect the financial condition of the company. 
Criminal penalties are created for failure to comply with this 
section. Reckless failure to certify--you have to be able to 
prove it; it is a high standard--requires a penalty of up to 5 
years, while a willful failure to certify on the part of these 
executives includes a maximum penalty of up to 10 years.
    The point is, A, everything but one provision of Senator 
Lott's amendment either has been passed or is in Biden-Hatch. I 
will yield to my colleague, but I am willing to accept the one 
provision that is not included. That is the provision relating 
to freezing payments for up to 45 days under the authority of 
the SEC of compensation packages that are excessive so there is 
time to look at it. I am willing to accept that.
    It does not include three sections: Conspiracy, the ERISA 
increased penalties, and the requirement of certification that 
the financial reports accurately reflect the financial 
condition of the company, with penalties to prevail if in fact 
they either recklessly or willfully do not sign such a document 
or they recklessly or willfully signed it and it does not 
reflect what in fact they say it reflects.
    That is a response to the majority leader's request of what 
the difference is. That is the difference.
    I now yield, with the permission of my colleagues, to the 
Senator from Utah, and I might add, this is not original stuff 
of Joe Biden; this was Hatch and Biden, Biden and Hatch. He 
takes equal responsibility for this. If we are wrong, we are 
equally wrong.
    I yield the floor.
    The Presiding Officer. The Senator from Utah.
    Mr. Hatch. Mr. President, I am proud to stand here with my 
colleague from Delaware, who is one of the truly remarkable 
Senators who knows as much about criminal law as anybody in 
this body or in the Congress itself.
    I also rise today and applaud President Bush and Senator 
Lott, as well as Senator Biden, for offering what really, 
combined, will be a comprehensive legislative proposal that 
calls for harsh, swift punishment of corporate executives who 
exploited the trust of their shareholders and employees while 
enriching themselves.
    Senator Biden and I have worked together for years now on 
many important pieces of legislation. This is not new for us. I 
always feel good when I can work with my colleagues on the 
other side. It is always a pleasure to work with him. I commend 
him for the care and attention he has given to the subject of 
white-collar penalties, as well as for his leadership in this 
area. Just in the past 4 weeks, Senator Biden scheduled two 
hearings to review the adequacy of current penalties for white-
collar criminal offenses. I am thankful that he did so for I 
think this is a critically important area for us to focus on, 
especially in today's unprecedented climate of market turmoil 
and corporate responsibility--or should I say irresponsibility.
    All of us well know that the past few months have been 
painful ones for our Nation's financial markets. At least some 
of the blame can be laid at the doors of some multibillion-
dollar corporations, their highly paid executives, and the 
accounting firms that were supposed to assure the public's 
trust. We learn--each week it seems--of more and more 
accounting and corporate fraud and irregularities that have 
caused billions of dollars of losses to innocent investors. I 
am personally outraged by these scandals.
    The amendment I cosponsor today is a product of much 
thoughtful attention and scrutiny. No Member feels more 
strongly than I do about the importance of our criminal laws. 
They must be fair, and they must be just. If our criminal laws 
are to bear credibility and provide deterrence, they must 
adequately reflect the severity of the offenses. But right now 
they do not do so in the context of so-called white collar 
crimes. They are, to put it bluntly, out of whack.
    A person who steals, defrauds, or otherwise deprives 
unsuspecting Americans of their life savings--no less than any 
other criminal--should be held accountable under our system of 
justice for the full weight of the harm he or she has caused. 
Innocent lives have been devastated by the crook who cooks the 
books of a publicly traded company, the charlatan who sells 
phony bonds, and the confidence man who runs a Ponzi scheme out 
there. These sorts of white-collar criminals should find no 
soft spots in our laws or in their ultimate sentences, but all 
too often they have done so.
    It is time for us to get tough with these offenders. We 
need to make crystal clear that we will not tolerate this sort 
of outrageous criminal conduct, conduct that not only 
devastates the savings of citizens, but also has lasting 
effects on the entire world's confidence in our American 
financial markets. This amendment will take away the soft 
landings these criminals have expected and obtained for far too 
long.
    The amendment Senator Biden and I propose--with the 
acceptance of the additional language of the President and 
Senator Lott--makes several notable improvements to current 
law. As Senator Biden said, and I will reiterate, first, our 
amendment increases the maximum penalties for those who commit 
mail fraud, wire fraud, and ERISA offenses, as well as those 
who conspire to violate Federal criminal laws. These changes 
are long overdue. The maximum penalty under current law for 
most of these offenses is 5 years, which is the same as the 
maximum penalty that could be handed down for mutilating a coin 
produced by the U.S. Mint. The current maximum penalty for 
ERISA fraud violations is just 1 year. In other words, a fraud 
committed in connection with employment retirement plans, no 
matter how severe or wide, is punishable now only as a 
misdemeanor. Under current law, one could get 5 years for 
scratching George Washington's face off a quarter but only 1 
year for defrauding an entire company's pension plan. It goes 
without saying that we need to fix this problem.
    Think about it. Pension plans go down the drain because of 
dishonest business people, which is sometimes hundreds of 
millions of dollars. Think of all the people who lose as a 
result of that.
    Second, our amendment would make corporate officials 
criminally responsible for their public filings with the SEC. 
Make no mistake, these filings are critically important to 
investors who rely upon them to make decisions affecting how 
they should invest billions and billions of dollars. They need 
to be accurate. Our amendment makes it possible to hold 
somebody criminally accountable if they are not accurate.
    Third, our amendment directs the U.S. Sentencing Commission 
to review the adequacy of current guidelines for white-collar 
offenders. We heard just a few weeks ago from the Department of 
Justice that these types of criminals often get off with a slap 
on the wrist and that judges too often do contortions to avoid 
handing down terms of imprisonment. This simply is not good and 
will not do. It undermines the deterrent effect of our criminal 
laws, makes a mockery of our system of fair and evenhanded 
justice, and ultimately sends the wrong message to all 
Americans. Our amendment will ensure that the Sentencing 
Commission will take steps designed to ensure that our system 
of justice no longer coddles criminals simply because they 
``just'' steal.
    It is time for the Senate to act on this important matter 
of fraud and responsibility. I think these amendments are a big 
step in the right direction. I compliment the President, 
Senator Lott, and, of course, my dear friend and colleague from 
Delaware, Senator Biden, for the work they have all done on 
these two amendments. I agree with Senator Biden that we are 
willing to accept that part of the preference package.
    With that, I yield the floor.
    The Presiding Officer. The Senator from North Carolina is 
recognized.
    Mr. Edwards. Mr. President, I ask unanimous consent that 
the pending amendment be laid aside.
    The Presiding Officer. Is there objection?
    Mr. Sarbanes. I object for the moment. I suggest the 
absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Biden. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.

                    AMENDMENT NO. 4190, AS MODIFIED

    Mr. Biden. Mr. President, I ask unanimous consent to modify 
the Hatch-Biden amendment by changing on page 6 of our 
amendment, under the title ``Failure of corporate officers to 
certify financial reports,'' line 19--it presently reads:

    (1) any person who recklessly violates any provision of 
this section. . . .

    I ask unanimous consent to amend it to say on line 19, 
subsection 1:

    Any person who recklessly--

    And add the words ``and knowingly''--

recklessly and knowingly.

    Page 6, line 19, fourth word in, add as a fifth word 
``and'' and the sixth word ``knowingly.''
    The Presiding Officer. Without objection, it is so ordered. 
The amendment is so modified.
    The amendment, as modified, reads as follows:

    Strike all after the first word and insert the following:

             VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 801 SHORT TITLE.

    This title may be cited as the ``White-Collar Crime Penalty 
Enhancement Act of 2002''.

SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO 
                    DEFRAUD THE UNITED STATES.

    Section 371 of title 18, United States Code, is amended by 
striking ``If two or more'' and all that follows through ``If, 
however,'' and inserting the following:
    ``(a) In General.--If 2 or more persons--
    ``(1) conspire to commit any offense against the United 
States, in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined or imprisoned, or both, as set forth in 
the specific substantive offense which was the object of the 
conspiracy; or
    ``(2) conspire to defraud the United States, or any agency 
thereof in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined under this title, or imprisoned not more 
than 10 years, or both.
    ``(b) Misdemeanor Offense.--If, however,''.

SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.

SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT 
                    INCOME SECURITY ACT OF 1974.

    Section 501 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1131) is amended--
    (1) by striking ``$5,000'' and inserting ``$100,000'';
    (2) by striking ``one year'' and inserting ``10 years''; 
and
    (3) by striking ``$100,000'' and inserting ``$500,000''.

SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                    COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18, 
United States Code, and in accordance with this section, the 
United States Sentencing Commission shall review and, as 
appropriate, amend the Federal Sentencing Guidelines and 
related policy statements to implement the provisions of this 
title.
    (b) Requirements.--In carrying out this section, the 
Sentencing Commission shall--
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of the offenses and the 
penalties set forth in this title, the growing incidence of 
serious fraud offenses which are identified above, and the need 
to modify the sentencing guidelines and policy statements to 
deter, prevent, and punish such offenses;
    (2) consider the extent to which the guidelines and policy 
statements adequately address--
    (A) whether the guideline offense levels and enhancements 
for violations of the sections amended by this title are 
sufficient to deter and punish such offenses, and specifically, 
are adequate in view of the statutory increases in penalties 
contained in this title; and
    (B) whether a specific offense characteristic should be 
added in United States Sentencing Guideline section 2B1.1 in 
order to provide for stronger penalties for fraud when the 
crime is committed by a corporate officer or director;
    (3) assure reasonable consistency with other relevant 
directives and sentencing guidelines;
    (4) account for any additional aggravating or mitigating 
circumstances that might justify exceptions to the generally 
applicable sentencing ranges;
    (5) make any necessary conforming changes to the sentencing 
guidelines; and
    (6) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.

SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following:

``Sec. 1348. Failure of corporate officers to certify financial reports

    ``(a) Certification of Periodic Financial Reports.--Each 
periodic report containing financial statements filed by an 
issuer with the Securities Exchange Commission pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written 
statement by the Chairman of the board, chief executive 
officer, and chief financial officer (or equivalent thereof) of 
the issuer.
    ``(b) Content.--The statement required under subsection (a) 
shall certify the appropriateness of the financial statements 
and disclosures contained in the periodic report or financial 
report, and that those financial statements and disclosures 
fairly present, in all material respects, the operations and 
financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other 
provision of law--
    ``(1) any person who recklessly and knowingly violates any 
provision of this section shall upon conviction be fined not 
more than $500,000, or imprisoned not more than 5 years, or 
both; or
    ``(2) any person who willfully violates any provision of 
this section shall upon conviction be fined not more than 
$1,000,000, or imprisoned not more than 10 years, or both.''.
    (b) Technical and Conforming Amendment.--The section 
analysis for chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:

 ``1348. Failure of corporate officers to certify financial reports.''.

    This section shall take effect one day after date of this 
bill's enactment.

    Mr. Biden. I thank the Chair and suggest the absence of a 
quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Reid. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from Maryland.
    Mr. Sarbanes. Mr. President, I ask unanimous consent that 
the pending second-degree amendments be withdrawn; that no 
second-degree amendments be in order to either of the two 
pending first-degree amendments; that the Daschle for Biden 
amendment No. 4186 be further modified with the changes that 
are at the desk; that the time until 4:45 p.m. today be for 
debate in relation to the pending first-degree amendments; that 
the time be equally divided between the two managers or their 
designees; that at 4:45 p.m., without further intervening 
action or debate, the Senate proceed to vote in relation to the 
Daschle for Biden amendment No. 4186, as further modified; that 
upon disposition of that amendment, the Senate vote in relation 
to the Lott amendment No. 4188; provided further that upon 
disposition of these amendments, Senator Edwards be recognized 
to call up amendment No. 4187.
    The Presiding Officer. Is there objection?
    The Senator from Nevada.
    Mr. Reid. Reserving the right to object, I ask the manager 
of this bill, the Chairman of the committee, to insert after 
the words ``Senator Edwards be recognized to call up amendment 
No. 4187,'' that following the disposition of that amendment, 
Senator Gramm be recognized.
    Mr. Gramm. Following.
    Mr. Reid. That is right. We were sequencing this, that 
following Senator Edwards, Senator Gramm be recognized; 
following that, Senator Levin be recognized; and following 
that, Senator Gramm be recognized.
    The Presiding Officer. Does the Senator from Maryland so 
modify his request? Is there objection?
    Without objection, it is so ordered.
    The amendments (Nos. 4189, and 4190, as modified) were 
withdrawn.
    The amendment (No. 4186), as further modified, reads as 
follows:

    On page 117 in line 12 strike ``Act'' and insert the 
following: Act.

          TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 801 SHORT TITLE.

    This title may be cited as the ``White-Collar Crime Penalty 
Enhancement Act of 2002''.

SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO 
                    DEFRAUD THE UNITED STATES.

    Section 371 of title 18, United States Code, is amended by 
striking ``If two or more'' and all that follows through ``If, 
however,'' and inserting the following:
    ``(a) In General.--If 2 or more persons--
    ``(1) conspire to commit any offense against the United 
States, in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined or imprisoned, or both, as set forth in 
the specific substantive offense which was the object of the 
conspiracy; or
    ``(2) conspire to defraud the United States, or any agency 
thereof in any manner or for any purpose, and 1 or more of such 
persons do any act to effect the object of the conspiracy, each 
person shall be fined under this title, or imprisoned not more 
than 10 years, or both.
    ``(b) Misdemeanor Offense.--If, however,''.

SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States 
Code, is amended by striking ``five years'' and inserting ``10 
years''.

SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT 
                    INCOME SECURITY ACT OF 1974.

    Section 501 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1131) is amended--
    (1) by striking ``$5,000'' and inserting ``$100,000'';
    (2) by striking ``one year'' and inserting ``10 years''; 
and
    (3) by striking ``$100,000'' and inserting ``$500,000''.

SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                    COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--
Pursuant to its authority under section 994(p) of title 18, 
United States Code, and in accordance with this section, the 
United States Sentencing Commission shall review and, as 
appropriate, amend the Federal Sentencing Guidelines and 
related policy statements to implement the provisions of this 
title.
    (b) Requirements.--In carrying out this section, the 
Sentencing Commission shall--
    (1) ensure that the sentencing guidelines and policy 
statements reflect the serious nature of the offenses and the 
penalties set forth in this title, the growing incidence of 
serious fraud offenses which are identified above, and the need 
to modify the sentencing guidelines and policy statements to 
deter, prevent, and punish such offenses;
    (2) consider the extent to which the guidelines and policy 
statements adequately address--
    (A) whether the guideline offense levels and enhancements 
for violations of the sections amended by this title are 
sufficient to deter and punish such offenses, and specifically, 
are adequate in view of the statutory increases in penalties 
contained in this title; and
    (B) whether a specific offense characteristic should be 
added in United States Sentencing Guideline section 2B1.1 in 
order to provide for stronger penalties for fraud when the 
crime is committed by a corporate officer or director;
    (3) assure reasonable consistency with other relevant 
directives and sentencing guidelines;
    (4) account for any additional aggravating or mitigating 
circumstances that might justify exceptions to the generally 
applicable sentencing ranges;
    (5) make any necessary conforming changes to the sentencing 
guidelines; and
    (6) assure that the guidelines adequately meet the purposes 
of sentencing as set forth in section 3553(a)(2) of title 18, 
United States Code.

SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following:

``Sec. 1348. Failure of corporate officers to certify financial reports

    ``(a) Certification of Periodic Financial Reports.--Each 
periodic report containing financial statements filed by an 
issuer with the Securities Exchange Commission pursuant to 
section 13(a) or 15(d) of the Securities Exchange Act of 1934 
(15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written 
statement by the Chairman of the board, chief executive 
officer, and chief financial officer (or equivalent thereof) of 
the issuer.
    ``(b) Content.--The statement required under subsection (a) 
shall certify the appropriateness of the financial statements 
and disclosures contained in the periodic report or financial 
report, and that those financial statements and disclosures 
fairly present, in all material respects, the operations and 
financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other 
provision of law--
    ``(1) any person who recklessly and knowingly violates any 
provision of this section shall upon conviction be fined not 
more than $500,000, or imprisoned not more than 5 years, or 
both; or
    ``(2) any person who willfully violates any provision of 
this section shall upon conviction be fined not more than 
$1,000,000, or imprisoned not more than 10 years, or both.''.
    (b) Technical and Conforming Amendment.--The section 
analysis for chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:

 ``1348. Failure of corporate officers to certify financial reports.''.

    Mr. Biden. Mr. President, I rise today--along with my good 
friend, Senator Hatch--to offer our bill, the White-Collar 
Penalty Enhancement Act of 2002 as a second-degree amendment to 
amendment No. 4174, Senator Leahy's amendment to S. 2637.
    Let me begin by applauding Senator Sarbanes for his 
leadership in sponsoring S. 2637, and guiding it through his 
Banking Committee with a 17-4 vote. It is my hope and 
expectation that it will win the same overwhelming support on 
the floor of the Senate. I also commend Senators Leahy and 
Daschle for offering the Corporate and Criminal Fraud 
Accountability Act, of which I am a cosponsor.
    Let me briefly recount the events which bring me to the 
floor today to offer this amendment to increase penalties on 
white collar criminals. In recent months, dramatic events have 
shaken our country out of complacency. A decade of peace and 
prosperity came to an end, first with a shattering reminder of 
our vulnerability to external threats, and then with a series 
of spectacular corporate collapses that revealed cracks in the 
very foundation of our economic system.
    Our response to terrorism was to come together as a Nation, 
reminded of all we have in common, all we have to be proud of.
    The shock of those high-flying corporations falling 
spectacularly to earth presents us with different problems. We 
have to examine our own system--the capitalist system that has 
brought us so much material success, the envy of the rest of 
the world.
    As the stock market continues to lose value, as the dollar 
has dropped to a 2-year low, we know that investors, here at 
home and abroad, have lost some of their faith in the American 
economy.
    That loss of faith has a material impact of the wealth of 
this country, as our currency and our securities lose value. 
Some observers worry aloud that a full-blown loss of faith in 
our economy could drain even more value from our markets.
    The task before us is nothing less than restoring 
confidence in our market economy. There are many facets to this 
problem.
    One is reforming the auditing process. On the Senate floor 
right now is the Sarbanes bill that is essential to any effort 
to restore investor's faith in our markets. Audit firms are 
supposed to be independent voices, providing disinterested 
information that investors need to assess risk and to allocate 
funds to those companies that will have the best chance of 
raising our standard of living.
    We need more transparency, more accountability in the 
conduct of accounting firms, and more confidence that they have 
access to, and are willing to tell us, the truth about the 
businesses they audit. Senator Sarbanes has done us all a 
service by bringing this bipartisan bill to the floor.
    Yesterday, I was hoping to hear the President support this 
bipartisan approach to reform, reform that is supported by the 
business community in the form of the Business Roundtable, when 
he spoke yesterday. I still hope he will soon add his voice in 
support of this landmark reform.
    Just as important is the amendment to the Sarbanes bill 
that I am cosponsoring with Senator Leahy. It will put real 
teeth in securities fraud enforcement, providing substantial 
criminal penalties for those who defraud investors of 
publically traded securities or who destroy evidence to 
obstruct justice.
    Yesterday, the President announced his support for tougher 
criminal penalties for fraud offenses. I applaud the 
President's call for increase penalties for wire and mail 
fraud, and my amendment contains identical provisions. But I am 
concerned that the President's proposals do not go far enough.
    For example, in the wake of the publicly reported problems 
at Enron, WorldCom, and other companies, we need to restore 
people's faith in their pension plans. They need to know that 
the companies they work for will treat them fairly, handle 
their funds wisely, and that the investments made by pension 
funds are sound. Yet, I believe that the criminal penalties for 
violations under the Employment Retirement Investment Security 
Act of 1974, ERISA, limited to 1 year in jail, are woefully 
inadequate to protect defrauded pensioners.
    As Chairman of the Judiciary Subcommittee on Crime and 
Drugs, I held a hearing several weeks ago--and am holding a 
second hearing this afternoon--on the adequacy of criminal 
penalties to deter this type of corporate wrongdoing. Corporate 
executives who defraud investors by whatever means should go to 
jail--period--and we need to give investigators and prosecutors 
the tools they need to send them there.
    One thing most of our hearing witnesses agreed on was that 
there is a ``penalty gap'' between white collar crimes and 
other crimes. For example, if a kid steals your car and drives 
it over the 14th Street Bridge into Northern Virginia, he could 
get up to 10 years in jail under the Federal interstate auto 
theft law. Yet, if a corporate CEO steals your pension and 
commits a criminal violation under ERISA, he is only subject to 
1 year in jail.
    At my hearing, we heard from Charlie Prestwood, a 63-year-
old Enron retiree, who lives in Conroe, TX. Charlie worked 
proudly for some 33 years for that company, saved and invested 
in his pension, and retired with about $1.3 million in his 
plan. Within a few tragic months, that was nearly wiped out--
only $8,000 remained. Charlie is not a lawyer, but he had the 
good sense to know that its just not fair that a car thief who 
steals a jalopy can get 10 years in prison and a Gucci-clad 
corporate crook can steal a person's life savings and might 
only end up with 1 year in prison.
    Accordingly, the amendment that Senator Hatch and I offer 
today is carefully crafted to hold corporate officer 
responsible and to reduce the ``penalty gap'' between a number 
of white collar crimes and other serious crimes. It does 3 
basic things.
    First, it goes beyond President Bush's proposal by raising 
penalties for those white collar crimes that are most often 
violated but which have insufficient penalties to deter 
corporate crooks. For example, it raises the maximum penalties 
from 1 to 10 years for ERISA criminal violations. It double 
penalties for wire and mail fraud from 5 to 10 years, and it 
treats white collar who conspire with others like drug king 
pins, by mandating that they receive the same maximum penalty 
for the offense underlying the charged conspiracy, rather than 
their sentence being capped at a 5-year penalty as exists under 
current law.
    When these penalty enhancements are taken in combination 
with the new 10-year felony for securities fraud contained in 
the amendment I have co-sponsored with Senator Leahy, the 
Government will have the full range of prosecutorial arrows in 
its quiver to fight pension crooks and corporate wrong doers. 
Respectfully, the President's penalty proposal is only one 
small piece of the white collar crime-fighting puzzle.
    Second, our amendment tells corporate big wigs that they 
are no longer off the hook for their companies misdeeds. My 
amendment requires top corporate officials to certify to the 
Securities and Exchange Commission that the periodic financial 
reports filed by their companies with the Commission accurately 
reflect the financial health of these corporations. Reckless 
failure by a corporate official to do so will result in up to 5 
years in prison, while willful failure to do so will trigger a 
jail term of up to 10 years.
    Third, our amendment directs the U.S. Sentencing Commission 
to review and amend the Federal sentencing guidelines to 
lengthen sentences for white collar criminals to reflect these 
new, more serious penalties. It also directs the Commission to 
impose sentencing enhancement where corporate officials defraud 
victims. I applaud President Bush for announcing a similar 
proposal.
    Make no mistake--this amendment will not stamp out white 
collar crime. We live in a fallen world where bad people do bad 
things--whether its stealing cars or stealing pensions. But, 
its time to ``level the playing field'' between white collar 
and blue collar criminals.
    I believe the amendment that Senator Hatch and I are 
offering will move us substantially in the direction of 
deterring corporate wrongdoers by holding them responsible for 
the criminal acts. It will also begin the restoration of 
confidence in our financial markets. We must do both. The time 
to act is now. I urge my colleagues to support this amendment.
    I yield the floor.

                           AMENDMENT NO. 4188

    Mr. Hatch. Mr. President, I want to applaud President Bush 
and Senator Lott for offering a comprehensive legislative 
proposal that calls for harsh, swift punishment of corporate 
executives who exploit the trust of their shareholders and 
employees, while enriching themselves.
    This bill, which tracks the President's recent proposal, 
increases the criminal penalties that apply to fraud statutes 
that are frequently used to prosecute corporate wrongdoers. It 
also strengthens an existing obstruction of justice statute, 
and calls for an aggravated sentencing enhancement for frauds 
perpetrated by corporate officers and directors. Finally, it 
increases the Security and Exchange Commission's administrative 
enforcement tools by strengthening the SEC's ability to freeze 
improper payments to corporate executives while the company is 
under investigation, and by enabling the SEC to bar corporate 
officers and directors from continued service where they engage 
in serious misconduct.
    I support these provisions because I strongly believe that 
it is critical that we hold corporate executives accountable 
for acts of wrongdoing. We can do so by supplying the SEC and 
Federal prosecutors with the civil and criminal tools they need 
to investigate and prosecute acts of corporate misconduct.
    Let me briefly elaborate on some of the specific provisions 
contained in this bill.
    First, as I mentioned, the bill doubles the maximum prison 
term for mail and wire fraud offenses, from 5 years to 10 
years. This is identical to a provision Senator Biden and I 
have included in our amendment. This is a necessary sentencing 
enhancement, and one that is long overdue. Because prosecutors 
frequently use the mail and wire statutes to charge acts of 
corporate misconduct, it is important that we ensure that the 
penalties that apply to such offenses are sufficiently severe 
to deter and punish corporate wrongdoers.
    Second, like the suggested enhancement contained in the 
bill Senator Biden and I have proposed, this amendment directs 
the U.S. Sentencing Commission to review the sentencing 
guidelines that apply to acts of corporate misconduct and to 
enhance the prison time that would apply to criminal frauds 
committed by corporate officers and directors. As I have 
stated, I strongly support such an enhancement because 
corporate leaders who hold high offices and breach their duties 
of trust should face stiff penalties.
    Third, the amendment strengthens an existing Federal 
offense that is often used to prosecute document shredding and 
other forms of obstruction of justice. Section 1520 of Title 18 
of the United States code currently prohibits individuals from 
persuading others to engage in obstructive conduct. However, it 
does not prohibit an act of destruction committed by a 
defendant acting alone. While other existing obstruction of 
justice statutes cover acts of destruction that are committed 
by and individual acting alone, such statutes have been 
interpreted as applying only where a proceeding is pending, and 
a subpoena has been issued for the evidence that is destroyed.
    This amendment closes this loophole by broadening the scope 
of the Section 1512. Like the new document destruction 
provision contained in S. 2010, this amendment would permit the 
government to prosecute an individual who acts alone in 
destroying evidence, even where the evidence is destroyed prior 
to the issuance of a grand jury subpoena.
    Prosecutors in the Andersen case succeeded in convicting 
the corporation. However, in order to do so, they had to prove 
that a person in the corporation corruptly persuaded another to 
destroy or alter documents, and acted with the intent to 
obstruct an investigation. Certainly, one who acts with the 
intent to obstruct an investigation should be criminally liable 
even if he or she acts alone in destroying or altering 
documents. This amendment will ensure that individuals acting 
alone would be liable for such criminal acts.
    This amendment also includes new statutory provisions that 
will strengthen the SEC's ability to freeze improper payments 
to corporate executives while a company is under investigation. 
These provisions would prevent corporate executives from 
enriching themselves while a company is subject to an SEC 
investigation, but before the SEC has gathered sufficient 
evidence to file formal charges.
    In particular, these provisions would enable to SEC to 
freeze improper payments by obtaining a Federal court order. 
The order, which could last for 45 days and be extended upon a 
showing of good cause, would freeze extraordinary payments to 
corporate executives and require that such payments be 
escrowed. And where an executive is charged with a securities 
law violation prior to the expiration of the court order, the 
escrow would continue, with court approval, until the 
conclusion of legal proceedings.
    Finally, the amendment grants the SEC the authority to bar 
individuals who have engaged in serious misconduct from serving 
as officers and directors of any public company. Under current 
law, only a court may order an officer and director bar. In an 
SEC enforcement action, a court may issue an order that bars a 
person from acting as an officer or director of a public 
company where the person has committed a securities fraud 
violation, and his or her conduct demonstrates ``substantial 
unfitness'' to serve as an officer or director. However, under 
current law, the SEC cannot order this remedy in an 
administrative cease-and-desist proceedings, even where the 
person's conduct would otherwise meet the standards for the 
bar.
    This amendment would enable the SEC to issue such a bar 
where the officer or director has committed a securities law 
violation and his or her conduct demonstrates ``unfitness'' to 
serve as an officer or director. This will give the SEC the 
ability to punish an officer or director who has committed an 
unlawful act, where it has not yet instituted an enforcement 
action.
    I strongly believe that if Congress and the President act 
together to increase corporate transparency and to enact tough 
civil and criminal provision, we will succeed in restoring 
confidence in our market economy. The Federal government plays 
an important role in upholding and enforcing standards of 
corporate conduct. I look forward to working with my colleagues 
and with the President to enact needed legislation to 
strengthen corporate accountability.
    Mr. Gramm. Mr. President, let me try to explain where we 
are. We are about to have two votes. One vote is on a 
bipartisan amendment that was put together prior to our receipt 
of the language of the President's proposal. That was done by 
Senator Biden and Senator Hatch. That amendment will be voted 
on first.
    I believe that amendment deals with the same subject area 
as the President's proposal. The overlap is not perfect, but 
when you take Senator Leahy's amendment that we have already 
adopted, when you take this amendment, the things that are 
covered in the President's proposal are covered.
    We also have the legislative language proposed by the White 
House to follow on the proposals the President made yesterday 
in New York.
    When we adopt these two amendments, we will have added a 
substantial amount to the underlying bill. We will have added, 
in essence, two different variants of the President's proposal 
of yesterday. I assume we will get a unanimous vote for both of 
these amendments. I commend to my colleagues to vote for both 
of them.
    At that point, we will proceed in the outline we have. It 
is my understanding we will try to put together an additional 
list, depending on the amount of time we have. Once these two 
votes are taken, the subject matter of the President's proposal 
of yesterday will be part of this bill. I commend to my 
colleagues to vote for both amendments.
    Mr. Sarbanes. Mr. President, in just a few minutes, at 
4:45, we will move to the first of two votes. The first vote 
will be on the Daschle amendment, and the second vote on the 
Lott amendment. I urge my colleagues to support both 
amendments.
    At the conclusion of those votes, we will go to Senator 
Edwards, who has been waiting patiently, to call up an 
amendment. Then we have sequenced behind Senator Edwards, for 
purposes of calling up amendments, Senator Gramm, and Senator 
Levin has an amendment involving the powers of the SEC, and 
then back to Senator Gramm. That is the procedure we have 
managed to put into place so far while continuing to work to 
try to compile a list of amendments and to do some sequencing.
    We urge our colleagues to inform us--I am not urging to add 
amendments, but just informing colleagues of the process so 
they can be on the alert.
    Very shortly we will begin the first of two rollcall votes. 
Both of these are amendments which strengthen the penalties. 
Many are related to the Leahy amendment which we adopted 
earlier today, and in a sense deal primarily with the subject 
matter that was in the Leahy amendment.
    I urge my colleagues to be supportive of both amendments.
    Mr. Gramm. I yield back any time I may have.
    Mr. Sarbanes. I yield back the time.
    The Presiding Officer (Mr. Miller). The question is on 
agreeing to amendment No. 4186 as further modified. The yeas 
and nays have been ordered. The clerk will call the roll.
    The assistant legislative clerk called the roll.
    Mr. Reid, I announce that the Senator from New Jersey (Mr. 
Corzine) is necessarily absent. I further announce that, if 
present and voting, the Senator from New Jersey (Mr. Corzine) 
would vote ``aye.''
    Mr. Nickles, I announce that the Senator from North 
Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich), 
and the Senator from Idaho (Mr. Crapo) are necessarily absent. 
I further announce that, if present and voting, the Senator 
from North Carolina (Mr. Helms), would vote ``aye.''
    The Presiding Officer. Are there any other Senators in the 
Chamber desiring to vote?
    The result was announced--yeas 96, nays 0, as follows:
                      [Rollcall Vote No. 170 Leg.]
    Yeas--96: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden, 
Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd, 
Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, 
Cochran, Collins, Conrad, Craig, Daschle, Dayton, DeWine, Dodd, 
Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, Feinstein, 
Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, Harkin, 
Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, Jeffords, 
Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, Lieberman, 
Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, Murkowski, 
Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, Roberts, 
Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, Smith (NH), 
Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, Thompson, 
Thurmond, Torricelli, Warner, Wellstone, Wyden
    Not Voting--4: Corzine, Crapo, Helms, Voinovich

    The amendment (No. 4186), as further modified, was agreed 
to.
    Mr. Sarbanes. Mr. President, I move to reconsider the vote.
    Mr. Leahy. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.

                       VOTE ON AMENDMENT NO. 4188

    The Presiding Officer. Under the previous order, the 
question is on agreeing to Lott amendment No. 4188.
    Mr. Hatch. I ask for the yeas and nays.
    The Presiding Officer. Is there a sufficient second?
    There appears to be.
    The clerk will call the roll.
    The legislative clerk called the roll.
    Mr. Nickles. I announce that the Senator from North 
Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich), 
and the Senator from Idaho (Mr. Crapo) are necessarily absent.
    I further announce that if present and voting the Senator 
from North Carolina (Mr. Helms) would vote ``yea.''
    The result was announced--yeas 97, nays 0, as follows:
                      [Rollcall Vote No. 171 Leg.]
    Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden, 
Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd, 
Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, 
Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine, 
Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, 
Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, 
Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, 
Jeffords, Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, 
Lieberman, Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, 
Murkowski, Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, 
Roberts, Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, 
Smith (NH), Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, 
Thompson, Thurmond, Torricelli, Warner, Wellstone, Wyden
    Not Voting--3: Crapo, Helms, Voinovich

    The amendment (No. 4188) was agreed to.
    Mr. Reid. Mr. President, I move to reconsider the vote.
    Mr. Sarbanes. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.
    Mr. Reid. Mr. President, I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Reid. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    Mr. Sarbanes. Mr. President, I ask for the regular order.
    The Presiding Officer. Under the previous order, the 
Senator from North Carolina is recognized.

                           AMENDMENT NO. 4187

    Mr. Edwards. Mr. President, I wish to say a few words about 
an amendment I intend to offer along with Senators Enzi and 
Corzine. This amendment addresses an important player in the 
problem we have had with corporate misconduct in this country. 
It is a player with which I have a lot of personal experience. 
That player is a lawyer.
    As most people know, I practiced law for 20 years and spent 
a lot of time representing kids and families against very 
powerful interests. I think I have a reasonably good 
understanding of what responsibilities we as lawyers have to 
the people we represent. While those are the kinds of folks 
that I mostly represented, other lawyers have different kinds 
of clients. Some lawyers represent corporations rather than 
individuals. The lawyers who represent corporations have the 
same kind of responsibility, but it is to a different entity 
and a different group of people. They have a responsibility, 
though, to represent that corporation, their client, zealously, 
the same way I had the responsibility to represent kids and 
families.
    One of the problems we have seen occurring with this sort 
of crisis in corporate misconduct is that some lawyers have 
forgotten their responsibility. We have heard a great deal 
about managers and accountants, which Senator Enzi is familiar 
with, and scandals such as Enron and WorldCom. Managers and 
accountants are the focus of Senator Sarbanes' bill, and they 
are critical to us doing what needs to be done to correct this 
problem and restore the public confidence.
    The truth is that executives and accountants do not work 
alone. Anybody who works in corporate America knows that 
wherever you see corporate executives and accountants working, 
lawyers are virtually always there looking over their shoulder. 
If executives and/or accountants are breaking the law, you can 
be sure that part of the problem is that the lawyers who are 
there and involved are not doing their jobs.
    For the sake of investors and regular employees, ordinary 
shareholders, we have to make sure that not only the executives 
and the accountants do what they are responsible for doing, but 
also that the lawyers do what they are responsible for doing as 
members of the bar and as citizens of the country.
    Let me be a little more specific about what this amendment 
does and what the responsibility of a lawyer is and should be. 
If you are a lawyer for a corporation, your client is the 
corporation and you work for the corporation and you work for 
the shareholders, the investors in that corporation; that is to 
whom you owe your responsibility and loyalty. And you have a 
responsibility to zealously advocate for the shareholders and 
investors in that corporation.
    What we have seen some lawyers do, unfortunately, is 
different. We have seen corporate lawyers sometimes forget who 
their client is. What happens is their day-to-day conduct is 
with the CEO or the chief financial officer because those are 
the individuals responsible for hiring them. So as a result, 
that is with whom they have a relationship. When they go to 
lunch with their client, the corporation, they are usually 
going to lunch with the CEO or the chief financial officer. 
When they get phone calls, they are usually returning calls to 
the CEO or the chief financial officer. The problem is that the 
CEO and the chief financial officer are not the client. Their 
responsibility and the client they have to advocate for--and 
which they have an ethical responsibility to advocate for--is, 
in fact, the corporation, not the CEO or the chief financial 
officer.
    One of the most critical responsibilities that those 
lawyers have is, when they see something occurring or about to 
occur that violates the law, breaks the law, they must act as 
an advocate for the shareholders, for the company itself, for 
the investors. They are there and they can see what is 
happening. They know the law and their responsibility is to do 
something about it if they see the law being broken or about to 
be broken.
    This amendment is about making sure those lawyers, in 
addition to the accountants and executives in the company, 
don't violate the law and, in fact, more importantly, ensure 
that the law is being followed. For some time, the SEC actually 
tried to do that in the late 1970s and early 1980s. They 
brought legal actions to enforce this basic responsibility of 
lawyers--the responsibility to take steps to make sure 
corporate managers didn't break the law and harm shareholders 
in the process. If you find out that the managers are breaking 
the law, you must tell them to stop. If they won't stop, you go 
to the board of directors, which represents the shareholders, 
and tell them what is going on. If they won't act responsibly 
and in compliance with the law, then you go to the board and 
say something has to be done; there is a violation of the law 
occurring. It is basically going up the ladder, up the chain of 
command.
    For years, the SEC recognized the principle that lawyers 
had a legal responsibility to go up the ladder if they saw 
wrongdoing occurring. But then they stopped. One of the reasons 
they stopped is because there were a lot of protests coming 
from the organized bar. With Enron and WorldCom, and all the 
other corporate misconduct we have seen, it is again clear that 
corporate lawyers should not be left to regulate themselves no 
more than accountants should be left to regulate themselves. 
There has been a lot of debate, rhetoric, and discussion--
rightfully so--about the necessity about not ``letting the fox 
guard the chicken coop.'' The same is true with lawyers. This 
has become clear through various acts of misconduct. The 
lawyers have involvement and responsibility, and they also 
cannot be left to regulate themselves.
    In January, a bipartisan group of the top securities 
lawyers and legal ethics experts in the country wrote a letter 
to Harvey Pitt telling him it was time for the SEC to enforce 
the up-the-ladder principle, as in the past. Mr. Pitt's top 
lawyer said: We are not going to do anything. If Congress wants 
something done, Congress should act. Then I wrote a letter to 
Mr. Pitt in essence saying: We are ready to act here. Will you 
help us in crafting legislation and working out this problem?
    That was 3 weeks ago. As of now, I have not yet received a 
response.
    The time has come for Congress to act. This amendment acts 
in a very simple way. It basically instructs the SEC to start 
doing exactly what they were doing 20 years ago, to start 
enforcing this up-the-ladder principle.
    This is what the amendment says specifically: First, the 
SEC shall establish rules to protect investors from 
unprofessional conduct by lawyers, conduct that violates the 
legal standards of the profession.
    Second, the SEC shall make one rule in particular, and it 
is a simple rule with two parts. No. 1, a lawyer with evidence 
of a material violation of the law has to report that evidence 
either to the chief legal counsel or the chief executive 
officer of the company. No. 2, if the person to whom that 
lawyer reports doesn't respond appropriately by remedying the 
violation, by doing something that makes sure it is cured, that 
lawyer has an obligation to go to the audit committee or to the 
board. It is that simple. You report the violation. If the 
violation isn't addressed properly, then you go to the board.
    Three important details about this amendment address some 
of the concerns that I have heard voiced. First, the way we 
have drafted the bill, the duty to report applies only to 
evidence of a material violation of the law. That means no 
reporting is required for piddling violations or violations 
that don't amount to anything. The obligation to report is 
triggered only by violations that are material--violations that 
a reasonable investor would want to know about. So we have been 
very careful there.
    Second, when the evidence is reported within the company, 
we have not specified how a CEO or a general counsel should act 
to rectify the violation. That is because the truth is that the 
appropriate response to cure the problem will vary 
dramatically, depending on the circumstances. If the CEO can do 
a short investigation, for example, and figure out that no 
violation occurred, then the obligation stops there. But if 
there is a serious violation of the law, the appropriate 
response is clear: The CEO has to act promptly to remedy the 
violation. If he doesn't, the lawyer has to go to the board. It 
is that simple.
    One final point. Nothing in this bill gives anybody a right 
to file a private lawsuit against anybody. The only people who 
can enforce this amendment are the people at the SEC.
    They will enforce this amendment not on behalf of any 
private party, but in the name of the American people. This is 
about forcing the SEC to do its job and protect the American 
people.
    Mr. President, I call up amendment No. 4187 and ask for its 
immediate consideration.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from North Carolina [Mr. Edwards], for himself, 
Mr. Enzi, and Mr. Corzine, proposes an amendment numbered 4187.

    Mr. Edwards. Mr. President, I ask unanimous consent that 
the reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To address rules of professional responsibility for 
    attorneys)

    On page 108, line 15, insert before the end quotation marks the 
following:
    ``(c) Rules of Professional Responsibility for Attorneys.--Not 
later than 180 days after the date of enactment of this section, the 
Commission shall establish rules, in the public interest and for the 
protection of investors, setting forth minimum standards of 
professional conduct for attorneys appearing and practicing before the 
Commission in any way in the representation of public companies, 
including a rule requiring an attorney to report evidence of a material 
violation of law by the company or any agent thereof to the chief legal 
counsel or the chief executive officer of the company (or the 
equivalent thereof) and, if the counsel or officer does not 
appropriately respond to the evidence (adopting, as necessary, 
appropriate remedial measures or sanctions with respect to the 
violation), requiring the attorney to report the evidence to the audit 
committee of the board of directors or to another committee of the 
board of directors comprised solely of directors not employed directly 
or indirectly by the company, or to the board of directors.

    Mr. Edwards. I yield the floor.
    Mr. Gramm addressed the Chair.
    Mr. Sarbanes. Will the Senator yield for a question?
    The Presiding Officer. The Senator from Texas.

                AMENDMENT NO. 4200 TO AMENDMENT NO. 4187

(Purpose: To modify attorney practices relating to clients, and for 
    other purposes)

    Mr. Gramm. Mr. President, on behalf of Senator McConnell, I 
send a second-degree amendment to the desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from Texas [Mr. Gramm], for Mr. McConnell, 
proposes an amendment numbered 4200 to amendment No. 4187.

    Mr. Gramm. Mr. President, I ask unanimous consent that the 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    (The amendment is printed in today's Record under ``Text of 
Amendments.'')
    Mr. Gramm. Mr. President, I am not going to talk about the 
amendment. Senator McConnell was concerned--he has an 
appointment tonight and he wanted to be recognized, so I 
offered the amendment for him. I wish to say a few words before 
I yield, giving him an opportunity to speak on behalf of the 
second-degree amendment.
    I wish to print in the Record the lead editorial from 
today's Wall Street Journal. I would like to read the first 
paragraph. I want to make it clear, I am not talking about this 
amendment, I am just talking about the climate we are in. This 
is the lead editorial in today's Wall Street Journal:

    As if investors weren't frightened enough, the politicians 
are now offering to help. That was worth more than 180 points 
off the Dow yesterday, but then stock prices aren't the point. 
Everything you're hearing now from Washington is aimed at 
winning the November elections, not calming financial markets.

    This is an excellent editorial. One can agree with it or 
not agree with it. The point I want to make is the following: 
There is a wonderful line in a very famous economics book, 
``The Wealth of Nations,'' where Adam Smith is talking about 
government and talking about problems. A line in ``The Wealth 
of Nations'' goes something like: The economy is powerful and 
it overcomes not only the illness but the absurd prescription 
of the doctor that comes from the Government.
    I believe we have now put together the makings of a good 
bill. We still have differences of opinion. We still have 
differences not on whether we should set up a board, not on how 
strong it should be. We agree on those issues. We have 
differences about how independent the SEC should be. We have 
differences as to whether that board ought to set audit 
standards and independent standards or whether we ought to do 
it by law.
    As we go through the process in the next 2 days, if the 
some 30 amendments that people on my side of the aisle are 
proposing to offer is any index, and as someone once said--and 
I am sorry I cannot remember his name--I have only seen the 
heart of a good man, not necessarily the heart of an evil man. 
I have just seen these amendments.
    I am concerned that people who are looking at investing are 
going to say: My God, it is one thing that my stock has been 
battered because there were people who did things that were 
wrong, there were people who did things that were illegal, but 
now I am going to be battered by one-upmanship efforts to show 
that Congress is really tough, that Congress is tougher than 
the President, the President is tougher than the Congress, that 
Republicans are tougher than Democrats, or Democrats are 
tougher than Republicans.
    I would just like to say, not that anybody is going to be 
calmed by what I say, but I would like to say, in the end, I 
think we will end up with a fairly responsible bill, and I hope 
people who are thinking about investing money will take into 
account that this, too, will pass; that this summer will pass; 
that after all the charges are made and the one-upmanship has 
occurred, in the end, normally this process has worked pretty 
well for over 200 years, and my guess is it will work well 
again and we will end up in a give-and-take in conference, with 
the White House involved, measuring each amendment in terms of 
what we think will work and what we think probably hurts more 
than it helps--the absurd prescription of the doctor about 
which Adam Smith talked.
    If we do go too far in one area or we do not go far enough 
in another, there is going to be another Congress next year and 
the year after and for every year from now until the end of the 
world, I hope.
    Just reading this article set me thinking about it. There 
are probably people trying to decide this afternoon what they 
are going to do tomorrow on Wall Street. We have this bill 
passed in the House where, if you are domiciled outside the 
United States and move your domicile, you cannot get Government 
contracts. This is the era of where, if you want to slap an 
accountant around, it is not going to do a lot of harm. It is 
not fair, it is not right, I am not for it, and I am not going 
to do it, but if you want to slap business around, this is a 
wonderful time to do it.
    The problem is the market is going to open in the morning 
and people are going to either buy or sell or they are going to 
do both.
    I ask unanimous consent to print this lead editorial from 
the Wall Street Journal in the Record.
    There being no objection, the editorial was ordered to be 
printed in the Record, as follows:

                     [From the Wall Street Journal]

                 Review & Outlook: The November Markets

    ``Congress must now act to restore public confidence.''--
Senator Carl Levin (D., Mich.)
    As if investors weren't frightened enough, the politicians 
are now offering to help. That was worth 180 more points off 
the Dow yesterday, but then stock prices aren't the point. 
Everything you're hearing now from Washington is aimed at 
winning the November elections, not calming financial markets.
    That includes President Bush's much-touted Wall Street 
speech yesterday on ``corporate responsibility.'' His stern 
words for CEO wrongdoers were perfectly apt, and some of his 
proposals might even help. But coming so long after the Enron 
scandal first broke, and amid election season, the speech was 
widely and accurately described as an exercise in defensive 
politics.
    Democrats immediately panned it as inadequate, but they'd 
have said that if Mr. Bush had proposed public hangings. Their 
goal is to associate Republicans with corporate ``greed,'' to 
knock Mr. Bush's approval rating from its war-time pedestal and 
develop a campaign issue.
    You can judge their sincerity by the sop to trial lawyers 
that has suddenly appeared in the ``reform'' queue. For months 
Maryland Democrat Paul Sarbanes has worked to form a bipartisan 
coalition for accounting reform. But now Senate Democrats are 
also demanding that Mr. Bush sign onto expanding the time 
available for plaintiff plutocrat Bill Lerach to file 
shareholder suits. In other words, what they're really after is 
a Bush veto, which they will then run against.
    It's not as if Mr. Bush is letting business off the moral 
hook. He's creating a new Justice Department task force on 
corporate fraud, which as these things go will find someone to 
indict. He's also painted a bull's-eye on CEOs, who will now be 
personally and criminally liable (and face stiff penalties) for 
their companies' financial results.
    We only hope Justice keeps in mind the requirement of mens 
rea, or criminal intent, when it's CEO hunting. This legal 
principle got trampled in the rush to convict Arthur Andersen. 
If otherwise honest CEOs can be indicted merely for putting 
their names to a statement that turns out to be false, good 
luck finding competent executives.
    The brighter CEOs have also been busy cleaning up their own 
act. They understand something that politicians won't admit, 
which is that only business is truly capable of restoring 
confidence in business. The New York Stock Exchange and Goldman 
Sachs chief Hank Paulson have proposed more CEO supervision by 
independent directors, among other reforms.
    Just as significant, major pension funds and large 
investors have begun to scrutinize stock options and other 
forms of executive compensation. This sort of due diligence too 
often went missing in the ``decade of greed,'' as liberals now 
like to call the 1990s. (Or are we confusing our decades?)
    Mr. Bush put it well yesterday: ``I challenge every CEO in 
America to describe in the company's annual report, prominently 
and in plain English, details of his or her compensation 
package, including salary and bonus and benefits. And the CEO, 
in that report, should also explain why his or her compensation 
package is in the best interests of the company he serves.'' 
The point isn't that there is a moral taint to high pay but 
that it has to be justified in shareholders value.
    The one place we've thought regulatory change might help is 
audit reform. Clearly the culture of the accounting trade went 
awry in the 1990s, and not only at Arthur Andersen. We favored 
Paul Volcker's plan, which would have restored some internal 
accounting-firm discipline and reduced conflicts of interest. 
But the accounting lobby resisted and now finds itself fending 
off much more intrusive regulation in Congress. Serves them 
right.
    As a political matter, Republicans are also paying for 
protecting the accountants. Bush SEC Chairman Harvey Pitt, who 
once worked for the Big Five, is now being urged to resign by 
the likes of Al Gore, Tom Daschle and John McCain. As these 
columns noted long before these politicians wet their finger to 
the wind, Mr. Pitt's temptation now will be to appease these 
critics by cracking down too hard on too many, in a way that 
further roils financial markets. A regulator with more 
credibility usually has to regulate less.
    The investing public, fortunately, seems to understand 
this. While rightly angry about WorldCom and Enron, the public 
hasn't panicked even after three years of stock-market losses. 
Americans know that even scarier than a bear market in stocks 
is a bull market for politicians.

    Mr. Gramm. Mr. President, I ask my colleagues to read the 
editorial and pray over it. As I say, there are some things in 
it one may like, some one may not like; one may not like any of 
it, or one may like all of it.
    In the next couple of days, we are going to have a lot of 
proposals that are going to be frightening to investors. I 
wanted to take this opportunity tonight to tell them that--I 
know my dear colleague who is sitting in the chair as a 
Presiding Officer remembers the old hymn, ``This is My Father's 
World.'' Remember that hymn? It talks about all these things 
that are happening, all these bad things that happen, but in 
the end it is going to be right. I think the Lord is going to 
count on us to right it. I hope it is in good hands.
    In any case, I wanted to say that as we hear all these 
ideas brought up, if you are thinking about investing money 
tomorrow or next week or next year, do not be frightened. I 
think this issue is going to move back toward a middle course, 
and if we go too far--and I hope we will not, and I am 
dedicated to not doing more harm than good--then we will fix 
it, and if in some areas we do not go far enough, we can come 
back and fix it, too.
    As I said, I offered the second-degree amendment for 
Senator McConnell who has an appointment and wanted to get his 
amendment in. I yield the floor.
    The Presiding Officer. The Senator from Kentucky is 
recognized.
    Mr. McConnell. Mr. President, I say to my friend from 
Texas, I have enjoyed his wisdom over the last 18 years. I am 
going to save my remarks about how I feel about his departure 
until later in the year. We have just heard another example of 
the extraordinary wisdom of the senior Senator from Texas from 
which I have benefited for 18 years. I wish to tell him again 
how much his service has meant not only to his State but to our 
Nation.
    I say to my friends from Wyoming and North Carolina, they 
will be relieved to know I do not intend to make my speech on 
the second-degree amendment. This is an amendment about which I 
am sure the junior Senator from South Carolina is going to be 
particularly enthusiastic. I say that with tongue in cheek. I 
will briefly describe what it is.
    This is an amendment to provide a client's bill of rights 
for clients with Federal claims or who are in Federal court. 
Fundamentally, what this client's bill of rights would provide 
is an opportunity for an orderly and systematic notice from 
their lawyers of the fee arrangements to which they are 
subjecting themselves; in addition to that, a bereavement rule 
which would prevent the solicitation of business within 45 days 
of the occurrence of the event. That is a brief summary of what 
my amendment is about. There will be ample time for everyone to 
take a look at the amendment over the evening. It does not in 
any way detract from the underlying Edwards-Enzi amendment, 
which I support and commend the authors for offering. I think 
it is right on the mark. I would like to see these principles 
expanded to a larger class of clients so they, too, can receive 
adequate protection.
    I yield the floor.
    The Presiding Officer. The Senator from Nevada.
    Mr. Reid. Mr. President, I ask unanimous consent that 
following the previous sequence already in place, the 
amendments listed in this agreement be the next six amendments 
in the sequence, in the order listed: Carnahan amendment 
regarding electronic filing; McCain amendment regarding 
accounting treatment/stock options; Dorgan amendment regarding 
bankruptcy/disgorgement; Enzi amendment regarding materiality; 
Schumer amendment regarding restitution; and Murkowski 
amendment regarding the Ninth Circuit.
    The Presiding Officer. Without objection, it is so ordered.
    Several Senators addressed the Chair.
    Mr. Reid. Mr. President, I would say to the Chair that I 
ask the Senator to yield to me for a unanimous consent request 
so the Senator from Illinois would have the floor.
    The Presiding Officer. The Senator from Illinois.
    Mr. Durbin. Mr. President, I want to make a comment about 
the second-degree amendment that is pending. I want to commend 
my colleague, the Senator from Kentucky.
    Last night, at the close of the session, there was an 
amendment offered by the Senator from Kentucky and the Senator 
from Texas. Now remember, this bill is about corporate 
misconduct. This is about corporate corruption. Last night, 
they decided we ought to expand the jurisdiction and scope of 
this debate to include reforming labor unions.
    I have followed Enron, WorldCom, and others very closely 
and do not recall ever hearing anybody say the root cause of 
the problem of these corporations was labor unions. Thank 
goodness the Senate rejected that notion.
    The Senator from Kentucky comes back tonight and says, no, 
it is not just labor unions, it is the fees paid to lawyers; 
that is the problem. When you are dealing with corporate 
corruption, it is the fees paid to lawyers, contingency fee 
contracts, and class actions.
    I was stopped cold when I heard this amendment being 
described to try to understand what this has to do with making 
certain that criminal misconduct by corporate officers will 
result in time in jail. I do not get the connection. Perhaps 
the Senator from Kentucky can help me understand this. How does 
the issue of attorney's fees relate to corporate misconduct and 
corporate corruption?
    I am sorry he cannot join us in this debate to respond, but 
I say to my colleagues I am beginning to get the distinct 
impression that the other side of the aisle is trying to change 
the subject on us. I do not think they want to talk about 
wrongdoing in corporate boardrooms and what we can do to 
restore confidence.
    Yesterday, the President used the bully pulpit and turned 
the bears loose on Wall Street. Today, we had another dip in 
the stock market. We had better get honest. We had better get 
real. We had better make some real changes in the law to bring 
honesty in transactions with major businesses if we want to 
restore America's confidence in business dealings and bring 
people back to the stock market and get this economy back on 
track and give people a chance to save for their retirement. 
That is what this is all about.
    Somehow or another the other side of the aisle wants us to 
veer off now and talk about attorney's fees. I do not get the 
connection, and I urge my colleagues to take a close look at 
this long amendment and try to join me in divining what they 
are trying to achieve other than to perhaps change the subject.
    I yield the floor.
    The Presiding Officer. The Senator from Wyoming is 
recognized.
    Mr. Enzi. Mr. President, I do rise in support of the 
Edwards-Enzi-Corzine amendment. I am disappointed there has 
been a second-degree amendment to this, on which amendment we 
are working. It does not deal with the same topic. It does not 
deal with the same bill. It is going off in a different 
direction. If we keep having second-degree amendments 
throughout that go off in other directions, we are not going to 
get this bill finished and through the process. So it would be 
my hope it would be withdrawn.
    I will concentrate my efforts on the amendment I have 
worked on with Senator Edwards, Senator Corzine, and others. 
This amendment is designed to assure that attorneys are 
responsible for fully informing their corporate client of 
evidence of material violations of Federal securities law. That 
is what we are talking about through the whole accounting 
reform.
    Over the past few months, Congress and the public have 
concentrated on the role of accountants and auditors involved 
in Enron, WorldCom, Global Crossing, and others. We have held 
hearings and drafted legislation intended to restore a high 
level of ethical behavior to corporate America and the 
accounting industry. This breach in ethical behavior led to the 
problems these companies are now experiencing. I have to say 
through all of those hearings, as an accountant, I felt the 
profession was very picked on, and the profession deserved to 
be picked on--not everybody in the profession. Again, it is 
that one-half of 1 percent or one-tenth of 1 percent who are 
fouling up everything for everybody. It happens in a lot of 
different professions.
    As we beat up on accountants a little bit, one of the 
thoughts that occurred to me was that probably in almost every 
transaction there was a lawyer who drew up the documents 
involved in that procedure. I know as to the companies we 
looked at, that was the case. It seemed only right there ought 
to be some kind of an ethical standard put in place for the 
attorneys as well. All of the people who are involved should be 
looking at a new way of doing business.
    As an accountant, I have been deeply disturbed by the 
action taken by some in my profession, and as a result I have 
taken a more personal interest than others might in drafting 
legislation which will ensure that accountants act 
professionally and responsibly, and which will protect the 
interests of corporate shareholders.
    Following hearings on this matter, it has become clear that 
the role of attorneys who counseled these corporations and 
their accountants must be scrutinized as well. Just like 
accountants, these lawyers are expected to represent the 
corporation in the best interests of the shareholders. In doing 
so, these attorneys are hired to aid the corporation and its 
accountants in adhering to Federal securities law.
    When their counsel and advice is sought, attorneys should 
have an explicit, not just an implied, duty to advise the 
primary officer and then, if necessary, the auditing committee 
or the board of directors of any serious legal violation of the 
law by a corporate agent. Currently, there is no explicit 
mandate requiring this standard of conduct. It is clearly in 
the best interest of their client to disclose this kind of 
information to the board, rather than just upper management.
    Maybe it could be called the ``smell test.'' If something 
smells wrong, somebody who can do something to fix it ought to 
be told.
    It is important to understand the corporate attorney's 
client is the whole corporation and its shareholders, and not 
just the CEOs or some of the executives, accountants, or 
auditors. As a result, their ultimate duty of representation is 
not to the people to whom they normally report but to the 
shareholders through the board of directors.
    This amendment would require the Securities and Exchange 
Commission to enact rules within 180 days to set forth minimum 
standards of professional conduct and responsibility for 
attorneys appearing and practicing before the Commission; not 
all attorneys, just attorneys appearing and practicing before 
the Commission; that is, those who are dealing with documents 
that deal with companies listed by the Securities and Exchange 
Commission.
    This amendment instructs the Commission to establish rules 
that require an attorney, with evidence of material legal 
violation by the corporation or its agent, to notify the chief 
legal counsel or the chief executive officer of such evidence 
and the appropriate response to correct it. If these officers 
do not promptly take action in response, the Commission is 
instructed to establish a rule that the attorney then has a 
duty to take further appropriate action, including notifying 
the audit committee of the board of directors or the board of 
directors themselves, of such evidence and the actions of the 
attorney and others regarding this evidence. It is all within 
the corporation.
    This amendment is simple. It requires the attorney to 
contact specific persons who are part of the management 
hierarchy and explain the problem. If that fails to correct the 
problem, the attorney must contact the audit committee or the 
board of directors.
    I am usually in the camp that believes States should 
regulate professionals within their jurisdiction. However, in 
this case, the State bars as a whole have failed. They have 
provided no specific ethical rule of conduct to remedy this 
kind of situation. Even if they do have a general rule that 
applies, it often goes unenforced. Most States also do not have 
the ability to investigate attorney violations involved with 
the complex circumstances of audit procedures within giant 
corporations.
    Similarly, the American Bar Association's Model Rules of 
Professional Responsibility do not have mandatory rules for 
professional conduct for corporate practitioners which require 
them to take specific action. The ABA merely has a general rule 
that an attorney must represent the best interests of an 
organization and suggests a number of ways an attorney could 
respond, including reporting illegal conduct to a responsible 
constituent of the organization, such as the board of 
directors. But this does not mandate action.
    In response to Enron and the current environment concerning 
corporate integrity, on March 27 of this year the ABA did form 
a task force on corporate responsibility. But how many task 
forces have been formed and accomplished nothing? Task forces 
are often used to delay implementation of necessary changes. 
When task forces are used, we all know it takes years to set up 
the rules. When they are established, States may not actively 
enforce them or even have the means to enforce them.
    In any event, it is my understanding that the ABA's task 
force's preliminary recommendations are for the attorney to 
report law violations through a chain or ladder of the 
corporation. That is what, in fact, this amendment does, first 
through the legal counsel or CEO and then to the audit 
committee or the board of directors.
    While I almost always advocate a State solution, in this 
instance I must advocate a Federal solution. In the past, 
Congress has authorized a Federal commission to regulate the 
conduct of attorneys through promulgation of rules on attorneys 
practicing before them. For example, 31 U.S.C. section 330 
provides the Treasury Department authority to regulate the 
practice of attorneys appearing before the Internal Revenue 
Service. Accordingly, the IRS has promulgated rules on the 
conduct of attorneys.
    Under 31 CFR, part 10.21 of the IRS regulations, each 
attorney who knows the client has not complied with the revenue 
laws or who has made an error or omission on any return or 
document required by the IRS shall advise the client promptly 
of the fact of such noncompliance, error, or omission. The 
amendment I am supporting will give the SEC authority to 
promulgate a rule similar to the IRS rule.
    In the past, the SEC has tried to impose ethical conduct on 
attorneys. SEC rule 2(e), previously 102(e), authorizes the 
Commission to disbar or suspend from practice before it a 
lawyer or other professional who violates the securities law, 
assists in someone else's violation, or otherwise engages in 
unprofessional conduct.
    Through this process, the SEC previously instituted 
proceedings under rule 102(3) to enforce the ethical standards 
for the practice of Federal securities law. But it has stopped 
bringing these types of actions. This amendment will get the 
SEC back on track and make attorneys stand up and pay attention 
if they have evidence a corporate agent has committed a 
material legal violation.
    In the wake of Enron, over forty professors with expertise 
in Federal securities and ethics law, have written to SEC 
Chairman Harvey Pitt asking for some form of regulation over 
the practice and conduct of attorneys involved in Federal 
securities law.
    In their letter, they state that if senior managers will 
not rectify a violation, lawyers who are responsible for the 
corporation's securities compliance work, should be required to 
report to the board of directors.
    As they point out, such a disclosure obligation is still 
less onerous than that imposed on accountants under section 10A 
of the 1934 Securities Exchange Act, which requires an auditor 
to report, both to the client's directors and simultaneously to 
the SEC, and illegal act if management fails to take remedial 
action.
    The amendment I am supporting would not require the 
attorneys to report violations to the SEC, only to corporate 
legal counsel or the CEO, and ultimately, to the board of 
directors.
    Some argue that the amendment will cause a breach of 
client/attorney privilege, which is ludicrous. The attorney 
owes a duty to its client which is the corporation and the 
shareholders. By reporting a legal violation to management and 
then the board of directors, no breach of the privilege occurs, 
because it is all internal--within the corporation and not to 
an outside party, such as the SEC.
    This amendment also does not empower the SEC to cause 
attorneys to breach their attorney/client privilege. Instead, 
as is the case now, attorneys and clients can assert this 
privilege in court.
    In addition, this amendment creates a duty of professional 
conduct and does not create a right of action by third parties. 
The Fourth Circuit has made such a ruling concerning the code 
of conduct applied by the IRS Rules.
    The SEC has already found that attorneys who fail to take 
steps to prevent their clients from violating Federal 
securities law are guilty of aiding and abetting. This 
amendment will put attorneys on the right course. By reporting 
violations to the board of directors, they can avoid being 
found guilty of aiding and abetting their client.
    Just as I am concerned about the conduct of accountants 
because that is my profession, I would think member attorneys 
would be as concerned about the conduct of the legal 
profession. To ignore the role attorneys played in Enron, 
WorldCom and Global Crossing is a disservice to their 
profession.
    I hope you will join me in ensuring that attorneys are 
required to conduct themselves ethically and in the best 
interests of their client when they see evidence of a material 
legal violation. They should be expressly required to report 
that type of activity to upper managers, and ultimately, to the 
board of directors who represent the shareholders.
    After Enron, it is clear we need some hard and fast rules, 
and not just an arcane honor code rarely adhered to, so the 
necessary measure of client duty is placed into the hearts and 
minds of the legal profession. Again, I am disappointed there 
is a second-degree amendment. This is an important amendment 
and something that I thought would be cleared by both sides. We 
will deal with the rest of the process.
    I yield the floor.
    The Presiding Officer (Mr. Akaka). The Senator from Wyoming 
yields the floor.
    The Senator from New Jersey.
    Mr. Corzine. Mr. President, first, I am proud to have 
worked with Senator Edwards and Senator Enzi on this amendment 
on lawyer responsibility in corporate practice. It is an 
exceptional piece of additional effort in dealing with 
corporate fraud, corporate crime, and corporate abuse. I am 
very happy to have participated with him, and I particularly 
compliment Senator Edwards on bringing this important issue to 
the attention of the Senate and for making sure that we propose 
this strong amendment, to ensure corporate lawyers' ethical 
responsibilities.
    I, too, with the Senator from Wyoming, am disappointed. We 
are mixing apples and oranges when we are talking about 
lawyer's fees. This is dealing with corporate actions of 
lawyers. I don't understand why we are trying to move to a 
completely different subject when what we are trying to deal 
with is corporate responsibility. Lawyers play a role in that 
as much as accountants and management.
    Again, I thank Senator Enzi for his cooperation and 
leadership, not only on this effort but with regard to the core 
bill, which is going to make a big difference in the 
marketplace. People talk about weakness in the market and are 
fearful of what we do in Congress, but they are really fearful 
of what we will not do or what we might do in addressing some 
of the quite obvious needed reforms.
    We have talked a lot in the wake of Enron and WorldCom 
about the responsibility of accountants and corporate managers. 
Rightly so, as we have seen far too much bending of the rules, 
breaking of the rules in pursuit of profit, pursuit of personal 
gain. In their wake, shareholders, employees, and frankly the 
whole economy, has suffered from the selfishness that we have 
seen demonstrated by the actions of many--the criminal actions, 
in some instances.
    It is not insignificant that even before this week, before 
there was so much focus on this issue, this year there had been 
roughly $2 trillion worth of damage, value lost in the stock 
market, which is reflective of the discomfort that investors 
across the globe, as well as here at home, feel about where we 
stand.
    As a former corporate leader, I tell you I am disgusted 
with many of the actions I have seen taken by some corporate 
managers when they betrayed shareholders' trust, employees' 
trust, and the public confidence in general. I think they have 
basically betrayed our whole Nation's economy. That is why I 
have been pleased to work on this critical legislation that 
Senator Sarbanes has proposed regarding the accounting 
industry's corporate responsibility.
    But I do not think that is enough. I think, as Senator 
Edwards said when he brought this to our attention, executives 
and accountants do not work alone. In fact, in our corporate 
world today--and I can verify this by my own experiences--
executives and accountants work day to day with lawyers. They 
give them advice on almost each and every transaction. That 
means when executives and accountants have been engaged in 
wrongdoing, there have been some other folks at the scene of 
the crime--and generally they are lawyers.
    This is not a new issue. The SEC had an unambiguous view 
about this more than 10, 15 years ago. More than 10 years ago 
Judge Stanley Sporkin, while commenting on the criminal actions 
of Charles Keating, noted that Keating had:

    . . . surrounded himself with literally scores of 
accountants and lawyers to make sure all the transactions were 
legal.

    In a now famous refrain, Sporkin lamented:

    Where were these professionals . . . when these clearly 
improper transactions were being consummated? . . . Where, 
also, were the outside accountants and attorneys when these 
transactions were being effectuated?''

    That sounds a little familiar in the current circumstance. 
The bottom line is this. Lawyers can and should play an 
important role in preventing and addressing corporate fraud. 
Our amendment seeks to ensure that. It seeks to go back to the 
old way: When lawyers know of illegal actions by a corporate 
agent, they should be required to report the violation to the 
corporation.
    Let me be clear. The same as I feel about most accountants 
and most business leaders, the vast majority of lawyers 
discharge their duties with integrity and in an ethical manner. 
This is not an effort to blame corporate lawyers. But we cannot 
overlook the role corporate lawyers, the lowest common 
denominator, can play in addressing abuses and ensuring that 
our markets have integrity. We need to clarify that corporate 
lawyers have a duty to the shareholders, not just to the 
management that hired them.
    That is why Senator Edwards, Senator Enzi, and I have 
crafted an amendment that will clarify that lawyers who know of 
wrongdoing by a corporation must report that wrongdoing to the 
client so it can be corrected. The client is more than just the 
person who hired them. The lawyer's client is the corporation's 
shareholders, not the manager. As we have seen far too often 
this year, when management is engaged in fraud it harms the 
shareholders. That is why we need to ensure that lawyers who 
know of illegal acts report those acts to the board of 
directors which represent those shareholders. Our amendment 
would require the SEC to establish rules in the public interest 
and for the protection of investors, setting forth minimum 
standards of professional conduct for attorneys appearing and 
practicing before the Commission. Those rules would include--
shall include a requirement that lawyers who have evidence of a 
violation of law would be required to go up the ladder of 
corporate management and report the violation.
    It is a simple principle--very much common sense. If a 
manager doesn't respond appropriately, including remedying any 
violation, the lawyer would then be required to report the 
violation to the board of directors which represents the 
shareholders.
    We should recognize that in some instances where there may 
be evidence of a violation, it may become apparent after a more 
complete investigation that there is not an actual violation. 
But when lawyers are aware of a potential violation, they do 
have a duty to investigate. And if they determine there is a 
material violation of law--not some small violation, some 
insignificant rule--that violation should be remedied by the 
corporation. If it is not remedied, it is the duty of the 
lawyer, under our language, to report it to the board.
    I am pleased that Senator Edwards and Senator Enzi and I 
have been able to craft an amendment that will firmly establish 
the ethical duty of corporate lawyers to report wrongdoing to 
their client, including, if necessary, to the board of 
directors that represents a company's shareholders.
    Addressing the role of corporate lawyers is just as 
important a step as it is with accountants and with corporate 
officers. If we want to truly address this breakdown in 
corporate responsibility, it is a critical piece of the puzzle 
that cannot be overlooked. I urge my colleagues to support this 
sensible amendment.
    Once again I say I am disappointed with the McConnell 
amendment. I suggest we move to table that, in light of its 
irrelevance with respect to the underlying matter.
    I will withdraw that motion, and I suggest the absence of a 
quorum.
    Mr. Reid. Will the Senator withhold?
    Mr. Sarbanes. Does the Senator yield the floor?
    The Presiding Officer. Does the Senator withhold suggesting 
the absence of a quorum?
    Mr. Corzine. Yes. I yield the floor.
    The Presiding Officer. The Senator from Georgia.

                           AMENDMENT NO. 4206

    Mr. Miller. Mr. President, I ask unanimous consent the 
pending amendments be laid aside so I may offer an amendment, 
and that there be a time limitation of 2 minutes on my 
amendment, with no amendments in order to my amendment. This 
amendment has been agreed to by both managers.
    Mr. Reid. Reserving the right to object, and following the 
disposition of this that we will return to the Edwards 
amendment?
    The Presiding Officer. That is the understanding of the 
Chair. Is there objection? Without objection, it is so ordered.
    Mr. Miller. I send my amendment to the desk.
    The Presiding Officer. The clerk will report the amendment.
    The assistant legislative clerk read as follows:

    The Senator from Georgia (Mr. Miller) proposes an amendment 
numbered 4206.

    Mr. Miller. I ask unanimous consent the reading of the 
amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To express the sense of the Senate that the chief executive 
    officer of a corporation should sign the corporation's income tax 
    returns)

    At the end add the following new title:

                   TITLE VIII--CORPORATE TAX RETURNS

SEC. 801. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX 
                    RETURNS BY CHIEF EXECUTIVE OFFICERS.

    It is the sense of the Senate that the Federal income tax 
return of a corporation should be signed by the chief executive 
officer of such corporation.

    Mr. Miller. Mr. President, this amendment is only three 
lines long. Let me read them to the Senate:

    It is the sense of the Senate that the Federal income tax 
return of a corporation shall be signed by the chief executive 
officer of such corporation.

    Believe it or not, that is not in the law right now, and it 
should be. The average wage earner on his 1040 form has to sign 
it. We require it of him. That is what we should require of the 
CEO of a corporation, just treat them the same.
    I yield the floor.
    The Presiding Officer. The Senator from Maryland, Senator 
Sarbanes.
    Mr. Sarbanes. I urge the adoption of the amendment.
    The Presiding Officer. Is there further debate?
    Mr. Gramm. Mr. President, I suggest the absence of a 
quorum.
    The Presiding Officer. The clerk will call the roll.
    Mr. Gramm. Mr. President, I withdraw the request. I don't 
have any problem. It was a confusion of which amendment.
    The Presiding Officer. Without objection, the amendment is 
agreed to.
    The amendment (No. 4206) was agreed to.
    Mr. Levin. Mr. President, I move to reconsider the vote.
    Mr. Reid. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.
    Mr. Reid. I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Daschle. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Daschle. Mr. President, I announce that there will be 
no more rollcall votes tonight. I hope Senators will come to 
the floor and continue to participate in the debate. But for 
the interest of Senators and schedules, we will have no 
additional rollcall votes tonight.
    I yield the floor, and I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Sarbanes. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Sarbanes. Mr. President, while we are all waiting for 
further business, I will take just a moment to speak to the 
amendment that has been offered by the very able Senator from 
North Carolina. In fact, I would like to put a couple of 
inquiries to the Senator, if I might.
    It is my understanding that this amendment, which places 
responsibility upon the lawyer for the corporation to report up 
the ladder, only involves going up within the corporate 
structure. He doesn't go outside of the corporate structure. So 
the lawyer would first go to the chief legal officer, or the 
chief executive officer, and if he didn't get an appropriate 
response, he would go to the board of directors. Is that 
correct?
    Mr. Edwards. Mr. President, my response to the question is 
the only obligation that this amendment creates is the 
obligation to report to the client, which begins with the chief 
legal officer, and, if that is unsuccessful, then to the board 
of the corporation. There is no obligation to report anything 
outside the client--the corporation.
    Mr. Sarbanes. I think that is an important point. I simply 
asked the question in order to stress the fact that that is the 
way this amendment works. This has been a very carefully worked 
out amendment. I engaged in an exchange with the distinguished 
Senator from North Carolina, and the Senator from Wyoming, Mr. 
Enzi, the cosponsors of this amendment. I know how careful they 
have been in trying to craft the amendment and in bringing it 
here. I think they have done an absolutely first-rate job in 
sort of focusing the amendment, considering questions that were 
raised from one source or another, and adjusting it in order to 
meet them.
    I think the amendment they have now put before us is an 
extremely well reasoned amendment, and it ought to command the 
support of the Members of this body.
    I very deeply regret that Senator McConnell has added an 
amendment to the amendment. His amendment really doesn't 
address this amendment. It doesn't really address the subject 
matter of this legislation. It is a total diversion. Of course, 
I presume it will complicate our ability to try to move ahead 
as we consider amendments. It obviously complicates the 
consideration of the Edwards-Enzi amendment which is now 
pending.
    Furthermore, I understand that under this amendment it can 
only be enforced by the SEC through an administrative 
proceeding. Is that correct?
    Mr. Edwards. The answer is yes. The only way to enforce 
this legal requirement is through an administrative process.
    Mr. Sarbanes. That was an effort, of course, to deal with 
the idea that somehow it might bring causes of action from 
outside, or somewhere else. So it is limited to the SEC. The 
SEC, as I understand it, had something like this in place in 
the past. Is that correct?
    Mr. Edwards. The answer is yes. Years ago, the SEC had and 
enforced such a regulation, which they have not been doing for 
some time.
    Mr. Sarbanes. I further understand that a number of 
professors of securities regulations and professional ethics 
are, in fact, supportive of this proposal. I think at an 
earlier time they wrote to the SEC urging the SEC itself to put 
some provision such as this into place. Is that correct?
    Mr. Edwards. The Senator is correct. There is a large group 
of distinguished securities lawyers and legal ethics lawyers 
who have written the SEC suggesting exactly what the Senator 
said--that it become part of the regulations and part of the 
law.
    Mr. Sarbanes. This amendment really, in effect, parallels 
or follows those recommendations--at least in substantial 
respect--as I understand it.
    Mr. Edwards. That is correct.
    Mr. Sarbanes. Again, that letter which I have had the 
chance to review, and also the signatories to it--some 40 or so 
distinguished professors of securities regulations or 
professors of professional ethics at the law schools--is also a 
very carefully reasoned proposal. The one they submitted to the 
SEC is the one the Senator from North Carolina has tracked in 
his amendment.
    I thank both Senator Edwards and Senator Enzi for their 
very careful work. And I very much hope at the appropriate time 
we will be able to adopt this amendment and include it in this 
legislation. I think it makes an important contribution.
    Mr. President, I yield the floor. I suggest the absence of 
a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Levin. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Levin. Mr. President, I ask unanimous consent at this 
time that I be called upon to offer an amendment; that the 
amendment be debated tonight--it is the amendment on SEC 
enforcement--and that when the debate is completed tonight and 
when we recess until the morning, that when the morning 
arrives, we would then return immediately to the Edwards 
underlying amendment and the McConnell second-degree amendment 
thereto.
    The reason I make this unanimous consent proposal tonight 
is that there are a lot of relevant amendments which are 
waiting in line, which are important amendments, which have a 
lot of support, I believe, on a bipartisan basis in this body 
that ought to be considered prior to cloture or else; because 
they may not be technically germane, they would be precluded if 
cloture is invoked.
    I have a number of amendments on the list. I think we 
should move this train forward tonight, utilize the time this 
evening to move this process forward so as many of these 
amendments as possible can be considered before cloture. I make 
that unanimous consent proposal at this time.
    The Presiding Officer. Is there objection?
    The Senator from Texas.
    Mr. Gramm. Mr. President, reserving the right to object, 
let me say that we have a lot of people who want to offer 
amendments. I have on my side some 30 amendments. We had better 
follow the regular order. Let me say that I would intend, once 
we have disposed of this unanimous consent request, to ask that 
all further amendments be germane to the bill and that at noon 
tomorrow we proceed to third reading. But I object to the 
unanimous consent request.
    The Presiding Officer. Objection is heard.
    The Senator from Nevada.
    Mr. Reid. Mr. President, I ask unanimous consent that at 
10:30 tomorrow morning, Thursday, July 11, the Senate resume 
consideration of S. 2673 and that the time until 12 noon be 
divided as follows: The first 45 minutes under the control of 
Senator Byrd; the remaining 45 minutes under the control of 
Senator McConnell or his designee; that at 12 noon Senator Enzi 
be recognized to make a motion to table the McConnell second-
degree amendment No. 4200, with no intervening amendment in 
order prior to disposition of the McConnell amendment.
    That is not part of this agreement. For the information of 
Senators, we would have an hour, beginning at 9:30, for morning 
business for both sides, equally divided.
    Mr. Levin. Mr. President, reserving the right to object.
    Mr. Gramm. Mr. President, I think this is a perfectly 
reasonable unanimous consent request, and I do not object.
    Mr. Levin. Reserving the right to object, Mr. President, I 
have two questions relative to this unanimous consent request. 
The first question is, Does this then mean we would move to the 
disposition of the Edwards amendment?
    Mr. Reid. Mr. President, that is my hope. One of the 
reasons we want to dispose of the second-degree amendment--
Senator Enzi, who has worked with you and others on the 
underlying amendment, is going to move to table. We hope we can 
move to the Edwards amendment.
    The Senator from Texas, Mr. Gramm, has told us he wants to 
study this tonight and he will give us word on it tomorrow. I 
think it has been debated quite sufficiently. It appears to me 
the Edwards amendment is reasonable. I think in the dialog he 
answered all the questions of the Senator from Texas. I have no 
problem if the Senator wants to spend the night looking it over 
more.
    Mr. Levin. My second question under the reservation is 
this: This does not then change the order that has been 
previously listed for amendments under the earlier UC request; 
is that correct?
    Mr. Reid. That is correct. We have a number of amendments 
queued up. Senator Edwards has been here all day, for example. 
The Senator from Michigan has been here a long time today. We 
hope we can move through some of these tomorrow.
    As the Senator knows, there is anticipation tonight that a 
cloture motion will be filed on this bill. The majority leader 
has told everyone that we have only 3 weeks remaining in this 
little session before the August recess. We would like to do 
prescription drugs. We are going to move, we hope, to the 
MILCON appropriations bill in the next day or so. We have 
homeland security we have to do. There is so much to do and a 
limited amount of time in which to do it.
    Mr. Levin. Further reserving the right to object, Mr. 
President, I will simply add the following because there are 
relatively few hours between now and a vote on cloture, 
assuming that cloture motion is filed. I think we should fully 
utilize that time to consider relevant amendments. What my 
great fear is--which is being reinforced tonight--is that the 
time is going to be filled not by relevant amendments but in 
other ways which would preclude the consideration of relevant 
amendments in the event cloture is adopted. That is a major 
concern I have. I don't know if other people waiting in line 
with amendments that are relevant amendments have the same 
concern, but I hope and believe they do.
    I hope it will be possible for relevant amendments to be 
considered, if not tonight, then tomorrow, and that the time be 
fully utilized; otherwise, it would simply preclude important 
relevant amendments that are waiting in line.
    Mr. Reid. Mr. President, the Senator also speaks for 
others. We have had, over the last several months, problems 
getting legislation up the way we used to do it here. It is 
difficult when we have obstacles that are brought up. It does 
not allow us to proceed in the normal fashion. I hope the 
Senator will allow the agreement to go forward.
    The Presiding Officer (Ms. Cantwell). The Senator from 
Texas.
    Mr. Gramm. Madam President, I am told one of my colleagues 
is coming down to object to this unanimous consent request. I 
have to suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The assistant legislative clerk proceeded to call the roll.
    Mr. Reid. Madam President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. I renew my unanimous consent request.
    The Presiding Officer. Is there objection?
    Mr. Gramm. Madam President, the reservations of the Senator 
from Michigan have no impact on this unanimous consent request? 
That is a parliamentary inquiry. The reservations expressed by 
the Senator fromMichigan have no impact on the unanimous 
consent request as it is written?
    The Presiding Officer. That is correct.
    Mr. Gramm. I have no objection.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from Nevada.
    Mr. Reid. Madam President, I appreciate very much the work 
of the managers of this bill. This is very important 
legislation. I was advised by the Chairman of the committee 
just a few minutes ago the stock market dropped again today 
almost 300 points. We need to do something to reestablish 
credibility and to reestablish the confidence of the American 
people in corporate America. This legislation goes a long way 
toward that end. I hope there will be cooperation tomorrow so 
that some of these relevant amendments can be offered.
    I hope everyone understands the importance of this 
legislation. I am confident they do. I appreciate the ability 
to work this out so we can at least move forward tomorrow to 
the extent we do in this unanimous consent agreement.
    The Presiding Officer. The Senator from Texas.
    Mr. Gramm. Madam President, let me just outline, if I may, 
where I see we are in the process. Tonight, a cloture motion is 
going to be filed. Tomorrow we are going to have a series of 
amendments. As everybody knows, when cloture is invoked, the 
relevant test is germaneness, not relevance, not significance, 
not the feeling of a Member that their amendment is important 
or more important than any other Member. The test is 
germaneness.
    Anybody who has ever been involved in a situation where we 
move toward cloture understands that once we are on that track, 
unless amendments are relatively acceptable on a broad basis to 
all parties involved, knowing that the amendment is sheared off 
at the hour of cloture, that amendment in all probability--let 
me state it more precisely--that amendment is not going to be 
adopted.
    We can do this in one of two ways, and either way works 
perfectly with me. We can either try for the nongermane 
amendments--if your amendment is germane, you are solid, you 
can offer it now, you can offer it later, and you are going to 
get a vote on it. But if your amendment is not germane, I 
suggest we try to get our staffs together and see if something 
can be worked out where if part of the amendment or all of the 
amendment or the amendment and something else is 
noncontroversial, it could be adopted.
    At the end of the day, we will all be happier if we do 
that. If we spend all of tomorrow butting heads knowing what 
the final outcome is going to be, the net result is we are just 
going to have unhappiness and no good will come out of it.
    I say to anyone who has a nongermane amendment, in the end, 
to have that amendment adopted it is going to have to be 
generally supported because, obviously, any Member is going to 
be able to prevent it from being voted on. It is going to get 
sheared off at cloture.
    I have a list of amendments, most of which have absolutely 
nothing to do with this bill. I have amendments on bankruptcy. 
I have amendments on the Ninth Circuit Court of Appeals. I have 
amendments on pensions. I have amendments on tax policy. I have 
numerous amendments on stock options.
    I submit to all these people who want to offer amendments 
that what we ought to do if we are going to try to get 
something done is to have them have their staff sit down with 
staff on both sides of the aisle and say: Is there anything in 
here that might be generally agreed to, and if that is the 
case, we could move in that direction.
    Finally, let me say we have in place a unanimous consent 
agreement about how we are going to proceed tomorrow morning, 
and I ask the Democratic floor leader, if I can, given that we 
have a unanimous consent agreement in place for the morning, 
can we simply have the floor open for the purpose of debate 
only tonight so that those of us who are going to be here all 
day tomorrow, as we were all day today, can go home?
    Mr. Reid. I say to my friend, there are some things we have 
to do, such as filing cloture, and if that situation of debate 
only is in effect, we could not do that.
    Mr. Gramm. With what now?
    Mr. Reid. If there is debate only, we could not file the 
cloture motion.
    Mr. Gramm. If you can just tell us, if we can have an 
agreement--the Senator can amend it. All I am saying is, if 
people want to stay and debate any pending amendment or talk 
about whatever they want to talk about, that is fine. It seems 
to me if we are through with all of our business except debate, 
we could let people who have debated enough go home.
    Mr. Reid. The leader has stated there will be no more 
rollcall votes tonight. I hope if one wants to talk about the 
bill, they will do that, but I do not think we need a UC to 
accomplish that.
    Mr. Gramm. If the Senator will yield, what about a 
unanimous consent request, except to file a cloture motion, 
that there will be debate only tonight? That way we do not have 
a problem of potentially someone asking unanimous consent for 
something.
    Mr. Reid. My personal feeling is I have no problem with 
that. I have to check with staff to make sure I am not missing 
anything, but I want to make sure the Senator from North 
Carolina is protected.
    Mr. Edwards. Will the Senator from Texas yield, if he has 
the floor?
    Mr. Gramm. If I do I yield to him.
    The Presiding Officer. The Senator from North Carolina.

                    AMENDMENT NO. 4187, AS MODIFIED

    Mr. Edwards. Madam President, I have a modification to my 
amendment at the desk.
    The Presiding Officer. The amendment is so modified.
    The amendment, as modified, is as follows:

    On page 108, line 15, insert before the end quotation marks 
the following:
    ``(c) Rules of Professional Responsibility for Attorneys.--
Not later than 180 days after the date of enactment of this 
section, the Commission shall establish rules, in the public 
interest and for the protection of investors, setting forth 
minimum standards of professional conduct for attorneys 
appearing and practicing before the Commission in any way in 
the representation of public companies, including a rule 
requiring an attorney to report evidence of a material 
violation of securities law or breach of fiduciary duty or 
similar violation by the company or any agent thereof to the 
chief legal counsel or the chief executive officer of the 
company (or the equivalent thereof) and, if the counsel or 
officer does not appropriately respond to the evidence 
(adopting, as necessary, appropriate remedial measures or 
sanctions with respect to the violation), requiring the 
attorney to report the evidence to the audit committee of the 
board of directors or to another committee of the board of 
directors comprised solely of directors not employed directly 
or indirectly by the company, or to the board of directors.

    Mr. Edwards. I yield the floor.
    The Presiding Officer. The Senator from Nevada.

                             Cloture Motion

    Mr. Reid. Madam President, I send a cloture motion to the 
desk.
    The Presiding Officer. The cloture motion having been 
presented under rule XXII, the Chair directs the clerk to read 
the motion.
    The assistant legislative clerk read as follows:
                             Cloture Motion
    We, the undersigned Senators, in accordance with the provisions of 
rule XXII of the Standing Rules of the Senate, do hereby move to bring 
to a close the debate on Calendar No. 442, S. 2673, the Public Company 
Accounting Reform and Investor Protection Act of 2002:

    Jon Corzine, Deborah Stabenow, Paul Wellstone, Ron Wyden, Daniel 
            Akaka, Barbara Boxer, Charles Schumer, Byron Dorgan, Harry 
            Reid, Paul Sarbanes, Daniel Inouye, John Edwards, Barbara 
            Mikulski, Thomas Carper, Jack Reed, Tim Johnson.

    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, before the Senator from 
Texas departs, I wish to add an observation to the comments he 
made before about how to proceed.
    There are a number of amendments. The definition of 
germaneness, once cloture has been invoked, is very narrow. 
There are amendments that Members have which in the normal 
terminology would be regarded as germane and are certainly 
relevant. It seems to me an effort should be made to address 
those amendments as well as ones that are perceived to be 
germane in the very narrow sense.
    There is another category of amendments that I am not very 
sympathetic to, and those are ones that have really nothing to 
do with this bill. The second-degree amendment offered by the 
Senator from Kentucky that is now pending, in my judgment, is 
an example of that. We probably ought to move very quickly to 
table those kinds of amendments when they come up so we have an 
opportunity for colleagues who have amendments that are really 
relevant to this legislation to bring them up and to have them 
considered.
    Mr. Gramm. Will the Senator yield?
    Mr. Sarbanes. Yes.
    Mr. Gramm. I think we have a fairly broad consensus that is 
the direction in which we should go. The fact that we are 
getting ready to have cloture should not prevent us from 
adopting amendments where there is support and where there is a 
collective judgment that the amendment is relevant. The plain 
truth is that anyone knowing that cloture was coming could have 
held up the President's amendment which added criminal 
sanctions. Any Member of the Senate could have prevented that 
from being voted on knowing that it was nongermane, but nobody 
did that because there was a general base of support for it.
    All I was saying was that every Member of the Senate knows 
the germaneness rule and everybody knows that, come whenever we 
invoke cloture, any amendment that is nongermane is going to 
fall. Then what is going to happen is, unless there is some 
consensus for the amendment, it is simply going to be delayed 
until it is cut off.
    If what the Senator is saying is that if an amendment is 
relevant, if it would improve the bill, if it is not highly 
controversial, we ought to take it, I agree with that. Looking 
down my amendment list, there are not a lot of such amendments, 
but the ones that are there, if people want to bring them up, I 
am not going to oppose an amendment simply because it is not 
germane.
    Mr. Sarbanes. I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Reid. Madam President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. Madam President, I ask unanimous consent that the 
previously agreed to Daschle for Biden amendment, No. 4186, as 
modified, be inserted in the appropriate place in the bill.
    The Presiding Officer. Without objection, it is so ordered.
    
    
        VOLUME 148, THURSDAY, JULY 11, 2002, NUMBER 93,
                      PAGES [S6603-S6616]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The Presiding Officer. Under the previous order, the Senate 
will resume consideration of S. 2673, which the clerk will 
report.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    Pending:

    Edwards modified amendment No. 4187, to address rules of 
professional responsibility for attorneys.
    Gramm (for McConnell) amendment No. 4200 (to amendment No. 
4187), to modify attorney practices relating to clients.

    The Presiding Officer. The Senator from Nevada is 
recognized.
    Mr. Reid. Mr. President, this has been cleared by both 
managers of the bill. We have had a number of inquiries about 
the need for more time to talk on various issues. As the Chair 
knows, from 12:30 until 2 o'clock, we have our policy luncheon, 
and normally we don't have votes.
    I ask unanimous consent that the previously scheduled 
order, which provided that Senator Enzi be recognized at 12 
noon today to make a motion to table the McConnell amendment 
No. 4200, be modified to provide that the recognition of 
Senator Enzi occur at 12:45 today, with the additional 45 
minutes, from 12 to 12:45, equally divided and controlled 
between Senators Sarbanes and Gramm, or their designees, and 
that all other provisions of the previous order remain in 
effect.
    Mr. Dorgan. Mr. President, reserving the right to object, I 
would like to engage in a brief discussion with my colleague 
from Nevada under my reservation of an objection, if I might. I 
shall not object to the specific request of the Senator, but I 
have just visited with the Chairman of the Committee and you 
know there exists a list of amendments that Members of the 
Senate wish to offer to this legislation.
    As I have watched this process over the last couple of 
days, it appears to me that we have set up a gatekeeper of 
sorts for determining who will offer amendments and whether 
there will be votes on the amendments, and it appears to me we 
are not making very much progress. I would like to get some 
sense of whether we have a clear process beginning this 
afternoon, so that this afternoon and this evening we might be 
able to move through 6, 8, 10 amendments and get time 
agreements so Members of the Senate have the opportunity under 
the rules to offer and have considered amendments that they 
consider important in this legislation.
    Mr. Reid. Mr. President, I say to my friend, the chairman 
of the committee has worked for hours and hours trying to get 
movement so people could offer relevant amendments. We have 
been not very successful, to be very candid with the Senator 
from North Dakota. I have stood by the Senator from Maryland 
and coerced, urged, and we haven't gotten to the debating point 
yet. We have done everything we can.
    There are a number of Senators, not the least of whom is 
the Senator from North Dakota, who have amendments. There is 
the Senator from Michigan, the Senator from New York, and 
others who have spent a lot of time wanting to offer 
amendments. We are doing everything we can. We hope the Enzi 
motion to table will break some of this loose.
    I say to my friend from North Dakota that we understand how 
he feels. The only thing I will say is there is no gatekeeper. 
On one bill the two managers said they would oppose any 
amendment that was not relevant, but that is not the case now. 
The Senator from Maryland has expressed to me that there are 
some relevant amendments which should be offered. He has done 
everything he can to----
    Mr. Byrd. Mr. President, who controls time?
    The Presiding Officer. Under the previous order, the 
Senator from West Virginia controls the next 45 minutes. There 
is a unanimous consent request pending.
    Mr. Byrd. Mr. President----
    Mr. Dorgan. Mr. President, reserving the right to object.
    Mr. Reid. If I can ask my friend to let me finish. I ask 
unanimous consent that the time in the colloquy between the 
Senator from North Dakota and the Senator from Nevada not take 
away from the time of the Senator from West Virginia.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Dorgan. Mr. President, continuing on my reservation--
and it is not my intention to delay the Senator from West 
Virginia--I want to try to understand what is happening.
    First, my comments should not in any way suggest that the 
chairman of the committee hasn't done an extraordinary job. I 
have great respect for him. But it has been difficult to get 
amendments up and get votes on them in the last day or two. 
There are a good number of very important amendments.
    Under the reservation, I say that we know what has happened 
to the stock market in the last few days. We know this is a 
critically important issue--this legislation and the amendments 
to it. We ought not to treat this lightly. This piece of 
legislation ought to be on the floor and open for amendment, 
having a robust discussion on the very important issues dealing 
with corporate responsibility.
    Instead, what is happening is we have a couple people on 
the floor who seem to want to stall this process and prevent 
amendments from being considered in order. I hope--and I will 
come back after lunch today--to offer at least two amendments. 
I want to debate them and get them voted on. At least as a 
Senator I have a right to do that.
    It is very important to me that I be able to add these 
amendments. If the Senate doesn't like them, fine, we will 
vote. But it is important to me to have that opportunity. I 
shall not object to the unanimous consent request with respect 
to the tabling motion.
    I wanted to say to the Senator from Nevada and the Senator 
from Maryland, who have done everything humanly possible to try 
to make this process work, that there are others in the Chamber 
who are trying to drag this process out and prevent others from 
offering amendments. I am going to assert my rights, to the 
extent I can, to say that before this bill is completed we need 
to have
the best ideas everyone in the Senate has to offer about how to 
do this job.
    The economy in this country is in significant trouble. We 
know it. The confidence the American people have in this 
economy and corporate governance has been shattered in many 
ways. It rests upon the shoulders of this institution to pass 
this legislation and do everything we can to make it the best 
piece of legislation possible to restore that confidence and 
give some lift to this economy. I wanted to make that point.
    I appreciate the indulgence and the patience of the Senator 
from Nevada. If the Senator from Maryland will give me a chance 
to say this once again: In no way am I saying the Chairman 
hasn't done everything humanly possible to move this along. He 
wants to move quickly. I shall not object.
    Mr. Graham. Mr. President, reserving the right to object.
    The Presiding Officer. The Senator from Florida.
    Mr. Graham. Mr. President, I express my great admiration 
for what Senator Sarbanes has done in presenting to America 
such a meaningful piece of legislation to deal with one of the 
great scandals that has occurred in the history of our free 
enterprise system, and taking a step toward restoring the 
confidence of the public in the investment community.
    But as Senator Dorgan, I have an idea which, in fact, in 
one instance, is parallel to Senator Dorgan's; that is, I 
believe we need to be very clear that we are applying the same 
standards to corporations that have their corporate 
headquarters inside the United States as we do to corporations 
that take advantage of our capital markets and have chosen to 
locate or relocate their headquarters outside of the United 
States.
    Mr. Reid. Mr. President, I am reclaiming my time.
    Mr. Graham. Reserving the right to object, there are enough 
incentives to do that already in the Tax Code and otherwise. We 
should not be creating additional incentives for companies to 
run from their responsibilities within the United States. My 
specific----
    Mr. Reid. Mr. President, I want the floor back.
    Mr. Graham. I am raising this today----
    Mr. Reid. Mr. President, I have the floor.
    The Presiding Officer. The Senator from Nevada has the 
floor.
    Mr. Graham. Mr. President, I am reserving my right to 
object.
    Mr. Reid. Mr. President, I have the floor.
    Mr. Graham. I will conclude my comments in short order.
    The Presiding Officer. The Senator can either object or 
not. Reserving the right to object occurs at the indulgence of 
those who have the floor.
    Mr. Reid. Mr. President, we have built in time for people 
to speak. It is not fair to Senator Byrd and others who have 
been waiting to speak. I have no problem with Senator Graham 
coming. I agree with his position. There is time to be allowed 
under this unanimous consent agreement. Otherwise, the time 
will be all gone, and there are two Senators who have an hour 
and a half, by virtue of a unanimous consent agreement entered 
into last night.
    It is not fair to use the extra half hour with these 
speeches that are taking away from Senator Byrd and Senator 
McConnell.
    The Presiding Officer. Is there objection?
    Mr. Graham. Reserving the right to object, just for the 
purpose of concluding my remarks.
    Mr. Byrd. Mr. President, I object.
    The Presiding Officer. Objection is heard.
    Mr. Byrd. Mr. President, I will be happy to yield to the 
Senator when I get the floor. We cannot make long speeches on 
reservations to object. We either object or we don't. I object 
and then I will be happy to yield to the Senator. I want to be 
fair. Am I recognized?
    The Presiding Officer. The Senator from West Virginia is 
recognized.
    Mr. Byrd. How much time does the Senator wish?
    Mr. Graham. Just 1 minute.
    Mr. Byrd. Mr. President, I yield to the distinguished 
Senator from Florida for 1 minute, reserving my right to the 
floor.
    Mr. Graham. I appreciate the courtesy of the Senator. I 
want to bring to your attention an article from the Washington 
Post today. I ask unanimous consent that this article be 
printed in the Record.
    There being no objection, the article was ordered to be 
printed in the Record, as follows:

       SEC Chairman Pitt a Potential Liability to Administration

                           (By Dana Milbank)

    While President Bush was delivering his long-awaited speech 
on corporate governance Tuesday, Securities and Exchange 
Commission Chairman Harvey L. Pitt was exactly where many Bush 
aides wanted him to be: on a week-long beach vacation.
    ``We were not surprised that the Chairman was not included 
in Administration plans for public appearances,'' SEC 
spokeswoman Christi Harlan said. ``The commission is an 
independent agency.''
    White House officials, though calling it a coincidence, 
acknowledged they had no desire for Pitt's presence.
    The arms-length treatment of Pitt underscores a dilemma for 
Bush and his radioactive SEC chairman. Many Democrats and even 
a few Republicans have called for Pitt's resignation because of 
his alleged conflicts of interest and ties to the accounting 
industry. There is no sign that Bush is even thinking of 
dropping Pitt. But whether Pitt stays or goes, he is a 
potential liability.
    Dismissing Pitt would violate the Bush code of loyalty and 
would be viewed as validating Bush's critics, from Senate 
Majority Leader Thomas A. Daschle (D-S.D.) to Bush's Republican 
nemesis, Sen. John McCain (Ariz). ``Dropping Harvey Pitt right 
now would be an acknowledgment of wrongdoing where there's been 
no wrongdoing,'' said GOP lobbyist Ed Gillespie, a former Bush 
campaign aide.
    Forcing Pitt out would also open the White House to charges 
of interfering in the SEC's investigation of Halliburton Co.'s 
activities when Vice President Cheney was its chief executive. 
Underscoring that danger, Halliburton shareholders yesterday 
filed a fraud lawsuit in Dallas against the company and Cheney. 
White House Press Secretary Ari Fleischer said the suit is 
``without merit.'' That prompted Larry Klayman, whose group, 
Judicial Watch, represents the shareholders, to accuse the 
White House of seeking to influence the SEC's investigation.
    Yet Pitt's presence as the Government's top securities 
watchdog carries dangers for Bush, too. Even some Pitt 
defenders say his close ties to the accounting industry limit 
his credibility as a reformer. In his first speech as SEC 
Chairman last year, Pitt told an audience of auditors that the 
SEC would be ``a kinder and gentler place for accountants.''
    ``Pitt has been in hot water since day one and WorldCom 
turned it into a full boil,'' said GOP operative Scott Reed. 
Because Bush will not drop Pitt, Reed said, ``McCain and the 
Democrats have turned him into a political pinata, and that 
will continue ad infinitium.''
    Democrat Chris Lehane, who defended Bill Clinton and Al 
Gore during that Administration's scandals, said Bush is making 
the wiser political choice in keeping Pitt, even though Pitt 
could undermine faith in Bush's reforms. ``Pitt could do 
everything right and nobody's going to give him credit for 
it,'' he said.
    Pitt's foes point to his past legal work for executives of 
now-sullied corporations, including MCI, Merril Lynch & Co., 
Arthur Andersen LLP and other accounting firms. He has also 
been criticized for meeting in April with a former client, KPMG 
Consulting Inc., while KPMG's audits of Xerox Corp. were being 
investigated by the SEC. Critics also say that as a lawyer, 
Pitt favored restricting Federal oversight of auditing firms. 
Over the years, Pitt has represented figures such as Ivan 
Boesky and Michael Saylor in SEC actions.
    Bush, in his Monday news conference, generously defended 
Pitt. ``I support Harvey Pitt--Harvey Pitt has been fast to 
act,'' Bush said. Later, Bush added: ``I'm going to give him a 
chance to continue to perform.''
    Privately, Bush has expressed amazement at the conflict-of-
interest charges. ``It's only in this town that people want 
someone who doesn't know what they're talking about to lead an 
agency,'' he told Congressional Republicans visiting the White 
House yesterday.
    Pitt has an unlikely defender in Lanny J. Davis, one of 
President Clinton's scandal handlers. ``The attack being made 
by Democrats could be made on most anyone for having conflicts 
from prior positions,'' he said. But Davis said the 
Administration has been making matters worse. ``The more you 
bottle up Harvey Pitt, the more you allow Democrats to make him 
an issue,'' Davis said.
    Observers on both sides expect Pitt to make a public effort 
to build his credibility by demonstrating that he can be hard 
on his old friends. Indeed, some in the Administration joke 
that Pitt will come to resemble a model Democratic SEC 
Chairman, one heavy on regulations.
    The White House has distributed evidence of Pitt's activity 
on the job: requiring chief executive and chief financial 
officers of the 947 largest companies to personally recertify 
the accuracy of their disclosures; seeking to bar 54 officers 
and directors; and issuing a long list of new reporting rules 
and regulations.
    Pitt was not Bush's first choice for the SEC job, and 
officials say he continues to be far from Bush's inner circle. 
The reforms Bush announced Tuesday were developed largely by 
Treasury Secretary Paul H. O'Neill and White House Deputy Staff 
Chief Joshua Bolten, with help from Bush economic advisers 
Lawrence B. Lindsey and R. Glenn Hubbard.
    But Bush is stubborn about demonstrating loyalty to his 
aides, which enables him to claim reciprocal loyalty. Officials 
say he continues to defend Army Secretary Thomas E. White, 
embattled because of his Enron Corp. ties and personal travel, 
because White has been faithful to Bush.
    But when underlings act disloyal, Bush can quickly cut them 
loose. Linda Chavez was dropped as Bush's nominee to be Labor 
Secretary when it appeared she had misled those vetting her 
background. Michael Parker, the Civilian Chief of the Army 
Corps of Engineers, was ousted for complaining about 
administration budget cutting.
    Pitt so far has demonstrated fealty to Bush, and Bush aides 
remain loyal to him. ``The best thing to do is vigorously 
enforce the law, and that's what he's doing,'' Lindsey said.

    Mr. Graham. In this article, the President of the United 
States has given as one of his reasons to continue his support 
for the Chairman of the Securities and Exchange Commission, 
Chairman Harvey L. Pitt, the fact that Mr. Pitt has required 
chief executives and chief financial officers of the 947 
largest companies to personally recertify the accuracy of their 
disclosures.
    What was left out were all the American companies which 
have their corporate headquarters outside the United States of 
America. Apparently, the Chairman of the SEC believes he can 
discriminate and apply a principle only against those 
corporations which are sited in the United States and exclude 
corporations outside the United States.
    That is an irrational and unfair distinction and one that 
we should correct as promptly as possible in this legislation.
    I thank the Senator from West Virginia.
    The Presiding Officer. The Senator's time has expired.
    Mr. Reid. Mr. President, will the Senator yield for a 
unanimous consent request?
    Mr. Byrd. Gladly.
    Mr. Reid. Madam President, I renew my unanimous consent 
request.
    The Presiding Officer (Ms. Landrieu). Without objection, it 
is so ordered.
    The Senator from West Virginia.
    Mr. Byrd. Madam President, since the revelation last month 
of yet another corporate accounting scandal--this time 
involving the second largest telecommunications provider, 
WorldCom--the Bush Administration seems to have lost its 
patience with corporate America. In fact, from the rhetoric we 
have heard from the Administration in recent weeks, I expected 
to hear the President tell corporate America this week that his 
top advisors had been in the White House basement planning, not 
just a corporate fraud task force, but a new Department of 
Corporate Security.
    The President said last month at the G8 summit in Canada, 
``The revelations that WorldCom has misaccounted [$3.8] billion 
is outrageous.''
    In his June 29 weekly radio address, the President warned 
corporate America that ``no violation of the public's trust 
will be tolerated. The Federal Government will be vigilant in 
prosecuting wrongdoers to ensure that investors and workers 
maintain the highest confidence in American business.''
    The President apparently is so miffed with these corporate 
``wrongdoers'' that he has elevated them in his rhetoric to a 
bad-guy level that is almost, but not quite as bad, as al-
Qaeda's ``evildoers.'' Almost the same level; perhaps not 
quite.
    WorldCom president and CEO John Sidgmore, in a June 28 
letter to President Bush, joined the President in expressing 
his outrage. ``I want you to know that we, the current 
management team, are equally surprised and outraged . . . about 
past accounting irregularities at WorldCom,'' he said.
    So the Bush Administration and the CEO of WorldCom now both 
agree that American corporations teaming up with unscrupulous 
(or incompetent) accountants to mislead shareholders about how 
much money the company is making is an ``outrageous'' practice.
    Madam President, how comforting it is. As Jackie Gleason 
used to say: ``How sweet it is.'' How sweet it is. How 
comforting it is to know that we have finally reached a 
consensus on that issue.
    Despite the excuses and the explanations, I find little 
credibility in the argument that certain corporate executives 
lacked sufficient knowledge to ask the right questions about 
their companies' accounting practices.
    If CEOs are worth their generous pay, one would think they 
could take the time to make sure that the company's chief 
financial officer is not padding earnings by omitting costs 
from the balance sheet.
    In fact, one finds disconcerting the acute lack of shame--
the acute lack of shame--S-H-A-M-E--on the part of some of 
these corporate executives. Former Enron CEO Jeffrey Skilling 
told the House Energy and Commerce Oversight Subcommittee that 
Enron had tight control on financial risk, but that he could 
not be expected to oversee everything and ``close out the cash 
drawers . . . every night.''
    Can you imagine that kind of statement? I think it was 
Wordsworth who said: No matter how high you are in your 
department, you are responsible for what the lowliest clerk is 
doing.
    Let me repeat that. Wordsworth said: No matter how high you 
may be in your department, you are responsible for what the 
lowliest clerk is doing. That was William Wordsworth. Let's 
take that statement and put it beside the statement of former 
Enron CEO Jeffrey Skilling when he told the House Energy and 
Commerce Oversight Subcommittee that Enron had tight controls 
on financial risk but that he could not be expected to oversee 
everything and ``close out the cash drawers . . . every 
night.'' Oh, that poor man. What a heavy burden he carried. 
That poor man. We can all shed crocodile tears for someone who 
is put into that very difficult position and then consider the 
kinds of salaries these people draw down.
    Shakespeare said: ``The quality of mercy is not strain'd, 
it droppeth as the gentle rain . . . upon the place beneath.'' 
I will tell you, it does strain gentle mercy when we read about 
these scandals that have swept over this country and how these 
people plead the fifth amendment when they are called up before 
Senate committees and House committees--plead the fifth 
amendment. That is a stunningly irresponsible attitude for a 
chief executive.
    It is something that you might hear from the teenage 
manager of a fast food restaurant who cannot account for a 
handful of change missing from the cash drawer at the end of 
the night. You might hear that from the teenage manager of a 
fast food restaurant who cannot account for a handful of change 
missing from the cash drawer at the end of the night. But we 
are not talking about a handful of change. We are talking about 
the American public. Those eyes that are peering--they are 
peering at this Senate floor at this very minute through the 
lenses of those cameras. They are the taxpayers out there. I 
see them looking through those cameras. I see them in West 
Virginia. I see them in Texas. I see them in Wyoming. I see 
them in New York looking through those cameras.
    We are talking about them, the American public having lost 
by some estimates tens of billions--not millions--tens of 
billions of dollars of invested savings in companies that 
issued false--the Ten Commandments, I keep them on my walls; 
some of these CEOs should keep them on their walls--financial 
reports and tens of thousands of workers who have lost their 
jobs, and many have lost their meager earnings that they, too, 
invested, that is what we are talking about.
    So here is an individual who tells a House committee he 
cannot be expected to oversee everything and close out the cash 
drawers every night--such a stunning, irresponsible, arrogant 
attitude on the part of a chief executive. I say again it is 
something that you might expect to hear--you might--from the 
teenage manager of a fast food restaurant who could not account 
for a handful of change missing from the cash drawer at the end 
of the night.
    We are not talking, let me say again, about a handful of 
change. We are talking about the American public, those people 
out there, Republicans and Democrats and Independents, in the 
Alleghenies, along the eastern coast, on the storm-beaten coast 
of Maine, the fishermen on the mighty deep, the people in the 
Plains and the Rockies and beyond. These are the people, north 
and south, the public. We are talking about the American public 
having lost, by some estimates, tens of billions of dollars of 
invested savings in companies that issued false--and they knew 
they were issuing false--financial reports. Tens of thousands 
of workers who have to wash the grime from their hands and 
their faces, workers in the fields, in the mines, in the 
shipyards, those are the people we are talking about, the 
public, tens of thousands of workers who have lost their jobs.
    Even after these corporations' fraudulent accounting, 
somebody ought to go to jail, and the doors should be locked 
and the keys thrown away. Throw away the keys. It really would 
not be too severe a punishment for some of these four-flushers.
    Even after these corporations' fraudulent accounting 
methods are exposed, the accounting games seem to continue. 
After telling the Securities and Exchange Commission that it 
hid nearly $4 billion in expenses last year, WorldCom submitted 
revised financial reports to the SEC which the SEC Chairman, 
Harvey Pitt, immediately called wholly inadequate and 
incomplete. Apparently, WorldCom's revised financial statements 
included additional accounting errors dating back to 1999 and 
2000. That, Chairman Pitt said, could add at least $1 billion 
to the company's financial revision.
    No wonder the trust of those people is broken. No wonder 
the public's trust in corporate America has eroded. What kind 
of trust can the public have in companies that hide information 
in an effort to pull the wool over the eyes of American 
investors?
    After WorldCom's announcement, the Bush Administration 
sharpened its rhetoric and is now working to assure the 
American public that it recognizes the importance of 
transparency and disclosure. The Chairman of the White House 
Council of Economic Advisers, Glenn Hubbard, said in an 
interview last month that the President wants to reassure 
investors about the economy while also delivering a shot across 
the bow to leaders of corporations that abuses of the public 
trust will not be tolerated.
    In the midst of Congressional hearings last March, after 
the collapse of Enron, the President lectured corporate America 
about how to regain the public's trust. He said corporations 
must disclose relevant facts to the investing public and they 
must focus on the interests of shareholders, who are the real 
owners of any publicly held enterprise, to properly inform 
shareholders and the investing public that we must adopt better 
standards of disclosure.
    That is nice rhetoric, but this Administration hardly sets 
the model for openness and transparency. In fact, this is an 
administration that prides itself on operating in secrecy and 
governing by surprise. Remember the secret government that was 
being set up? In fact, this is an administration, let me say 
again, that prides itself in operating in secrecy and governing 
by surprise.
    I find it difficult to watch this Administration lecture 
corporate America about virtues of disclosing information to 
the public while at the same time it is restricting the 
public's access to information about its own executive actions.
    Last October, Attorney General John Ashcroft issued a memo 
encouraging Federal agencies to withhold unclassified records 
under the Freedom of Information Act, the law that gives the 
American public the legal right to certain Government 
information. The Attorney General even told the Federal 
agencies that the Justice Department would defend agency 
decisions to deny FOIA, Freedom of Information Act, requests.
    Last November, the President issued an Executive Order to 
limit access to Presidential papers that, under the 
Presidential Records Act of 1978, would normally be made 
available to the American public. The Executive order allows a 
former or a sitting President to block the release of records 
requested under the law by invoking ``constitutionally based 
privileges.'' The words ``constitutionally based privileges'' 
are in quotation marks.
    The American people would have to go to court to challenge 
the privilege claim. The order could even permit a former or 
incumbent President to impede requests for old records simply 
by withholding approval for their release, effectively negating 
the need for the Chief Executive to even make the claim of 
executive privilege.
    We have had our own little taste of this side of the coin 
from the executive branch as we on the Appropriations 
Committee, Senator Stevens and I, tried to have the 
Administration let Tom Ridge come up before the committee and 
testify.
    Then we see this creation of this mammoth reorganization of 
Government that sprang like Minerva, fully clothed and armed, 
from the forehead of Jupiter.
    When this Administration's chief executive talks about 
adopting better standards of disclosure, I hope that these 
executive actions are not what he has in mind. These are just 
examples of the Administration directly restricting the 
public's access to government information. The Administration 
has also moved to limit access by Members of Congress, who are 
elected by the people and responsible for the oversight of 
executive actions in the public's behalf.
    Last December, the President gave notice that he was 
unilaterally withdrawing the United States from the 
Antibalistic Missile Treaty, allowing the Administration to 
begin development of a new antibalistic missile defense system. 
Soon after, the Pentagon began to exempt missile defense 
projects from traditional reporting requirements and 
Congressional oversight, an overt attempt to keep the Congress 
and the American people in the dark about the progress of that 
system. As the Administration requests additional defense 
funds, the Pentagon is taking further steps to shield cost 
estimates and time tables from the Congress, making it harder 
to keep the Administration accountable for technical and 
budgetary assessments.
    The Dark Ages were supposed to have ended in about 1000 
A.D. They lasted 1,000 years, the Dark Ages. Reminiscent of the 
Dark Ages, an administration that believes in keeping a 
Congress in the dark, the American people in the dark, and we 
are hearing a lot of sword rattling about it. An attack on 
Iraq--the Administration should level with the Congress. It is 
an equal branch. It is not a subordinate branch to the 
Government. It never has been, and I hope never will be. Let's 
hear more about this plan to invade Iraq. Watch out for August 
when Congress is out of town, or before the election. Who 
knows?
    This reorganization of Government sprang like Aphrodite 
from the ocean foam, and she was carried on a leaf to the 
island of Crete. She later appeared in full dress before the 
gods on Mount Olympus. They were stunned with her beauty.
    This is what we see. These ideas sprang from where? This 
idea to reorganize the Government--and I am concerned it will 
also reorganize the checks and balances of the Constitution 
unless we are watchful--sprang from the bowels of the White 
House, the creation of four individuals who are named in the 
public press. Not exactly the equal, perhaps, of that committee 
that wrote the Declaration of Independence--Thomas Jefferson, 
Benjamin Franklin, Roger Sherman, John Adams, and Livingston, 
those five. Not exactly.
    But look at all the commotion that ideas has created. Look 
out, the Congress is being stampeded into putting its 
imprimatur on that idea. Well, some parts of the idea may be 
OK, but we should not be in too big a hurry.
    And that is to say nothing of the fact that these executive 
actions toward secrecy have occurred during a period in which 
the President has refused to allow Tom Ridge, in his capacity 
as the Director of Homeland Security, to testify before the 
Congress, and in which the Comptroller of the General 
Accounting Office was forced to sue the Vice President of the 
United States to obtain information about the White House 
energy task force and its connections to Enron.
    These are not the actions of an administration that 
believes in the virtues of disclosing information to the 
public. This is an administration that not only embraces the 
idea of operating in secrecy, but flaunts its abilities to hide 
information from the Congress and the American public.
    Upon announcing its proposal for a new Department of 
Homeland Security, the Administration bragged to the media 
about how the plan had been pieced together by just four men 
and a few trusted aides in the basement of the White House. As 
the work became more detailed and the working groups expanded, 
the code of silence was gravely explained to each new arrival. 
At the end of each meeting, all papers were collected: nothing 
left that room, we've been told. The work was completed before 
any member of the Congress was briefed on the plan. White House 
Chief of Staff Andrew Card even arrogantly proclaimed, ``We 
consulted with agencies and with Congress, but they might not 
have known we were consulting.''
    Now, get that. I can hardly believe my eyes, except my eyes 
have seen this prior to my having stated it on the floor. White 
House chief of staff Andrew Card even proclaimed--I used the 
adverb ``arrogantly,'' I will put it back in--White House chief 
of staff Andrew Card arrogantly proclaimed, ``We consulted with 
agencies and with Congress but they might not have known we 
were consulting.''
    What a reflection on Congress. What is he saying about 
Congress? That is hardly a model of transparency that I want 
corporate America to follow.
    We don't want to hear corporate CEOs saying we shared 
information with the American public, but they might not have 
known we were sharing it with them. The Administration's 
euphoria for secrecy seems motivated in large part by its 
desire to implement a political agenda. That is what it is. A 
political agenda, regardless of whether it has the support of 
the American people.
    Mr. Reid. Will the Senator yield?
    Mr. Byrd. I would be glad to yield.
    Mr. Reid. Mr. President, I have been listening to the 
Senator from West Virginia give his speech, and I am of the 
opinion maybe the reason all that secrecy takes place is they 
are running the White House like people run corporations. 
Rather than having a public institution as the Administration 
and White House should be, maybe they are running the White 
House like a corporation.
    I say to my friend that the White House, this 
Administration is covered with corporate America. Maybe they 
think the White House is to be run like a corporation.
    Mr. Byrd. The distinguished Senator from Nevada introduces 
an interesting idea. Maybe they do. Maybe anything goes. All is 
fair in love and in war they say. Now we can add, big business. 
Big business.
    That is not a fair thing to say about many big businesses 
really because many of the people in big business are honest 
and try to do the right thing. They are open, they are 
transparent. It is too bad a few bad apples reflect on the 
whole barrel. I used to sell produce. I was a produce boy, 
married, with children coming on, and I found that a few bad 
peaches would quickly ruin the whole bushel. The same thing 
with apples and other fruits and so on.
    When the Administration's polls suggest opposition to 
certain policies from the American public, it limits access to 
information about that policy. I fear that the American public, 
and their elected representatives in Congress, at times are 
viewed by this Administration as some sort of obstacle or 
hurdle that is to be avoided. There is a contempt, there is an 
arrogancy in this Administration, there is a contempt for 
Congress. They hold Congress in contempt.
    This kind of executive mentality can only emanate from the 
arrogance of an Administration that believes the White House is 
the fountain of wisdom in Washington. Wisdom is the principal 
thing. Such a mentality is dangerous, it is absolutely 
dangerous. I was here in the Nixon Administration. I remember 
what happened to that Administration. Such a mentality is 
dangerous. We need only look to the corporate accounting 
scandals which this Administration has so harshly criticized in 
recent weeks to see why.
    Most economic pundits seem convinced that the hyperactive 
stock market of the late 1990s was the catalyst for a slow, 
steady deterioration in professional and ethical standards in 
corporate America. The pressure on CEOs and companies to 
produce earnings, quarter after quarter, resulted in a kind of 
competitive behavior that encouraged companies to push the 
accounting envelope. Rising profits and stock prices provided 
cover for underlying ethical lapses. The longer the boom 
lasted, the more brazen these corporations became in cutting 
corners and taking a little more off the top.
    By the end of the boom, many companies appear to have been 
engaged in the kind of fudging, gamesmanship and ethical 
corner-cutting that, while legal in some cases, was certainly 
less than ethical. Unfortunately, it was only after the stock 
market began its inevitable decline and great piles of money 
were lost that people began to ask the critical, penetrating 
questions that should have been asked earlier to prevent this 
kind of behavior in the first place. Those harder questions are 
now leading to accounting revisions, executive resignations, 
lawsuits, and criminal investigations.
    So far, the reflexive instinct of the business community 
and the Bush Administration largely has been to blame a ``few 
bad apples,'' but that assertion is hardly consistent with the 
fact that the SEC opened 64 financial-reporting cases between 
January and March of this year, and that almost a thousand 
companies, not just a handful, have been asked to recertify to 
the SEC their financial statements through the last fiscal 
year.
    It is somewhat ironic that the actions of chief executives 
were protected by soaring stock prices, since the 
Administration finds itself in a similar position. Just like 
soaring stock, as long as the President's approval ratings 
remain high, presumably propped up by the American public's 
understandable desire to support the war on terrorism, the more 
latitude the Administration will be granted in restricting 
information about its executive actions under the guise of 
national security. This kind of culture can be extremely 
dangerous. It was allowed to flourish in corporate America 
during the late 1990s, and now threatens the public trust.
    The Administration would do well to take some of its own 
medicine and make itself more transparent to the American 
public. For all of its expressed concerns about the public's 
loss of confidence in corporate America, this Administration 
seems to have given little, if any, consideration to the loss 
of the public's trust in government. That is the most basic of 
commodities in republican government. I do not refer to it, as 
many politicians who ought to know better glibly refer to this, 
our system, as a democracy. They ought to go back and read 
Madison's 10th and 14th essays in the Federalist Papers. They 
will finally learn the difference--or be reminded of the 
difference. They probably have forgotten the difference between 
a democracy and a republic.
    The public's trust in government--when the public loses its 
trust, when the public's trust is eroded, all is lost: The 
public trust. And sooner or later, high poll numbers will 
tumble, as they always do. We have seen them do it before.
    Don't read the polls, I say to my colleagues, so 
assiduously, read the Constitution--which I hold in my hand. 
Read the Constitution. I say to the Administration, I say to 
the executive branch, read the Constitution. Don't be so 
enamored with the polls. They are fleeting. Read the 
Constitution.
    This Administration's Chief Executive came into office 
touting himself as the first President to earn a master's 
degree in business Administration. That is certainly more than 
I have. He announced that he would run the White House like a 
modern-day corporation. Ha-ha-ha; watch out.
    To be fair, the President probably didn't realize at the 
time that he would be faced with the exposure of a corporate 
culture--not all his. The President probably didn't realize at 
the time that he would be faced with the exposure of a 
corporate culture which encouraged shoddy auditing, negligent 
or criminal management, and impudent and secretive corporate 
CEOs.
    In hiding its own actions from the public view, this 
Administration is fostering the same kind of arrogant, arrogant 
culture in which these corporate accounting scandals were 
allowed to flourish. This Administration would do well to take 
preventive measures to keep the nasty, nasty little seeds of 
arrogance and secrecy that have affected corporate America from 
taking root in the executive branch and threatening the 
public's trust.
    I close with a Biblical parable: Pride goeth before 
destruction, and the haughty spirit before a fall.
    I ask unanimous consent to have printed in the Record an 
article from today's Washington Post titled ``Bush Took Oil 
Firm's Loans as Director''; and an article from today's 
Washington Times titled ``Cheney named in fraud suit.''
    There being no objection, the material was ordered to be 
printed in the Record, as follows:

               [From the Washington Post, July 11, 2002]

                 Bush Took Oil Firm's Loans as Director

                            (By Mike Allen)

    As a Texas businessman, President Bush took two low-
interest loans from an oil company where he was a member of the 
board of directors, engaging in a practice he condemned this 
week in his plan to stem corporate abuse and accounting fraud.
    Bush accepted loans totaling $180,375 from Harken Energy 
Corp. in 1986 and 1988, according to Securities and Exchange 
Commission filings. Bush was a director of Harken from 1986 to 
1993, after he sold his failed oil and gas exploration concern 
to the company. He used the loans to buy Harken stock.
    Corporate loans to officers came under scrutiny after 
WorldCom Inc., the long-distance carrier that last month 
reported huge accounting irregularities, revealed it had lent 
nearly $400 million to Bernard J. Ebbers to buy the company's 
stock when he was chief executive. He resigned in April as the 
stock price tumbled.
    Bush attacked corporate loans during his speech on Wall 
Street on Tuesday, when he offered proposals to tighten the 
accountability of corporate executives while stopping short of 
the tougher measures headed toward passage in the Senate. ``I 
challenge compensation committees to put an end to all company 
loans to corporate officers,'' he said.
    A senior Administration official, briefing reporters on 
Bush's plan, said Tuesday that Bush wants public companies to 
ban loans to their officers, including directors. ``Corporate 
officers should not be able to treat a public company like 
their own personal bank,'' the official said.
    The contrast between Bush's record as a business executive 
and his rhetoric in the face of corporate scandals underscores 
the challenge his Administration faces in trying to credibly 
foster what he calls ``a new era of integrity in corporate 
America.''
    Bush was investigated by the SEC in 1991 for possible 
illegal insider trading, although the SEC did not take action 
against him, and he has admitted making several late 
disclosures to the agency, which regulates public companies.
    Harken's loans to Bush--at 5 percent interest, below the 
prime rate--were reported several times in filings to the SEC 
in the years before the debt was retired in 1993 and were noted 
in news accounts at the time. The loans were for the purchase 
of Harken stock, which was then held as collateral.
    Rajesh K. Aggarwal, a Dartmouth College professor who 
specializes in executive compensation and incentives, said such 
loans ``are not unique, but are by no means widespread.''
    White House communications director Dan Bartlett said 
Harken offered the loans to directors to buy shares in the 
company as part of an incentive for board members ``to have a 
long-term commitment with the company.'' Bartlett said the 
loans to Bush were ``totally appropriate--there was no 
wrongdoing there.''
    ``This is a common practice in small, medium and large 
companies,'' Bartlett said. ``These recent abuses of certain 
types of loans led the president to believe that the government 
should draw a bright line concerning loans going forward. This 
is one of the main things that undermined the confidence of 
investors and shareholders.''
    Bartlett said the loans were for $96,000 in 1986, for 
80,000 shares, and $84,375 in 1988, for 25,000 shares. He said 
that in 1993, Harken changed its compensation policies and 
discontinued the loan program. He said Harken converted to a 
program giving directors stock options, allowing them to buy 
stock later at a fixed price.
    Bartlett, asserting that Bush did not profit on the loans, 
said Bush traded the 105,000 shares being held as collateral 
for the loans, retiring his debt. Bush then received 42,503 
options under the new compensation plan, Bartlett said, The 
options were never exercised and expired after Bush left the 
board, Bartlett said.
    With adminsitration officials privately expressing concern 
about the impact of so much fresh attention to old questions 
about Bush's career, the White House yesterday distributed 
talking points headlined ``If you get asked about Harken'' to 
Bush loyalists who might be contacted by reporters. Bartlett 
said the fact sheets were sent to members of Congress after 
they asked for them.
    White House press secretary Ari Fleischer said aides to 
Bush have ``talked to the private accountants and private 
counsels who are involved in the president's private 
transactions'' while preparing answers to reporters' question 
during the growing debate over corporate responsibility.
    Vice President Cheney also is receiving unwanted attention 
to his corporate past. The SEC is investigating an accounting 
practice begun by Halliburton Co., the Dallas-based energy 
services company, when Cheney was chief executive before 
joining Bush's campaign ticket.
    Also yesterday, the White House refused to release records 
of Bush's service on Harken's board. Bush had pointed to those 
records during a news conference on Monday when asked about his 
role in the sale of a subsidiary. The transaction later was 
used by Harken to mask losses.
    ``You need to look back on the director's minutes,'' Bush 
said.
    Bartlett said the Administration does not have the minutes 
and does not plan to ask Harken for them. ``He personally would 
not have access to them,'' Bartlett said. ``These are company 
documents. I can't release something I don't have.''
    Harken has declined to release board records ever since 
questions about Bush's record on the board were raised during 
his first campaign for Texas governor, in 1994.
    Bartlett also said the White House would not accept a 
challenge by Senate Majority Leader Thomas A. Daschle (D-S.D.) 
on Sunday to ask the SEC to make public the records of its 
investigation into whether Bush had engaged in illegal insider 
trading of Harken stock.
    Daschle said on CBS's ``Face the Nation'' that Bush would 
do well to ask the SEC to release the file. ``We've had 
different explanations as to what actually occurred,'' Daschle 
said. ``I think that would clarify the matter a good deal.''
    Bartlett said Bush will not do that. ``Those are documents 
in the possession of an independent regulatory agency,'' 
Bartlett said. ``I'm not in a position to call on them to do 
that. We've made available every relevant document we have in 
our possession.''
    Administration officials said they would take the same 
position about an SEC investigation that resulted in Harken's 
restating its earnings to show a $12.6 million loss for a 
quarter instead of an earlier reported loss of $3.3 million. 
Bush was a member of the board's audit committee.

                               ----------

               [From the Washington Times, July 11, 2002]

                       Cheney Named in Fraud Suit

                           (By Patrice Hill)

    Vice President Richard B. Cheney was named yesterday with 
the energy company he headed in a lawsuit by investors that 
cited bookkeeping practices under investigation by the 
Securities and Exchange Commission.
    The lawsuit arranged by Judicial Watch, a government 
watchdog group, charges that Halliburton Inc. overstated its 
revenue by $534 million between 1998 and the end of last year 
by illegally booking revenue from oil construction projects 
that were in dispute and had not been collected from its 
clients. The suit says the accounting fraud resulted in 
overvaluation of Halliburton's stock, deciving investors.
    Mr. Cheney was Halliburton's chief executive from 1995 
until August 2000, after he joined the Bush presidential 
campaign. The White House and Halliburton yesterday said the 
suit was without merit but both acknowledged that the SEC 
investigation is continuing.
    ``We are working dilgently with the SEC to resolve its 
questions regarding the company's accounting practices,'' said 
Doug Foshee, Halliburton's chief financial officer. The claims 
in this lawsuit are untrue, unsupported and unfounded.''
    SEC Chairman Harvey L. Pitt has vowed to pursue the 
investigation. ``We don't give anyone a pass,'' he told ABC's 
``This Week'' on June 30. ``If anybody violates the law, we go 
after them.''
    President Bush on Tuesday called for stronger SEC 
enforcement and longer prison terms for corporate executives 
found guilty of the kind of accounting fraud charged in the 
lawsuit. The suit was filed in the U.S. District Court in 
Dallas, where Halliburton is based.
    A unified Senate approved harsh new penalties yesterday for 
corporate fraud and document shredding, adding enforcement 
teeth to Mr. Bush's plan to curb accounting scandals. In a 
series of unanimous votes, senators added the penalties to an 
accounting oversight bill moving toward passage.
    Also named as a defendant in the lawsuit is the Arthur 
Andersen firm, Halliburton's former auditor, which was fired in 
April after the accounting firm was charged with obstructing an 
SEC investigation of Enron Corp. Andersen was convicted of the 
obstruction charge last month and is no longer permitted to 
audit public companies.
    The suit says Andersen was a champion of ``aggressive'' 
accounting tactics and masterminded the bookkeeping maneuvers 
that defrauded Halliburton investors.
    As evidence of Mr. Cheney's knowledge and approval of these 
maneuvers, the suit refers to his appearance in a promotional 
video for Andersen in which he said he got ``good advice'' from 
the firm, advice that went ``over and above just the normal by-
the-books auditing arrangements.''
    The lawsuit cites a critical accounting change made by 
Halliburton and Andersen in late 1998. Halliburton was facing 
losses because of a recession in the oil industry and cost 
overruns on construction contracts in which the company had 
negotiated fixed, or lump-sum, payment plans.
    Before the accounting change, which was never formally 
disclosed to investors, Halliburton had booked the cost 
overruns as losses on such projects as long as they were in 
dispute and customers had not agreed to pay them.
    But starting in 1998, the company booked payment for the 
cost overruns as revenue if it believed the disputes would be 
resolved and the customers would pay the bills.
    As a result of this change, Halliburton showed a profit for 
several quarters in 1998 and 1999 when it otherwise would have 
posted losses, the suit charges. In some years, the disputed 
revenue appears to account for as much as half of the company's 
reported profits.
    ``Halliburton overstated profits that many American 
citizens relied upon,'' said Larry Klayman, chairman of 
Judicial Watch. ``That's fraudulent security practices, and it 
resulted in those Americans suffering huge losses.''
    The suit says Halliburton and Andersen violated securities 
laws when they did not disclose and justify the accounting 
change in a letter to investors. Halliburton's financial 
statements starting in 1998 do note, however, that it was 
booking uncollected revenue from cost overruns.

    Mr. Reid. Madam President, if the Senator will yield for a 
parliamentary inquiry.
    Mr. Byrd. Yes. I yield.
    Mr. Reid. The Senator was allocated 45 minutes. Of course, 
we have other time. We have an extra 15 minutes. It is my 
understanding there are 4 or 5 minutes left. Is that right?
    The Presiding Officer. There are 3\1/2\ minutes remaining.
    Mr. Reid. If the Senator so desires, we could also allocate 
15 minutes to the Senator from West Virginia if he has more to 
say.
    Mr. Byrd. Madam President, I thank the distinguished 
majority whip for his courtesies and generosity, and for his 
characteristic ways of helping his colleagues. I think I will 
let my remarks remain today as they are. I thank him.
    I yield the floor.
    Mr. Reid. Madam President, while there are a couple of 
minutes remaining of the Senator's time, I am sure the chairman 
of the committee joins with me in expressing our pleasure at 
being able to listen to such a profound statement which the 
Senator made. I think it again is what this is all about. By 
``this,'' I am talking about the legislation.
    I talked with a friend of mine. We played football together 
as young men. He runs a company in Las Vegas. He said: Harry, I 
took all of my money out of the stock market. I will never 
invest in the stock market until something is done. He said: I 
am afraid. I said: We all feel that way.
    I think the Senator really condensed what is going on in 
corporate America. It needs to be changed, and hopefully this 
legislation will help that.
    Mr. Byrd. Madam President, let me express my gratitude to 
the distinguished Senator for his comments.
    And with respect to the manager of this legislation, let me 
state without any equivocation that this is one of the finest 
minds I have seen in the Senate. I have been here 44 years. I 
have seen the equivalent of the entire Senate come and go, and 
I have never seen a sharper intellect. I have seen some Sharp 
ones--John Pastore, Herman Talmadge, and there are others. I 
have never seen any sharper than that of Paul Sarbanes, in my 
judgment. I don't know a great deal about the intelligence 
quotients. I don't know what the high range is. I assume it 
could be 150, or 155, or 160--whatever it is. Paul Sarbanes is 
the brightest.
    Also, he has a way about him of not flaunting his intellect 
in front of others. Most of us--not because of that kind of 
intellect--have been inclined to speak more often--maybe too 
much, and perhaps I do already, but not because of that kind of 
intellect. But I salute the manager and commend that kind of 
intellect. He applies it. I watch him in the committees, and I 
watch him on the floor as he manages a bill. He is never a man 
to act in haste, or to be too rhetoric in haste. I admire his 
patience. He is plotting; he is studying; he is working; and he 
is extremely effective.
    When I was majority leader, there were certain Senators I 
would call into my office from time to time. I would try to 
pick their brains as to what we should do on this or that. 
Scoop Jackson was one. Paul Sarbanes is always there.
    Mr. Reid. Madam President, will the Senator yield for a 
comment?
    Mr. Byrd. Yes.
    Mr. Reid. What the Senator is saying is that the Rhodes 
Scholar Committee a number of years ago made a good choice in 
selecting Paul Sarbanes to be a Rhodes scholar. Is that what 
the Senator is saying?
    Mr. Byrd. I am saying exactly that. I am happy the 
distinguished Senator put it that way.
    This bill before the Senate is the product of that kind of 
mind, that kind of attention, and that kind of dedication.
    I hope we can pass this bill with an overwhelming vote, 
and, also in conference so that when put on the President's 
desk he can sign it. I am eager to support it in any way I can.
    Before I yield the floor, let me say that when we talk 
about intellect and sharp intellects, this man from Texas, Phil 
Gramm, is another. He is sharp. I have talked to my staff many 
times about that kind of intellect. He can talk about anything. 
He doesn't need a script. I have prided myself on working with 
him on several challenges, and I have found him to be fair and 
straightforward.
    I admire people--like these two--having that kind of sharp 
intellect.
    I was told by an old Baptist pastor, former chief chaplain 
in the Army during the war--I don't remember which war it was. 
But he always said: The mark of brilliance is to surround 
yourself with brilliant people.
    I am really proud to look around this Chamber and see 
people such as Paul Sarbanes and Phil Gramm. Sometimes I say 
that North Dakota has the highest overall quotient, perhaps of 
all, with its two Senators--Senators Conrad and Dorgan. I don't 
know whether they are Rhodes scholars or not. I am not a Rhodes 
scholar. I was not fortunate enough. I just barely made it by 
working at night for 10 years just to get a law degree. But 
these people make me proud to serve in this body.
    Let me yield to the Senator from Maryland.
    Mr. Sarbanes. Madam President, I thank the distinguished 
Senator for his extraordinarily generous remarks. I am very 
appreciative of them.
    I want to echo what the very able Senator from Nevada said 
about the Senator's eloquent address just a few minutes ago, 
which is reflective of the pattern that he has established--
which is to go on the floor of the Senate and go to the very 
fundamentals of what our system is all about. His constant 
reference to the Constitution draws us back to those 
fundamentals. The Senator has always put before the Senate this 
broader and deeper vision of why we are here, what we ought to 
be doing, and calling us back to our basic principles as a 
Nation--right back to the Founding Fathers--as the Senator 
pointed out in his talk today. Important aspects of that are 
being challenged today in a very serious way.
    I echo what my colleague said and express my appreciation 
to the Senator from West Virginia.
    Mr. Byrd. Madam President, I thank the distinguished 
Senator. I am going to yield the floor.
    Before I yield it, I apologize to the distinguished Senator 
from Kentucky, Mr. McConnell. He is a Republican and I am a 
Democrat.
    I have been known to go down into Kentucky at his 
invitation and speak, and I value his friendship. I apologize 
to him for imposing on his time.
    Mr. Gramm. Before the Senator yields, if he would yield 
very briefly to me, I thank him for his very sweet comments. I 
am very happy to be named along with Paul Sarbanes. And someday 
when I am talking to my grandchildren about the fact that their 
grandpa actually was a pretty important guy in his day--though 
his mind, I am sure, at that point will have seemed to have 
largely slipped away--I will say: I got to serve with the great 
Robert C. Byrd.
    Mr. Byrd. I thank the Senator.


                           amendment no. 4200


    The Presiding Officer. The Senator from Kentucky will now 
be recognized for up to 45 minutes.
    Mr. McConnell. Thank you, Madam President.
    I rise to speak on behalf of the McConnell amendment which 
will be voted on sometime in the not too distant future. It is 
my understanding that my own colleague, Senator Enzi, may make 
a motion to table at the end of the debate. So let me, at the 
outset, say I support the Edwards-Enzi amendment.
    The second-degree amendment that is pending at the desk, 
which I will shortly discuss, does not, in any way, change or 
diminish the Edwards-Enzi amendment. I think it is a good idea. 
However, I think it simply does not go far enough.
    I also supported the Leahy amendment yesterday after my 
amendment to combat union fraud was defeated. I will continue 
to support responsible corporate accountability measures in 
this bill.
    My only point is, corporations do not have a monopoly on 
misconduct, deception, and fraud. As long as we are addressing 
professional misconduct, deception, and fraud, we ought to 
recognize this is a problem in our entire professional culture, 
not just in corporate culture. Let me repeat that. This is a 
problem in our entire professional culture, not just in 
corporate culture.
    I understand the mood at the moment is to beat up on 
corporations. And they deserve it. That is what the underlying 
bill is about. On the other hand, to ignore other areas of 
abuse, it seems to me, is to miss an opportunity to address the 
problem in a broader way.
    The Senator from North Carolina raises real problems with 
the ethics and conduct of corporate lawyers. I commend him for 
that. And I commend the Senator from Wyoming for that. But I 
have long sought to curb similar and well-documented abuses in 
the general practice of law, specifically in the case of 
personal injury law.
    Let me say at this point that the McConnell amendment 
applies only to Federal claims and Federal courts. We are 
talking here about Federal claims and Federal courts. My point 
in offering this amendment is not to obstruct but to extend and 
enhance our debate on professional conduct.
    We ought to set standards for corporate attorneys. I favor 
that. And we ought to set standards for personal injury lawyers 
as well. Corporations and corporate attorneys do not have a 
monopoly on misconduct. We are doing a real disservice to the 
American public if, during this important debate on 
professional misconduct, we turn a blind eye to abuses in our 
society that have been piling up way before--long before--
Enron, WorldCom, and Global Crossing.
    All too often we hear stories about lawyers who take 
advantage of their clients by not informing them of the legal 
fees and costs those clients will incur. This sad practice 
results in consumers of legal services receiving next to 
nothing in personal injury and other claims.
    Let me recount the story of Diana Saxon. Ms. Saxon was a 
victim of, among other things, attempted forcible rape. The 
defendant was convicted, and Ms. Saxon brought a personal 
injury action against that defendant. The attorney she hired 
said the fee he was going to charge was 40 percent, plus costs.
    Ms. Saxon received an award of $25,000. Of that, per her 
agreement, $8,300 went to her lawyer in attorney's fees. But an 
additional $20,716 went to her lawyer for expenses. However, 
none of those costs was made known to Ms. Saxon during the 
course of the litigation. She was only informed of them after 
her case was concluded.
    Now, it gets even better--or, for Ms. Saxon's unfortunate 
situation, it gets worse. After her lawyer charged her his 
costs, she ended up owing her attorney $4,000--$4,000. That is 
right. For poor Ms. Saxon, she was actually left over $4,000 in 
the hole, in debt.
    Now, to be fair, Ms. Saxon's lawyer was actually 
magnanimous in that he waived a few costs and a small portion 
of his fee so that she was actually able to walk away with the 
princely sum of $833--$833.
    In his letter to her, where he agreed to offer her these 
few hundred dollars from her award of $25,000, he wrote:

    I'm agreeable to pay the sum of $833. This is the only 
money you will receive from your $25,000 settlement.

    So, in sum, even though Ms. Saxon's lawyer told her that 
the lawyer would get 40 percent of her award, plus costs, in 
reality, after including these costs, he got 96 percent--96 
percent--of her award. That is right, 96 cents on every dollar 
that Ms. Saxon received.
    We need to make sure that consumers of legal services are 
not duped by this type of inaccurate and incomplete 
information.
    Let me quote Ms. Saxon. She has put the problem better than 
I could. Here is what she had to say:

    This is not how our civil justice system is supposed to 
work. What happened to me should never happen to anyone again. 
You have a chance today to make a difference by passing a law 
to protect people from the kind of thing my attorney did to me. 
Had I known in advance or at some point along the way how 
little of my lawsuit was going to benefit anyone but my lawyer, 
I might have thought different about enduring 2 years of 
emotional trauma during the litigation.

    Summing up what she had to say: Had she had any idea how 
little of the money she might get, she might not have wanted to 
endure the trauma of this litigation for 2 long years.
    Now, Ms. Saxon, in a sense, was lucky in that at least her 
lawyer told her she would be liable for costs, although he 
obviously did not tell her the magnitude of the costs she was 
looking at and, thereby, completely misled her.
    But as these excerpts from the Yellow Pages here in the 
District of Columbia area phonebook indicate, some lawyers are 
not even that candid.
    So let's take a look at the first chart out of the DC 
phonebook. On this first chart, we have an ad with the big 
banner entitled ``AUTOMOBILE ACCIDENTS.'' There is a line 
almost as big--the fourth line down--proclaiming: ``No 
Recovery, No Legal Fees''--``No Recovery, No Legal Fees.'' It 
does not say anything about the cost the plaintiff is going to 
have to bear and, therefore, does not paint an accurate 
picture.
    Let's take a look at the second chart, again out of the DC 
phonebook. It has a big banner down the right side entitled 
``PERSONAL INJURY.'' At the top is says: ``Personal Injury 
Lawyers Who Put You First.'' ``The Firm Boasts an All-Star 
Roster of Top Personal Injury [Lawyers].'' And it makes the 
point: ``No fee if no recovery.'' But, again, like the last ad, 
it does not mention at all anywhere in the ad--nowhere in all 
of this ad--that the client will be liable for costs.
    Let's take a look at chart No. 3. This ad is marginally--
marginally--better. At the top of the ad there is a headline, 
in bold, saying: ``Legal Problems Require a Lawyer.'' 
Obviously, legal problems require a lawyer. About midway down 
is a line item saying: ``Call me. I can help.'' ``Call me. I 
can help.'' And right below this line, another line says: ``No 
Legal Fee If No Recovery.'' In a little bit smaller print you 
will notice, ``No Legal Fee If No Recovery.'' But this lawyer, 
at least, to his credit, has an asterisk by this line. If you 
look very carefully, you see an asterisk; and way down here at 
the bottom of the ad, in minuscule print--which might require 
you getting your glasses adjusted or to get a magnifying 
glass--it says: ``Cost May Be Additional.''
    This lawyer at least gets credit in his ad for mentioning 
that there might be some cost, although you better have your 
glasses adjusted in order to find it.
    Chart No. 4 is a familiar pitch, that there be ``no legal 
fees unless recovery.'' This lawyer, to his credit, at least 
has it in print large enough to where you might actually see 
that line. But there is, of course, an asterisk; down here at 
the bottom, again, in tiny, minuscule print, ``Clients may be 
responsible for reasonable fees.''
    This lawyer, at least, gets some credit--be the print ever 
so small--for pointing out that there could be a cost involved, 
and maybe a careful client would see that in the ad.
    Chart No. 5, really my favorite one, it has a big banner at 
the top, ``accidents,'' all the way across the top. You 
wouldn't have any trouble missing that. Underneath, ``No legal 
fee if no recovery.'' Very enticing observation to an injured 
client, potential client, and there is an asterisk after it.
    Going to the bottom of the page, below the Visa and 
MasterCard logos, it says, ``excluding costs.'' That is about 
the smallest print on the ad. But a careful potential client 
might be able to find that there could conceivably be a cost 
attached to this.
    Frankly, I am not sure if this phrase means that costs are 
excluded and, therefore, you don't have to pay for these 
either, or if it means that costs are excluded from the 
exclusion, which means you do have to pay for them. A consumer 
of legal services should not be enticed by the prospect of free 
legal services, including what appears to be an exclusion of 
cost from the charges for which he is responsible.
    As I will shortly describe, the amendment I am offering 
would help prevent people from being duped by incomplete and 
misleading representations such as these. Let me repeat that 
the scope of my amendment is not every court in America but 
only applies to Federal claims and Federal courts.
    Shifting gears for a moment, we also hear stories of 
ambulance chasers who take advantage of grieving families when 
they are most vulnerable. For example, at the scene of a 1993 
collision between two commuter trains in Gary, IN, witnesses 
reported seeing lawyers' business cards being passed around at 
the scene of the accident. And the injured were being 
videotaped as they were removed on stretchers.
    After an August 1987 crash of a commercial airline flight 
in Detroit, a man posing as a Roman Catholic priest, Father 
John Irish, appeared at the scene to console families of the 
victims. He hugged crying mothers and talked with grieving 
fathers of God's rewards in the hereafter. Then he would hand 
them the business card of a Florida attorney, urging them to 
call the lawyer, and then the father would disappear.
    We should make sure that misleading ads and shameless 
ambulance chasing do not occur. I propose a clients' bill of 
rights for consumers of legal services. We have talked a lot in 
recent years about a Patients' Bill of Rights to make sure 
patients are treated properly by health maintenance 
organizations. We need a clients' bill of rights to make sure 
consumers of legal services are treated fairly.
    This clients' bill of rights would do two things. The first 
thing it would do is require consumers of legal services to 
receive basic information at the beginning, during the course, 
and at the end of the case so that all along the way the 
client, the consumer of legal services, has a clear 
understanding of what the financial relationship is between the 
lawyer and the client.
    As the old saying goes: Knowledge is power. My amendment 
empowers consumers by giving them the knowledge they need to 
make informed decisions about their legal representation. As I 
pointed out earlier in one of my examples, there was a lady who 
had no earthly idea, because of not receiving proper 
information about the extent of the cost that could be involved 
in her case, that after getting a $25,000 settlement she would 
essentially get nothing. The lawyer then benevolently gave her 
$833.
    So clients need information all along the way to make 
informed decisions about legal representation.
    At the initial meeting before they are retained, under the 
McConnell amendment, attorneys would have to provide would-be 
clients with the following things--and this is not 
unreasonable; it's elementary justice--No. 1, the estimated 
number of hours that will be spent on the case; No. 2, the 
hourly fee or the contingent fee that will be charged; No. 3, 
very importantly, the probability of a successful outcome; 
next, the estimated recovery reasonably expected; next, the 
estimated cost or expenses the plaintiffs will bear; and 
whether a client will be subject to fee arrangements with other 
lawyers.
    This is elementary consumer protection. Let me say to my 
friends in the Senate who are close to and allied with the 
plaintiffs' lawyers in America: We are not talking about 
capping anybody's fees. This is not about capping fees. The fee 
arrangement could still be whatever astronomical amount the 
lawyer believes he can charge. But we are talking about 
providing basic information to the client so the client can 
understand what the fee arrangement is going to be. There are 
no fee caps in this amendment.
    Monthly statements: My amendment would also require lawyers 
to provide their clients with monthly statements so that 
consumers of legal services will be informed on a regular basis 
of the basic progress of their case. Specifically, the lawyers 
would have to tell clients how much time they are expending on 
their case, what they are spending their time doing, and what 
expenses they are incurring in the case. Again, this is basic 
information clients should receive so they know how their case 
is progressing and how in essence their money is being spent.
    Then an accounting at the end of the case: Clients should 
receive basic information at the end of the case so they know 
exactly what they paid for during their representation. To this 
end, my amendment provides that within 30 days after the end of 
the case, attorneys shall provide clients with the number of 
hours expended; the amount of expenses to be charged; the total 
hourly fee or the total contingency fee in a contingency fee 
case; the effective hourly fee charged, which would be 
determined by dividing the total contingency fee by the total 
number of hours expended.
    Again, this is elementary, reasonable information, no fee 
caps, just providing reasonable information to the client at 
the end of the case so they can understand just what the legal 
services have provided.
    Madam President, in the age of disclosure, I cannot believe 
that my colleagues would not support some basic disclosures 
that the first part of my amendment would provide. It does not 
limit--I say again--attorney's fees in any regard. There are no 
fee caps of any sort in this amendment. Frankly, I would like 
to see that. We have had fee caps under the Federal Tort Claims 
Act for years, and I am told there is no dearth of lawyers 
prepared to bring tort claims against the United States. But 
there are not any fee caps in this legislation. That is 
something a large number of Members of the Senate do not 
support. The first part of my amendment simply enables 
consumers of legal services to make informed choices.
    The second thing my amendment does is establish a 
bereavement rule. A bereavement rule means the provision for a 
period of mourning, or a period of bereavement, during which 
lawyers would have to be respectful of injured victims or their 
families. As I mentioned, this provision is important because 
there are disturbing stories of ambulance-chasing lawyers who 
prey upon victims and their families when these people are the 
most vulnerable.
    To address this problem, my amendment simply provides that 
there will be no unsolicited communication by lawyers to 
victims, or to their families, regarding an action for personal 
injury, or wrongful death, for 45 days from the date of death 
or personal injury--just 45 days to give the victims, or their 
families, an opportunity to begin to get their feet back under 
them before they start considering which lawyer, if any, they 
want to retain to pursue the legal action to which they may be 
entitled.
    Let me repeat. This amendment applies only to unsolicited 
communications. If the victims or their families are feeling 
like it 2 days after the event, they are certainly free to call 
whomever they choose. This only applies to unsolicited 
communications to victims or their families. Injured parties 
and their families are free to contact whomever they want 
whenever they want.
    Madam President, there is precedent for this respectful, 
considerate principle in existing Federal law. In 1996, we 
passed legislation that prohibited lawyers from engaging in 
unsolicited communications for 30 days following an airline 
disaster. Let me say it again. There is precedent for a 
bereavement rule already in Federal law. In 1996, we passed 
legislation that prohibited lawyers from engaging in 
unsolicited communications for 30 days following an airline 
disaster. Just 2 years ago, in 2000, we extended this 
prohibition to 45 days from the date of an airline crash. That 
prohibition is codified at 49 U.S.C. section 1136(g)(2).
    The point I am making here is that there is precedent in 
Federal law already for a bereavement rule, and this simply 
expands upon that preference and provides this protection for 
additional victims during a period of mourning.
    Madam President, someone who has been killed or injured in 
a train crash or a shipping accident is just as dead, or just 
as injured, as someone who is killed or injured in an airline 
crash. These victims and their families deserve the same type 
of respect and consideration. All these types of victims and 
their families are in a vulnerable state where it is easy for 
them to be pressured or taken advantage of.
    The second part of my amendment would afford victims of 
other tragedies the same protection that we afford victims of 
airline disasters. The language in my amendment that we used to 
do so is virtually identical to current Federal law. It would 
guarantee these people a reasonable period of time to grieve, 
collect their thoughts, and to think clearly about what action 
they want to take and who they want to take such action on 
their behalf.
    As I said, there is current precedent for it in Federal 
law, and I hope my colleagues will support it, along with the 
disclosure provisions in my amendment.
    Madam President, what is the time situation?
    The Presiding Officer. The Senator has 20 minutes 
remaining.
    Mr. McConnell. Madam President, let me sum up what the 
McConnell amendment is. There are essentially two parts to it. 
First, it would require that lawyers provide to their clients 
all along the way, from initially being retained until the 
conclusion of the case, adequate consumer protection 
information so the clients will have a sense at every stage of 
the case how the case is moving along, what the likelihood of 
success is and, very importantly, what kind of costs the client 
may be incurring in the course of the litigation.
    Secondly, we provide for a bereavement rule of 45 days to 
give the victims and their families an opportunity to get back 
on their feet during an atmosphere in which unsolicited efforts 
to retain these victims are put off. If, however, the family at 
any point during that 45-day period decides it is ready to move 
on and wants to look at its legal options, there is nothing in 
the amendment that would prevent the victim or victim's 
families from retaining a lawyer at any time. All this does is 
protect them from unwanted solicitations for a brief period of 
45 days following the occurrence of the event.
    As I pointed out, there is already precedent in Federal law 
for such a bereavement period of 45 days. That applies in the 
wake of airline disasters.
    Finally, let me repeat this because I know this is 
something that is offensive to many Members of the Senate, 
particularly on the other side of the aisle. As much as I would 
like to see fee caps established, this amendment has no fee 
caps in it. Even though, under the Federal Tort Claims Act, 
since the late 1940s, we have had a fee cap of 25 percent in 
tort actions against the Federal Government, no such fee cap is 
in this amendment.
    So I think this is a modest proposal to provide consumer 
protection to victims of accidents as they contemplate their 
futures and determine, first, which lawyer to hire, and after 
hiring the lawyer, have adequate information along the way to 
make sure they understand what the fee arrangement is.
    I yield the floor and retain the remainder of my time and 
now urge--and I will also do so later--the Senate to adopt this 
amendment.
    The Presiding Officer (Mrs. Clinton). Who yields time?
    Mr. Sarbanes. Madam President, can I inquire as to what the 
allocation of time is? Let me make a parliamentary inquiry. I 
understand the vote on a motion to table that will be offered 
by Senator Enzi is scheduled to take place at 12:45.
    The Presiding Officer. That is correct.
    Mr. Sarbanes. Can the Chair inform us as to the allocation 
of time from now until quarter to 1?
    The Presiding Officer. The unanimous consent agreement 
provided that the time between the conclusion of Senator 
McConnell's remarks and the 12:45 p.m. vote will be evenly 
divided between Senators Gramm and Sarbanes, and Senator 
McConnell has a remaining amount of time of 16 minutes.
    Mr. Sarbanes. Sixteen minutes?
    The Presiding Officer. That is correct.
    Mr. McConnell. Madam President, is it the Senator's thought 
we move up the vote?
    Mr. Sarbanes. Staff has made an announcement, and people 
have planned accordingly. I understand that is the situation on 
both sides of the aisle for that matter. It was announced 
earlier on. People, therefore, made plans accordingly.
    The Presiding Officer. If Senator McConnell used all of his 
remaining time, each side would have approximately 10 minutes.
    Mr. McConnell. I say to my friend from Maryland, I will be 
happy to hear from the other side on the amendment. I am 
reluctant to yield back my time until I know the extent of the 
debate in which we are going to engage. In any event, the vote, 
Madam President, occurs at quarter to 1?
    The Presiding Officer. That is correct.
    Mr. McConnell. I retain the remainder of my time until such 
time we decide otherwise. I have not heard from the other side.
    Mr. Sarbanes. As I understand the agreement, I do not think 
others can use time until the Senator from Kentucky uses his 
time.
    The Presiding Officer. That is the Chair's understanding.
    Mr. McConnell. I suggest we divide the remainder of the 
time between now and the vote. Will that be acceptable?
    The Presiding Officer. Is there objection?
    Mr. Sarbanes. I ask unanimous consent that the remaining 
time between now and quarter of 1 be divided equally to the 
manager of the bill, to Senator Enzi, and to Senator McConnell. 
That will give us about 10 minutes each, I think.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from Maryland.
    Mr. Sarbanes. Madam President, I will speak briefly to the 
McConnell amendment which has been added as a second-degree 
amendment to the Edwards-Enzi amendment. Before I address that 
amendment itself, let me again indicate my very strong support 
for the underlying first-degree amendment, the Edwards-Enzi 
amendment, which was very carefully worked out and I believe 
represents a constructive suggestion. I am hopeful we can get 
to that amendment and have a vote on it sometime in the near 
future.
    Obviously, the way things are now structured, we have to 
dispose of the McConnell second-degree amendment in order to 
get to the Edwards-Enzi amendment, but I think the Edwards-Enzi 
amendment warrants both the attention and the support of this 
body. I hope at some point we will be able to do that.
    I am not going to address the substance of the McConnell 
amendment, or perhaps I will discuss it only in passing. I 
simply wish to observe that it is not relevant to this bill. It 
is talking about a client's bill of rights which may or may not 
be a worthy subject to examine.
    How we regulate the lawyers is a complicated problem, 
obviously. It has mostly been done at the State level. The 
Senator from Kentucky has some sweeping proposals on a national 
basis, and they may warrant examination, but I certainly do not 
think they warrant coming into this debate on a very different 
issue. I do not know that there has been any study of it. I do 
not think this represents the recommendation or the report of 
any committee that is putting this forward, having undertaken 
an appropriate series of hearings in order to examine the 
subject. I have not had the benefit of testimony from the 
proponents and opponents. In fact, if the Senator from Kentucky 
will yield for a question, has a committee of the Senate 
recommended anything like this?
    Mr. McConnell. I say to my friend from Maryland, no 
committee of the Senate recommended the energy bill on which we 
spent 6 weeks in the Senate, and the majority leader has 
bypassed committees consistently throughout the last year. So I 
do not know that the Senate was constrained in any way----
    Mr. Sarbanes. It may be a response to say to me it was done 
somewhere else. I have a very specific question: Has a 
committee of the Senate recommended this proposal?
    Mr. McConnell. I would like to provide my own answer. If 
the Senator is asking for an answer from the Senator from 
Kentucky, I would like to be able to express myself, if that is 
OK with the Senator from Maryland.
    Mr. Sarbanes. The Senator from Kentucky is very skilled. I 
watched him on these television programs. I know he is very 
good when the question is put to him to give the answer he 
wants to give, even though it is not directed to the question. 
Obviously, I will have to go through that same experience on 
the floor of the Senate now.
    Mr. McConnell. I thank my friend from Maryland for his 
compliment and respond, as with many other bills over the last 
year that we dealt with on the floor of the Senate, it has not 
been reported by a committee. But many worthwhile ideas have 
been adopted and made a part of law that have been recommended 
by both Democratic and Republican Senators that, in the years 
my friend and I have been here, were not officially reported 
out of a committee.
    Mr. Sarbanes. Have any hearings been held on these 
proposals--the bereavement period and the fees proposal? Have 
hearings been held on those issues?
    Mr. McConnell. I am unaware of any hearings to that effect, 
but I ask my friend from Maryland why he thinks something as 
elementary as this, something as obviously as fair as this, and 
in the case of the bereavement rule, which we adopted in 
Federal law for families and victims of airline crashes, would 
not be an appropriate thing to do with or without hearings?
    Mr. Sarbanes. It seems to me there are complicated issues 
that are raised by Senator McConnell's proposal, and they 
certainly should have been preceded by hearings in which the 
pros and cons could have been carefully examined.
    Madam President, I reiterate my point, this amendment is 
not relevant to the issue before us. It does not come to us on 
the basis of any hearings that back up or buttress the 
proposal. It has not worked through any committee. It certainly 
has not been recommended by any committee, and there have not 
even been any hearings, as I understand it, by any committee.
    At the appropriate time, I will be very strongly supportive 
of the motion to table that will be offered by the able Senator 
from Wyoming. This is, of course, the second McConnell second-
degree amendment we have had to deal with on this legislation.
    I hope the Senator from Kentucky does not view this as a 
kind of fair hunting game to bring forth at each step along the 
way, whenever there is an opening for a second-degree 
amendment, whatever sort of pet project he has been harboring 
in his office for whatever period of time.
    I reserve the remainder of my time.
    The Presiding Officer. The Senator from Kentucky.
    Mr. McConnell. I yield myself some of my time to respond to 
my friend from Maryland.
    As I listened carefully to my friend from Maryland, he is 
straining to think of a good argument against this worthwhile 
amendment. It has been my experience over the years in the 
Senate that when we start saying there has been no committee 
action, there have been no hearings, we are having a hard time 
thinking of a good argument against the proposal on the merits.
    So let me repeat again what the merits are. It seems to me 
we do not need committee hearings or committee action to 
convince us that a 45-day bereavement rule for victims and 
their families, which we have already adopted in Federal law 
for victims and families of plane crashes--we do not need 
committee action to tell us this is a fundamentally appropriate 
thing to do.
    Do we need hearings and committee action to tell us that in 
Federal claims and in Federal cases it is appropriate and only 
right that lawyers provide information to their clients at the 
beginning, during, and at the end of their handling of the case 
as to the possible costs involved? That is what is before us, 
not the issue of whether or not we should have hearings on this 
or whether or not the committee should act. My goodness, we 
spent 6 weeks on an energy bill that the committee did not pass 
out of the Energy Committee. We do that frequently. The Senate 
is not known to be constrained by tight rules of germaneness, 
nor by official committee action.
    So I urge my colleagues to look at the amendment itself, 
not these rather extraneous arguments seeking to divert our 
attention away from what the amendment itself provides, which 
is protections for consumers of legal services.
    I reserve the remainder of my time.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, on the energy analysis, I 
simply point out that the Energy Committee held extended 
hearings over a long period of time on the energy issue. Then, 
they did not actually evolve a bill, but they had a very full 
set of hearings and a lot of recommendations available to be 
included in an energy package.
    On the other, I say to my colleague, I forbore from 
discussing the substance because I did not want to prejudice 
the Senator on some future occasion by having to go 
substantively into the weaknesses and deficiencies of the 
proposal that is before us. Since the time is limited and that 
would take quite a while to do, I intend to continue to do that 
out of a sense of consideration to my colleague because 
presumably, if this amendment is tabled, he will be back 
visiting with us on another day, perhaps on an appropriate 
vehicle. I do not know. One would have to wait and see whether 
that would be realized.
    Out of some deference of respect for my friend from 
Kentucky, I simply thought I would not undertake to go into 
this point by point on the substance because it is really not 
appropriate. We ought to recognize that and go ahead and table 
the amendment, and maybe when it finally comes up in an 
appropriate context, we can then address its substantive 
weaknesses or strengths. Perhaps at that time it would have 
evolved into a different animal.
    I reserve the remainder of my time.
    The Presiding Officer. Who yields time?
    The Senator from Wyoming.
    Mr. Enzi. Madam President, I yield myself such time as I 
may consume. At 12:45, I will be making a motion to table the 
McConnell second-degree amendment to amendment No. 4200. We are 
working on a bill that I have spent hundreds of hours on, part 
of them in hearings, much of the time in drafting my own 
legislation, then working with Senator Gramm to come up with an 
even better bill, and then working with Senator Sarbanes to 
come up with the bill we have before us.
    There is a crisis in the stock market. Two days ago, it 
dropped by 185 points. Yesterday, it dropped by 285 points. 
Some suggest that is because Congress is working on this issue 
and it is scaring the heck out of the people of the United 
States. I hope that is not the case. I hope it is a sign that 
they do want to have a solution, and they want to have a 
solution quickly. We do have the solution that, combined with 
the House bill, can serve the purpose of restoring the 
confidence of American investors.
    The McConnell amendment is a clients' bill of rights to 
reform the way attorneys treat their clients. It is not about 
securities and exchange. It is all about attorneys. Senator 
Edwards and I modified our amendment so it applies only to 
action before the Securities and Exchange Commission. That was 
so that if this debate draws out with multiple second-degree 
amendments well beyond the time we have the cloture vote, our 
amendment will still be germane.
    A standard that the Senator from Texas, Mr. Gramm, has put 
on amendments is that they be germane. He did an extensive 
speech last night about the need to do germane amendments and 
get this finished.
    This amendment is good and well intended. It requires 
attorneys to do a number of things in representing those who 
put their trust in attorneys' hands, and this includes 
requiring attorneys to provide written disclosure to their 
clients on the number of hours that will be spent on their 
case, the attorney's hourly or contingent fee, the probability 
of successful outcome, estimated recovery of costs, and 
bereavement.
    Under normal circumstances, I probably would be very 
excited about this bill. The reason I am opposing it is simply 
because it does not have anyplace in the accounting reform bill 
that we are debating today. I realize it does not change 
anything in my amendment. It is not a substitute amendment, but 
it is an addition that will cause problems further down the 
road. It will delay actually getting accounting reform into 
place. The accounting reform bill is being used as a vehicle to 
provide a free ride for a nongermane, unrelated amendment. I 
will probably use that same line again on a number of other 
amendments that come up later--it is nongermane.
    The McConnell amendment needs to hitchhike on a different 
road with a different vehicle at a different time.
    Over several months, I and my esteemed colleagues on both 
sides of this aisle have worked hard on the accounting reform 
bill. We have worked hard to keep out surplus, nonrelevant 
issues so we can get through the process of getting accounting 
legislation through in a timely fashion and in a bipartisan 
manner. We have been very successful at keeping out exact 
amendments even that deal with how to do accounting and have 
set up a process where people who are knowledgeable on that can 
figure out the right way to do it and the right way to do it 
faster than before.
    I strongly believe this bill cannot afford to be held up 
any longer just for Members on both sides of the aisle to score 
political points on hot button issues. A lot of us have pet 
projects and issues we would have liked to add on, but we 
resisted and we encouraged our colleagues on the Banking 
Committee to do the same thing.
    We are now in the amendment process, but amendments should 
be germane to the contents of the underlying bill and 
amendment. That is not a requirement until after cloture, but 
we need to get the bill done. There is no reason we even need 
to go to cloture if we would get the germane amendments done 
and get this into a conference committee so we can get the work 
done.
    The McConnell second-degree amendment, while well intended, 
is not germane. It does not deal solely with securities laws or 
those attorneys appearing and practicing before the SEC. It 
does not deal solely with attorneys working for publicly traded 
companies but to any attorney and any client practicing any 
form of Federal law. It does not deal with an attorney's 
professional responsibilities of reporting Federal securities 
law violations to its corporate client. It is much broader than 
the underlying amendment which does deal strictly with Federal 
securities laws, attorneys appearing and practicing before the 
SEC, and internal reporting by an attorney within a publicly 
traded company.
    In addition, the McConnell amendment is going to require 
study and debate, meaning more time spent diverting passage of 
the much needed accounting reform bill. We are running out of 
time before the next recess and have several important bills 
yet to consider, including Homeland Security Department 
legislation.
    While the McConnell amendment is well intended, the timing 
is simply wrong. I respect my colleague from Kentucky and his 
constant support and earnest effort to make attorneys play it 
straight with their clients. But I must respectfully oppose 
this amendment at this time. I hope we will be able to debate 
and vote on it on another day. When the time is appropriate 
under the agreement, I will make a motion to table the 
amendment.
    I yield the floor, and I reserve the remainder of my time.
    The Presiding Officer. The Senator from Kentucky.
    Mr. McConnell. Madam President, let me say first with 
regard to whether this is appropriate to be added to this bill, 
the ranking member of the Banking Committee, the manager of the 
bill on this side, supports my amendment. Obviously, it is not 
his view that this is in any way inappropriate for this 
legislation.
    I also say to my good friend from Wyoming, this will not 
slow down the bill. This amendment will be voted on at 12:45. 
There is a time agreement on it. We certainly are not in any 
way trying to slow down the passage of the underlying bill 
which I fully expect to support.
    The issue is whether we are only interested in corporate 
defense counsel misbehavior. Why are we only interested in 
corporate defense counsel misbehavior? My amendment applies to 
the other side, the plaintiff 's side. It would apply to cases, 
for example, brought under the Federal Employers Liability Act, 
which governs injury and wrongful death actions against 
railroads in interstate commerce by railroad workers and their 
families. It would apply to cases brought under the Longshore 
and Harbor Workers Compensation Act, which establishes no-fault 
compensation for employees injured on navigable rivers. And it 
would apply to plaintiffs bringing action under the Price 
Anderson Act amendments of 1998, which creates a Federal cause 
of action for nuclear accidents. It would also apply to the 
Federal Tort Claims Act, which creates Federal causes of action 
for tort claims against the U.S. Government. It would apply to 
lawyers representing clients bringing cases under the Public 
Health Service Act, which are suits against certain Federally 
supported health centers and their employees brought under the 
Federal Tort Claims Act. And finally, it would apply to lawyers 
representing clients bringing actions under part of Federal 
law, very important in my State, the Black Lung Benefits Act of 
1972, which establishes a compensation scheme for coal miners 
allegedly suffering from blank lung disease and survivors of 
miners who died from or were totally disabled by the disease.
    Let me sum it up again: it is not my intent to slow the 
bill down. This amendment will be voted on at 12:45, so it 
clearly is not slowing anything down. It seems to me entirely 
consistent with the underlying amendment dealing with corporate 
defense counsel misbehavior to also address the question of a 
plaintiff 's lawyer's misbehavior.
    Beyond that, we are talking simply about providing 
consumers of legal services with basic information, at the 
beginning, during, and at the end of a lawsuit, and a modest 
45-day bereavement rule giving the victims and their families a 
chance to get back on their feet before they are contacted by 
lawyers seeking to represent them in court. It would not in any 
way prevent families from contacting a lawyer during that time 
but would protect them from unwarranted solicitation of legal 
services for a mere 45 days.
    This is a very modest proposal. I would love to go a lot 
further. I like the fee caps in the Federal Tort Claims Act. 
That is not what we have offered. That is not what I offered. 
There is no impact on fees, no caps on damages. This is 
strictly consumer protection in the area of legal services. It 
is a very modest proposal which I hope the Senate will adopt 
when we vote on it at 12:45.
    I reserve the remainder of my time.
    The Presiding Officer. The Senator from Wyoming.
    Mr. Enzi. Madam President, I will give a little explanation 
for the point raised that this particular bill--because a time 
has been set for the vote--will not hold things up. There are 
about 60 amendments out there; there are probably 10 that 
actually deal with what is in the bill. There has to be some 
point where we have to ask, can we not concentrate on what is 
in the bill instead of bringing up the other things? I am sorry 
that yours is the bill on which we are starting that.
    Mr. McConnell. Will the Senator yield?
    Mr. Enzi. Sure.
    Mr. McConnell. It was my understanding that cloture was 
filed last night. Would my friend from Wyoming not agree, that 
cloture vote brings the bill to a conclusion? I am not in any 
way trying to delay the passage of the bill. I support the 
underlying bill. I believe my amendment is appropriate to be 
considered.
    Mr. Sarbanes. Will the Senator yield?
    Mr. Enzi. Yes.
    Mr. Sarbanes. Actually, I will use my own time, and the 
Senator may reserve his time.
    We must table this amendment. Otherwise, it becomes an 
invitation for others to come in and offer second-degree 
amendments that are not relevant to the bill. This amendment is 
not relevant to the bill--nowhere close. If we start this 
process now, opening up the bill to these nonrelevant 
amendments, what will happen to the relevant amendments, some 
of which are germane under cloture and others of which might 
miss the tight test of germaneness but are relevant material, 
which are pending, which other colleagues have offered, if they 
want to get to those amendments?
    We could have done the Edwards amendment yesterday and 
moved on to something else, but we came in with a second-degree 
amendment, not relevant--not only not relevant to the Edwards 
amendment, not relevant to the bill.
    Frankly, we are well beyond the point where we at least 
ought to set aside amendments that have no relevance to the 
underlying legislation.
    Mr. McConnell. Will the Senator yield?
    Mr. Sarbanes. Certainly, I yield.
    Mr. McConnell. I ask my friend from Maryland, if he 
believes my amendment may have some merit, whether he would 
support taking it up as a freestanding measure with a time 
agreement.
    Mr. Sarbanes. No, I would not support that.
    Mr. McConnell. I thank the Senator.
    Mr. Sarbanes. Why would I support a request like that? 
Surely the Senator from Kentucky is just making a joke on the 
floor of the Senate by making that inquiry. That must be 
apparent to all. I appreciate the Senator's sense of humor in 
that regard. I also appreciate his indication, just a moment or 
two ago, he intends to support the underlying bill. Of course, 
we are gratified to hear that.
    I yield the floor and reserve whatever time I may have 
left.
    What is the time situation?
    The Presiding Officer. The Senator has 33 seconds, Senator 
McConnell has 4 minutes 38 seconds, and the Senator from 
Wyoming has 3 minutes.
    Who yields time?
    The Presiding Officer. The Senator from Kentucky.
    Mr. McConnell. It was my understanding that Senator 
Santorum was on the way. But if he has not arrived yet, I 
suppose the best thing to do would be to enter a quorum call 
knowing full well my time is running.
    I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The bill clerk proceeded to call the roll.
    Mr. Reid. Madam President, I ask unanimous consent the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. Madam President, I will alert Members we are 
going to have a vote later. The two members of the 
Appropriations Committee have finally gotten a meeting with the 
House appropriators on the supplemental appropriations bill. I 
think it would be in everyone's best interest that they are 
allowed to go forward with that most important meeting.
    We received a request from the chairman of the 
Appropriations Committee, Senator Byrd. Therefore, I ask 
unanimous consent that the order that is now in effect be 
modified and that Senator Enzi would be recognized at 2 p.m. to 
move to table the amendment, and that 8 minutes prior to that 
would be devoted to debate between the two managers of the 
bill, Senator Sarbanes and Senator Gramm, and that Senator Enzi 
would be recognized for 2 minutes, and Senator McConnell for 2 
minutes--a total of 8 minutes. All other provisions of the 
unanimous consent agreement now in effect would remain the way 
they are.
    The Presiding Officer. Is there objection?
    Without objection, it is so ordered.
    Mr. Reid. Madam President, the vote will occur at 2 o'clock 
today. In the meantime, I ask there be a period from now until 
then for morning business, with the time equally divided 
between Senator Daschle or his designee or Senator Lott or his 
designee.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Reid. I suggest the absence of a quorum, and I ask the 
time be charged equally between Senator Daschle and Senator 
Lott.
    The Presiding Officer. Without objection, it is so ordered. 
The clerk will call the roll.
    The bill clerk proceeded to call the roll.
    Mrs. Clinton. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
    The Presiding Officer (Mr. Miller). Without objection, it 
is so ordered.


        VOLUME 148, THURSDAY, JULY 11, 2002, NUMBER 93,
                      PAGES [S6620-S6633]

 Public Company Accounting Reform and Investor Protection Act of 2002--
                               Continued


                           amendment no. 4200


    The Presiding Officer (Mr. Carper). The question is on 
agreeing to the motion to table amendment No. 4200. The yeas 
and nays have been ordered. The clerk will call the roll.
    The legislative clerk called the roll.
    Mr. Nickles. I announce that the Senator from North 
Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich), 
and the Senator from Idaho (Mr. Crapo) are necessarily absent.
    I further announce that if present and voting the Senator 
from North Carolina (Mr. Helms) would vote ``no.''
    The Presiding Officer. Are there any other Senators in the 
Chamber desiring to vote?
    The result was announced--yeas 62, nays 35, as follows:
                      (Rollcall Vote No. 172 Leg.)
    Yeas--62: Akaka, Allen, Baucus, Bayh, Biden, Bingaman, Boxer, 
Breaux, Byrd, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, 
Collins, Conrad, Corzine, Daschle, Dayton, Dodd, Dorgan, Durbin, 
Edwards, Enzi, Feingold, Feinstein, Graham, Hagel, Harkin, Hollings, 
Inouye, Jeffords, Johnson, Kennedy, Kerry, Kohl, Landrieu, Leahy, 
Levin, Lieberman, Lincoln, McCain, Mikulski, Miller, Murray, Nelson 
(FL), Nelson (NE), Reed, Reid, Rockefeller, Sarbanes, Schumer, Shelby, 
Snowe, Specter, Stabenow, Thompson, Torricelli, Warner, Wellstone, 
Wyden
    Nays--35: Allard, Bennett, Bond, Brownback, Bunning, Burns, 
Campbell, Cochran, Craig, DeWine, Domenici, Ensign, Fitzgerald, Frist, 
Gramm, Grassley, Gregg, Hatch, Hutchinson, Hutchison, Inhofe, Kyl, 
Lott, Lugar, McConnell, Murkowski, Nickles, Roberts, Santorum, 
Sessions, Smith (NH), Smith (OR), Stevens, Thomas, Thurmond
    Not Voting--3: Crapo, Helms, Voinovich

    The motion was agreed to.
    Mr. Sarbanes. 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.
    The Presiding Officer. The majority leader.

                AMENDMENT NO. 4269 TO AMENDMENT NO. 4187

(Purpose: To address procedures for banning certain individuals from 
    serving as officers or directors of publicly traded companies, 
    civil money penalties, obtaining financial records, broadened 
    enforcement authority, and forfeiture of bonuses and profits)

    Mr. Daschle. Mr. President, I have an amendment I send to 
the desk on behalf of Senator Levin.
    The Presiding Officer. The clerk will report.
    The assistant legislative clerk read as follows:

    The Senator from South Dakota [Mr. Daschle], for Mr. Levin, 
for himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine, 
and Mr. Biden, proposes an amendment numbered 4269.

    Mr. Daschle. Mr. President, I ask unanimous consent reading 
of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    (The amendment is printed in today's Record under ``Text of 
Amendments.'')
    Mr. Daschle. I yield the floor.
    The Presiding Officer. The Senator from Michigan.
    Mr. Levin. Mr. President, this amendment is offered--and I 
thank the majority leader--on behalf of myself, Senator Bill 
Nelson, Senator Harkin, Senator Corzine, and Senator Biden.
    Our amendment would grant the SEC administrative authority 
to impose civil fines on persons who violate securities laws, 
regulations, and rules. Now the SEC has to go to court, which 
is difficult and burdensome.
    We, just the other day, decided we wanted to give the SEC 
the power to remove directors and officers from public 
companies who violate rules and regulations and laws without 
having to go to court.
    Of course, those decisions administratively by the SEC are 
subject to an appeal. That is always true and always must be 
true. The same approach is essential relative to the imposition 
of civil fines. If the SEC is going to have power, without a 
lot of cumbersome, costly, and expensive procedures, to really 
take on those directors and those auditors who violate the law, 
who violate rules and regulations, the SEC must have the same 
authority which other regulatory bodies have to impose civil 
fines.
    A few examples: The Commodity Futures Trading Commission 
has authority to impose civil fines up to three times the 
monetary gain from a violation plus restitution of customer 
damages. The Department of Transportation can impose civil 
fines. The Consumer Product Safety Commission can impose civil 
fines. The Occupational Safety and Health Administration, OSHA, 
can impose civil fines. The Federal Communications Commission 
can impose civil fines.
    As a matter of fact, the Securities and Exchange Commission 
can impose civil fines on some of the people it regulates--
brokers. But unless we act today, there will be a great gap in 
the enforcement power of the SEC, a continuing gap. That gap 
is, it does not have the power, without legislation, to impose 
an administrative civil fine on auditors and members of boards 
of directors who violate rules and regulations in the law of 
the land.
    Our amendment would give the SEC that authority to impose 
administratively civil fines on those people who violate our 
securities laws and regulations and rules. That includes 
officers, directors, and auditors of publicly traded companies.
    I emphasize, these fines would be, and must be, subject to 
judicial review, as are the other SEC administrative 
determinations which they have authority to answer at this 
point. That is the first objective of the amendment.
    Secondly, our amendment would significantly increase the 
civil fines the SEC can impose on law violators. I particularly 
thank Senator Nelson of Florida for highlighting the problem 
and supporting the inclusion of these provisions in the 
amendment.
    The civil fines that currently can be imposed on broker-
dealers administratively have maximum amounts that start at 
$6,500 per violation. That is the maximum amount under the so-
called tier 1 civil fine. If a broker-dealer now violates the 
securities laws under so-called tier 1 where there is a 
violation found, not yet proven to be fraudulent but a 
violation nonetheless, $6,500 is the maximum fine under current 
law. Tier 2 for individuals is a $60,000 fine. That is where 
you find fraud, deceit, manipulation, and deliberate or 
reckless disregard--$60,000 for an individual for that 
violation.
    It is laughable. The current structure of fines which can 
be imposed on those people who administratively can be subject 
to a civil action or civil fine by the SEC is so low, these 
fines are a joke. We are talking about people who frequently 
are walking away, lining their pockets, violating rules and 
regulations for millions of dollars, sometimes tens of millions 
of dollars. To have a system where the maximum fine under tier 
1 is $6,500 for an individual and under tier 2 is $60,000 is 
just simply inadequate.
    Here is what the SEC staff said in June of this year: The 
current maximum penalty amounts may not have the desired 
deterrent effect on an individual or a corporate violator. For 
example, an individual who commits a negligent act is subject 
to a maximum penalty of $6,500 per violation.
    This is the conclusion of the SEC staff: The amount is so 
trivial that it cannot possibly have a deterrent effect on the 
violator.
    I would say that is an understatement: $6,500, given the 
current amount of money flowing through these violations of 
rules and regulations, is pitifully trivial. In fact, it is no 
deterrent at all. It might as well not be there. If we are 
going to have a deterrent system, we have to have fines which 
have some bite, which are real, which have an impact on people.
    We would, under our amendment, increase the maximum fines 
from a range of $6,500 to $600,000, which is the current range 
for tiers 1 through 3, to a range which goes from $100,000 to 
$5 million in fines per violation.
    We are seeing these corporate restatements and misconduct 
involving $2 billion, $4 billion, and even $12 billion. These 
new fine amounts are critical if they are to have the desired 
deterrent and punitive effects on wrongdoers in the corporate 
world.
    Our bill also has language which is similar to the language 
in the Leahy and Lott amendments that were adopted relative to 
the removal from office. We do this for the sake of 
completeness, so that we can lay out the entire structure being 
proposed in our bill for administratively imposed civil fines. 
That part of the amendment is the same as the removal from 
office provisions adopted by the Senate yesterday in the Leahy 
and Lott amendments.
    Finally, our amendment would grant the SEC new 
administrative authority, when the SEC has opened an official 
investigation, to subpoena financial records from a financial 
institution without having to notify the subject that such a 
records request has been made. This authority would allow the 
SEC to evaluate financial transactions, to trace funds, to 
analyze relationships, without having to alert the subject of 
the investigation to the SEC's action.
    Under current law, the SEC either has to give the subject 
advance notice of the subpoena or to obtain a court order that 
can delay notification for no longer than 90 days. That is a 
huge impediment to enforcement by the SEC. We ought to change 
that.
    The staff of the SEC wrote the following relative to this 
amendment:

    This amendment would enhance the Commission's ability to 
trace money and relationships quickly and effectively. The 
Commission typically requests bank records when it has reason 
to suspect possible relationships between persons or entities 
and that passage of money between those persons or entities may 
be relevant to violations of the securities laws. Identifying 
those relationships and quickly identifying assets obtained or 
transferred in connection with possible unlawful activity is 
critical to the Commission's ability to obtain orders freezing 
assets and other appropriate relief.
    In many situations, the Commission could proceed much more 
effectively if it could obtain relevant bank records without 
providing notice to the persons whose account records are 
sought.
    Under current law, however--

    The SEC staff wrote--

    the right to the Financial Privacy Act generally requires 
the commission to provide those persons with notice and a 
substantial period--10 to 14 days--in which to file a contest 
to the commission's authority to obtain the records.

    Let me continue with the SEC staff analysis of this 
language that is in our bill:

    Because Congress recognized that the notice requirement 
can, in some cases, compromise important and legitimate 
commission investigative objectives, Congress provided in 
section 21(h) of the Exchange Act that the commission may seek 
court authorization to obtain relevant bank records without 
notifying the customer for at least 90 days. Unfortunately----

    The SEC staff wrote--

    those important investigative objectives are also 
compromised by the inherent delay in obtaining the necessary 
court order.
    The proposed amendment to section 21(h)----

    Our language in this amendment--

    addresses both the notice and delay problem by allowing the 
commission the discretion only in those cases in which it has 
already authorized a formal investigation to proceed without 
notice to the customer. The proposed amendment also reiterates 
and strengthens the commission's authority to require that 
financial institutions not compromise investigations by 
notifying any persons or entities that their bank records have 
been subpoenaed.

    Mr. Nelson of Florida. Will the Senator yield for a 
question?
    Mr. Levin. I will be happy to yield for a question, but I 
do have an additional thought.
    Mr. Nelson of Florida. I am proud to be here today with my 
colleague from Michigan to offer these reforms aimed at 
preventing and punishing perpetrators of corporate fraud. The 
questions I wanted to ask the very distinguished Senator from 
Michigan, who has the foresight of why we need this at this 
particular time, are these: Would it not intrigue the Senator 
from Michigan and other Senators here that all of this is 
happening in an environment when 17,000 workers at WorldCom 
have received pink slips and have realized losses of over a 
billion dollars in their retirement plans; and at the same time 
they were receiving pink slips, the corporate executives were 
attending a retreat in Hawaii? That would not surprise the 
Senator, would it?
    Mr. Levin. It would not surprise me at all.
    Mr. Nelson of Florida. I doubt that it would surprise the 
Senator that one of those executives, by the way, was putting 
the finishing touches on a $15 million mansion, derived from 
that money from WorldCom. Would it surprise the Senator that 
late last year Global Crossing laid off 1,200 people, giving 
them no severance package, while the CEO of that company walked 
away with hundreds of millions of dollars?
    Mr. Levin. I am afraid very little would surprise me about 
some of these violations and deceptions these days.
    Mr. Nelson of Florida. I know it would not surprise the 
Senator, but I will ask him this anyway. After what went on 
with Enron last summer, while Enron executives were selling 
their shares for hundreds of millions of dollars and protecting 
their portfolios, their retirees and employees lost more than a 
billion dollars in retirement savings. Does that surprise the 
Senator?
    Mr. Levin. Tragically, it is not a surprise.
    Mr. Nelson of Florida. It is unconscionable. One of those 
we had testify in our Commerce Committee was Janice Farmer, an 
Enron retiree who lost her entire life savings that she had 
built up in a retirement plan from Enron. In her case, it was 
$700,000. She has nothing now.
    And then, I suppose it also would not surprise the 
distinguished Senator that, while we are talking about these 
excesses of corporate irresponsibility and corporate greed, the 
Florida pension fund for the Florida retirement system had a 
loss of $335 million--more losses than any other State--from 
Enron stock purchases, and that the money managers of that 
Florida pension fund, which covers all of the public sector 
retirees in Florida--the money managers kept buying Enron 
stock, based on the assertions from the company's management 
that everything was OK, that doesn't surprise us either, does 
it?
    Mr. Levin. No surprise. I am afraid that the public, having 
lost so much of its pension money, is disgusted but no longer 
surprised.
    Mr. Nelson of Florida. The management said everything was 
OK, but it was not OK. While the stock was dropping like a 
rock, but not before the company's management had unloaded 
their shares, the money managers were buying that stock as it 
dropped like a rock, and it caused to a dozen or so pension 
funds, retirement systems, public pension funds in this country 
over a billion dollars in losses. My State had the most losses 
of $335 million.
    So we have seen in the last year and a half corporate 
abuses of monumental proportions, and it is time for us to stop 
it. I am grateful to the Senator from Michigan for his 
leadership in bringing forth the amendment that he has 
described, which is basically going to give some additional 
teeth to the Securities and Exchange Commission to cause 
disclosure and to cause some hurt when these corporate 
managers, motivated and operated by greed, cross the line.
    I thank the Senator for his leadership.
    Mr. Levin. I very much thank the Senator from Florida for 
his comments and his questions, and also for the active role he 
has taken in shaping this language. He has identified the 
feeble nature of the fine structure that we have in the current 
law. We have some ruthless people out there who have lined 
their own pockets in violation not only of law and regulation, 
but of any code of morality and fiduciary duty. We have some 
ruthless people.
    We also have some toothless laws. The SEC, when it has to 
go to court to impose a civil fine, is put through hoops that 
other regulatory agencies are not put through. They can impose 
civil fines administratively--always subject to an appeal by 
the respondent or the defendant. But they have the capability 
to seek civil fines administratively--these other agencies. I 
have given examples of some of them. But when it comes to the 
SEC--outside of the brokers, where the SEC has that power--they 
have to go through the cumbersome proceedings of going to 
court.
    Now, we have cured some of this already in the bill. When 
it comes to the removal from office, yesterday we took action 
to give the SEC the ability to act administratively and to 
order the removal of directors or executives from office. What 
we didn't do yet, and what this amendment does, is add a 
critical component to regulatory effectiveness, which is the 
ability to impose civil fines administratively.
    This is what the Administration said in supporting the 
grant to the SEC of the power to remove directors from office, 
which we have now already done. It says that if we didn't do 
that--and now I am quoting the Statement of Administration 
Policy:

    It would continue to require the SEC to expand significant 
time and resources in order to attempt to gain similar relief 
in the Federal courts.

    That is what we are talking about now with civil fines.
    If we do not adopt this amendment, if we do not give the 
SEC these enforcement tools that other agencies have relative 
to directors and auditors, we will be requiring the SEC to be 
wasting time and wasting resources that they otherwise should 
be using to chase these corrupt and immoral people.
    Mr. Nelson of Florida. Will the Senator yield for another 
question?
    Mr. Levin. I will be happy to yield.
    Mr. Nelson of Florida. The distinguished Senator from 
Michigan has laid out how this amendment will give stronger 
enforcement measures to the Securities and Exchange Commission. 
We have a saying in the South: It is beyond me. It is beyond me 
why there are other people in this Chamber, when confronted 
with such corporate and auditor misconduct, would not want to 
strengthen the law to prevent and punish such corporate abuse.
    Does the senior Senator from Michigan have any idea why 
people would oppose us trying to strengthen existing law and, 
indeed, strengthen the underlying bill?
    Mr. Levin. I am hopeful there will be broad support for 
this amendment, just for the reason the Senator from Florida 
gives. There should be. This is not novel. This capability of 
imposing civil fines administratively belongs to other 
regulatory agencies. The protection is always an appeal to the 
court, but without this tool, the SEC has a weaker capability. 
They are not in a position then to do what other enforcement 
agencies can do in the face of some of the worst deception this 
country has ever seen--the deception which is now unfolding in 
too much of corporate America.
    This is of the worst attack on our system we have seen. It 
is unfolding in front of our eyes, and the SEC should be given 
the powers to deter it or punish it--all the power.
    We want the court to be able to review administrative 
actions. I think most Members of this body do not want any 
administrative agency to be able to act without court review if 
they are excessive or if they are wrong. I think most of us 
believe in that. I believe in that. But I also believe an 
administrative agency has to have enforcement tools.
    We have given the SEC some additional tools in the last few 
days. Senator Leahy and Senator Lott, for instance, in the 
criminal law area, toughened the criminal penalties, and the 
SEC now has the capability to impose fines against the 
stockbroker, although they are pitifully small.
    Our amendment would include directors, corporate 
executives, and auditors in the purview of the SEC power to act 
administratively and would toughen the fines so they would be 
far more realistic and could have some deterrent effect. The 
current fine structure against a limited class of people is 
useless; it is toothless.
    This is a huge gap in the bill before us. This is a 
terrific bill, by the way, and I do not want anything I say to 
suggest otherwise. The Banking Committee has given the Senate, 
and hopefully the country--if we can get some support for it 
from the Administration and if it can get through conference--
the Banking Committee has come up with a very strong law. We 
have strengthened it so far on the floor.
    This amendment will strengthen it further by filling a gap 
that exists in the toolbox. It is the missing tool in the 
toolbox of enforcement capabilities that the SEC should have.
    Mr. Nelson of Florida. The Senator's timing is just 
uncanny. We need look back no further than to yesterday when 
the stock market dropped almost 300 points, all the way down 
close to 8,800, the stock market being a reflection of the 
confidence of the American people in their investments in 
public corporations. Lo and behold, that confidence is sinking, 
and the American people need some greater sense of confidence 
that, indeed, they will not be hoodwinked, that they will not 
be fooled by greedy corporate executives or greedy auditors who 
blur the lines on what their auditing duties ought to be and 
instead get in bed with those who would mismanage the finances 
of a corporation. The people of America who invest their hard-
earned dollars ought to have the confidence that when they see 
the financial reports, those financial reports are accurate. 
That confidence is not there, and we saw it yesterday in the 
reaction of the people in their purchases and sales in the 
stock market.
    I thank the Senator from Michigan for his timeliness in 
trying to put some teeth in the authority of the Securities and 
Exchange Commission to give greater confidence to the Joe and 
Jane Citizen of America who invest their money because they 
want to invest in the future of their country and they need to 
do it and know they are getting accurate figures. I thank the 
Senator.
    Mr. Levin. I thank the Senator from Florida.
    Mr. President, I wish to expand for one moment on the 
question of the notice provision in our amendment.
    As I indicated before, where there are allegations that 
officers, directors of companies are misusing the accounting 
rules and abusing their powers, the SEC has to be able to look 
at financial records without giving the account holder an 
opportunity to move funds or to change accounts or to further 
muddy the investigative waters. Other agencies have that power, 
and this agency must have that power.
    We have carefully circumscribed that power in a number of 
ways. We have not just simply said you can subpoena any 
documents you want. We have criteria for doing that or else 
they have to give notice.
    One of the criteria is that it has to be an official 
investigation that has been ordered by the Commission. That is 
an important safeguard. This is not just the beginning of an 
investigation. This is not during a discovery process. This is 
where the Securities and Exchange Commission has initiated an 
official investigation, which is a very formal act on the part 
of the Securities and Exchange Commission.
    At that point, they should be able to subpoena documents 
under certain circumstances. These are the circumstances that 
we set forth in the amendment:
    If the Commission so directs in its subpoena, no financial 
institution or officer, director, partner, employee, 
shareholder, representative or agent can directly or indirectly 
disclose that records have been requested or provided in 
accordance with subparagraph (A).
    In other words, you cannot disclose to the subject of the 
investigation that you, as a financial institution, have been 
subpoenaed for those records if the Commission finds reason to 
believe that such disclosure may--and then we set forth the 
rules, and the rules are intended to make sure that the 
Commission can act after it has announced or determined there 
should be an official investigation but does not want to risk 
that the subject of the investigation is going to remove 
documents or remove money or hide assets.
    So we set forth the protections, and they are: If the 
Commission finds reason to believe that disclosing the fact of 
the official investigation to the subject of that investigation 
by a financial institution would, one, result in the transfer 
of assets or records outside of the territorial limits of the 
United States. So if the Commission says, hey, we have reason 
to believe if that person is notified in advance of those 
records being obtained by us or if there is a delay in our 
obtaining records that person may transfer assets or records 
outside of the United States, there could be nondisclosure.
    The second criteria which, if it exists, would permit this 
to happen is if the disclosure would result in improper 
conversion of investor assets.
    The third cause for the requirement that there be 
nondisclosure is that if such disclosure would impede the 
ability of the Commission to identify, trace, or freeze funds 
involved in any securities transaction. That speaks for itself.
    The fourth way in which nondisclosure would be permitted is 
that if it endangers the life or physical safety of an 
individual. If the Commission has reason to believe the life or 
physical safety of an individual would be compromised by 
disclosure, surely we ought to not require disclosure.
    Fifth, if it results in flight from prosecution, if they 
have reason to believe that could happen, or if the Commission 
has reason to believe that the disclosure may result in 
destruction of or tampering with evidence, or if such 
disclosure may result in intimidation of potential witnesses or 
otherwise seriously jeopardize an investigation or unduly delay 
a trial.
    Those are carefully set forth reasons for why disclosure 
should not be required. These are similar to what other 
agencies have in terms of powers, and it seems to me with this 
careful delineation of this subpoena power that we should 
surely give the Securities and Exchange Commission that power.
    Again, staff has given the reasons for the importance of 
that amendment, and I hope that reasoning of the SEC staff 
would be persuasive on this body. We have to give the SEC some 
administrative authority to impose civil fines. It would 
provide a tool that is now missing from the toolbox. It would 
add this tool, this weapon, to their arsenal. Without this 
weapon in their arsenal, they still have one hand tied behind 
their back. Without this amendment, they do not have the same 
administrative authority that other agencies have.
    Given the environment we are in, that we must use all 
legitimate means to put an end to the abuses and the deceptions 
of too many of our corporate leaders, corporate executives, 
corporate directors, and auditors, we must surely bring our 
laws up to date in terms of the powers we give to the SEC, and 
in terms of the civil fines we authorize them to impose, always 
subject to an appeal to the courts.
    I yield the floor.
    The Presiding Officer (Mr. Corzine). The Senator from 
Texas.
    Mr. Gramm. Mr. President, some of my colleagues change 
positions on issues like privacy so quickly that it gives me 
whiplash, and I will get to that point. I do not know how many 
people have seen the movie ``Minority Report.'' If you have 
not, I want to tell you the story. I never thought I would see 
a real-life example of what happens in this movie, but I have 
found one right here on the floor of the Senate.
    In the movie ``Minority Report,'' you have a cop who has 
almost supernatural powers, and his job is to arrest people 
before they commit a crime. It starts with three people, two 
guys who naturally do not have very much ESP, and then you have 
this lady, who naturally is quite attractive, who has these 
massive powers of ESP. They visualize crimes that are going to 
happen, their brain waves activate a computer, and then it 
prints out what they are seeing. They see crimes happening that 
have not yet occurred.
    The action in the movie begins with a guy finding his wife 
in bed with another man. The husband is obviously a nice guy--
probably an accountant--and he is leaving his house. His wife 
seems so eager for him to leave, he figures out something is 
going on. He is sort of an old, balding fellow and as he is 
leaving, he misses his bus. While he is waiting for the next 
bus, a young guy comes in and walks in his front door. Needless 
to say, the husband is upset about it. (Who wouldn't be upset 
about it? No one would want that to happen to them or anybody 
they knew.) So the husband goes in and he is sort of in shock. 
He finds himself in the bedroom, sitting by the bed. He goes 
crazy, and picks up a pair of scissors.
    At this point, the computer system (hooked up to the people 
with ESP) alerts this superwarrior for law enforcement that 
there is about to be a murder. He jumps in this sort of minijet 
that flies fast and stops on a dime. The officer zooms in--have 
you seen this movie, Senator McCain?--and just as the guy is 
getting ready to stab his wife, the officer grabs the knife, 
puts the handcuffs on the husband, takes him off and they put 
him in prison for murder.
    Mr. McCain. Will the Senator yield? That is a better 
description than the movie was.
    Mr. Gramm. Now, I thought, the whole thing is sort of a 
moral question: Were these people really going to commit these 
crimes? They put them in prison for life. They put them in 
these metal cylinders and wired them up to control their brain 
waves. It is not very pleasant. So the question is, do you have 
a right to do this to people who have not yet committed a crime 
simply because some person with extrasensory perception said it 
was going to happen?
    That is what the movie is about. It is a big hit movie. It 
made over $100 million the first week. It sounds silly when I 
tell it, but they got $100 million and I am giving this speech.
    In any case, I thought, what an absurd plot. Who in the 
world could ever believe--this is the U.S. of A, by the way. 
This movie is off in the future.
    Why would we ever have a law under which people can be 
punished for what they might do? Is that absurd? Can anybody 
believe that would happen? If you think not, you are wrong.
    Let me read from this amendment. This is in general. It is 
talking about authority of the Commission to assess monetary 
penalties. This is from the amendment that is pending.

    In general, in any cease and desist proceedings under 
subsection A, the commission may impose a civil monetary 
penalty if it finds on the record, after notice and opportunity 
of hearing, that a person is violating, has violated, or is 
about to violate or has been or will be the cause of violation.

    Senator Levin is going to fine people because we are 
concluding that they are about to do something before they have 
done it. Or that they ``will be'' the cause of a violation.
    I submit, first of all, this is not from the SEC. The SEC 
has not asked for this provision. This is from staff at the 
SEC--maybe ``a'' staff person, for all I know.
    The point is, do we really want to say we are going to 
penalize people because they are about to violate the law or we 
believe they are going to? How can you tell? How are you going 
to tell that they will be the cause of a violation? I submit 
that is a standard I am unaware has ever existed. If so, I 
didn't know about it or I would have tried to change it.
    Let me mention a second problem. The second problem has to 
do with financial records. Correct me, my colleague on the 
Banking Committee, if somehow I have fallen into a time warp 
and am in a different world than last year. Was it not last 
year we were going to shut down the Internet, we were going to 
put people in prison for putting out your mailing address or 
for mailing you a letter where someone could read your address 
off of it and go murder you? Were we not just in this time warp 
where privacy was the be-all and end-all of society?
    I get whiplash, we change positions so often.
    Let me state what the current law is and then read what 
Senator Levin is proposing. The current law is the following: 
The SEC and other Federal agencies have the power to get your 
financial records, and they can do it through administrative 
subpoena or judicial subpoena.
    Now, normally there is one little inconvenience. Normally, 
they have to tell you they have taken your financial records. 
Not an unreasonable thing, it would seem to me, if this is 
still America. But we are talking about business people here, 
and there is a different standard. Two consenting adults can 
engage in any activity other than commerce, with full 
constitutional protection, but if they engage in job creation 
or wealth creation, they stand naked before the world in terms 
of any rights whatever.
    Under current law, the Government can come in and take your 
financial records, but they have to tell you they have done 
it--``except.'' And there are three reasons they can do it 
without telling you. I think we all would say they make 
reasonably good sense. They can not tell you if they have 
reason to believe that there is going to be a flight from 
prosecution; or if they believe there is going to be 
destruction of or tampering with evidence; or if telling you 
would otherwise seriously jeopardize an investigation of 
official proceedings, or unduly delay a trial of an ongoing 
official process.
    That is the current law. What is unreasonable about that? 
If the Government believes someone is doing something wrong, 
they can come in and take their records. Unless they believe 
there is going to be a flight from prosecution or there will be 
tampering with evidence or it will jeopardize the 
investigation, they have to tell you they took the records. 
That is not unreasonable. But if they believe any of these 
things to be the case, they can go in and take your records and 
not tell you.
    Now, what does the amendment of the Senator from Michigan 
do? It says notwithstanding--that is always dangerous--
notwithstanding sections 1105 or 1107 of the Right To Financial 
Privacy Act of 1978--that law has been around here a long time. 
But notwithstanding it, which means throw it out, the 
Commission may obtain access to and copies of or information 
contained in financial records of any person held by a 
financial institution, including financial records of a 
customer, without notice to that person.
    If you think someone is going to flee prosecution or 
destroy evidence or that will jeopardize an ongoing 
investigation, maybe we would accept the limits of our 
individual liberty. But under the Levin amendment, you don't 
have to find any of those things. The government doesn't have 
to find that any of those circumstances is the case to be able 
to go in and take financial records.
    Since this bill is a bill that amends our securities laws 
and our financial laws, this bill falls under this 
jurisdiction. So what this literally means is that a government 
agency, without ever going to the courthouse, could come and 
take all of your financial records--your banking records, your 
investment records, any financial records you have or have ever 
had--and without finding that there is any risk that you are 
going to flee from justice or destroy evidence or jeopardize an 
investigation, they can take them and not tell you about it.
    There is a limit, it seems to me, to the logic in this 
case. If the Senator had an amendment that simply raised these 
fines for people who are criminals, that would be an amendment 
I could support. It shows how far we have flown from reality 
when we are talking about penalizing people because they are 
``about'' to violate the law; or that ``will be'' the cause of 
a violation.
    It is very hard to know when someone is going to violate 
the law. I have not yet gotten any kickback, I am not a 
stockholder even, I don't think I have received a contribution 
from the PAC of the people who made the movie I've described--
though if they had any decency, they would have contributed to 
my campaign over the years. But if you watch this movie, you 
are going to see what the problem with the Levin amendment is.
    The problem with the Levin amendment, as it turns out, is 
these psychics are not always right, and they don't always 
agree. Sometimes there is a ``Minority Report.'' The 
superwarrior cop discovers this. It turns out they try to frame 
him for a murder. A good movie. I recommend seeing it.
    In any case, I am opposed to this amendment. It is a thick 
amendment. There are a lot of things in it. There are some 
things in it that I support. But I do not support penalizing 
people for what you think they are going to do. I do not 
support taking people's financial records without telling them 
about it. It sounds to me as if somebody at the SEC has got the 
idea that maybe they are living in a different era in a 
different country and they are saying: Look, if we didn't have 
to fool with civil liberties, if we could get rid of the Bill 
of Rights, we could be a more effective law enforcement agency. 
If we could arrest people we think are going to violate the 
law, we could be more efficient. We don't live in that country.
    I yield the floor.
    The Presiding Officer. The Senator from Michigan.
    Mr. Levin. Mr. President, first let me assure my good 
friend from Texas that I have seen ``Minority Report.''
    Mr. Gramm. You have?
    Mr. Levin. I have.
    Mr. Gramm. Then you got the idea from it.
    Mr. Levin. As a matter of fact, I got the idea for the 
protections we write in here from ``Minority Report'' just 
because, as a tribute to the protections and civil liberties 
that are defended and protected in ``Minority Report,'' I had 
to be absolutely certain we would put these protections in our 
bill, to make sure that only if there were reason to believe a 
transfer of assets was going to go outside of the United 
States, or there would be conversion of assets, or it would 
endanger the life or physical safety of an individual, or 
result in flight from prosecution--those very criteria, 
carefully delineated, that are a tribute to the civil liberties 
and protections and privacy rights in this country to which my 
good friend from Texas just referred.
    I can assure my good friend from Texas, the lesson of 
``Minority Report'' is carefully reflected in this amendment. I 
saw that because I knew the Senator from Texas was going to 
raise that movie. With that kind of foresight, I decided, 
knowing just how he does this so beautifully on the floor of 
the Senate, I had better see ``Minority Report.'' That is why I 
want to assure the Senator from Texas that these very 
protections which he is so careful to delineate are in fact set 
forth in this amendment. We have these criteria laid out in 
this amendment.
    Mr. Reid. I don't want to take away from the seriousness of 
the debate, but I haven't seen ``Minority Report.'' I have seen 
``Big Fat Greek Wedding,'' and I would recommend that.
    [Laughter.]
    Mr. Levin. It sounds as if I have not been doing too much 
else, but I have also seen that--since we are giving 
testimonials to movies here.
    The language to which the Senator from Texas objects, about 
penalizing people for what they are going to do--that is 
language which the good Senator from Texas, as chairman and 
ranking member of the Banking Committee, has overseen for 
years. That is the same language that currently exists in the 
SEC law. We are not adding anything new here. This is the SEC 
law, section 77(h)(1): Cease and desist proceeding, authority 
of the Commission.
    If the Commission finds after notice and opportunity for a 
hearing that any person is violating, has violated or is about 
to violate any provision----
    That is existing law. The Senator from Texas has overseen 
that for all these years. He has done a brilliant job as 
chairman and ranking member of the Banking Committee, and we 
are just simply following the language that exists already in 
the SEC law and applying it to folks who are not now covered.
    Mr. Gramm. Will the Senator yield?
    Mr. Levin. For a question, I will be happy to.
    Mr. Gramm. What the Senator saying is they can issue cease 
and desist orders under these circumstances, but they can't 
fine somebody. You are not only ceasing and desisting them--I 
have no problem. In the movie--and that is where you got this 
idea from. I thought it was.
    In the movie, I don't object to them grabbing the guy who 
is about to stab his poor wife. It is putting him in prison, 
not for attempted murder--he did that--but for killing her when 
she is not dead.
    Mr. Levin. The Senator from Texas raises an issue which, I 
am afraid, is also addressed in current law. It is not just 
cease and desist orders, it is the implementation of civil 
fines. We are following the same language. But what we are 
saying is, if the SEC has power to impose a fine on a broker, 
based on the standards which exist in this law, there is no 
reason the SEC should not have the same power to impose a fine 
on an auditor or on a director who violates the regulations and 
laws of this land. This is the same language. We haven't added 
anything new.
    What is new here is that for the first time there will be 
the potential, the power in the SEC, subject to an appeal to 
the court--which is another protection of our civil liberties--
subject to an appeal to the court, to impose a civil fine, 
administratively, on people who are now let off the hook. There 
is no reason for this gap in the law.
    If, in fact, there is a problem that the Senator has 
raised, with language, that language is in the existing law for 
SEC. It is in the existing law for FDIC, the Federal Deposit 
Insurance Corporation:

    If, in the opinion of the appropriate Federal banking 
agency, any insured depository institution, depository 
institution which has insured deposits, or any institution 
affiliated party is engaged or has engaged, or the agency has 
reasonable cause to believe that the depository institution or 
any institution affiliated party is about to engage--

    The words which the Senator from Texas mocks are in 
existing law, in the FDIC law, in the SEC law.
    There may be reasons the Senator wants to maintain this gap 
in enforcement, but that cannot be used as the reason. That 
cannot be used.
    The Presiding Officer. The Senator from Arizona.

               MOTION TO RECOMMIT WITH AMENDMENT NO. 4270

(Purpose: To require publicly traded companies to record and treat 
    stock options as expenses when granted for purposes of their income 
    statements)

    Mr. McCain. Mr. President, I move to recommit the bill to 
the Committee on Banking, Housing, and Urban Affairs with 
instructions to report the bill back forthwith, with the 
following amendment that I send to the desk.
    The Presiding Officer. The clerk will report the motion.
    The legislative clerk read as follows:

    The Senator from Arizona (Mr. McCain) moves to recommit the 
bill (S. 2673) to the Committee on Banking, Housing and Urban 
Affairs, with instructions to report back forthwith with the 
following amendment, numbered 4270:
    At the appropriate place, insert the following:

SEC. . STOCK OPTIONS MUST BE BOOKED AS EXPENSE WHEN GRANTED.

    Any corporation that grants a stock option to an officer or 
employee to purchase a publicly traded security in the United 
States shall record the granting of the option as an expense in 
that corporation's income statement for the year in which the 
option is granted.

    The Presiding Officer. The Senator from Nevada.
    Mr. Reid. Mr. President, I suggest the absence of a quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Reid. Mr. President, I ask unanimous consent the order 
for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.

                           AMENDMENT NO. 4271

    Mr. Reid. Mr. President, I send an amendment to the desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from Nevada [Mr. Reid], for Mr. Edwards, for 
himself, Mr. Enzi, and Mr. Corzine, proposes an amendment 
numbered 4271 to the instructions of the motion to recommit S. 
2673 to the Committee on Banking.

    Mr. Reid. Mr. President, I ask unanimous consent reading of 
the amendment be dispensed with.
    Mr. McCain. I object. I would like to hear what the 
amendment says.
    The Presiding Officer. Objection is heard. The clerk will 
continue to read the amendment.
    Mr. Reid. I say to my friend, I will be happy to have it 
read, but it is the exact same amendment that was pending 
beforehand.
    Mr. McCain. Thank you.
    The Presiding Officer. Is there objection?
    Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To address rules of professional responsibility for 
    attorneys)

    At the end of the instructions add the following:
    ``(c) Rules of Professional Responsibility for Attorneys.--Not 
later than 180 days after the date of enactment of this section, the 
Commission shall establish rules, in the public interest and for the 
protection of investors, setting forth minimum standards of 
professional conduct for attorneys appearing and practicing before the 
Commission in any way in the representation of public companies, 
including a rule requiring an attorney to report evidence of a material 
violation of securities law or breach of fiduciary duty or similar 
violation by the company or any agent thereof to the chief legal 
counsel or the chief executive officer of the company (or the 
equivalent thereof) and, if the counsel or officer does not 
appropriately respond to the evidence (adopting as necessary, 
appropriate remedial measures or sanctions with respect to the 
violation), requiring the attorney to report the evidence to the audit 
committee of the board of directors, or to another committee of the 
board of directors comprised solely of directors not employed directly 
or indirectly by the company, or to the board of directors.

    Mr. Reid. Mr. President, I ask for the yeas and nays.
    The Presiding Officer. Is there a sufficient second?
    There appears to be.
    The yeas and nays were ordered.

                AMENDMENT NO. 4272 TO AMENDMENT NO. 4271

(Purpose: To address procedures for banning certain individuals from 
    serving as officers or directors of publicly traded companies, 
    civil money penalties, obtaining financial records, broadened 
    enforcement authority, and forfeiture of bonuses and profits)

    Mr. Reid. Mr. President, I send a second amendment to the 
desk.
    The Presiding Officer. The clerk will report.
    The legislative clerk read as follows:

    The Senator from Nevada [Mr. Reid], for Mr. Levin, for 
himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine, and 
Mr. Biden, proposes an amendment numbered 4272 to amendment No. 
4271.

    Mr. Reid. Mr. President, I ask unanimous consent reading of 
the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    (The amendment is printed in today's Record under ``Text of 
Amendments.'')
    Mr. Reid. Mr. President, I appreciate the cooperation of 
the Senator from Arizona. There are other ways we could have 
gotten to the point we are now. This just made it a lot easier. 
I appreciate that very much.
    I say this, before I yield the floor, to my friend from 
Arizona. We are now in the exact same posture we were in prior 
to the Senator from Arizona offering his amendment--his 
instructions, I should say.
    The Presiding Officer. The Senator from Arizona.
    Mr. McCain. Mr. President, before the Senator from Nevada 
leaves the floor, I wonder if he would respond to a question. 
Do we intend to vote on these pending amendments and the motion 
to recommit?
    Mr. Reid. I say to my friend, we have been trying very 
hard. I have received instructions--it is probably the wrong 
word, but Senator Edwards has been here for 2 days, and he left 
here for a while this afternoon waiting to vote on his 
amendment. Senator Levin has been here for several days--2 
days. We would like very badly to vote on the Levin second-
degree amendment and the Edwards first-degree amendment.
    I have spoken to the manager of the bill for the minority. 
It appears very unlikely that we are going to be able to do 
that. I think that is a disappointment. I think some of these 
relevant--I shouldn't say some--I think all of these relevant 
amendments we can get up to prior to the cloture vote, we 
should try to dispose of.
    But I understand the rules of the Senate. I am disappointed 
to say, my friend from Texas also understands them, so even 
though I would like votes, it does not appear we are going to 
be able to have votes.
    Mr. McCain. Mr. President, I thank my friend from Nevada 
for his candor. I think it is pretty obvious. Everybody ought 
to understand what is happening as we go through these arcane 
procedures.
    The whole purpose of this--the whole purpose of what we 
just went through--is to not have a vote on anything that has 
to do with stock options. Let's be very clear what that is all 
about.
    Whatever side you are on on the issue, the fix is in, as we 
say all too often in the sport of boxing. The fix is in and we 
will now have cloture invoked and there will not be a vote on 
stock options.
    While my friend from Nevada is still here, I can tell him, 
I understand the rules of the Senate. I have been through other 
difficult issues on which I have been blocked from getting 
votes. I tell my friend from Nevada, and all of my colleagues, 
we will have a vote on stock options. We will have--sooner or 
later--a vote on stock options. And I only regret that we 
cannot do it now, get it over with, and get everybody on 
record.
    I also would make one additional comment. I hope I do not 
harm the feelings of any of my colleagues. This is an important 
issue. This is a very important issue, no matter where you 
stand on the issue of stock options and how they should be 
accounted. It is a very important issue.
    Why is it that this body would not take up the issue and 
have an up-or-down vote on how stock options are treated? I 
would ask the manager of the bill, why would we not at least 
allow a vote up or down?
    I will read editorials. In fact, it may be sometime before 
I give up the floor because I have a lot to say about this 
issue. I will read from Mr. Greenspan's speech, a fairly widely 
respected individual, who says--well, I will read his speech in 
just a minute. He is in favor of treating stock options as an 
expense.
    So is Mr. Stiglitz and Mr. Buffett, and so many others, who 
are aware of this issue and its impact and the way it has been 
terribly abused by the same people we are trying to go after, 
the same people we are after.
    Mr. Sarbanes. Will the Senator yield for a response to his 
question?
    Mr. McCain. According to a recent analysis from 1996 to 
2000, Enron issued nearly $600 million in stock options, 
collecting tax deductions, which allowed the corporation to 
severely reduce their payment in taxes. According to reports 
that I think I have here, over $1 billion in stock options were 
issued to the senior executives of WorldCom.
    This is an important issue. I respect the views of my 
colleagues who disagree with my position and that of Mr. 
Greenspan, Mr. Stiglitz, and Mr. Buffett in various op-eds and 
editorials in newspapers throughout America. But why would we 
not vote on it? That is the question.
    Why would the distinguished Senator and friend from Nevada 
feel it incumbent upon himself to not allow a vote on stock 
options? I guess that question can be answered by observers.
    But here is the deal. I want to tell my friend from Nevada 
again, there will be a vote on how stock options are treated. I 
will repeat the amendment. I will repeat the amendment and will 
repeat it again several times before I finish discussing this 
issue. The issue, no matter how you feel, should be addressed. 
But through the invocation of cloture, everybody knows that the 
amendment and the motion to recommit will fall.
    I want to repeat. The amendment is fairly clear-cut, fairly 
simple. We deal with a lot of arcane issues in the discussion 
of this regulatory reform. But I repeat:

    Any corporation that grants a stock option to an officer or 
employee to purchase a publicly traded security in the United 
States shall record the granting of the option as an expense in 
that corporation's income statement for the year in which the 
option is granted.

    It is very simple. It does not say anything about the tax 
treatment of it. It does not say anything about a number of 
other rather controversial aspects. It just says it will 
``record the granting of the option as an expense in that 
corporation's income statement. . . . ''
    Mr. President, it is curious to me--actually, it is not 
curious to me--why a vote on this amendment is blocked. It is 
because every lobbyist in this town for the high-tech community 
has said: Don't do it. Don't do it. The one thing that the 
folks in Silicon Valley are scared of more than anything else 
is that they would lose their precious stock options--all of 
it, of course, in the interest of the employee, only the 
employees, the secretaries, the workers, those people who are 
down there toiling in the bowels of the corporation, trying to 
get some incentive to stay there and have their retirement.
    Meanwhile, Mr. Ellison, the CEO of Oracle, last year, 
cashes in $706 million worth of stock options, $706 million 
worth of stock options in 1 year. Are we going to vote on it? 
Yes, we will vote on it. Maybe not now, but unless there is 
cloture on every single bill that comes before this body, there 
will be a vote on stock options. I want to assure my friend 
from Nevada of that.
    I will just remind him, there were many who wanted to block 
a vote on campaign finance reform for a long period of time. 
Well, we got our vote on campaign finance reform, and we will 
get a vote on stock options.
    We have to end the double standard for stock options. 
Currently corporations can hide these multimillion-dollar 
compensation plans from their stockholders or other investors 
because these plans are not counted as an expense when 
calculating company earnings.
    I want to make it perfectly clear to all, I am not in favor 
of doing away with stock options. Stock options have a valuable 
place in American corporate life. What we are addressing here 
is how they are treated so investors can know exactly what the 
profit and loss of a corporation is.
    I repeat: I am not in favor of eliminating stock options. 
What I am trying to do is exactly in accordance with Mr. 
Greenspan's comments from which I will quote. Federal Reserve 
Chairman Alan Greenspan, New York University, March 26, 2002:

    Some changes, however, appear overdue. In principle, stock-
option grants, properly constructed, can be highly effective in 
aligning corporate officers' incentives with those of 
shareholders. Regrettably, the current accounting for options 
has created some perverse effects on the quality of corporate 
disclosures that, arguably, is further complicating the 
evaluation of earnings and hence diminishing the effectiveness 
of published income statements in supporting good corporate 
governance. The failure to include the value of most stock-
option grants as employee compensation and, hence, to subtract 
them from pretax profits has increased reported earnings and 
presumably stock prices. This would be the case even if offsets 
for expired, unexercised options were made. The Financial 
Accounting Standards Board proposed to require expensing in the 
early to middle 1990s but abandoned the proposal in the face of 
significant political pressure.
    The Federal Reserve staff estimates that the substitution 
of unexpensed option grants for cash compensation added about 
2\1/2\ percentage points to reported annual growth in earnings 
of our larger corporations between 1995 and 2000. Many argue 
that this distortion to reported earnings growth contributed to 
a misallocation of capital investment, especially in high tech 
firms.

    Especially in high-tech firms? Where is most of the 
opposition coming from to the proper accounting of stock 
options? From the high-tech firms. I repeat:

    Many argue that this distortion to reported earnings growth 
contributed to a misallocation of capital investment, 
especially in high tech firms. If market participants indeed 
have been misled, that, in itself, should be surprising, for 
there is little mystery about the effect of stock-option grants 
on earnings reported to shareholders. Accounting rules require 
enough data on option grants be reported in footnotes to 
corporate financial statements to enable analysts to calculate 
reasonable estimates of their effect on earnings.
    Some have argued that Black-Scholes option pricing, the 
prevailing means of estimating option expense, is approximate. 
But so is a good deal of other earnings estimates, as I 
indicated earlier. Moreover, every other corporation does 
report an implicit estimate of option expense on its income 
statement. That number for most, of course, is zero. Are option 
grants truly without any value?

    I repeat Mr. Greenspan's question: Are option grants truly 
without any value?

    Critics of option expensing have also argued that expensing 
will make raising capital more difficult. But expensing is only 
a bookkeeping transaction. Nothing real is changed in the 
actual operations or cash-flow of the corporation. If investors 
are dissuaded by lower reported earnings as a result of 
expensing, it means only that they were less informed than they 
should have been. Capital employed on the basis of 
misinformation is likely to be capital misused.
    Critics of expensing also argue that the availability of 
options enables corporations to attract more-productive 
employees. That may well be true. But option expensing in no 
way precludes the issuance of options. To be sure, lower 
reported earnings as a result of expensing could temper stock 
price increases and thereby exacerbate the effects of share 
dilution. That, presumably, would inhibit option issuance. But 
again, that inhibition would be appropriate, because it would 
reflect the correction of misinformation.

    I am not sure this debate is between me and the high-tech 
community. I think the debate is somewhat different. When you 
look at the preponderance of opinion, not only that stock 
options need to be expensed but the incredible effect that it 
has had on the whole distortion of the market, then it is an 
important issue.
    I ask again: How can we really address the entire issue we 
are facing without addressing the issue of stock options? That 
is like playing a baseball game without third base.
    Mr. Joseph Stiglitz, noble laureate professor of economics 
at Columbia University on Tuesday, March 12, 2002:

    Some contend that it is difficult to obtain an accurate 
measure of the value of the options. But this much is clear: 
zero, the implicit value assigned under current arrangements, 
is clearly wrong. And leaving it to footnotes, to be sorted out 
by investors, is not an adequate response, as the Enron case 
has brought home so clearly. At the Council of Economic 
Advisers, we devised a formula that represented a far more 
accurate lower bound estimate of the value of the options than 
zero. Moreover, many firms use formulae for their own purposes, 
in valuing stock options (charging them against particular 
divisions of the firm). However, Treasury, in its opposition to 
the FASB concerns, was singularly uninterested in these 
alternatives. I leave it to others to hypothesize why that 
might have been the case.
    If we are to have a stock market in which investors are to 
have confidence, if we are to have a stock market which avoids 
the kind of massive misallocation of resources that result when 
information provided does not accurately report the true 
condition of firms, we must have accounting and regulatory 
frameworks that address these issues. As derivatives and other 
techniques of financial engineering become more common, these 
problems too will become more pervasive. While headlines and 
journalistic accounts describe some of the inequities--those 
who have seen their pensions disappear as corporate executives 
have stashed away millions for themselves--what is also at 
stake is the long run well being of our economy. The problems 
of Enron and Global Crossing are part and parcel of the current 
downturn.

    I was under the impression this legislation was all about 
trust and transparency--regaining the trust of the American 
people and investors in the stock market and, frankly, the 
economic system that drives America and has been so successful, 
and transparent. Perhaps under this legislation, by beefing up 
many of the penalties and regulations and many other things--
many of which I have recommended and strongly supported and 
will have in further amendments, but how in the world do we say 
that we have given transparency when, in the view of most 
experts, this is one of the greatest hindrances to transparency 
in the system as it exists today?
    I would now like to read the opinion of Mr. Warren Buffett, 
in the Washington Post, April 9, 2002, Stock Options and Common 
Sense:

    In 1994 seven slim accounting experts, all intelligent and 
experienced, unanimously decided that stock options granted to 
a company's employees were a corporate expense.
    Six fat CPAs, with similar credentials, unanimously 
declared these grants were no such thing.
    Can it really be that girth, rather than intellect, 
determines one's accounting principles? Yes indeed, in this 
case. Obesity--of a monetary sort--almost certainly explained 
the split vote.
    The seven proponents of expense recognition were the 
members of the Financial Accounting Standards Board, who earned 
$313,000 annually. Their six adversaries were the managing 
partners of the (then) Big Six accounting firms, who were 
raking in multiples of the pay received by their public-
interest brethren.
    In this duel the Big Six were prodded by corporate CEOs, 
who fought ferociously to bury the huge and growing cost of 
options, in order to keep their reported earnings artificially 
high. And in the pre-Enron world of client-influenced 
accounting, their auditors were only too happy to lend their 
support.
    The members of Congress decided to adjudicate the fight--
who, after all, could be better equipped to evaluate accounting 
standards?--and then watched as corporate CEOs and their 
auditors stormed the Capitol. These forces simply blew away the 
opposition. By an 88-9 vote, U.S. senators made a number of 
their largest campaign contributors ecstatic by declaring 
option grants to be expense-free. Darwin could have foreseen 
this result: It was survival of the fattest.
    The argument, it should be emphasized, was not about the 
use of options. Companies could then, as now, compensate 
employees in any manner they wished. They could use cash, cars, 
trips to Hawaii or options as rewards--whatever they felt would 
be most effective in motivating employees.
    But those other forms of compensation had to be recorded as 
an expense, whereas options--which were, and still are, awarded 
in wildly disproportionate amounts to the top dogs--simply 
weren't counted.
    The CEOs wanting to keep it that way put forth several 
arguments. One was that options are hard to value. This is 
nonsense: I've bought and sold options for 40 years and know 
their pricing to be highly sophisticated. It's far more 
problematic to calculate the useful life of machinery, a 
difficulty that makes the annual depreciation charge merely a 
guess. No one, however, argues that this imprecision does away 
with a company's need to record depreciation expense. Likewise, 
pension expense in corporate America is calculated under widely 
varying assumptions, and CPAs regularly allow whatever 
assumption management picks.
    Believe me, CEOs know what their option grants are worth. 
That's why they fight for them.
    It's also argued that options should not lead to a 
corporate expense being recorded because they do not involve a 
cash outlay by the company. But neither do grants of restricted 
stock cause cash to be disbursed--and yet the value of such 
grants is routinely expensed.
    Furthermore, there is a hidden, but very real, cash cost to 
a company when it issues options. If my company, Berkshire, 
were to give me a 10-year option on 1,000 shares of A stock at 
today's market price, it would be compensating me with an asset 
that has a cash value of at least $20 million--an amount the 
company could receive today if it sold a similar option in the 
marketplace. Giving an employee something that alternatively 
could be sold for hard cash has the same consequences for a 
company as giving him cash. Incidentally, the day an employee 
receives an option, he can engage in various market maneuvers 
that will deliver him immediate cash, even if the market price 
of his company's stock is below the option's exercise price.
    Finally, those against expensing of options advance what I 
would call the ``useful fairy-tale'' argument. They say that 
because the country needs young, innovative companies, many of 
which are large issuers of options, it would harm the national 
interest to call option compensation as expense and thereby 
penalize the ``earnings'' of these budding enterprises.
    Why, then, require cash compensation to be recorded as an 
expense given that it, too, penalizes earnings of young, 
promising companies? Indeed, why not have these companies issue 
options in place of cash for utility and rent payments--and 
then pretend that these expenses, as well, don't exist? 
Berkshire will be happy to received options in lieu of cash for 
many of the goods and services that we sell corporate America.
    At Berkshire we frequently buy companies that awarded 
options to their employees--and then we do away with the option 
program. When such a company is negotiating a sale to us, its 
management rightly expects us to proffer a new performance-
based cash program to substitute for the option compensation 
being lost. These managers--and we--have no trouble calculating 
the cost to the company of the vanishing program. And in making 
the substitution, of course, we take on a substantial expense, 
even though the company that was acquired had never recorded a 
cost for its option program.
    Companies tell their shareholders that options do more to 
attract, retain and motivate employees than does cash. I 
believe that's often true. These companies should keep issuing 
options. But they also should account for this expense just 
like any other.
    A number of senators, led by Carl Levin and John McCain, 
are now revising the subject of properly accounting for 
options. They believe that American businesses, large or small, 
can stand honest reporting, and that after Enron-Andersen, no 
less will do.
    I think it is normally unwise for Congress to meddle with 
accounting standards. In this case, though, Congress fathered 
an improper standard--and I cheer its return to the crime 
scene.
    This time Congress should listen to the slim accountants. 
The logic behind their thinking is simple.
    One, if options aren't a form of compensation, what are 
they?
    Two, if compensation isn't an expense, what is it?
    Three, and if expenses shouldn't go into the calculation of 
earnings, where in the world should they go?

    Mr. President, I have to admit to you that I stood fifth 
from the bottom of my class at the Naval Academy. I don't 
pretend to understand a lot of the nuances and hidden workings 
of the stock market or many of the issues we are facing today 
because there were some very imaginative CEOs and corporate 
officers who have deprived investors of their money and 
hundreds of thousands of people of their jobs. But even I can 
understand Mr. Buffett's questions:

    If options aren't a form of compensation, what are they?
    If compensation isn't an expense, what is it?
    And if expenses should not go into the calculation of 
earnings, where in the world should they go?

    Mr. President, that is why this amendment is simple:
    Any corporation that grants a stock option to an officer or 
employee to purchase a publicly traded security in the United 
States shall record the granting of the option as an expense in 
that corporation's income statement for the year in which the 
option is granted.
    That is not a complicated issue, and there will be 
discussion from time to time about what the tax implications 
are and all those things. I would be glad to have smarter 
people than I figure it out.
    I want to read a letter to the editor of the New York Times 
by Steven Barr, senior contributing editor of CFO Magazine, 
April 5, 2002. Reference: ``Leave Options Alone'' by John Doerr 
and Frederick W. Smith:

    What if, in the mid-1990s, accounting-rule makers had not 
caved in to lobbyists and instead had forced companies to 
recognize options as a compensation expense on financial 
statements?
    There would still have been a technology boom, a bear 
market, and a period of recession. Such cycles are immutable. 
But there may have been less of the accounting gamesmanship 
that is now the object of government investigation and investor 
ire.
    Options should count as an expense to the corporation, and 
the ability to exercise them should be based on stock 
performance that exceeds an index of peers.

    Mr. President, one of the more egregious activities we have 
seen with some of these really unsavory people has been that 
while their company stock was declining, they exercised their 
stock options and sold them, making hundreds of millions of 
dollars.
    As I said earlier, in the case of Enron--I heard WorldCom 
was $1.8 billion, or Enron, I am not sure which--at the same 
time in the case of Enron, the employees, in testimony before 
the Commerce Committee, said they were urged to hang on to the 
stock, hang on to the Enron stock. Meanwhile, the executives 
were selling the stock. I do not know of anything quite as 
egregious as that.
    As I mentioned, according to a recent analysis from 1996 to 
2000, Enron issued nearly $600 million in stock options, 
collecting tax deductions which allowed the corporation to 
severely reduce their payment in taxes.
    I repeat, no other type of compensation gets treated as an 
expense for tax purposes without also being treated as an 
expense on the company books. This double standard is exactly 
the kind of inequitable corporate benefit that makes the 
American people irate and must be eliminated.
    If companies do not want to fully disclose on their books 
how much they are compensating their employees, then they 
should not be able to claim a tax benefit for it.
    The Washington Post, Thursday, April 18, 2000:

    Alan Greenspan, perhaps the Nation's most revered 
economist, thinks employee stock options should be counted, 
like salaries, as a company expense. Warren Buffett, perhaps 
the Nation's foremost investor, has long argued the same line. 
The Financial Accounting Standards Board, the expert group that 
writes accounting rules, reached the same conclusion eight 
years ago. The London-based International Accounting Standards 
Board recently recommended the same approach. In short, a 
rather unshort list of experts endorses the common-sense idea 
that, whether you get paid in cash or company cars or options, 
the expense should be recorded. Yet today's Senate Finance 
Committee hearing on the issue is likely to be filled with 
dissenting voices. There could hardly be a better gauge of 
money's power in politics.

    The Washington Post said:

    There could hardly be a better gauge of money's power in 
politics.
    Why does this matter? Because the current rules--which 
allow companies to grant executives and other employees 
millions of dollars in stock options without recording a dime 
of expenses--make a mockery of corporate accounts. Companies 
that grant stock options lavishly can be reporting large 
profits when the truth is they are taking a large loss. In 
2000, for example, Yahoo reported a profit of $71 million, but 
the real number after adjusting for the cost of employee stock 
options was a loss of $1.3 billion. Cisco reported $4.6 billion 
in profit; the real number was a $2.7 billion loss.

    Mr. President, those numbers are staggering. Let me repeat:

    Yahoo reported a profit of $71 million, but the real number 
after adjusting for the cost of employee stock options was a 
loss of $1.3 billion. Cisco reported $4.6 billion in profits; 
the real number was a $2.7 billion loss. By reporting make-
believe profits, companies may have conned investors into 
bidding up their stock prices. This is one cause of the 
Internet bubble, whose bursting helped precipitate last year's 
economic slowdown.
    It is not surprising, therefore, that the expert consensus 
favors treating options as a corporate expense, which would 
mean that reported earnings might actually reflect reality. But 
the dissenters are intimidated by neither experts nor logic. 
They claim that the value of options is uncertain, so they have 
no idea what number to put into the accounts. But the price of 
an option can actually be calculated quite precisely, and 
managers have no difficulty doing the math for purposes of tax 
reporting. The dissenters also claim options are crucial to the 
health of young companies. But nobody wants to ban this form of 
compensation; the goal is merely to have it counted as an 
expense. Finally, dissenters say that options need not be so 
counted because granting them involves no cash outlay. But 
giving employees something that has cash value amounts to 
giving them cash.
    The dissenters include weighty figures in both parties. 
Sen. Joe Lieberman (D-Connecticut) is the chief opponent of 
options sanity in the Senate, and last week President Bush 
himself declared that Mr. Greenspan is wrong on this issue. 
What might be behind this? Many of the corporate executives who 
give generously to politicians are themselves the beneficiaries 
of options--often to the tune of millions of dollars. High-tech 
companies, an important source of campaign cash, are fighting 
options reform with all they've got. But if these lobbyists are 
allowed to win the argument, they will undermine a key 
principle of the financial system. Accounting rules are meant 
to ensure investors get good information. Without good 
information, they cannot know which companies will best use 
capital, and the whole economy suffers in the long run.

    Mr. President, again, transparency and trust. Transparency 
and trust. Without transparency, we are not going to have 
trust.
    A Washington Post, April 21, 2002, editorial; byline David 
S. Broder. Mr. Broder writes:

    Thanks to the Enron scandal, the public is getting to know 
about a scheme that corporate executives have used for years, 
but that most of us were not smart enough to understand.

    I include myself in that group that Mr. Broder describes.

    You can call it the have-your-cake-and-eat-it-too ploy.
    It involves stock options, the rights to buy company stock 
some time in the future at the (presumably bargain) price at 
which it is selling currently. Stock options awarded to senior 
management by their (usually hand-picked) boards of directors 
mushroomed from $50 billion in 1997 to $162 billion just three 
years later. As Business Week pointed out in its April 15 
issue, boards have been ``lavishing options on executives'' so 
profligately ``that they now account for a staggering 15 
percent of all shares outstanding.''
    This is obviously a good deal for the executives. One of 
them, Oracle Corporation's Lawrence Ellison, exercised options 
worth $706 million in one week. A nice mouthful of cake, by any 
standard.
    But here's how his company--and all others like it--can 
have its cake, too. The value of the stock options granted 
Ellison is a cost to Oracle for tax purposes, but it doesn't 
come off the bottom line when Oracle is reporting its earnings 
for the year.
    This would seem to defy common sense--and it does. Almost a 
decade ago, as the options craze was getting under way, the 
Federal Accounting Standards Board--the watchdog group--said 
that when options are granted, they should be treated as an 
expense in company reports as well as in tax returns. The 
corporate CEOs and the accounting firms they hire went nuts, 
and the next thing you knew, the Senate in 1994 was passing a 
resolution . . . telling the watchdog: forget it.

    Mr. Gramm. Mr. President, will the Senator yield? I do not 
want to break in, but a key point I would like to make--and I 
thought the Senator might want a breather----
    Mr. McCain. I would appreciate it if the Senator would 
phrase it in the form of a question, as he is very adept at 
doing. I will be glad to yield for his question.
    Mr. Gramm. I thought it was very important to make this 
point. What happened almost a decade ago when we saw this 
blossoming of stock options? The answer is, in 1993, we passed 
a law that said that if you paid a corporate executive more 
than $1 million a year in a plain old paycheck, you could not 
deduct it as an expense in running the business.
    At that time, the largest companies in America--and I am 
trying to make a point that is in no way contradicting anything 
the Senator says, though I do not agree with a word of it, but 
what we said was you could not pay a corporate executive, 
through their paycheck, more than a million a year, even though 
the 50 largest companies in America were paying their corporate 
executives $3 million a year, on average.
    When we passed that law, what happened? What happened is 
that corporate America, being clever--you do not make $3 
million a year if you are not pretty smart--figured out ways 
around the law. Some of the ways around the law were getting 
loans from the company at low interest rates and getting stock 
options, which are now criticized as giving corporate 
leadership a very short-term horizon.
    The only point I want to make is that everybody has 
forgotten that in 1993 Congress, in a demagogic amendment aimed 
at ``rich people,'' started this whole process.
    It struck me when you were saying this group of accountants 
got together in 1994, what they were doing was responding to a 
bad law, and the bad law helped trigger this. One of the 
things--and God knows it is not going to happen in the 
environment we are in now--but one of the things Congress ought 
to do is to repeal that law so General Electric could pay its 
CEO with a paycheck, like everybody else, instead of trying to 
find all these ways around the law. I just wanted to get in 
that advertisement.
    Mr. McCain. I would like to respond to the Senator's 
question by saying that I think the Senator makes a very valid 
point. I think this is probably none of Congress's business as 
to what salaries should be bestowed on a corporate executive, 
with truly independent boards of directors and with a voice of 
the stockholders.
    Let me say to the Senator before he leaves, I am not 
talking about doing away with stock options. I am talking about 
how they are treated. They may have gotten around that, but it 
is how they are treated. As we get into the debate further, I 
would be glad to hear him respond to Mr. Buffett's three 
questions.
    Mr. Gramm. I would be happy to respond to Mr. Buffett.
    Mr. McCain. I ask unanimous consent for Senator Gramm to 
respond without me losing my right to the floor.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Gramm. I would be happy to respond to him. First, I 
would have been happy to have voted on the Senator's amendment.
    Mr. McCain. I thank the Senator.
    Mr. Gramm. Second, this is something I am happy to debate. 
The only point I wanted to make is that while we are all 
damning corporate America, our law, which said if you paid 
somebody more than $1 million a year it could not count as a 
business expense, really helped trigger all of this. One of the 
things we ought to be doing in the name of reform is to repeal 
that law.
    When I tried today in Finance--the Senator said this would 
not be brought up in Finance, but today in the Finance 
Committee I thought we ought to have one Good Government 
amendment, and it failed, like logic and truth, for the lack of 
a second. That is my only point.
    Mr. McCain. I thank the Senator. I especially thank him for 
agreeing because the Senator from Texas--we have had our 
agreements, mostly agreements and occasional disagreements--has 
never, in all the years we have known each other, which goes 
back to our days in the other body, wanted to deprive anybody 
of a vote on an issue, no matter where he stood on that issue.
    I regret deeply that it is clear, as I said earlier, the 
fix is in; there is not going to be a vote on this issue before 
cloture is invoked, but I want to again assure my colleagues 
there will be a vote. There will be a vote on this issue, just 
like when I was blocked for a long time on the line-item veto, 
I was blocked for a long time on campaign finance reform, I 
have been blocked on a lot of other issues but we always got a 
vote because that is my right as a Senator to get a vote.
    It is not my right as a Senator to determine the outcome, 
but it is my right as a Senator to get a vote on an issue, 
particularly when, in the view of any observer, stock options 
are a key issue in this entire debate.
    Again, I respect the views of the Senator from Texas who 
disagrees with my position. I think it is a respectful 
disagreement that we have. I look forward to debating him. I do 
so at some disadvantage because he is a trained economist and 
former professor of economics.
    I can also see why he would want to do away with that 
million-dollar cap because I am sure the Senator from Texas 
will make more than a million dollars when he leaves this body, 
and justifiably so given his talent, expertise, and experience. 
I wish him well. I wish him every success in doing so.
    At least the Senator from Texas is in agreement that we 
should have a vote on this issue.
    The question is going to be raised by me and others, time 
after time: Why did we not have a vote on this issue? If we are 
truly committed to reforming the system, restoring trust and 
transparency to the system, why do we not have a vote on it? 
That is a very legitimate question. There will be a vote.
    I will return to Mr. Broder's editorial. He talks about 
that:

    The Federal Accounting Standards Board said that when 
options are granted, they should be treated as an expense.

    And the Senate passed a resolution telling the watchdogs, 
forget it.

    And that has had a truly wondrous effect. On average, the 
Federal Reserve Board estimates, the ruling has boosted the 
reported earnings growth of corporations by 3 percentage points 
from a realistic 6 percent to an inflated 9 percent. Enron, it 
is estimated, used that same ruling in 2000 to inflate its 
earnings by more than 10 percent. Overstated earnings, of 
course, boost stock prices, thus benefiting the executives who 
have been given stock options.

    By the way, I might add, not only stock options but it 
increases compensation because the stock value is inflated.

    But that is not the end of it. Because these stock options 
are deductible for tax purposes, and their cost can be carried 
forward for years, they also enable companies that hand out a 
lot of options to stiff-arm the IRS. In Enron's case, they 
allowed the company to cut its tax bill by $625 million between 
1996 and 2000.

    Especially on my side of the aisle, there is this 
continuous drumbeat: Let us make the tax cuts permanent; let us 
do away with the death taxes; let us make the tax cuts 
permanent; let us help the American taxpayer. Should we not try 
to make a corporation pay its legitimate taxes? In Enron's 
case, because of the use of stock options, they allowed the 
company to cut its tax bill by $625 million over a period of 4 
years. Amazing.

    Thanks to Enron, another push is under way to stop the 
double-dealing. But it faces tough sledding. The Coalition to 
Preserve and Protect Stock Options, which includes 32 
influential trade associations, is flooding Congress with 
`talking points' claiming that `stock options are a vital tool 
in the battle for economic growth and job creation . . . (and) 
to attract, retain and motivate talent.'
    The coalition is trying to kill a bill that would not end 
stock options but simply specify that companies could not use 
them to reduce their taxes unless they also report them as an 
expense in their financial statements.
    The bill has bipartisan sponsorship: Democratic Senators 
Carl Levin of Michigan, Mark Dayton of Minnesota and Dick 
Durbin of Illinois; Republican Senators John McCain of Arizona 
and Peter Fitzgerald of Illinois. Fitzgerald is particularly 
interesting. He is from a wealthy banking family and is a 
staunch conservative, but Enron has made him almost a raging 
populist.
    It has had no such effect on President Bush. Concerned as 
always for the deserving rich, he told the Wall Street Journal 
he opposes this kind of legislation. . . . But Federal Reserve 
Board Chairman Alan Greenspan testified recently in support of 
expensing stock options. The only issue, he said, is whether 
under current rules, ``is income being properly recorded? And I 
would submit to you that the answer is no.''

    That is what Alan Greenspan says: Is income being properly 
reported? And I would submit to you that the answer is no.

    And superinvestor Warren Buffett, who hands out bonuses but 
not stock options to his employees--

    By the way, I have not heard of any bad morale or failure 
to attract employees out at Berkshire Hathaway out in Omaha, a 
lovely place to live--for years has been asking three 
questions: ``If options aren't a form of compensation, what are 
they? If compensation isn't an expense, what is it? And if 
expenses shouldn't go into the calculation of earnings, where 
in the world should they go?"
    That is what Mr. Broder has to say.
    Paul Krugman, on May 17, 2002:

    On Tuesday Standard & Poor's, the private bond rating 
agency, announced that it would do something unprecedented: It 
will try to impose accounting standards substantially stricter 
than those required by the Federal government. Instead of 
taking corporate reports at face value, S&P will correct the 
numbers to eliminate what it considers the inappropriate 
treatment of ``one-time'' expenses, pension fund earnings and, 
above all, stock options--a major part of executive 
compensation that, according to Federal standards, somehow 
isn't a business expense. S&P's estimate of ``core earnings'' 
for the 500 largest companies slashes reported profits by an 
astonishing 25 percent.
    Why does S&P--along with Warren Buffett, Alan Greenspan and 
just about every serious financial economist--think that 
current accounting standards require a drastic overhaul? And if 
such an overhaul is needed, why doesn't the government do it? 
Why does S&P think that it must do the job itself?
    To see the absurdity of the current rules, consider stock 
options. An executive is given the right to purchase shares of 
the company's stock, at a fixed price, some time in the future. 
If the stock rises, he buys at bargain prices. If the stock 
falls, he doesn't exercise the option. At worst, he loses 
nothing; at best, he makes a lot of money. Nice work if you can 
get it.
    Yet according to Federal accounting standards, such deals 
don't cost employers anything, as long as the guaranteed price 
isn't below the market price on the day the option is granted. 
Of course, this ignores the ``heads I win, tails you lose'' 
aspect; executives get a share of investors' gains if things go 
well, but don't share the losses if things go badly. In fact, 
companies literally apply a double standard: they deduct the 
cost of options from taxable income, even while denying that 
they cost anything in their profit statements.
    So how could it possibly make sense not to count options as 
a cost? Defenders of the current system argue that stock 
options align the interests of executives with those of 
investors. Even if that were true, however, it wouldn't justify 
ignoring the cost--no more than it would make sense to deny 
that wages, which provide incentives to workers, are a business 
expense. Furthermore, it's now clear that stock options, far 
from reliably inducing executives to serve shareholders, often 
create perverse incentives. At worst, they handsomely reward 
managers who run their companies as pump-and-dump schemes, 
executives at Enron and many other companies got rich thanks to 
stock prices that soared before they collapsed.

    I hope the opponents of this provision, including my friend 
from Texas, will put it into the real-world context. It is nice 
to talk about economic theory. I know of no one better at that 
than the Senator from Texas. What happened at Enron? What 
happened at Enron when it cashed in $600 million worth of stock 
options and the stock tanks and there are 10,000 or so 
employees out of work? And there was a period of time where the 
employees were not allowed, because they were undergoing some 
managerial change of their portfolio, to cash in their stock 
options. But the executives were not prohibited from doing so. 
They kept on doing it. They kept on doing it.
    So I hope we can have this debate not in the world of 
theories of economics. I am not a CPA, nor am I a professor of 
economics, nor am I as smart as most of the Members of this 
body, but I know what happened to these people. I know of the 
thousands left penniless. I know of the thousands whose 
retirement savings were wiped out.
    Meanwhile, the very people this whole stock option deal was 
supposed to be protecting were not protected, and yet somehow 
the executives all made out like bandits.
    Perhaps my colleagues, as they oppose this legislation, can 
talk about the real-world examples--not the theoretical world 
of economics, which I will immediately grant them a distinct 
advantage on. I would like for them to have the opportunity to 
meet some of these employees, as I have, who were told by the 
executives of the corporation the stock was in great shape, 
while they were dumping the stock. I would like for them to 
talk to the employees or the retirees who invested enormous 
amounts of their money and their life savings, in some cases in 
a stock, and were told by their employers and executives that 
everything was great, things could not be better, estimates of 
double the stock value over the next few years.
    That is the framework of this debate, not the framework of 
whether certain economic theories are valid or not.

    Options are only part of an accounting system in deep 
trouble. As David Blitzer, S&P's chief investment strategist, 
recently wrote, ``Financial markets are as much a social 
contract as is democratic government.'' Yet there is a growing 
sense that this contract is being broken, undermining the trust 
that is so essential to the operation of financial markets. 
Clearly, major reforms are needed. And bear in mind that this 
isn't a left-right issue; it's about protecting investors--
middle-class and wealthy alike from exploitation by self-
dealing insiders. So who could possibly be opposed? You'd be 
surprise.
    Harvey Pitt, the accounting industry lawyer who heads the 
Securities and Exchange Commission, has clearly been dragging 
his feet on reform.

    Bear in mind, this is not a left-right issue. It is about 
protecting investors, middle class and wealthy alike, from 
exploitation by self-dealing insiders. So who could possibly be 
opposed? You would be surprised. Harvey Pitt, the accounting 
industry lawyer who heads the Securities and Exchange 
Commission, has clearly been dragging his feet on reform. Mr. 
Blitzer of S&P points out that in previous periods of corporate 
scandal, legislatures and prosecutors took the lead with public 
concerns over the market.
    It is a sad commentary on our leadership that this time he 
believes he must do the job himself--referring to Standard and 
Poors--and announced that it would impose accounting standards 
substantially stricter than those required by the Federal 
Government.
    Boston Globe, June 10, 2002:

    Stock options have become the currency of choice to reward 
high ranking executives in part because under current rules the 
company need not count them as an expense with much of their 
compensation. Depending on the difference between the option 
price of the stock and the market price, it is no wonder that 
some executives have used trickery to show quarterly growth and 
inflate the worth of their companies. Excessive reliance on 
stock options is a license for some executives to drive their 
companies along treacherous roads.

    I have a number of other views, but I think I have made my 
point. The point is this: Why should we, in the name of 
restoring confidence, trust, and transparency to the American 
people on an issue of this import, not have a vote? That is the 
first question.
    The second question that needs to be answered is Mr. 
Buffett's question, not mine; not mine because I don't claim to 
have a corner on expertise and knowledge on this issue. But I 
believe that Mr. Buffett does. I believe that Mr. Greenspan 
does. I believe that literally every outside observer and 
economist does. If options aren't a form of compensation, what 
are they? If compensation isn't an expense, what is it? And if 
expenses shouldn't go into the calculation of earnings, where 
in the world should they go?
    I know what I will hear in response. In fact, most of those 
have already been responded to so I don't intend to engage in 
extended debate about it. We all know where the majority stock 
options have gone--to the executives, not to the workers. Mr. 
Buffett, and many others, have been able to attract good and 
talented employees and retain them without having to resort to 
stock options.
    But the real question is not whether stock options are good 
or bad because the intent of the amendment is not to do away 
with stock options. The intent of the amendment is simply to 
give an accurate depiction of what stock options are. And that 
is clearly compensation. Depreciation is listed as an expense. 
In the view of many, that is much harder to calculate than a 
stock option.
    Another argument I anticipate will be, how do you treat it 
taxwise? Frankly, I would be glad to treat it taxwise as to how 
the smartest people at the SEC would say it should be treated. 
I would leave that up to the two experts. But to not treat it 
as an expense, as Mr. Buffett says, of course is just 
Orwellian. It is Orwellian.
    Mr. Levin. Will the Senator yield for a question?
    Mr. McCain. I am sorry my colleague will not allow a vote. 
I will be glad to respond to my colleague from Michigan.
    Mr. Levin. I appreciate the Senator's yielding for a 
question. I wonder if the Senator would agree that the 
following individuals and organizations support the change in 
accounting for stock options, which the Senator has outlined: 
Alan Greenspan, Paul Volcker, Arthur Levitt, Warren Buffett, as 
the Senator mentioned, TIAA-CREF, Paul O'Neill, Standard & 
Poor's, Council for Institutional Investors, Consumer 
Federation, Consumers Union, AFL /CIO--among others? Would the 
Senator agree that those organizations support a change in the 
accounting for stock options?
    Mr. McCain. I would say to my friend, yes. I think there is 
another important organization, the Federal Accounting 
Standards Board--I believe it is--the international.
    Mr. Levin. There are some additional organizations.
    Mr. McCain. Yes.
    Mr. Levin. I wanted to give the Financial Accounting 
Standards Board.
    Mr. McCain. Yes.
    Mr. Levin. Does the Senator remember, as I do very vividly 
because I appeared before the Federal Financial Standards Board 
in the middle 1990s to support their independence, when they 
decided that you had to expense options, that it was 
compensation, that it had value like all other forms of 
compensation?
    Does the Senator remember what the Financial Accounting 
Standards Board decided when they left it optional, as to 
whether or not to either expense options or to show them as a 
footnote--just to disclose them without actually expensing 
them? Because if the Senator does not, I would like to read 
what the Financial Accounting Standards Board said about the 
pressure they were put under, the horrendous, horrific pressure 
they were put under, and how they could have, indeed, been put 
out of existence if they went forward with what they believed 
was right, which is what Warren Buffett says.
    If the Senator does not remember those words, I wonder if 
he might yield to me to read them, without losing his right to 
the floor.
    Mr. McCain. Yes.
    Mr. Levin. This is what the Financial Accounting Standards 
Board said. They had proposed that stock options be expensed. 
That was their proposal. This is the board of accountants.

    The debate on accounting for stock-based compensation, 
unfortunately, became so divisive that it threatened the 
Board's future working relationship with some of its 
constituents. Eventually the nature of the debate threatened 
the future of accounting standards setting in the private 
sector. The Board continues to believe that financial 
statements would be more relevant and representationally 
faithful if the estimated fair value of employee stock options 
was included in determining an entity's net income, just as all 
other forms of compensation are included. To do so would be 
consistent with accounting for the cost of all other goods and 
services received as consideration for equity instruments. 
However, in December 1994, the Board decided that the extent of 
improvement in financial reporting that was envisioned when 
this project was added to its technical agenda and when the 
Exposure Draft was issued was not attainable because the 
deliberate, logical consideration of issues that usually leads 
to improvement in financial reporting was no longer present.

    That is the climate that was created for this Board in 
1994. And when the accountants, the Board, the Financial 
Accounting Standards Board of this country, said they have 
value, these options, they are compensation, they should be 
accounted for in the financial statement, they were hit upon so 
hard that even when they said we are throwing in the towel 
because it could destroy us, even when they said we will allow 
it to be shown as a footnote, not required to be taken as an 
expense--even then, they said this is not the right way to 
proceed.
    We are now creating--I should ask a question, I think, 
given the request I made.
    Does the Senator not agree that ideally what we should be 
allowing here is an independent Financial Accounting Standards 
Board to determine the rules?
    Mr. McCain. I could not agree more with the Senator from 
Michigan. I think he knows how strongly I believe that options 
should be expensed because they are compensation and they have 
value and there is no other form of compensation that is not 
expensed. It is a stealthy form of compensation and has driven 
the excesses of the 1990s. These options have driven the 
deceptions that make these financial statements for 
corporations look better than those corporations' situations 
really are because they have created so much value in those 
options that then executives--mainly executives--were able to 
cash in on these options and make tens of millions of dollars 
based on financial accounting which was deceptive.
    Would the Senator agree with that and agree that ideally 
these standards should be set by an independent financial 
accounting standards board?
    Mr. McCain. I say to my friend from Michigan, first of all, 
it was the Senator from Michigan who first initiated discussion 
with me on this issue several years ago. We were treated as 
virtual pariahs for having the audacity to challenge what was 
then, as we now know, a high-tech bubble in the way stock 
options were being disbursed.
    By the way, let's do away with the myth that these stock 
options are for the average worker. The fact is the 
overwhelming majority of the stock options have gone to the 
chief executives. That is just a matter of record and fact.
    But I think the Senator is correct. I think the Senator has 
also an additional, I think important, corollary to this 
amendment, that we could have certain direction from FASB, as 
it is known. But I think it is also a clear-cut, black-and-
white issue as to how stock options should be treated.
    I would be glad to agree with the Senator from Michigan 
that some of these aspects of it can be better handled by the 
experts.
    Finally, the Senator from Nevada and the Senator from 
Maryland are in the Chamber. I hope they will reconsider and 
allow a vote postcloture at some time on this important 
amendment. I do not see how you can possibly go to the American 
people and say: Look, we have discussed and debated all these 
issues, but we wouldn't allow a vote on the issue of stock 
options.
    There is no observer who does not believe that the issue of 
stock options is one of significant importance in this entire 
scenario of returning trust and transparency so we can regain 
the confidence of the American investor.
    Again, I assure my friends, we will have a vote on this 
issue at some time, whether it be now on this bill or whether 
it be the next bill or the bill after that. So I hope my 
colleague from Nevada and my colleague from Maryland will allow 
an up-or-down vote on this amendment.
    Mr. Levin. Will the Senator yield for one last question?
    Mr. McCain. I am glad to.
    Mr. Levin. Assuming cloture is invoked, there is still, 
does my friend agree, the possibility at least of voting on 
germane amendments relating to this subject? So the amendment 
which is germane postcloture does not state what the Senator 
from Arizona and I believe, which is that unless we deal with 
this, we are missing a huge problem, we are not addressing a 
huge problem that has driven the situation that we now face in 
terms of deceptive financial statements. But, in any event, 
will the Senator from Arizona agree that at least postcloture, 
if an amendment is germane which says it is determined that 
FASB or an independent accounting board reviewed this matter, 
that at least there could be a vote at that time on something 
which carries out the spirit of what the Senator from Arizona 
and I have been fighting for, which is that an independent 
accounting board be allowed to proceed without threatening its 
very existence to determine what is the proper accounting for 
stock options?
    Mr. McCain. I apologize to my colleagues for taking as much 
time as I have on this subject. As I said, I believe it is one 
of transcending importance in the minds of average American 
citizens. Yes. I would support the Senator's amendment 
postcloture. But I would also have to add that it doesn't 
address the issue completely. Here is why.
    The Senator from Michigan just talked about how these 
boards have been intimidated and bullied into backing off of a 
position they had before. I can't have the confidence that any 
board that is subject to the kind of intimidation and bullying 
that has happened in the past would properly carry out what is 
a pretty simple operation.
    I understand the Senator's point. I will support his 
amendment postcloture. I think it is an important one. But 
there has to be a clear signal sent. That clear signal is this: 
As Mr. Buffett says, if it isn't compensation, what is it? If 
options are not a form of compensation, what are they? If 
compensation is not an expense, what is it? If expenses 
shouldn't go into the calculation of earnings, where in the 
world should they go? This answers Mr. Buffett's question. We 
know where it should go--as an expense.
    Again, I am not trying to do away with stock options but 
how it is treated so the American people can restore their 
confidence.
    Mr. Levin. Will the Senator yield for a couple of questions 
which his comments have raised?
    Mr. Sarbanes. Will the Senator yield? The Senator directed 
a question.
    The Presiding Officer. The Senator from Arizona has the 
floor.
    Mr. McCain. I would be glad to yield to the Senator from 
Maryland for a comment without yielding my right to the floor.
    Mr. Sarbanes. I wanted to respond at this point because the 
Senator just directed a question. We are not trying to prevent 
a vote on your amendment. We have been trying repeatedly to get 
votes on these amendments. Senator Edwards has had an amendment 
pending in here for now more than a day. We can't get a vote on 
it. Senator Levin has had an amendment pending. We have a list 
of people who want to offer amendments. We have been trying to 
work through these amendments. Now the Senator has come with 
his amendment. There are a lot of amendments around here on 
which people are trying to get votes. I think they are entitled 
to those votes.
    I know you have a problem. But I take some umbrage as sort 
of having it placed on my shoulders. In fact, I think that is 
totally inaccurate, and I just want to make sure I put that on 
the record.
    Mr. McCain. Thank you.
    I ask unanimous consent that the McCain amendment be 
allowed postcloture.
    Mr. Reid. Objection.
    Mr. McCain. So you see.
    Mr. Sarbanes. No. That doesn't approve anything. The 
Senator wants his amendment----
    Mr. McCain. I have the floor.
    Mr. Sarbanes. And denies everybody else.
    The Presiding Officer. The Senator from Arizona has the 
floor.
    Mr. McCain. I thank the Chair.
    I think I have made my point.
    Mr. Sarbanes. No. You haven't made your point.
    The Presiding Officer. The Senator from Arizona has the 
floor.
    Mr. McCain. I would like to respond to the question of the 
Senator from Michigan, if he would like.
    Mr. Sarbanes. Will the Senator yield?
    Mr. McCain. I would be glad to yield, if the Senator from 
Michigan would be glad to yield.
    Mr. Sarbanes. It is a very clever trick, but you haven't 
made your point. There are other Members here with amendments 
that are very important to them which they are trying to have 
considered. We have been trying to process those amendments in 
an orderly way. The Senator arrives on the scene and apparently 
thinks, well, there should be a special set of rules for the 
Senator to do his amendment. So he just now tried to jump ahead 
of other people, and a reasonable objection was made. And I 
think it ought to have been made. The Senator from Arizona 
comes in, and, all of a sudden, there is going to be a special 
set of rules to deal with his amendment. The Senator doesn't 
even recognize what is in the bill, which does try to address 
to some extent this problem with independent funding and FASB 
that this legislation provides for--which everyone agrees is 
long overdue and is an important contribution.
    But we have these people lined up here who want to do 
amendments. We have the Edwards amendment, we have the Levin 
amendment, and we have a whole list of people with amendments. 
We have been trying to process those amendments, and we have 
not been able to do it.
    As one who is down here trying to work overtime to get 
these amendments processed, I want to very strongly register 
that point.
    Mr. Reid addressed the Chair.
    The Presiding Officer. The Senator from Arizona has the 
floor.
    Mr. McCain. I still have the floor. I thank the Senator 
from Maryland. I appreciate his hard work managing the 
legislation. I have managed bills in my time. I know that 
sometimes it gets very frustrating and difficult.
    I have some suggestions. One is that the Senator oppose 
cloture so that we can address all of these issues and prevail 
on his colleagues to do so so that we can have relevant 
amendments considered.
    I also think--it is not just in this Senator's view but in 
the view of almost everyone, in the view of Alan Greenspan, in 
the view of Warren Buffett, in the view of the Washington Post 
and the New York Times, and everybody--that this is a serious 
and vital issue.
    So my suggestion is that we not have a cloture vote, and 
that we go ahead and take up the amendments in an orderly 
fashion. The Senator from Nevada, obviously, will not allow my 
amendment to be considered postcloture.
    The Senator from Michigan has a question. Would the Senator 
from Nevada, the distinguished whip, like to wait until the 
Senator from Michigan is finished, or would you like to go 
ahead?
    Mr. Levin. My question was actually touched upon by the 
Senator from Arizona relative to the independence of the 
Financial Accounting Standards Board, and as to whether or not 
the Senator was aware--at least now in this bill--that we have 
the source of financing for that board which hopefully will not 
only allow it to reach its own conclusion, as it did once 
before, that options have value and should be expensed but also 
that it carry through with it without threatening their own 
survival.
    I think that is an important part of this. But at least 
that gives us hope this time that when the Financial Accounting 
Standards Board reviews this matter--if it does--it will reach 
a conclusion not only that it believes it, but it can then 
implement it through an accounting standard.
    That was my question about that funding source in this 
bill.
    Mr. McCain. I would like to respond. I understand that. I 
did know it is part of the bill. I also know what has happened 
in the past. The fact is that we have not made the changes 
which are necessary because of enormous pressures that have 
been brought to bear.
    The Senate should be on record on this issue. This is not a 
minor issue. This is not a small item. The Senate should be on 
record on this issue, and it apparently will not be at this 
time.
    I thank my colleagues, though I do think that it is an 
important step forward. But I also believe this is something 
that we could address in a straightforward fashion.
    Mr. Levin. Mr. President, will my colleague yield for 60 
seconds so I can make a statement on this subject prior to a 
unanimous consent, or an address on a different part of my 
amendment?
    Mr. McCain. Mr. President, I yield the floor.
    The Presiding Officer. The Senator from Michigan.
    Mr. Levin. Mr. President, I thank Senator McCain for his 
steadfast support of the issue which is critically important.
    Unless we address the way stock options are dealt with in 
this country--the fact that it is now a free ride, and stealth 
compensation which has caused, in large measure, the problems 
because accepted accounting practices, as we have seen, are 
significantly driven by the option accounting which allows 
options to be left off the financial statements as an expense, 
and, therefore, cashed in when those books of the company show 
great value, which is not reality, but nonetheless drives up 
stock prices--I want to say that I agree with the Senator from 
Arizona. Unless we address this issue, we are leaving a huge 
gap in our reform efforts.
    The Presiding Officer. The Senator from Nevada.
    Mr. Reid. Mr. President, the Senator from Maryland has 
tried now for several days to figure out a way to have 
amendments. We have tried to negotiate. We have had those which 
have been arbitrated. We have had some cajoling. We have had a 
little bit of begging. We have gotten nowhere. But the rules of 
the Senate are the rules of the Senate. Therefore, it would be 
contrary to my beliefs to have a special set of rules for the 
Senator from Arizona, as well intentioned as his amendment may 
be.
    I have had phone calls. I have had personal visits from at 
least 15 Democratic Senators saying they have amendments that 
they believe in very strongly. They and their staffs have 
worked on some of these amendments for months. They are not 
going to be able to offer those amendments.
    Mr. Gramm. There are 58 Democratic amendments.
    Mr. Reid. So it would be totally unfair to have a 
nongermane amendment that would be available for us 
postcloture. That is why I object. If I had to do it again, I 
would do the same thing.
    But let me say this. People can complain--and I have no 
problem with their doing so--that we have not been able to go 
through the relevant amendments, but this legislation that has 
been brought to us by the Banking Committee and has now been 
improved upon by the Judiciary Committee's amendment of Senator 
Leahy is a very fine piece of legislation.
    Let's not lose track of that. This is a very fine vehicle. 
Maybe we could do a better job--put some rearview mirrors on 
both sides of it, maybe improve the upholstery a little bit, 
but the legislation we have that will be voted on and approved 
by the Senate is very good.
    The Public Company Accounting Reform and Investor 
Protection Agent would establish the Public Company Accounting 
Oversight Board to set standards for auditing public companies.
    It would inspect accounting firms. It would conduct 
investigations into possible violations of its rules and impose 
a full range of sanctions. It would restrict the nonaudit 
services a public accounting firm may provide to its clients 
that are public in nature. It would require a public accounting 
firm to rotate its lead partner and review partner on audits 
after 5 consecutive years of auditing a public company.
    It would require chief executive officers and chief 
financial officers to certify the accuracy of financial 
statements and disclosures. It would require CEOs and CFOs to 
relinquish bonuses and other incentive-based compensation and 
profit on stock sales in the event of accounting restatements 
resulting from fraudulent noncompliance with Securities and 
Exchange Commission financial reporting requirements.
    It would prohibit directors and executive officers from 
trading company stock during blackout periods. It would require 
scheduled disclosures of adjustment statements. It would 
establish bright-line boundaries to prohibit stock analyst 
conflicts of interest.
    It would authorize about $300 million more than the 
President's budget for the SEC next year to enhance its 
investigation and enforcement capabilities.
    I will not go through all the details of the amendment that 
has been approved by the Senate, offered by Senator Leahy, 
making certain things criminal in nature and increasing the 
penalties.
    This is a fine piece of legislation. But I do say this. The 
Senator from Maryland is in the Chamber. I am confident the 
Senator from Maryland would agree to a unanimous consent 
request that on relevant amendments, determined by the 
Parliamentarian, we have a half hour on each one, and as soon 
as the half hour is up, vote on them.
    I ask the Senator from Maryland, you would agree to that, 
wouldn't you?
    Mr. Sarbanes. It would be one way of trying to deal with 
these amendments and dispose of them. A request of that sort 
ought to be carefully considered, certainly.
    We have this problem. Members have amendments pending. We 
have been trying to move the amendments forward. We have not 
been able to do that. I know how frustrated they are. I share 
their frustration.
    (Mrs. Carnahan assumed the chair.)
    Mr. Reid. But in spite of all this, I want the Record to be 
spread with the fact that we have a good piece of legislation. 
I would like, as I said before, to have some of the fancier 
upholstery----
    Mr. Sarbanes. If the Senator will yield, it is interesting, 
in the debate we just had, until the Senator from Michigan 
underscored the fact, it was not pointed out that we provide 
independent funding in this legislation for the Financial 
Accounting Standards Board, which has the responsibility of 
setting these accounting standards.
    Their problem in the past has been that they are 
voluntarily funded from the industry. They have to go to them 
and beg for money in order to carry out their activities. And 
if the industry thinks they are going to do a ruling that is 
contrary to what they want, then they are not as willing to 
support their activity.
    We eliminate that in this bill because we have a mandatory 
fee that must be paid by all issuers, and the Board will be 
funded out of that money. So that, in itself, is a very 
important and significant step in establishing the independence 
of the Accounting Standards Board.
    Mr. Reid. Madam President, I have spoken with the Presiding 
Officer and staff on several occasions. Yours is our next 
amendment in order. You have been waiting 2 days to have that 
amendment offered, a very important amendment. And you are just 
one of several. You are fortunate in that you are the next one, 
if we can ever get to the next one.
    I would ask my friend----
    Mr. Gramm. I have the next Republican amendment.
    Mr. Reid. We know we have to be burdened with a Republican 
amendment once in a while.
    I say to my friend, would the Senator consider my proposal 
to have relevant amendments debated--and the relevancy would be 
determined by the Chair--for a half hour on each one of those 
and, at the end of the half hour, have a vote up-or-down on 
that amendment?
    Mr. Gramm. The Senator is already in a big fight with 
Senator McCain. I do not know why he wants to try to pick one 
with other people.
    Where we are is, we are going to cloture. And there are 
rules in the Senate. And postcloture, for an amendment, the 
ticket to get into the arena is it has to be germane, which 
means it must be directly related to a provision in the bill. 
It cannot amend the bill in more than one place. There is a 
certain set of rules.
    If the Senator would indulge me a second, we have 36 
Republicans who want to offer an amendment. My amendment is 
next on the list. I am the ranking member of this committee, 
and it appears I am not going to get an opportunity to offer an 
amendment. Now, I could cry and pout about it, but it would not 
change anything and would not change the world either. There 
are 58 Democrat amendments.
    The point is, we all agree on one thing: Whether you like 
this bill or you do not like it, it is an important bill and we 
need to get on with it. We need to pass it. We need to go to 
conference. We need to work out an agreement with the House and 
with the White House. If we sat here and tried to do 36 
Republican amendments and 58 Democrat amendments--and some of 
them having to do with things such as the Ninth Circuit Court 
of Appeals and bankruptcy law--we would literally spend 3 or 4 
months. So there is no other alternative than following the 
rules of the Senate. And that is exactly what I want to do.
    Mr. Reid. Reclaiming the floor, I have always enjoyed the 
Texas drawl of my friend, the senior Senator from Texas. But 
even through the drawl, I understood that to be a no.
    Mr. Gramm. Yes. Yes, it was a no.
    Mr. Reid. My friend, the other Senator from Arizona, is on 
the floor. We are waiting for the Republican leader. I assume 
that will be soon.
    I ask my friend from Wyoming, when the Republican leader 
does appear, if he would be kind enough to allow us to attempt 
to enter into an agreement.
    I ask the Senator, if you see him come to the floor, would 
you be so kind as to yield the floor for just a short time? It 
would be appreciated.
    Mr. Enzi. I would be happy to interrupt my remarks at that 
time. I would hope my remarks would appear as uninterrupted.
    Mr. Reid. I would agree.
    
    
         VOLUME 148, FRIDAY, JULY 12, 2002, NUMBER 94,
                      PAGES [S6683-S6685]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The Acting President pro tempore. Under the previous order, 
the Senate will now resume consideration of S. 2673, which the 
clerk will report.
    The legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    Pending:

    Edwards modified amendment No. 4187, to address rules of 
professional responsibility for attorneys.
    Daschle (for Levin) amendment No. 4269 (to amendment No. 
4187), to address procedures for banning certain individuals 
from serving as officers or directors of publicly traded 
companies, civil money penalties, obtaining financial records, 
broadened enforcement authority, and forfeiture of bonuses and 
profits.
    McCain motion to recommit the bill to the Committee on 
Banking, Housing, and Urban Affairs with instructions to report 
back forthwith with amendment No. 4270, to require publicly 
traded companies to record and treat stock options as expenses 
when granted for purposes of their income statements.
    Reid (for Edwards) amendment No. 4271 (to the instructions 
of the motion to recommit the bill to the Committee on Banking, 
Housing, and Urban Affairs), to address rules of professional 
responsibility for attorneys.
    Reid (for Levin) amendment No. 4272 (to amendment No. 
4271), to address procedures for banning certain individuals 
from serving as officers or directors of publicly traded 
companies, civil money penalties, obtaining financial records, 
broadened enforcement authority, and forfeiture of bonuses and 
profits.

    The Acting President pro tempore. Under the previous order, 
the time until 9:30 a.m. shall be equally divided between the 
two managers for debate only. Who yields time?
    The Senator from Maryland.
    Mr. Sarbanes. Madam President, I understand there will be 
about 5 minutes allotted each manager now. Is that correct?
    The Acting President pro tempore. The Senator is correct.
    Mr. Sarbanes. Madam President, very shortly we will be 
voting on a cloture petition with respect to this legislation, 
S. 2673. I urge my colleagues to vote for the cloture motion.
    I know there are a lot of amendments pending, but we have 
now been on this legislation a full week. Even with the voting 
of cloture today, this matter will carry over into next week. 
There have been a range of amendments, some that are pending 
that are germane under cloture to the bill. In other words, 
they have been drawn in a way and the subject matter is focused 
and limited enough that they remain germane even after cloture.
    There are a number of amendments that are relevant to the 
bill but not germane. Once cloture is invoked, they will fall. 
I know that is a matter of some concern to those who are 
proposing those amendments, but I do not know how we can handle 
this differently and move along towards a resolution.
    In addition to those relevant amendments--and I have 
sympathy there because while they may not meet the very narrow 
definition of germaneness, they do touch the subject matter of 
the legislation--there are also amendments that are not even 
relevant to the bill that are sort of--I was going to say 
floating around, but it would be more accurate to say they are 
sort of present. They touch matters that have nothing to do 
with this legislation.
    I am frank to say to my colleagues, I do not see how we can 
progress and move towards a final vote and resolution on this 
issue without invoking cloture this morning. We tried not to 
precipitate that early on, although I know people were then 
blocked from getting votes, and I regret that. I was concerned, 
as anyone, to get the votes and give people a chance to have 
their amendments considered. Nevertheless, we are now where we 
are, and I urge my colleagues to vote for cloture.
    We have to move forward on this legislation. This is 
important legislation. I think the committee and my colleagues 
have fashioned legislation which will make a very important 
contribution toward addressing the serious economic challenge 
now confronting the country and this loss of confidence in the 
workings of our economic system. The fact that people cannot 
have any trust in or reliance on the basic financial 
information upon which they make important economic decisions 
is having a major impact on the workings of the economy and 
carries with it the very real potential of having an even more 
significant impact.
    This is serious business, and the potential for an economic 
downturn, triggered in part by the difficulties we are trying 
to address in this legislation, I think is not insignificant. 
So I think it is important that we move forward and pass this 
legislation. This is but one step along the way, and there are 
many steps left yet to be done.
    I am hopeful at some point the administration will come to 
see the necessity of putting into place a statutory framework 
to provide for an independent oversight board with respect to 
the accounting industry, to address the conflict that exists on 
the part of auditors when they are the auditor of a company and 
at the same time are providing certain consulting services to 
the company which carry with them an inherent conflict of 
interest with their responsibilities as an auditor.
    There are extensive provisions in this bill with respect to 
corporate responsibility and accountability with respect to 
corporate disclosure and, of course, with respect to the 
conflict of interest we have seen manifest with respect to 
stock analysts who are often in the position of giving buy 
recommendations on the stock of a company with which the 
analyst's company is also having investment banking deals 
which, of course, raises the question: Is the recommendation on 
the stock being done in order to gain the investment banking 
business? So we try to provide some, as they call them, Chinese 
walls between those two sides of the company in order to reduce 
the degree of that conflict.
    Furthermore, this has a very significant authorization of 
additional monies for the SEC in order to be able to meet its 
responsibilities, which I think is very important. The 
President asked the other day in his address for another $100 
million. That is not sufficient. We have to do better than that 
so the SEC can do its job.
    So we can move forward, I urge my colleagues to support the 
cloture motion which will be before us for a vote at 9:30.
    I presume I have used my time, and I yield the floor so my 
colleague, the ranking Republican Member, may use his time.
    The Acting President pro tempore. The Senator from Texas.
    Mr. Gramm. Madam President, we need to pass a bill. We are 
going to conference with a House bill that is substantially 
different from this bill. I believe that between the two bills, 
we can find a virtually unanimous vote. I think we can write a 
bill that will satisfy the President and both Houses of 
Congress. I do not think we are making the bill better. The 
amendments that are being offered now are largely nongermane. 
We have gotten into sort of a one-upmanship position, and I 
think we are harming the markets by convincing people that the 
cure may very well be worse than the disease.
    It is very important that we get on with our business and 
that we pass this bill. I intend to vote for it today. I do not 
think it is the bill we need in the end, but it gets us to 
conference where we can get the bill we need in the end. I urge 
my Republican colleagues to vote for it, not because in the end 
they are for this version but because they want to do 
something. We need to bring this debate to a close. We do have 
some germane amendments. We will be dealing with those, but the 
time has come to get on about our business. Getting on about 
our business means bringing this debate to a close.
    So I urge my colleagues to vote to end the debate. Let us 
go to conference. Let us write this bill. Let us let it be 
known with certainty what our policy is going to be. If we do 
that, it will help restore confidence in the country. So I urge 
my colleagues to vote for cloture and, as we get to the end of 
the process, for the bill.
    I yield back the remainder of my time.
    The Acting President pro tempore. The Senator from 
Michigan.
    Mr. Levin. I do not know if the manager has any time.
    Mr. Sarbanes. Do I have any time remaining?
    The Acting President pro tempore. The manager has no time.
    Mr. Levin. Madam President, I ask unanimous consent that I 
be allowed to proceed until 9:30 when cloture is invoked.
    The Acting President pro tempore. Without objection, it is 
so ordered.
    Mr. Levin. Madam President, a number of amendments have 
been pending where we have been unable to get a vote. These are 
highly relevant amendments, including mine which would have 
given the SEC administrative powers to impose civil fines.
    The Republican manager said the amendments were not 
particularly relevant. Well, we had a highly relevant amendment 
that goes directly to the issue of abuses by corporate officers 
and corporate directors. The current fine structure of the SEC 
does not reach officers and does not reach directors, except by 
going to court. They have no administrative authority in the 
SEC to impose civil fines, the way they do with brokers and the 
way a lot of other agencies that regulate business have 
authority to do. The SEC does not have the power to impose 
administrative fines on directors and on officers of 
corporations. They should have that power administratively.
    We were blocked in getting a vote, and the amendment which 
is pending is going to fall if cloture is invoked. That is the 
use of the rules. But let it be clear what the rules were used 
to do, which was to prevent a strengthening amendment for this 
bill.
    It is a good bill. I compliment the sponsors of this bill. 
I compliment Senator Sarbanes and his cosponsors that this bill 
can be strengthened; it should be strengthened. One of the 
strengthening amendments was blocked from getting to a vote 
yesterday and will fall if cloture is invoked.
    We also have a question. What about postcloture? There are 
48 germane or arguably germane amendments. The question is 
whether or not the rules are going to be used again to block 
votes on germane amendments. I will object to that happening. I 
will do everything I can to make sure germane amendments, 
including some that I have filed, are considered postcloture.
    I thank the manager for yielding. I yield the floor.


                             cloture motion


    The Acting President pro tempore. Under the previous order, 
the clerk will report the motion to invoke cloture.
    The legislative clerk read as follows:
                             cloture motion
    We, the undersigned Senators, in accordance with the provisions of 
rule XXII of the Standing Rules of the Senate, do hereby move to bring 
to a close the debate on Calendar No. 442, S. 2673, the Public Company 
Accounting Reform and Investor Protection Act of 2002:

    Jon Corzine, Deborah Stabenow, Paul Wellstone, Ron Wyden, Daniel 
            Akaka, Barbara Boxer, Charles Schumer, Byron Dorgan, Harry 
            Reid, Paul Sarbanes, Daniel Inouye, John Edwards, Barbara 
            Mikulski, Thomas Carper, Jack Reed, Tim Johnson.

    The Acting President pro tempore. By unanimous consent, the 
mandatory quorum has been waived.
    The question is, Is it the sense of the Senate that debate 
on S. 2673, the Public Company Accounting Reform and Investor 
Protection Act of 2002, shall be brought to a close? The yeas 
and nays are required under the rule. The clerk will call the 
roll.
    The legislative clerk called the roll.
    Mr. Reid. I announce that the Senator from Hawaii (Mr. 
Inouye), the Senator from Massachusetts (Mr. Kerry), and the 
Senator from Louisiana (Ms. Landrieu) are necessarily absent.
    Mr. Nickles. I announce that the Senator from North 
Carolina (Mr. Helms), the Senator from Ohio (Mr. Volinovich), 
the Senator from Idaho (Mr. Crapo), and the Senator from 
Virginia (Mr. Warner) are necessarily absent.
    The Presiding Officer. Are there any other Senators in the 
Chamber desiring to vote?
    The yeas and nays resulted--yeas 91, nays 2, as follows:
                      [Rollcall Vote No. 173 Leg.]
    Yeas--91: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden, 
Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd, 
Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, 
Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine, 
Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, 
Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, 
Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Jeffords, 
Johnson, Kennedy, Kohl, Kyl, Leahy, Lieberman, Lincoln, Lott, Lugar, 
McConnell, Mikulski, Miller, Murkowski, Murray, Nelson (FL), Nelson 
(NE), Nickles, Reed, Reid, Roberts, Rockefeller, Santorum, Sarbanes, 
Schumer, Sessions, Shelby, Smith (NH), Smith (OR), Snowe, Specter, 
Stabenow, Stevens, Thomas, Thompson, Thurmond, Torricelli, Wellstone, 
Wyden
    Nays--2: Levin, McCain
    Not Voting--7: Crapo, Helms, Inouye, Kerry, Landrieu, Voinovich, 
Warner

    The Presiding Officer (Mr. Carper). On this vote, the yeas 
are 91, the nays are 2. Three-fifths of the Senators duly 
chosen and sworn having voted in the affirmative, the motion is 
agreed to.
    The pending motion to recommit is out of order.
    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. Daschle. Mr. President, I suggest the absence of a 
quorum.
    The Presiding Officer. The clerk will call the roll.
    The legislative clerk proceeded to call the roll.
    Mr. Byrd. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
    The Presiding Officer. Without objection, it is so ordered.
    The Senate is not in order. The Senate will be in order. 
The Senate is not in order.
    The Senator from West Virginia.
    Mr. Byrd. Mr. President, we can have order in the Senate 
with Senators in their seats. At least they do not need to be 
cluttering up the well. I want to say a few words.
    The Presiding Officer. The Senate will be in order. The 
Senator will suspend.
    Mr. Gramm addressed the Chair.
    The Presiding Officer. The Senator from West Virginia has 
the floor.
    Mr. Byrd. I have the floor.
    The Presiding Officer. The Senator from West Virginia.
    
    
         VOLUME 148, FRIDAY, JULY 12, 2002, NUMBER 94,
                      PAGES [S6687-S8700]

    Public Company Accounting and Investor Protection Act of 2002--
                               Continued

    Mr. Reid. Mr. President, will the Chair inform us what the 
matter before the Senate now is?
    The Presiding Officer. The Daschle second-degree amendment 
to the Edwards first-degree amendment.
    Mr. Reid. That is Daschle for Levin; is that not right?
    The Presiding Officer. That is correct.
    The Senator from Nevada.
    Mr. Ensign. Mr. President, I raise a point of order that 
the pending second-degree amendment is not germane to the bill 
postcloture.
    The Presiding Officer. The point of order is well taken. 
The amendment falls.
    The deputy majority leader.


         amendment no. 4286, as modified, to amendment no. 4187


    Mr. Reid. I call up amendment No. 4286, and I ask unanimous 
consent that Carnahan amendment No. 4286 be modified with the 
change at the desk.
    The Presiding Officer. Without objection, it is so ordered. 
The clerk will report.
    The legislative clerk read as follows:

    The Senator from Nevada [Mr. Reid], for Mrs. Carnahan, for 
herself, Mr. Dodd, Mr. Durbin, Mr. Levin, Mr. Harkin, and Mr. 
Corzine, proposes an amendment numbered 4286, as modified, to 
amendment No. 4187.

    Mr. Reid. Mr. President, I ask unanimous consent that the 
reading of the amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To require timely and public disclosure of transactions 
    involving management and principal stockholders)

    At the end of the amendment, insert the following:
    (b) Electronic Filing.--Notwithstanding the provisions of section 
403 of this Act, section 16(a)(2) of the Securities and Exchange Act of 
1934, as added by section 403, is amended to read as follows:
    ``(2) if there has been a change in such ownership, or if such 
person shall have purchased or sold a security-based swap agreement (as 
defined in section 206B of the Gramm-Leach-Bliley Act) involving such 
equity security, shall file electronically with the Commission (and if 
such security is registered on a national securities exchange, shall 
also file with the exchange), a statement before the end of the second 
business day following the day on which the subject transaction has 
been executed, or at such other times as the Commission shall 
establish, by rule, in any case in which the Commission determines that 
such 2 day period is not feasible, and the Commission shall provide 
that statement on a publicly accessible Internet site not later than 
the end of the business day following that filing, and the issuer (if 
the issuer maintains a corporate website) shall provide that statement 
on that corporate website not later than the end of the business day 
following that filing (the requirements of this paragraph with respect 
to electronic filing and providing the statement on a corporate website 
shall take effect 1 year after the date of enactment of this 
paragraph), indicating ownership by that person at the date of filing, 
any such changes in such ownership, and such purchases and sales of the 
security-based swap agreements as have occurred since the most recent 
such filing under this paragraph.''.

    The Presiding Officer. The Senator from Missouri.
    Mrs. Carnahan. Mr. President, I am offering this amendment 
on behalf of myself and Senators Dodd, Dubbin, Levin, Harkin, 
and Corzine.
    The Senate is engaged in an important debate about how to 
improve our Nation's financial system. Today I am offering an 
amendment that is intended to provide more timely information 
to average investors. America has the most vibrant and dynamic 
economy in the world. Our robust and resilient capital markets 
are the foundation of our economy. But the success of those 
markets depends on the free flow of accurate, reliable 
information.
    Recent disclosures about the inaccuracy of some companies' 
financial reports have shaken that confidence. I am pleased the 
Senate has acted quickly to take up this important reform 
legislation. I believe that this bill makes tremendous progress 
in improving the quality of information available to the 
markets. In the interest of further improvement, I am offering 
an amendment to modernize the method of disclosure required 
when insiders trade in their own companies' stock.
    One warning sign that a company may be in trouble is when 
its executives are selling large amounts of company stock, as 
occurred at Enron. I have learned, however, that information 
about insider selling is not easily accessible.
    Under our current system a company's officers are required 
to file a disclosure form with the Securities and Exchange 
Commission, SEC, any time they sell securities of their 
company. Tens of thousands of these forms are filed annually. 
These are not complicated forms. I have a copy here. It is a 
simple 2-page form.
    The Office of Management and Budget estimates that the form 
should not take more than 30 minutes to fill out. With capital 
markets as sophisticated as they are in the U.S., information 
must be available quickly to be useful. However, insiders 
currently have up to six weeks to file their disclosure forms. 
And the overwhelming majority of these forms--95 percent--are 
filed on paper, rather than electronically.
    The Banking Committee has already addressed the issue of 
timely disclosure. This legislation would require disclosure of 
sales within 2 days, a vast improvement over the current 
deadlines. However, this legislation is silent on the issue of 
modernizing this arcane paper filing system.
    Right now, there is no way for an investor in Missouri to 
quickly learn that a company executive is selling off company 
stock. The only ways to get the information are to go to a 
reading room at the SEC in Washington, or to write a letter to 
the SEC. These written requests may take weeks to process. This 
is unacceptable in the electronic age.
    My amendment requires that information about insider sales 
of publicly traded companies be filed electronically. The SEC 
would then be required to make the forms available to the 
public over the Internet. Any company that maintains a 
corporate Web site would be required to post these disclosure 
forms on the Web site. The SEC, itself, has acknowledged the 
value of having these forms filed electronically.
    I have here a letter from SEC Chairman, Harvey Pitt. He 
wrote to me that ``expedited disclosure of trading by company 
insiders is imperative.'' In fact, he applauded the legislation 
I introduced earlier this year that requires electronic 
disclosure.
    I ask unanimous consent that a copy of this letter be 
printed in the Record.
    There being no objection, the letter was ordered to be 
printed in the Record, as follows:

                   U.S. Securities and Exchange Commission,
                                     Washington, DC, March 1, 2002.
Hon. Jean Carnahan,
U.S. Senate, Hart Office Building,
Washington, DC.
    Dear Senator Carnahan: Thank you for your February 14th letter 
regarding S. 1897, the Fully Informed Investor Act which you recently 
introduced. I share your concerns about the issues regarding reporting 
of insiders' securities transactions that your bill addresses. As we 
announced on February 13th, the Commission will shortly propose rules 
that would provide accelerated reporting by companies of insider 
transactions in public company securities. This is an integral part of 
our effort to supplement the periodic disclosure system with ``current 
disclosure'' in order to put information investors want and need into 
their hands more promptly.
    I also share the view reflected in your bill that expedited 
electronic disclosure of trading by company insiders is imperative, and 
I applaud your initiative. As you know, the Securities Exchange Act of 
1934, rather than rules adopted by the Commission, sets the deadlines 
for officers, directors and beneficial owners of ten percent of a class 
of equity securities of a public company to report their trading in 
those securities. A legislative solution, therefore, will be necessary 
to address fully the issue of investors' timely access to information 
about insiders' securities transactions.
    While formal Commission comment on legislation is normally reserved 
for testimony or a response to a request from a committee or 
subcommittee given jurisdiction over the bill, we would welcome the 
opportunity to provide you with technical assistance on your bill if 
you would find that helpful. I have asked Casey Carter, the Director of 
our Office of Legislative Affairs, to contact your staff to see if you 
would like our assistance. Please feel free to call me or to have your 
staff call Ms. Carter at (202) 942-0019 if you have any questions.
      Yours truly,
                                                    Harvey L. Pitt.

    Mrs. Carnahan. This is not a new idea. In fact, more than 2 
years ago, in April 2000, the SEC published a rulemaking for 
its electronic data system. In that rulemaking, the SEC 
indicated that it ``anticipated'' making insiders file 
disclosure forms electronically. I applaud the SEC for 
recognizing the need to modernize, but I am frustrated by the 
delay. It has been over 2 years since the SEC made this 
proposal.
    An agency that is responsible for monitoring markets where 
trillions of dollars are electronically exchanged ought to be 
able to develop a fairly simple electronic database to make 
this information available.
    The Senate now has the opportunity to require the SEC to 
move quickly. I am very pleased that the bill I introduced 
earlier this year on this subject was included in the House 
accounting reform bill. The House has required that insiders 
file electronically, within one day of their transactions. The 
House has also required that corporations disclose insider 
sales on their corporate Web sites.
    I encourage my colleagues to support my amendment. We 
should not make investors wait any longer for these basic 
reforms.
    I yield the floor.
    The Presiding Officer. The Senator from North Dakota.
    Mr. Dorgan. Mr. President, I have an amendment at the desk.
    Mr. Dodd. Mr. President, I ask to be heard on the Carnahan 
amendment very briefly. Does the Senator mind?
    Mr. Dorgan. How briefly?
    Mr. Dodd. Two minutes or so.
    Mr. Dorgan. I am happy to yield to the Senator from 
Connecticut, provided that I am recognized following his 
presentation.
    Mr. Dodd. I appreciate that.
    The Presiding Officer. The Senator from Connecticut.
    Mr. Dodd. Mr. President, I commend my colleague from 
Missouri for this very fine amendment. I think it is going to 
make a strong difference by improving electronic reporting. It 
doesn't get the kind of attention it should.
    This is a positive and constructive suggestion. I am a 
cosponsor of the amendment and commend the distinguished 
Senator from Missouri for offering the amendment. It makes the 
bill stronger. It is something all our colleagues will be 
willing to support. I commend the Senator for her work.

                    AMENDMENT NO. 4215, AS MODIFIED

    Mr. Dorgan. Mr. President, I have an amendment numbered 
4215 at the desk. I have submitted a modification of that 
amendment which I believe has been reviewed by both sides. I 
ask for its immediate consideration and I ask unanimous consent 
that the amendment be modified.
    The Presiding Officer. Is there objection to laying aside 
the pending amendment of the Senator from Missouri?
    Mr. Sarbanes. Will the Senator yield?
    Mr. Dorgan. I am happy to yield.
    Mr. Sarbanes. Is this the amendment that deals with the 
offshore companies?
    Mr. Dorgan. Yes.
    Mr. Sarbanes. I have no objection to setting aside the 
pending amendments in order to consider this amendment. I 
understand upon the conclusion of the consideration of this 
amendment we will revert to the Edwards-Carnahan amendment
    Mr. Schumer. Reserving the right to object, I believe I 
have two amendments that have been cleared by both sides. I 
would like to offer them immediately after the Senator from 
North Dakota.
    Mr. Sarbanes. We are hoping to get to the Senator from New 
York. I make a unanimous consent request that following the 
disposition of the amendment of the Senator from North Dakota, 
we turn to the amendments referred to by the Senator from New 
York.
    Mr. Ensign. Provided that no second-degree amendments are 
in order to any of the three amendments.
    Mr. Sarbanes. Furthermore, upon conclusion of the 
consideration of the Schumer amendments, we return to the 
regular order, which I take it would be the Edwards-Carnahan 
amendment.
    Mr. Reid. Reserving the right to object, Senator Schumer 
has a number of amendments on the list. I think we better get 
numbers of those amendments before there is an agreement they 
be next in order.
    Mr. Sarbanes. Let us withdraw the unanimous consent request 
and make it only that Senator Schumer be recognized after the 
disposition of the Dorgan amendment and we can address those 
questions.
    The Presiding Officer. Is there objection?
    Mr. Ensign. Reserving the right to object, just to make 
sure we have this clarified, the unanimous consent request is 
just to the Dorgan amendment pending, and we would not object 
as long as the second-degree amendment is not in order to his 
amendment.
    The Presiding Officer. Without objection, it is so ordered.
    The Senator from North Dakota.
    Mr. Dorgan. Mr. President, first of all I will offer an 
amendment that I believe will be accepted. I understand the 
process is that those who have amendments that will be accepted 
will be allowed to offer them and those whose amendments are 
not approved by both sides will not be allowed to offer them. 
In my judgment, this is not the kind of procedure we ought to 
use when considering this legislation. But I understand the 
Senator from Texas indicated he will object to setting aside or 
laying aside an amendment for the purpose of offering another 
first-degree amendment unless he agrees with the amendment. I 
will talk a little bit more about that in a couple of minutes.
    I had asked unanimous consent my amendment be modified. Was 
the consent agreed?
    The Presiding Officer. It was agreed to.
    Mr. Dorgan. Is amendment No. 4215 called up at this point?
    The Presiding Officer. The pending amendment is set aside 
and the clerk will report.
    The legislative clerk read as follows:

    The Senator from North Dakota [Mr. Dorgan], for himself and 
Mr. Graham of Florida, proposes an amendment numbered 4215, as 
modified.

    Mr. Dorgan. I ask unanimous consent reading of the 
amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To clarify that the requirement that certain officers certify 
    financial reports applies to domestic and foreign issuers)

    On page 82, after line 24, insert the following:
    (c) Foreign Reincorporations Have No Effect.--Nothing in this 
section 302 shall be interpreted or applied in any way to allow any 
issuer to lessen the legal force of the statement required under this 
section 302, by an issuer having reincorporated or having engaged in 
any other transaction that resulted in the transfer of the corporate 
domicile or offices of the issuer from inside the United States to 
outside of the United States.

    Mr. Dorgan. Let me describe what this amendment is briefly. 
There was a Wall Street Journal article on July 8 this week 
titled: ``Offshore-based Firm's Officials Won't Have to Swear 
to Results.''

    The Securities and Exchange Commission's new order 
requiring chief executives and chief financial officers of the 
Nation's biggest companies to swear to the accuracy of their 
financial results was intended to restore investors' battered 
confidence. But two of the companies that have promised the 
biggest concerns don't have to comply.
    Why? Because Tyco International Ltd. and Global Crossing 
Ltd. are based in Bermuda, even though they conduct many of 
their operations and have main office in the United States and 
are listed on the U.S. stock exchanges.
    Securities and Exchange Commission spokesmen said large 
foreign-domiciled companies over which the SEC has 
jurisdiction, such as and Global Crossing and Tyco, were 
excluded from the list because the agency wanted to issue the 
order ``very quickly.'' Therefore it focused only on U.S. 
companies.

    So the Securities and Exchange Commission says that the 
chief executives and chief financial officers of some of the 
biggest companies must swear to the accuracy of their financial 
results. But in recent times, we have had U.S. corporations 
decide that they want to renounce their American citizenship 
and they want to become citizens, for example, of Bermuda. That 
is called a corporate inversion. They have essentially 
renounced their American citizenship, saying we are now 
corporate citizens of another country.
    Guess what? Under the SEC order, they are rewarded for 
leaving the United States, in that their chief executives no 
longer have to certify financial results. The SEC says: We had 
to get this done quickly, and we don't expect to change it at 
this point.
    Why does a company renounce its U.S. citizenship? They do 
it because they don't want to pay U.S. taxes. Very simple. If 
they can become a citizen of another country and renounce their 
U.S. citizenship, they can save substantial money on their U.S. 
tax bill.
    At a time when we are at war with terrorists, is that a 
patriotic thing to do? No, I don't think so. I hope the Senate, 
and I certainly encourage my colleagues to do this, will shut 
that door tight and stop these corporate inversions. Stop these 
corporations from creating a sham of renouncing their U.S. 
citizenship in order to avoid paying U.S. taxes.
    It might be interesting to ask companies such as Tyco: If 
you get yourself in trouble someplace around the world, who are 
you going to call? The Bermuda navy? The Bermuda army? The 
Bermuda marines? You want the full protection of the U.S. 
Government and the U.S. military and all the benefits that 
being a U.S. citizen brings along. But then you want to 
renounce your citizenship and move to Bermuda, in a technical 
sense, while keeping your offices in the United States and 
saving big money on taxes. And then, under the SEC order, you 
don't even have to have your chief executive officers certify 
the financial results of the corporation.
    That is a shame. The SEC should know better. What could 
they have been thinking? I have accused them of sleeping, but 
this is not sleeping; this is making really dumb decisions.
    I have discussed my concern with the staff of the Banking 
Committee. They believe that their bill implicitly addresses 
the reincorporation problem. But Senator Graham of Florida and 
I said we are not satisfied with ``implicitly'' being covered. 
We want the issue addressed explicitly.
    Let me also say, the technical people smile when I talk 
about this, but, frankly, it took a day and a half for us to 
evaluate whether it was implicitly covered in the bill. So 
because of that, I think it is important to have an explicit 
provision in this bill that says those companies involved in 
inversions that renounce their citizenship, they, too, will be 
required to certify their results. Their chief executive 
officers and their CFOs will be required to certify their 
results.
    In a moment I will conclude and ask that this amendment be 
attached to the bill. As I do that, I ask for the attention of 
the Senator from Maryland and the manager on the other side to 
say that I have another amendment that I will offer. I 
understand, based on your process, you don't want it offered 
now. Let me describe it briefly.
    The other amendment deals with the issue of what is called 
disgorgement of profits.
    The top executives of these corporations make bonuses, 
commissions, and a substantial amount of compensation--some of 
them hundreds of millions of dollars. Then they issue a 
restatement of earnings and everything collapses. But they keep 
their profits and they keep their commissions and they keep 
their bonuses.
    This legislation says you can't do that. When you restate, 
and just prior to restatement you have made all these bonuses, 
you have to disgorge this money. It is a $2 word, but I think 
everybody understands what it means.
    The thing that is missing in this bill is that disgorgement 
should be required in cases of bankruptcy as well. So I have an 
amendment that will say: Yes, disgorgement in this bill with 
respect to periods prior to restatement, but also disgorgement 
for the 12 months prior to the filing of bankruptcy by a 
corporation as well.
    A fair number of people have had a lot to say about this. 
Former SEC Chairman, Richard Breeden, who was the Chairman of 
the SEC under President H.W. Bush from 1989 to 1993, said:

    We should consider disgorgement to the company of any net 
proceeds of stock sales or option exercises within a 6-month or 
a 1-year period prior to a bankruptcy filing.

    So he feels that way.
    Goldman Sachs CEO Henry Paulson has also spoken in favor of 
this idea.
    This bill will be incomplete if it does not include 
disgorgement in the period prior to bankruptcy. Those making a 
fortune, getting bonuses and commissions of tens of millions, 
yes hundreds of millions, as their companies are headed to 
bankruptcy--that is unfair. We need to do something about this.
    I will not ask consent at the moment because I want to get 
my first amendment approved, but I will, following some 
discussions, either this morning or else on Monday, ask consent 
to set aside the second-degree amendment so we can consider, in 
first-degree, this issue. My hope is we would have a 100-to-0 
vote on this matter because, failing that, this bill will be 
incomplete.
    This bill is a great bill. I have credited Senator Sarbanes 
and others at length. This is a wonderful piece of legislation 
that I fully support. It can be and will be improved by my 
amendments and by the amendments of Senator Schumer and others. 
Let's complete this amendment process.
    Let me just say one last thing, if I might.
    I know it has taken the patience of Job to try to manage 
this bill on the floor of the Senate. I understand all the 
difficulties that Senator Sarbanes and Senator Reid and many 
others have had these recent days because I have been here 
every day when this bill has been on the floor. My 
aggressiveness in trying to get these amendments considered has 
nothing at all to do with the wonderful stewardship of the 
chairman. I am very proud of the result he brings to the floor, 
and I believe both of my amendments will improve it. I hope I 
can work with him from now until Monday afternoon to have the 
bankruptcy amendment included in this legislation.
    Mr. Sarbanes. Will the Senator yield for just a moment?
    Mr. Dorgan. I will be happy to yield.
    Mr. Sarbanes. Madam President, I simply want to say I think 
the subject matter with which the Senator's other amendment, 
that he just referred to, deals is a very important subject, 
and I think his observations are very much on point. Working 
with the other side, we are trying to work through the 
amendment. We are in the process of trying to do that. Of 
course, we will be continuing to talk with the Senator, and I 
hope we can resolve it. It would be very helpful. I appreciate 
his kind words.
    Mr. Dorgan. I thank the Senator from Maryland. I ask my 
amendment be considered at this point and be voted upon.
    The Presiding Officer. Is there further debate on the 
amendment? If not, the question is on agreeing to amendment No. 
4215, as modified.
    The amendment, (No. 4215), as modified, was agreed to.
    Mr. Sarbanes. I move to lay the motion to reconsider on the 
table.
    The motion to lay on the table was agreed to.
    The Presiding Officer (Mrs. Clinton). The Senator from New 
York.

                           AMENDMENT NO. 4295

    Mr. Schumer. I ask unanimous consent the Carnahan amendment 
be laid aside, and I send an amendment to the desk which we 
have talked about.
    Mr. Sarbanes. Will the Senator describe the amendment?
    Mr. Schumer. Yes. This amendment is the amendment that 
enhances the conflict of interest provisions by prohibiting 
personal loans by issuers to chief officers of the issuer. It 
has been agreed to by both sides.
    Mr. Sarbanes. I ask unanimous consent no second-degree 
amendment to the Schumer amendment, when it is sent to the 
desk, be in order.
    The Presiding Officer. Without objection, it is so ordered.
    Is there objection to laying aside the pending amendment 
for purposes of ending up a new amendment? Without objection, 
it is so ordered. The clerk will report.
    The assistant legislative clerk read as follows:

    The Senator from New York (Mr. Schumer) proposes an 
amendment No. 4295.

    Mr. Schumer. I ask unanimous consent the reading of the 
amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To enhance conflict of interest provisions by prohibiting 
    personal loans by issuers to chief officers of the issue)

    On page 91, strike line 19 and all that follows through 
page 93, line 22 and insert the following:

SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

    (a) Prohibition on Personal Loans to Executives.--Section 
13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as 
amended by this Act, is amended by adding at the end the 
following:
    ``(k) Prohibition on Personal Loans to Executives.--
    ``(1) In General.--It shall be unlawful for any issuer, 
directly or indirectly, to extend or maintain credit, or 
arrange for the extension of credit, in the form of personal 
loan to or for any director or executive officer (or equivalent 
thereof) of that issuer.
    ``(2) Limitation.--Paragraph (1) does not preclude any home 
improvement and manufactured home loans (as that term is 
defined in Section 5 of the Home Owners Loan Act, consumer 
credit (as defined in section 103 of the truth in lending act), 
or any extension of credit under an open end credit plan (as 
defined in section 103 of the Truth in Lending Act (15 U.S.C. 
1602)), that is----
    ``(A) made in the ordinary course of the consumer credit 
business of such issuer;
    ``(B) of a type that is generally made available by such 
issuer to the public; and
    ``(C) made by such issue on market terms, or terms that are 
no more favorable than those offered by the issuer to the 
general public for such loans.''.

    Mr. Schumer. Madam President, I also ask unanimous consent 
that Senator Feinstein be added as a cosponsor of this 
amendment.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Schumer. Madam President, I am going to be very brief 
because I know we do not have too much time and we have other 
business. I thank both the majority and minority managers, 
Senator Sarbanes and Senator Gramm, for their work on this 
amendment. I have also spoken to the people in the White House 
who were supportive of this amendment. It is a very simple 
amendment. It basically says that with certain narrow 
exceptions, CEOs and CFOs of companies will not be able to get 
loans from those companies.
    In his speech before Wall Street yesterday, President Bush 
forcefully stated: ``. . . I challenge compensation committees 
to put an end to all company loans to corporate officers.''
    I couldn't agree more. It seems like we didn't learn our 
lessons during the S&L crisis in the 1980's? These same kinds 
of transactions were used then to ``cook the books'' and our 
Nation's economy and financial institutions paid the price for 
it. Once again, history repeats itself.
    My amendment is very simple: it makes it unlawful for any 
publicly traded company to make loans to its executive 
officers. Let me give a few examples as to why we should do 
this.
    Executives of major corporations, including Enron, 
WorldCom, and Adelphia, collectively received more than $5 
billion in company funds in the form of personal loans. For 
example, Bernard Ebbers, CEO of WorldCom, borrowed a mind-
boggling $408 million from the corporation over several years, 
while receiving a compensation package valued at over $10 
million annually, all the while the company was facing massive 
losses. In the case of Adelphia, the Rigas Family received 
loans and other financial benefits totaling a staggering $3.1 
billion, while that company has also reported huge financial 
losses.
    The question is: Why can't these super rich corporate 
executives go to the corner bank, the Suntrust's or Bank of 
America's, like everyone else to take loans?
    In the case of WorldCom, Ebbers had funded his personal 
stock market activities by borrowing on margin. When the value 
of those investments plunged, Ebbers had to pay up. How did he 
do it? He borrowed money from his board of directors to pay for 
the stock he had bought that was now being called in.
    This is just wrong, and it must be stopped.
    I urge the amendment be agreed to.
    The Presiding Officer. Is there further debate on the 
amendment? If not, the question is on agreeing to the 
amendment.
    The amendment (No. 4295) was agreed to.
    Mr. Sarbanes. I move to reconsider the vote.
    Mr. Craig. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.

                           AMENDMENT NO. 4296

    Mr. Schumer. I have a second amendment that has also been 
agreed to, so I ask, again, the Carnahan amendment be laid 
aside, and I send the amendment to the desk and ask for its 
consideration. I ask unanimous consent Senator Shelby be added 
as a cosponsor on this amendment on the SPEs.
    Mr. Sarbanes. I ask unanimous consent no second-degree 
amendment be in order to the Schumer amendment being sent to 
the desk.
    The Presiding Officer. Without objection, it is so ordered. 
Is there objection to laying aside the pending amendments for 
the purpose of introducing a new amendment? Without objection, 
it is so ordered. The clerk will report.
    The assistant legislative clerk read as follows:

    The Senator from New York (Mr. Schumer), for himself and 
Mr. Shelby, proposes an amendment numbered 4296.

    Mr. Schumer. I ask unanimous consent the reading of the 
amendment be dispensed with.
    The Presiding Officer. Without objection, it is so ordered.
    The amendment is as follows:

(Purpose: To require a study of the accounting treatment of special 
    purpose entities)

    On page 91, between lines 18 and 19, insert the following:
    (c) Study and Report on Special Purpose Entities.----
    (1) Study required.--The Commission shall, not later than 1 year 
after the effective date of adoption of off-balance sheet disclosure 
rules required by section 13(j) of the Securities Exchange Act of 1934, 
as added by this section, complete a study of filings by issuers and 
their disclosures to determine----
    (A) the extent of off-balance sheet transactions, including assets, 
liabilities, leases, losses, and the use of special purpose entities; 
and
    (B) whether generally accepted accounting rules result in financial 
statements of issuers reflecting the economics of such off-balance 
sheet transactions to investors in a transparent fashion.
    (2) Report and recommendations.--Not later than 6 months after the 
date of completion of the study required by paragraph (1), the 
Commission shall submit a report to the President, the Committee on 
Banking, Housing, and Urban Affairs of the Senate, and the Committee on 
Financial Services of the House of Representatives, setting forth--
    (A) the amount or an estimate of the amount of off-balance sheet 
transactions, including assets, liabilities, leases, and losses of, and 
the use of special purpose entities by, issuers filing periodic reports 
pursuant to section 13 or 15 of the Securities Exchange Act of 1934;
    (B) the extent to which special purpose entities are used to 
facilitate off-balance sheet transactions;
    (C) whether generally accepted accounting principles or the rules 
of the Commission result in financial statements of issuers reflecting 
the economics of such transactions to investors in a transparent 
fashion;
    (D) whether generally accepted accounting principles specifically 
result in the consolidation of special purpose entities sponsored by an 
issuer in cases in which the issuer has the majority of the risks and 
rewards of the special purpose entity; and
    (E) any recommendations of the Commission for improving the 
transparency and quality of reporting off-balance sheet transactions in 
the financial statements and disclosures required to be filed by an 
issuer with the Commission.

    Mr. Schumer. Madam President, I will again be brief. This 
amendment relates to a second problem that we have seen in the 
latest crisis that we have faced in our financial markets, and 
that is the special purpose entities. Sometimes special purpose 
entities have a valid purpose. Many companies use them for 
valid purposes.
    We have seen, particularly most egregiously in the case of 
Enron, these have been entities that have been used to take 
losses off the books, and then shareholders, and everybody 
else, don't know much about them.
    Enron, for instance, conducted business through thousands 
of these with names such as LJM, Cayman LP, and Raptor. They 
become pretty famous and the Enron's former CFO, Andrew Fastow, 
contributed hard assets and related debt to Raptor SPE and then 
Raptor would turn around and borrow large sums of money from a 
bank to purchase assets or conduct other business.
    This is the key. The debts of this SPE, Raptor, never 
showed up on Enron's financial statements.
    People make money on it. Fastow made $30 million in 
management fees. These things go way overboard. The way we had 
proposed originally legislating on this was too complicated, 
but there are some good ones. There are some with legitimate 
purposes and many with bad purposes.
    Congress can't set these accounting standards, nor should 
we. Rather, that is the SEC and FASB's job.
    We have asked in this amendment that the SEC do a 
comprehensive study of the SPEs to show where the damage is, 
point the way to reform, and make recommendations. This 
amendment does not put Congress in the business of setting 
accounting standards.
    It does, however, say to thousands of Enron and other 
employees who have lost pensions that we are stepping up to the 
plate now to stop these kinds of egregious practices.
    I add that there are probably many of these SPEs for bad 
purposes floating around in other companies, and this study 
cannot come too soon.
    We have received agreement. I thank Senators Sarbanes and 
Gramm.
    I ask unanimous consent that the amendment be agreed to.
    The Presiding Officer. Is there objection?
    Without objection, it is so ordered.
    The amendment (No. 4296) was agreed to.
    Mr. Sarbanes. Mr. President, I move to reconsider the vote.
    Mr. Santorum. I move to lay that motion on the table.
    The motion to lay on the table was agreed to.
    The Presiding Officer. The Senator from New York.
    Mr. Schumer. Madam President, I thank Senator Sarbanes and 
his staff as well as Senator Gramm and his staff for their work 
on accepting these two important amendments that I think 
improves the bill, which is a very fine bill that I am proud to 
support.
    I yield the floor.
    The Presiding Officer. The Senator from Idaho.
    Mr. Craig. Madam President, let me spend a few minutes 
talking about the underlying legislation, S. 2673.
    There has been a great deal of debate over the last good 
number of days on this issue. I am pleased that we were able to 
get cloture. It is time we move on to this issue.
    The American public, a good many stockholders, a good many 
pension plans, a good many retirement plans are discussing what 
are we going to do about the meltdown that last occurred in 
corporate America at the executive level with some key 
corporations. It is really, in most instances, a crisis of 
confidence.
    There are a lot of well-run corporations across America 
that are publicly held. They have historically observed the 
prudent rules. Their boards have acted responsibly. But there 
are bad players. There are big, bad players that have had a 
dramatic impact on the markets. There is no question that we 
have to deal with this straight away.
    When I look at the whole of this issue, it isn't just in 
the markets where there is a crisis of confidence that 
Americans share: When you look at 9/11, then Enron, then 
WorldCom, and, of course, all the scandals that have occurred, 
and out in the West with the Ninth Circuit suggesting that the 
Pledge of Allegiance isn't constitutional, put all of that 
together, and America has to be scratching its head at this 
moment, asking: Where does all of this take us? Where is that 
rock of stability that we have come to rely on for so long?
    I suggest that when we are debating this issue, while this 
is an issue that has to be dealt with, and we are now moving 
appropriately, it is one of a combination of factors that is 
critically important for our country to deal with.
    One issue we have to deal with is the war on terrorism. The 
DOD appropriations ought to be the first bill we deal with on 
the defense side to begin to shore up again this sense of 
confidence in the American structure. Certainly, protecting our 
soldiers in the post-9/11 fighting that has gone on in 
Afghanistan is appropriate, and now, as we search out terrorism 
around the world, that is critical.
    The next step I would suggest is the confirming of judges. 
It is important that we deal with judges. For the judicial 
system of this country to remain strong, vacancies need to be 
filled. People should receive their day in court in a timely 
fashion. That has been one of the hallmarks and the strengths 
of this country throughout its history, and it ought to be 
today.
    Clearly, I hope we appoint judges who will not act as the 
ones in the Ninth Circuit who suggested that the Pledge of 
Allegiance is unconstitutional. I think President Bush has gone 
a long way in nominating good judges to the Senate.
    Yet, the politics here in the Senate today is obvious: 
Withhold as long as you can. Withhold as long as you can.
    The President spoke the other day on Wall Street relating 
to corporate accounting. The U.S. Senate is speaking today, as 
they should.
    I ask unanimous consent that a commentary by Lawrence 
Kudlow be printed in the Record.
    There being no objection, the material was ordered to be 
printed in the Record, as follows:
               [From the Washington Times, July 11, 2002]
                A Class Above the Corruption and Critics
                          (By Lawrence Kudlow)
    In front of a New York audience on Tuesday, President Bush unveiled 
a revised plan to counter corporate wrongdoing and accounting fraud, 
saying, ``There can be no capitalism without conscience, no wealth 
without character.'' Adam Smith, the father of free-market economics, 
couldn't have said it better.
    Smith always argued that smooth-functioning markets require ethical 
behavior at their center. From Day One of his presidency, Mr. Bush has 
applied this rule even more broadly, emphasizing the need for ethical 
clarity and moral certitude in all areas of American life. He has 
successfully applied the rule of ethics to the war on terror, and now 
he is transferring the very same principle to root out corporate 
corruption.
    From the election campaign to today, poll after poll shows that the 
public believes Mr. Bush is a leader with strong character and 
unshakable moral principles. Following the blowups of WorldCom, Enron 
and Tyco--and many other rotten apples--Mr. Bush's honest outrage has 
been heartfelt, and not political.
    It has also shone above the political carping of Tom Daschle, Al 
Gore, Richard Gephardt and other national Democrats who would locate 
the source of the contagious virus of accounting fraud and corporate 
corruption within the Bush administration. Theirs is a political, 
reckless, and silly approach to a serious situation. The bad-business 
bug gained strength and spread well before George W. Bush became 
president. And today it is a grave problem that requires sober 
solutions.
    Serious Democrats, such as Senate Banking Committee head Paul 
Sarbanes and Senate Investigations Subcommittee Chairman Carl Levin, 
have taken a completely different tack from the business-as-usual 
partisan politics of the Daschle gang.
    Mr. Sarbanes has crafted a significant proposal to set up an 
independent accounting-standards board--one that will end conflict of 
interests between the auditing and consulting functions, properly score 
stock options, create new pressure for independent boards of directors, 
and legislate tough legal sanctions on executives, bankers, auditors, 
accountants and others who violate the new standards.
    The accounting system desperately needs a fix; it is even more 
incoherent than the dreaded tax code. A new accounting-standards board 
should come under the aegis of the Securities and Exchange Commission. 
Along with proposals from the New York Stock Exchange to create truly 
independent boards of directors, this action will promote honest 
accounting and shareholder-based corporate governance.
    Meanwhile, Mr. Levin has just as seriously proposed giving the SEC, 
the Federal government's principal accounting overseer, the right to 
levy tough fines on corporate evildoers without having to go to court 
first.
    Suburban liberals like Sens. Sarbanes and Levin, its seems, have 
suddenly become conservative lawmakers who will ``move corporate 
accounting out of the shadows,'' as Mr. Bush rightly put it, and 
protect the basic workings of our wealth-creating capitalist system.
    President Bush, in tune with these focused Democrats, has proposed 
a doubling of the maximum prison term for mail- and wire-fraud statutes 
from five to 10 years. This severe jail-time penalty will greatly 
concentrate the executive mind. And so will Mr. Bush's proposal that 
fraudulently earned bonuses and compensation must be returned; and so 
will his request that corporate officers and directors who engage in 
serious misconduct be barred from again sitting in corporate-leadership 
positions. More, if the Bush corporate doctrine moves through Congress, 
top executives will now have to certify their financial statements with 
their own signatures. False reporting could lead to jail.
    It seems that our more serious men in Washington want to bolster 
the rue of law by strengthening the incentive to choose right from 
wrong.
    Incentives matter. If you tax something more you get less of it. If 
you tax something less you get more of it. A 10-year jail term for 
rotten corporate apples--or their accountants--is a huge legal tax on 
wrongful actions.
    Of course, standing behind higher ethical standards in business is 
the great American investor class. Covering more than 50 percent of 
American households and more than 80 million people, this group is 
positively changing financial practices and the political culture. 
These shareholders have lost enormous wealth, in part from dishonest 
accounting and egocentric corporate misdeeds. And they're furious.
    Financial markets have been democratized in the past 15 years with 
the rise of this investor class. They have already voted to depress the 
stock market as a signal of their indignation, and they're now prepared 
to vote this November against the silly politicians who fail to realize 
the enormity of the current problem. Consider this: Slightly more than 
60 percent of the investor class voted in the last election. This may 
be the most powerful lobby in America.
    In no uncertain terms, this new political movement is forcing 
Washington to renew the rule of law, strengthen accounting and 
financial standards across the board, and restore a proper incentive 
system that will return Adam Smith's ethical epicenter to the greatest 
wealth-creating machine in all of history. The days of egocentric and 
corrupt Soviet-style corporation have come to an end. In the stock 
market, moral amnesia is dead.

    Mr. Craig. Madam President, I see Chairman Sarbanes on the 
floor. It is not often that Lawrence Kudlow praises the 
chairman, but he did the other day in an op-ed and commentary 
that he often writes. He talked about the Sarbanes bill and 
said:

    Serious Democrats, such as the Senate Banking Committee 
head Paul Sarbanes and Senate Investigations Subcommittee 
Chairman Carl Levin, have taken a completely different tact 
from the business as usual----

    I will not repeat the remainder of it. But that ought to be 
a part of the Record because I think it reflects the spectrum 
of the thinking on the floor of the U.S. Senate at this moment. 
Whether you are conservative, moderate, or liberal, we know 
that we have to regain the confidence of the American investing 
public and the world investing public, and for that matter, the 
market systems of our country and in corporate America.
    As long and as loud as many of us speak about the good 
corporations out there and how well run they are, the moment 
another Enron occurs or someone else speaks out about 
misdealings, that confidence is once again dashed.
    This legislation moves to create a bright line between, 
good and bad accounting by separating auditing and consulting 
services for accountants in public corporations. It requires 
disclosure of off-balance sheet transactions and other 
obligations that might affect the corporate financial 
condition, and it establishes independent auditing boards to 
oversee corporate accounting.
    All of those are very critical in creating bright lines of 
clarity, understanding, confidence, and stronger enforcement of 
criminal behavior.
    Someone in my State said the other day: You don't have to 
strengthen the accounting procedure, Craig. Put the bums in 
jail. Those are criminal acts. When you knowingly are 
distorting the financial strength of a company which affects 
its stock, destroys retirement funds, employee's stock options, 
and all of that, it is, in fact, a criminal act.
    Our President has said it. Others have spoken on the floor. 
But there is a line we have to draw. It is not one of 
grandstanding for political purposes but doing the right thing, 
to set in place good public policy that directs the free market 
system in the appropriate fashion. Do we want to make it so 
restrictive that decisionmaking in the board room means always 
looking over their shoulder to see that they have done it 
exactly right against a Federal law when the marketplace is a 
dynamic place and laws are static?
    We know there have to be some static lines attached. There 
is no doubt about it. Those have to be clear. At the same time, 
we cannot be so restrictive that we blight the market and send 
investments outside the United States to the rest of the world.
    The Wall Street Journal wrote yesterday that everything you 
are hearing now from Washington is aimed at winning the 
November elections and not at calming financial markets. I hope 
this bill is all about calming financial markets. And I believe 
the majority of this bill does have that goal. Some of rhetoric 
may not reflect it. But I truly believe the chairman and the 
ranking member are working in the direction of building a 
substantive bill that will go to conference, that works out our 
differences between the House and that goes to the President's 
desk.
    I hope the Wall Street Journal is wrong. I hope we refrain 
from making corporate accountability simply another political 
exercise. It ought not be. It has not been. It should never be.
    In Idaho they say: ``You can't hang the same man twice.'' 
``You can't hang the same person twice.''
    So let's make the laws clear, easily defined, not 
arbitrary, not like our tax laws today where even the best 
consultants cannot give good advice.
    What we are working with, I hope, is clean and clear and 
appropriate. There are more than 16,000 corporations under the 
jurisdiction of the SEC. Of those, no more than a handful have 
been accused of criminal wrongdoing. In the end--when all the 
dust settles, the market stabilizes, and investors begin again 
to regain confidence, and the Congress has acted--no more than 
a handful of corporations will have been the bad actors.
    So I hope and I trust we can finalize what we are doing 
here today, and Monday possibly. It is important. The bottom 
line is very simple: Congress needs to act, and act now, and 
reaffirm the confidence the American people have in our public 
institutions.
    I just came from a Republican bicameral meeting between the 
House and the Senate Republican leaders. They said: Get us the 
bill immediately. Assign conferees. Let's go to work. Let's get 
this out before the August recess.
    Let's send a message to the American and the world investor 
that we have acted timely, that we have acted responsibly. The 
President has laid down his marker. The House has laid down 
their marker. It is now time for us to do the same. And in 
doing so, and in moving with expeditious action--not haste, not 
in an irresponsible way--I think we can turn to the American 
people and say: We have put in place the right safeguards, the 
right protections, the right firewalls. Study the papers, study 
the financials, and begin, once again, to reinvest in the 
American marketplace because it will be the right place to put 
your money.
    Madam President, I yield floor.
    The Presiding Officer. The Senator from Pennsylvania.
    Mr. Santorum. Madam President, I want to pick up on what 
the Senator from Idaho just said, which is, we were just 
meeting on the House side among the leadership. One of the 
messages that was very clear was, when this bill passes, the 
House is very eager to appoint conferees and to move forward to 
get a bill out as quickly and as responsibly as possible, to 
send all the right messages to the investing public and to Wall 
Street that Congress has seen the problem and that we are 
ready, willing, and able to act, and act in an expeditious way.
    I think it is important for us to act. I agree with that 
sentiment. The House, obviously, acted months ago in dealing 
with this problem. We have taken a little bit longer, which we 
have a tendency to do in the Senate--take a little longer to 
get things done. But we are now moving forward, and we should 
not delay in getting to conference. We should not delay in 
appointing conferees in the Senate. And we should have a 
process by which we engage in these meetings earnestly and come 
up with a product, if possible, by the August recess.
    It is little difficult. The House is going to be out a week 
before the Senate. So it is a pretty big task ahead of us, but 
we should go about it in earnest, and we should do our best to 
move this forward and send the signals that the Congress has 
moved as expeditiously as possible to meet the concerns of the 
investing public about the markets and the reliability of the 
numbers that corporations are sending out to the investing 
public.
    I have to say, as one of the four members of the committee 
who voted against this bill in the committee, I have some 
concerns about the underlying bill that came out of committee. 
I have some concerns about particularly the impact on some of 
the small companies that will be governed by this legislation.
    A lot has been made that this is a piece of legislation 
that just deals with publicly traded companies, and so we are 
talking about the big companies. As any of you who have watched 
the market for any length of time know, there are a lot of 
small companies that go into the equity markets and are 
publicly traded, particularly a lot of technology companies.
    A lot of the economic growth engines of our economy are 
small publicly traded companies. One of the concerns I have is 
this bill may be appropriate for large multinational 
corporations--such as General Motors or IBM; you can go down 
the list; Xerox, whatever--but it may not be particularly an 
appropriate vehicle of regulation for small-cap stocks.
    As you know, there are small-capital stocks, mutual funds, 
small-cap funds. To apply the same rigorous accounting 
standards and rules and regulations that very well may be 
appropriate for these large companies to these smaller 
companies could have a very significant negative effect on 
economic growth in our country.
    To put these kinds of rules and regulations in place for 
these small companies is going to be very expensive, very 
onerous, and make it very difficult for them to conduct 
business. And remember, folks, who is responsible for economic 
growth in America, job creation in America. Let me underscore 
this. We have job claims up again just last week. The economic 
engine for job creation is smaller businesses. A lot of them 
are these small publicly traded companies.
    It is a very grave concern to me that, yes, we look at 
these companies we are talking about here. These are big 
companies that have done a lot of things that, obviously, they 
should not have done, and with big accounting firms. We are not 
hearing about scandal in these smaller publicly traded 
companies that use small accounting firms in most cases. To 
apply these rules to these smaller companies is really 
problematic and has a negative effect on our economy.
    The last thing I want to see us do--yes, we want to 
strengthen confidence in the capital markets. Yes, we want to 
deal with the problems of fraud, and we want to hold people who 
commit fraud more accountable, and toughen punishments, which 
is what we have done on the floor. Those are very important 
things to do. But we should not do that at the expense of jobs 
and economic growth in our economy.
    I understand there is a provision in the bill that allows 
smaller--any company, I guess, to seek a waiver as to some of 
the provisions of this act. I know a lot of small businesses, 
and most of them do not have a lot of money to hire lobbyists 
and lawyers and other people to come here to Washington, DC, or 
to New York and plead their case that they should somehow be 
preempted from the provisions of this act.
    You are talking about 16,000 publicly traded companies, 
most of which--well over 75 percent--are relatively small in 
size. Imagine the burden of the regulators having to deal with 
petition after petition after petition.
    Senator Gramm has an amendment, which I presume he will 
offer on Monday. I am hopeful that the Senate will seriously 
consider giving the regulatory body some flexibility in 
providing blanket waivers to classes of companies, or based on 
some sort of rational scheme of determination of size and scope 
of a company, that we give a little flexibility to the 
regulators not to sort of throw all the babies in this one big 
basket, and understand that there are real significant 
consequences to jobs and future growth of this economy if we 
did that.
    So I know that is an issue on which we are going to have a 
discussion next week. But, to me, it is a very significant 
issue, one where you can be for tougher regulation, you can be 
for increased accountability, you can be for tougher 
penalties--all those things, setting up this governing board, 
having standards in place--you can be for all these things in 
the bill, but you have to understand that General Motors and 
ABC Tech Company in Scranton, PA, are fundamentally different 
entities and should not be treated the same way.
    It really is important for us to have some sort of 
provision for the regulatory body to exempt some of these 
smaller entities, where some of these regulations do not really 
apply or misapply, from this scheme of regulation that is in 
this bill.
    So with that, it looks as if we have another Member who 
might be interested in offering an amendment or giving a 
speech.
    I am happy to yield.
    The Presiding Officer. The Senator from Maryland.
    Mr. Sarbanes. Madam President, later I want to address a 
couple of points made by the Senator from Pennsylvania, but the 
Senator from Delaware is in the Chamber and wishes to speak. So 
I yield the floor.
    The Presiding Officer. The Senator from Delaware.
    Mr. Carper. Madam President, I know the Senator from 
Maryland is getting tired of receiving all these bouquets, but 
he deserves them. Senator Enzi is not on the floor, but he 
deserves one or two as well, along with others of our 
colleagues, not just on the Banking Committee but other Members 
as recently as this morning who offered amendments to this 
legislation which improve it materially, especially the 
amendment offered by the Senator from Missouri, Mrs. Carnahan. 
It is all well and good that we say to those who are senior 
officials within companies, if you have a stock transaction, 
you have to report it. Give them the paperwork, they report it, 
and it goes somewhere where few people ever have a chance to 
see it or be aware of it. It is quite another thing to list 
that transaction, do it electronically so anyone who has access 
to the Internet can find out about it. Senator Carnahan's 
amendment includes this electronic disclosure, and that is a 
very good improvement to the legislation.
    I like what the Senator from North Dakota, Mr. Dorgan, has 
offered today, with respect to the process where we have 
companies normally registered and incorporated here in a State 
in America who somehow slip off to Bermuda and incorporate. We 
actually provide an incentive; if we don't adopt the Dorgan 
amendment, we provide an incentive for that kind of behavior. 
Not only does that have an adverse effect on States such as New 
York or Delaware or Maryland or Pennsylvania, it also has an 
adverse effect on shareholders because the heads of companies 
that are registered or incorporated in a place such as Bermuda 
would otherwise not have to sign off and vouch for the 
financial statements they are providing.
    Even as recently as this morning, a good bill has gotten 
better.
    I appreciate the amendment offered earlier by Senator Lott 
on behalf of the President and the addition of a number of 
provisions in the bill that the administration supports, and, 
frankly, I think we all should.
    I came across an interesting column this week. I didn't 
know if I would read it, but given that the Senator from New 
York is presiding, I have to at least read the first paragraph. 
This is a column by a fellow who writes in the LA Times and is 
syndicated across the country, Ronald Brownstein. I will read a 
paragraph and perhaps ask unanimous consent that the entire 
column be printed in the Record.
    There being no objection, the material was ordered to be 
printed in the Record, as follows:
              Bush Needs to Drop the Velvet Glove Approach
                         (By Ronald Brownstein)
    It's easy to imagine the frenzy that would be engulfing Washington 
if it was President Clinton now revising his explanation of a 
controversial 12-year-old stock deal.
    Bush Limbaugh would be roaring in outrage. Robert H. Bork would be 
decrying the loss of moral authority in the Oval Office. Sen. Arlen 
Specter, R-Pa., would be demanding a special prosecutor. Congressional 
committees would be subpoenaing the president's old business partners.
    President Bush probably will be spared all that, even after 
suddenly altering his explanation for why he was eight months late in 
reporting to the Securities and Exchange Commission his 1990 sale of 
stock in Harken Energy Corp., a company on whose board he sat, shortly 
before it announced large losses. (For years he blamed it on the SEC; 
now he's fingering Harken's lawyers.)
    After the fanatical ethics wars of the Clinton years, few in 
Washington have much stomach for a full-scale confrontation--though the 
Washington Post raised eyebrows by revealing Bush's former personal 
attorney was the SEC general counsel at the time commission cleared him 
of wrongdoing in the stock sale. The attorney, James Doty, says he 
reused himself.
    The demands of the war against terrorism also will discourage a 
political firefight over the sale. But even so, the disclosures were 
still creating awkward moments for Bush as he prepared to call for 
greater corporate responsibility.
    Actually, the focus on Bush's behavior 12 years ago may frame the 
wrong debate. It's likely that the dominant argument in Washington will 
be over whether it's credible for Bush to demand better corporate 
behavior while facing these personal questions. The more relevant issue 
is whether it's credible for Bush to threaten a crackdown now after his 
administration spent its first 18 months promising business kinder and 
gentler enforcement of the range of Federal laws against corporate 
misconduct--from the environment to the stock markets to the workplace.
    In other words, can Bush plausibly shake the iron fist after 
stroking the Fortune 500 for so long with a velvet glove?

                           BUSINESS AS USUAL

    For all the nouvelle elements of Bush's thinking on social issues 
such as education or home ownership, he's always been a conventional 
conservative on government oversight of business. As governor of Texas, 
presidential candidate and president, Bush has focused more on 
intrusive government than irresponsible corporations.
    His consistent message has been that, in pursuing its goals and 
enforcing its laws, government should be more cooperative and less 
coercive. During the 2000 campaign, he crystallized his view on 
government's relationship with business when he insisted: ``I do not 
believe you can sue you way or regulate your way to clean air and clean 
water.''
    Bush has put flesh on that philosophy by staffing many Federal 
agencies with alumni of the industries they now regulate. The Interior 
Department is crowded with former lobbyists for the coal and oil 
industries. A former timber lobbyist is watching the national forests 
Harvey L. Pitt, the SEC chairman, came from the accounting industry; 
Bush already has appointed another accounting industry alum to the 
five-member commission and nominated yet a third. (That means Bush is 
seeking to construct an SEC, for the first time, with a majority of 
commissioners tied to accounting.)
    To monitor safety in the workplace, Bush found an executive from 
the chemical industry. To monitor safety in the mines, he appointed an 
executive from the mining industry. The list goes on.
    In chorus, Bush's appointees have sung the same tune. At her 
confirmation hearing last year, Environmental Protection Agency 
Administrator Christie Whitman promised more negotiation and less 
litigation against recalcitrant companies. ``Instilling fear does not 
solve problems,'' she insisted.
    Over at the Occupational Safety and Health Administration, director 
John Henshaw as late as last month told a business audience: 
``Hopefully we can put the days of OSHA as an adversary behind us.''
    And before Enron and WorldCom and Martha Stewart forced the SEC 
chair to try to morph into Harvey Pitt-bull, he was sending the same 
message, telling the accounting industry last fall that he viewed them 
as the agency's ``partner'' and pledging ``a new era of respect and 
cooperation'' after the confrontations of the Clinton years.
    Partnership with industry has its place. But enforcing Federal law 
to police the market place isn't it. No cop anywhere would agree with 
Whitman; they instead would argue that the best way to discourage drug 
dealing or street crime is to instill fear--of relentless enforcement. 
The same is true in the boardroom. Polluters or stock swindlers are 
more likely to stop because they fear being caught than because 
Washington asks them nicely.

    Mr. Carper. Here is the first paragraph:

    It's easy to imagine the frenzy that would be engulfing 
Washington if it was President Clinton now revising his 
explanation of a controversial 12-year-old stock deal. Rush 
Limbaugh would be reacting in outrage. Robert Bork would be 
decrying the loss of moral authority in the Oval Office. [One 
of our Senators] would be demanding a special prosecutor. 
Congressional committees would be subpoenaing the president's 
old business partners.

    This is a whole lot more important than trying to find 
political advantage in a particularly difficult debate and a 
difficult time in this economic recovery. This is about the 
economy.
    As a Nation, we are trying to come out of a recession. 
There is a fair amount of financial data which suggests we are 
heading in the right direction. The number of people being laid 
off is slowing. Manufacturing activity is increasing. Even 
economic activity among some of the most hard-hit sectors of 
the economy, technology sectors, is showing signs of life. I am 
encouraged by that.
    If you look at the stock exchange for much of the last 
several weeks and months, it does not really reflect the 
returning, emerging vibrancy in the rest of the economy. That 
is not a good thing.
    One of the reasons why it is so important for us to pass 
this legislation is to send a clear signal to investors not 
just around the country, but around the world that the United 
States is a good place in which to invest. Our trade deficit 
last year was about $300 billion. This year it is going to be 
even more than $300 billion.
    We are starting to see the value of American currency, the 
dollar, which was robust and strong for the last several years, 
deteriorate. The worst thing that could happen for us, at a 
time when we need to attract foreign investments, would be to 
send a message that the United States is not a good or safe 
place in which to invest. When we are looking to much of the 
rest of the world to help finance a trade deficit of over $300 
billion, it is important that we send a strong message 
throughout the world that the U.S. remains the best place in 
which to invest.
    There are a number of provisions. I will not go through 
this bill provision by provision. I want to talk about some of 
the groups that have the greatest interest, the most at stake, 
what our obligation is to them, and how this legislation seeks 
to make sure that we not only recognize that obligation but 
that we act on it.
    Shareholders of companies, publicly traded companies, 
should have confidence. They should have confidence not only in 
the CEOs and top officials, but they should have confidence in 
the board of directors whose job it is to represent the 
interest of the shareholders and to know that that board is 
indeed independent. Shareholders should have confidence in the 
audit committees of the board. Investors should know that the 
audit committees of the board are comprised of independent-
minded board members, knowledgeable board members who will act, 
not as a lap dog, but as a watchdog every day as they serve on 
the audit committee.
    Shareholders should have confidence that there are rigorous 
auditing standards that exist in this country and not that 
there are rigorous auditing standards that are on a piece of 
paper somewhere, but there is a strong, independent, 
knowledgeable entity that is going to make sure that those 
auditing standards are enforced.
    How about the auditors of publicly traded companies? We 
should take away from them the temptation to look the other way 
or give the benefit of the doubt to a company that they are 
auditing because of the temptation from some other part of the 
auditing company which deals with consulting services; in many 
cases, these are lucrative services. We want to make sure the 
folks doing the audits of publicly traded companies are 
interested in doing a good job because that is their 
responsibility. Auditors should not be interested in cutting 
corners, looking the other way because doing so might enable 
their accounting company to attract and to retain lucrative 
consulting services.
    This bill goes a long way--some would say too far--toward 
curtailing that activity. To me, it strikes the right balance.
    Most of us know of someone who used to work for one of the 
big eight, then big five, now the big four accounting firms who 
actually went to work for one of the companies that they 
audited. I do. I suspect all of us could think of someone who 
has made that transition in their lives. There is nothing wrong 
with that. However, the revolving door can be more troublesome 
when the person moves from the auditing company one day, the 
company responsible for doing the audit, and the next day, the 
next week, the next month ends up as a senior official of the 
company that last week, last month they were auditing.
    This measure doesn't completely stop that revolving door, 
but it slows it down.
    Another area that this bill tries to address is the 
question: How often is it appropriate to have a fresh set of 
eyes in charge of those independent auditors doing that 
independent audit of a publicly traded company? Under current 
standards every 7 years we say that the lead partner of an 
audit should be changed. This measure takes it down to 5 years. 
Not everyone agrees with that. Some would like to have a change 
in auditing companies, requiring auditing companies to rotate 
every 5 or 7 years. I don't think that is a good idea. I do 
believe the approach we take in this measure, moving from 7 to 
5 years the period of time after which the lead auditor, the 
lead partner has to be changed, is sound.
    How about investors? I talked about shareholders, about the 
auditors themselves. How about investors? The investors in this 
country and other countries need to be comforted by the 
knowledge that when they hear an analyst on television or read 
of an analyst's recommendation of a particular stock or stocks, 
when an analyst says buy, they mean buy. When an analyst says 
sell, they mean sell. When an analyst says hold, they mean 
hold.
    Investors have the right to know that the analysts whose 
advice they are following or attempting to follow are not being 
pressured to color their recommendations of a buy, sell, or 
hold by what is happening on the investment banking side of the 
business, and to know that the analyst's compensation is going 
to be derived more from how well the analyst does his job, 
providing good analysis and investment advice, and not about 
how much new business that analyst can help bring to the 
investment banking side of their company.
    How about the CEOs and senior management? When they break 
the law, they should be fully prosecuted under the law, and if 
what they have done is an offense for which they can be 
imprisoned, they ought to be. Our job in the Congress is to 
pass laws and to say what the crime or penalty should be when 
people violate those laws.
    It is the job of the Justice Department to fully 
prosecute--with the help of the SEC and the other watchdog 
agencies--people who violate the laws. Senator Leahy, on behalf 
of a number of Senators, earlier this week--yesterday, I 
believe--offered legislation that provides a new law that says 
not only can we prosecute some of the corporate wrongdoers--I 
am tempted to call them criminals, but I won't--who violate the 
trust, and to not only say you have to go after them under the 
mail and fraud provisions of the criminal code, but to broaden 
that--which is sometimes difficult to do--and make the 
prosecutions more easily done and with very tough penalties 
under another part of the code.
    CEOs should not be allowed to profit from financial 
misinformation or from manipulation of their books. I commend 
the President and those who have worked on this legislation to 
say, to the extent that this does happen--a CEO or senior 
official benefits financially from tampering or cooking the 
books--they would be compelled to give that money back.
    I mentioned earlier the legislation offered by Senator 
Carnahan of Missouri which would actually make sure there is a 
disclosure of sale when a CEO or senior official sells their 
stock; that the transaction would not only have to be reported 
to the SEC, but disclosed electronically.
    Another provision in the bill that I think is especially 
good and timely, given what has gone on at WorldCom, where 
apparently a senior official of that company received a $360 
million loan from the company--a loan which I don't believe the 
shareholders ever knew about--at least when they found out 
about it, it was too late for a lot of them. That kind of 
information should be fully disclosed promptly and through a 
medium that allows those who have some need to know--investors 
and shareholders--to have that information in a timely way.
    Finally, a word about the employees who work for some of 
these companies that have gone through, or are going through, a 
meltdown. They need, I think, recourse when they are urged, on 
the one hand, by senior officials to buy company stock for 
their 401(k) investment plans at the very time when senior 
officials are bailing out of the company stock. There should be 
some kind of recourse for employees when that happens. In the 
belief of what is good for the goose is good for the gander, 
employees should never again face the situation that Enron 
employees faced where, during a lockdown period of time, 
employees could not sell their stock while senior officials 
were able to bail out and sell their stock. What is good for 
the goose is good for the gander. To the extent that employees 
in a lockdown period are not able to sell their company stock 
in their 401(k) plan, the senior officials of the company 
should not be able to enter into transactions involving their 
stock either.
    There is one thing I don't believe we address in this bill; 
the others I mentioned, we do. One area we do not address--and 
I suspect it comes later--and a member of the staff will tell 
me if I am mistaken. One of the problems we have with 401(k)s 
for the employees, the investors, is that they don't get very 
good advice. The companies don't want to be held liable if they 
provide bad advice when all is said and done. And when we move 
on to other issues, I hope we will have agreed on a way to 
better ensure that the employees who are not getting very good 
advice do get that good advice.
    I worry about the concentration of assets and investments. 
I know some people believe there should be a cap and that they 
should not be able to invest any more than half or a quarter in 
company stock for your 401(k). If I am an employee and I am 
buying company stock, maybe I should have to sign a form that 
is an acknowledgment that I am about to do something very 
stupid--something similar to what the employees did at Enron, 
where they put all their eggs in one basket--and acknowledge 
that is not a bright thing to do, and acknowledge that I am 
doing that unwise thing myself. Maybe that is needed here. In 
addition to that kind of disclosure, I think we do need to 
address the need for better advice for employees.
    I will go back to where I started; that is to say, a lot is 
riding on this legislation--a whole lot more than we would have 
guessed 6 months ago. Six months ago, as we saw Enron melt down 
and the disclosures come forward, we thought it was one company 
that was poorly run, maybe fraudulently run. A lot of people 
were hurt who worked at that company. A lot of people who 
worked for the auditor, the accounting firm, Arthur Andersen, 
have lost their jobs and were, frankly, fully innocent, but 
they have been harmed. Six months ago, there was a full sense 
of outrage at Enron and the people who led it to its fall.
    We know now that what happened at Enron may not be 
precisely the same as other companies, but it is symptomatic of 
the behavior in other companies, where the people who run those 
companies do not meet their obligations to the shareholders, to 
the employees, and where greed has corrupted too many people. 
While it is difficult for us to pass a law outlawing greed, we 
can try to outlaw fraud. But it is tough to do that; I 
acknowledge that.
    With the developments within a whole host of other 
companies--disclosures of financial mismanagement and 
misstatements, misrepresentation of performance of other 
companies in recent months--the importance of what we are doing 
this week and next has grown. We need to get this economy 
moving in the right direction. I believe that, underneath, a 
lot of the fundamentals are pretty sound. If you look at 
growth, and productivity, and the manufacturing activity to 
which I alluded earlier, there is some good news. The troubling 
news is what is going on in the stock market, as investors are 
skittish, and that is understandable.
    We can begin to restore, in a very meaningful and tangible 
way, the confidence of those investors in America and in 
American companies, and we ought to do that.
    The last word I will say is this. I commend Chairman 
Sarbanes. He is not presently on the floor. I also commend the 
committee staff and personal staffs for the kinds of hearings 
that have been held this year which have led us to this day. 
Chairman Sarbanes is not the sort of person who is interested 
in rushing out and being on television every night. He is not 
interested so much in seeing his name or picture in the 
newspaper. He is interested in getting at the truth. I think 
the hearings that were held over many months have led us to 
finding the truth and, maybe just as important, to finding the 
right course for us to take as a Nation, to be able to right 
some of the wrongs that have been done and to reduce the 
likelihood that further wrongs will occur in the future.
    I know some have been impatient for us to get to this day 
and to take up this legislation, pass it, and to send it to the 
President. I think it has been worth the wait. I acknowledge 
that not everything that needs to be done ought to be done by 
the Congress. The stock exchanges have made a number of 
excellent changes, and they are to be commended. Many companies 
and many corporate boards, that have sort of been tarred with 
the same brush, and senior officials and CEOs who are doing a 
good job in acting and behaving in a most important way, have 
been tarred and feathered with the same brush.
    A lot of companies have said, themselves, they have taken a 
look in the mirror--boards of directors, audit committees, and 
others--and said: We can do better. And they have adopted 
reforms. Shareholders--market forces--have come to bear on 
companies, their boards of directors, as they should, and that 
is helpful as well.
    In the end, there are some things the Congress can do and 
ought to do, maybe not all of them, but a lot of them are 
included in this legislation before us. I am proud to have 
participated as a member of the Banking Committee in its 
development and proud to be a witness to the work that is going 
on in this Chamber to make a good bill even better. I yield the 
floor.
    The Presiding Officer. Who yields time? The Senator from 
Michigan.
    Mr. Levin. Madam President, in a moment I am going to ask 
unanimous consent that the pending amendment be set aside and 
that I be allowed to call up amendment No. 4283. This amendment 
relates to stock options. The amendment is one line. It says 
that the standard-setting body for accounting principles that 
is set up in this bill shall review the accounting treatment of 
employee stock options--just review it--and shall within a year 
of enactment of this act adopt an appropriate generally 
accepted accounting principle for the treatment of employee 
stock options. They shall review it within a year and adopt an 
appropriate standard.
    There has been a huge amount of debate about stock options. 
Recently the Republican Senate staff of the Joint Economic 
Committee issued a report about ``Understanding the Stock 
Option Debate.'' In that report, it concluded that, ``Basic 
principles of financial accounting imply that stock option 
awards should be treated as a cost in corporate financial 
statements, and this cost should be recognized at the time of 
grant.''
    We have a Republican Senate staff report which, after 
reviewing all of the pros and cons, concludes that stock option 
awards should be treated as costs in financial statements. It 
is a very strong document. It is an analysis that I recommend 
to people to read.
    Our amendment, however, does not do that. Our amendment, 
which is an amendment I am offering on behalf of myself, 
Senator McCain, and Senator Corzine, simply says that the board 
we are funding in this bill should review the accounting 
treatment of employee stock options and adopt an appropriate 
standard.
    How anybody can be opposed to the proper accounting board 
doing a review and coming up with an appropriate standard is 
something beyond my understanding. I can understand the 
arguments, the pros and the cons. I have been through them for 
10 years. I have argued that we ought to treat stock options 
like any other form of compensation, and I believe we should. 
But I do not set accounting standards. That is not my job. That 
is the job of this newly independent board to set accounting 
standards, and we should urge them to take a look at this. This 
is where this matter should be referred and at a minimum, Madam 
President, I ought to be allowed to get a vote on this 
amendment.
    This is a germane amendment. We are in a postcloture 
situation, and I do not know of a time--there may be; I have 
not been around here as long as some--but I do not know of a 
time when a germane amendment postcloture has not been 
permitted to go to a vote.
    Apparently, that is what is going to happen, from what I 
hear. I hope it is not true, and I do not want to be unfair to 
my good friend from Pennsylvania. He may not object. But I 
think it is a misuse of our rules now I am going to get to a 
process issue--to not permit a germane amendment postcloture to 
be voted on. And this amendment is germane.
    On the stock option issue, we have everyone from Alan 
Greenspan to economists. Let me read the list of some of the 
people who support a change in stock option accounting: Alan 
Greenspan; Paul Volcker; Arthur Levitt; Warren Buffett; TIAA-
CREF, one of the largest pension funds in the United States for 
teachers; several economists; Paul O'Neill; Standard & Poors; 
Council for Institutional Investors; Citizens for Tax Justice; 
Consumer Federation of America; Consumers Union; AFL-CIO; on 
and on. They believe that stock options are a form of 
compensation, they have value, and they should be part of the 
expenses on the books of a corporation just as they are taken 
as a tax deduction at this point.
    One of the driving factors in the corporate abuses that we 
have seen are the huge gobs of stock options which have been 
handed out to executives. Then executives push accounting 
principles beyond any comprehension to raise the value of the 
stock and then exercise their options and sell the stock. We 
have seen this situation repeated in corporation after 
corporation, and I believe we ought to try to put an end to it, 
but that is not what this amendment does. This amendment simply 
says: We are creating a newly independent board. This 
independent board should decide on what the appropriate 
standard is. That is why we are providing independent funding 
for it.
    I want to read a part of a Washington Post editorial of 
April 18, 2002:

    Alan Greenspan, perhaps the Nation's most revered 
economist, thinks employee stock options should be counted, 
like salaries, as a company expense. Warren Buffett, perhaps 
the Nation's foremost investor, has long argued the same line.

    Skipping down:

    The London-based International Accounting Standards Board 
recently recommended the same approach. In short, a rather 
unshort list of experts endorses the common-sense idea that, 
whether you get paid in cash or company cars or options, the 
expense should be recorded. . . .

    Why does this matter? Because the current rules--which 
allow companies to grant executives and other employees 
millions of dollars in stock options without recording a dime 
of expenses--make a mockery of corporate accounts. Companies 
that grant stock options lavishly can be reporting large 
profits when the truth is that they are taking a large loss. In 
2000, for example, Yahoo reported a profit of $71 million, but 
the real number after adjusting for the cost of employee stock 
options was a loss of $1.3 billion. Cisco reported $4.6 billion 
in profits; the real number was a $2.7 billion loss. By 
reporting make-believe profits, companies may have conned 
investors into bidding up their stock prices. This is one cause 
of the Internet bubble.
    Then this editorial goes on:

    But nobody wants to ban this form of compensation; the goal 
is merely to have it counted as an expense.

    Madam President, that is what most of the accounting 
profession, economists, and business people, other than those 
executives who are taking such huge amounts of stock options, 
want to do. This is what the Accounting Standards Board wanted 
to do in 1993, but then were beaten down so badly that they had 
to come up with an alternative instead called disclosure.
    Even when the accounting board decided to do that--which 
was not an independent accounting board because it did not have 
an independent source of financing, unlike this accounting 
board will have after we enact this bill--and now to read their 
report of 1994. The board issued an exposure draft called, 
``Accounting for Stock-Based Compensation,'' and they decided 
that stock option values should be expensed. Then they said the 
draft was extraordinarily controversial, and the board not only 
expects but actively encourages debate on issues. Then they 
pointed out in the FASB document that the controversy escalated 
throughout the exposure process.
    Then in paragraph 60 of their findings, the FASB board said 
the following, that ``the debate on accounting for stock-based 
compensation unfortunately became so divisive that it 
threatened the board's future working relationship with some of 
its constituents. The nature of the debate threatened the 
future of accounting standards-setting in the private sector.''
    This is an extraordinary document and everybody should read 
it so people understand the kind of pressure that not only that 
board was under--hopefully, the newly independently funded 
board will not be under--but the kind of pressure which exists 
in this Congress. We have, in essence, a new board, because it 
has an independent source of funding. We ought to let that 
board reach an independent conclusion on one of the most 
controversial, contentious issues we have before us.
    This is a tremendous bill we are voting on. But it can be 
strengthened. It is not a perfect bill, and from the point of 
view of pure fairness and deliberation, this Senate should be 
allowed to vote on a germane amendment postcloture.
    I will read one additional paragraph from the FASB document 
report to set out the extent of the pressure which exists in 
this area and why it is so important there be a review of this 
whole matter by an independent board.
    In December 1994, the board said it decided that ``the 
extent of improvement in financial reporting that was 
envisioned when this project was added to its technical agenda 
was not attainable.''
    Why was it not attainable, the FASB said? Because the 
``deliberate, logical consideration of issues that usually 
leads to improvement in financial reporting was no longer 
present.'' These are incredible words. This is from the board 
that is supposed to set accounting standards in this country. 
They wrote in their report that when their proposal to expense 
stock operations was issued, it was not attainable because the 
``deliberate, logical consideration of issues that usually 
leads to the improvement in financial reporting was no longer 
present.''
    Why was it no longer present? Because the debate had become 
so divisive, in their words, that it threatened the board's 
future working relationship with some of its constituents.
    The nature of the debate, they wrote, threatened the future 
of accounting standards-setting in the private sector.
    Finally, the board, beaten down, threatened with 
extinction, said this: ``The board chose a disclosure-based 
solution for stock-based employee compensation to bring closure 
to a divisive debate on this issue, not because it believes the 
solution is the best way to improve financial accounting and 
reporting.''
    That was in 1994. We have seen what has happened in terms 
of stock option abuses because this board, if it had proceeded 
in the way it thought best, would have gone out of existence.
    This bill creates a newly independent board, a board that 
has an independent source of revenue. This bill, it seems to 
me, is not complete, is not strong, unless we now say to this 
country that the newly independent board should review this 
accounting standard and reach an appropriate conclusion.
    This amendment, which is cosponsored by Senators McCain and 
Corzine, does not say what that conclusion is. It does not, 
unlike the McCain amendment which was not allowed a vote 
yesterday, conclude that stock options should be expensed. It 
does say we have an independently funded board which should 
review this matter and reach the appropriate conclusion.
    Mr. Reid. Will the Senator yield for a question?
    Mr. Levin. I would be happy to.
    Mr. Reid. I am just curious. I am not sure I should get 
involved at this stage because the Senator knows the subject so 
well, but this board that is set up in this proposed law, they 
would not have authority to do that on their own?
    Mr. Levin. They would.
    Mr. Reid. Why do we need your amendment?
    Mr. Levin. Because this Congress has been on record as 
saying what the accounting standard should be. In the early 
1990s we took a position. This neutralizes that position. This 
says, the accounting board is the right place. The Senate is on 
record by a vote of 88 to 9 as saying there should not be the 
expensing of stock options. What this amendment says is that 
the board should decide. It should review this matter. It takes 
a neutral position, thereby clearing the record as to what the 
position of this Senate is.
    As of now, all we have on record is that stock options 
should not be expensed. What this amendment would say is, you 
should review this and reach an appropriate standard.
    Mr. Reid. My question to the Senator was, If we did not 
have the Senator's amendment, would the board not have that 
authority anyway?
    Mr. Levin. They could do it, but all that there would be on 
the record would be our last statement saying they should not 
expense. That same kind of pressure we put on them would still 
be on the record, and I think that should not be the last 
statement this Senate should make on this subject.
    The last statement we ought to make on this subject is that 
the accounting board is the appropriate place to make that 
decision, not the Senate.
    Mr. Reid. I still ask my friend for the third time, if we 
have no Levin amendment, it would seem to me this newly created 
board would still have authority to do what the Senator is 
talking about.
    Mr. Levin. Under the cloud we created in 1994. I would 
refer my friend to the debate in this body back on May 3, 1994, 
where the Senate reached a conclusion that it is the sense of 
the Senate, that was approved by, again, a vote of 88 to 9 or 
something like that, that the Financial Accounting Standards 
Board should not change the current generally accepted 
accounting treatment of stock options.
    Mr. Sarbanes. Will the Senator yield?
    Mr. Levin. I am happy to yield.
    Mr. Sarbanes. I asked the Senator to yield because I do 
want to underscore that the legislation that is before us takes 
a major step in trying to guarantee the independence of the 
Financial Accounting Standards Board in terms of how it 
provides for its funding, and that is a dramatic improvement of 
the situation because heretofore the standard board had to seek 
voluntary funding. So the standards board ended up going to the 
people for whom it was establishing the standards in order to 
get money to fund its operations. Well, when it came to the 
crunch--and this issue was one such crunch as far as the 
Financial Accounting Standards Board was concerned--the people 
from whom they were voluntarily getting the money said we are 
not going to give you any money. You are not going to be able 
to carry out your activities.
    So we moved in this legislation because one of the things 
we require is that the issuers pay a mandatory fee. If you are 
an issuer, you are registered with the SEC and you have to pay 
a fee. That goes into a fund and that fund pays for the budget 
of the Public Accounting Oversight Board and the budget of the 
Financial Accounting Standards Board, so they are assured a 
revenue source.
    I urge people to stop and think about that because it is a 
very important step to ensuring the independence of both 
boards. But here we are talking about the Financial Accounting 
Standards Board, and the dramatic change from its previous 
situation.
    So it really will have, at least on the budget side, the 
independence to go ahead and make these decisions as they 
choose to call them. The issue that becomes involved in all of 
this otherwise is the question, Should the Congress of the 
United States be itself actually establishing accounting 
standards? Of course, as the Senator indicated, when an opinion 
was voiced on that a few years ago, it went in one direction. 
And now people want the Congress to come along and express an 
opinion in another direction. I have some sympathy. Obviously, 
we have seen things happen. Most people might have sympathy.
    But we come back to the basic question, whether the 
Congress should be doing this. We set up this accounting 
standards board so it could make independent judgments. 
Unfortunately, there is no question about the fact that 
previously the standards board was subjected to tremendous 
pressure which affected its ability to make an independent 
judgment. It got tremendous pressure from industry groups, 
pressure from Congress reflecting the pressure of industry 
groups, and of course this exposure on its budget.
    We have tried in the legislation to address this very basic 
question of making sure this board has its independence. That 
does not reach to the specific issue the Senate is now 
addressing, but I wanted that on the record. It is important 
that be understood.
    Mr. Reid. Mr. President I ask unanimous consent I be 
allowed to speak using my own time for up to 2 minutes.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Levin. I will conclude, but I need to reclaim the floor 
because apparently all time otherwise is counted against my 
allotted time postcloture.
    Mr. President, I ask unanimous consent the pending 
amendment be set aside and that I be allowed to call up the 
amendment I filed at the desk relative to this subject which I 
understand has been ruled germane.
    The Presiding Officer. The Senator from Pennsylvania.
    Mr. Santorum. Reserving the right to object, I want to make 
a couple of points.
    No. 1, the Senator from Michigan suggested that all 
amendments that are germane postcloture should be allowed to be 
offered. I wish that were the case. I wish we had the 
opportunity to do that in all situations, but that has not been 
the case in this Senate, or has not been necessarily the 
history of the Senate. There have been many instances where 
germane amendments have not been allowed to be offered 
postcloture.
    No. 2, I make a point and reiterate the point that the 
chairman of the committee has made. The Senator from Michigan 
has made the point that FASB has been compromised because it 
wanted to do things and it felt constrained by the constituency 
which funds it. We have set up an independent funding source 
for FASB now, and I think that would allow a lot more 
independence to be able to deal with these accounting issues, 
such as the way we treat stock options, in a way that allows an 
independent judgment.
    Finally, while we do have a sense of the Senate that is 8 
years old on this issue, the Congress has never directed FASB 
to study an issue of accounting. This is precedent setting. 
There is nothing in this bill that directs FASB to do anything. 
It is an independent board. It sets up the accounting 
standards. I think there is no question that it will in all 
likelihood review this issue.
    For the Congress to begun to weigh in--even 8 years ago, we 
did not direct FASB to do this; we simply expressed our 
opinion. To direct FASB to do something would be a very bad 
precedent to set.
    I object.
    The Presiding Officer. The objection is heard.
    The Senator from Michigan.
    Mr. Levin. Mr. President, I see no reason that a vote 
should not be permitted on this amendment. That is what this 
objection leads to. I urge we come back on Monday, or whenever 
we do come back, and I will make this motion again because this 
is a critical issue, that is not addressed in this bill, which 
is a big part of the lack of credibility we have right now in 
our markets. It needs to be addressed in some way. This is a 
neutral way to do it.
    The arguments given by our friend from Pennsylvania are 
reasons to vote no on an amendment. They are not reasons to 
prevent an amendment from being called up and being offered.
    I will say again, I don't know where an amendment that is 
ready to be offered is not permitted to be offered because 
postcloture one side of the aisle has decided it is going to 
leave a first-and second-degree amendment standing out there 
without a vote in order to prevent other germane amendments 
from being voted on. I don't think that has ever happened. 
Obviously, we have reached the end of the 30 hours at times and 
there are still germane amendments that are pending. But this 
is not that situation.
    There is no further debate on the Carnahan amendment that I 
know of. Why not vote on the Carnahan amendment? There is no 
further debate--or if there is, let the debate take place so 
that other people can offer their germane amendments. That is 
being precluded here. I believe it is a misuse of postcloture 
rules to do that.
    That being the situation, I will be offering a unanimous 
consent at this time that my amendment be made in order at 2 
p.m. on Monday.
    The Presiding Officer. Is there objection?
    Mr. Santorum. I object.
    Mr. Levin. I thank the Chair, and I will make a unanimous 
consent request again on Monday that we be allowed to offer 
germane amendments in the time that remains on Monday and that 
we not be precluded by a blocking action which, it seems to me, 
is a distortion and a misuse of the postcloture rules which are 
intended to allow 30 hours to consider germane amendments. If 
that 30 hours is being used up and either being sworn off or 
not used, it seems to me that then precludes consideration of 
highly relevant--indeed, germane--amendments which are 
important to strengthening this bill.
    I thank the sponsors of this bill. It is a strong bill. 
There is no reason we should not be able to vote on a way to 
make it stronger.
    I yield the floor.
    Mr. Graham. Mr. President, I appreciate the chance to speak 
about the Public Company Accounting Reform and Investor 
Protection Act. I would like to strengthen section 302 of this 
legislation which is entitled, ``Corporate Responsibility For 
Financial Reports.''
    I have discussed several ideas with Senator Sarbanes and 
greatly appreciate his leadership on this legislation. He has 
been tireless in his efforts to strengthen corporate 
accountability and protect the American investing public.
    My first area of concern involves companies that have 
chosen to move their headquarters overseas. This legislation 
requires that CEOs and CFOs sign a statement saying that the 
financial documents they have filed are fair and accurate. This 
is consistent with an order just issued by the Securities and 
Exchange Commission, SEC, that requires CEOs and CFOs to attest 
to the accuracy of their company's most recent financial 
statement.
    But there is a glaring omission to this recent SEC order. 
Only companies that are U.S.-based would be required to send in 
these signed documents. If a company once based in the U.S. has 
fled our shores and gone overseas for tax reasons, they now 
just received a reward for leaving our Nation. Those CEOs and 
CFOs would not have to sign financial documents and attest to 
their accuracy.
    The SEC has also overlooked the accuracy of future 
financial documents by non-U.S.-based companies. Under a 
proposed rule, that is in the ``open comment period,'' foreign 
based companies are again enjoying a lesser standard of 
accountability. This is wrong, and unfair to American 
companies.
    In the proposed rule, the SEC does invite comments on how 
to cover overseas-based companies. However, this could be a 
case of ``too little too late.'' If companies are being 
publically traded in the United States, regardless of where 
their headquarters are located, they ought to be required to 
meet the same level of accountability that we are establishing 
for everyone else in this legislation.
    Let's not give U.S.-based companies one more reason to 
leave our Nation and incorporate someplace else. We need to 
hold all companies in our markets to the same high standard--
there should be no reward of a lower standard if your company 
leaves the U.S. for a new overseas headquarters.
    My staff placed a call to the SEC to uncover the reason why 
foreign based companies were excluded from their recent order. 
To the credit of the SEC, they wanted to act quickly. They 
thought that the quickest way to promulgate this order was to 
cover only U.S. based companies. However, in doing this 
quickly, they ended up sending the wrong message. U.S. based 
CEOs and CFOs are ``on the hook'' in signed statements. 
Foreign-based CEOs and CFOs, simply put, are not.
    Senator Dorgan and I want to change this. We want it to be 
clear in the statute that no matter where your company is 
based, you must comply with this obligation. Senator Dorgan has 
filed an amendment to correct this, amendment No. 4125.
    I appreciate the consideration that the floor managers, 
Senator Sarbanes and Senator Gramm, have given our amendment 
and I encourage all my colleagues to support us in this effort. 
I look forward to seeing it in the final legislation.
    Mr. Johnson. Mr. President, I rise today to urge my 
colleagues to take swift and decisive action to stem the tide 
of corporate greed that is eroding the integrity of America's 
capital markets. I am a strong believer in the free enterprise 
system, and I am proud of America's leadership in creating 
tremendous economic opportunity for all investors, big or 
small, domestic or foreign. However, it is time that Congress 
curb the appalling corporate excesses and misinformation that 
have hurt investors, employees and taxpayers. Passage of the 
Public Company Accounting Reform and Investor Protection Act is 
a critical step in addressing these concerns.
    It is tempting to blame the problems corporate America is 
facing on just a few bad actors. For the most part, America's 
business men and women are industrious, innovative, and honest 
people who work hard to build our economy and provide jobs for 
our communities. However, we simply cannot ignore the shocking 
number and size of failed or failing companies, the marked 
increase in earnings restatements, and the profound toll this 
has taken on hard-working Americans. In fact, state pension 
funds have plummeted more than $1 billion from the WorldCom 
restatement and billions more from other companies involved in 
the scandals.
    In light of these inexcusable revelations, it is hard to 
believe that these problems are just isolated instances. Almost 
daily discoveries of accounting irregularities at some of 
America's largest and most highly respected companies, such as 
Enron, WorldCom, Tyco, and Xerox, to name just a few, clearly 
demonstrate the need for systemic accounting and corporate 
governance reform. Just recently, in fact, the Wall Street 
Journal reported that the drug company Merck may have 
understated revenue by over $12 billion.
    We must address systemic problems that are undermining the 
efficiency and transparency of our free market system, and 
which are eroding the faith of everyday Americans in the 
fundamental fairness of American business practices. We must 
clean up the current corporate culture that rewards misleading 
financial reporting and lax or corrupt corporate governance. We 
need strong legislation that will end the conflicts of interest 
and lack of disclosure that have misled investors and shaken 
their faith in America's financial markets. And we need to 
ensure that the SEC has the tools and money it needs to become 
a strong and formidable enforcer of securities laws. A kinder 
and gentler SEC serves only those corporate executives who have 
something to hide.
    The Public Company Accounting Reform and Investor 
Protection Act addresses these problems in a way that limits 
regulatory burden but provides affirmative measures to restore 
the integrity of our free market system. I support the bill's 
creation of a strong Public Company Accounting Oversight Board 
and restrictions on non-audit services accounting firms can 
provide to public company audit clients. Further, the bill 
imposes tough new corporate responsibility standards and 
implements controls over stock analyst conflicts of interest. 
Also, the bill requires public companies to quickly and 
accurately disclose financial information, so that high-level 
executives don't have a head start over small investors in 
bailing out when a company is in trouble. Finally, the bill 
ensures that the SEC has the resources to accomplish its 
mission of regulating the securities markets.
    On this last point, I was disappointed that President 
Bush's budget did not include money that the Banking Committee 
authorized last year that would have strengthened the SEC. The 
SEC has long been hobbled by its inability to compete for top-
notch employees because of a pay scale that was out of line 
with other financial regulators. Late last year, Congress 
passed, and the President signed, H.R. 1088, which provided pay 
parity for SEC employees. Unfortunately, the President's budget 
did not allocate additional funds, making it difficult if not 
impossible for the SEC to carry out its enforcement mission. I 
am pleased that President Bush is now calling for additional 
funding for the SEC, which should be better able to police 
public companies with adequate resources.
    Without the threat of real consequences, however, dishonest 
corporate executives have little to fear from being caught with 
their hands in the cookie jar. For this reason, Congress must 
implement a plan to hold irresponsible corporate executives 
responsible for their actions. We must not allow these 
criminals to hide behind the corporate veil, while stealing 
millions of dollars from hard-working Americans. In that vein, 
I support provisions contained in the Corporate and Criminal 
Fraud Accountability Act, sponsored by Senator Leahy. The bill 
would provide stronger criminal penalties for corporate 
managers who defraud investors of publicly traded securities, 
criminal prosecution of persons who alter or destroy documents 
related to investigations, and protection for corporate 
whistleblowers against retaliation by their employers, among 
other provisions designed to protect investors from corporate 
greed.
    Finally, I believe that we should take a strong stance 
against another form of corporate greed: corporations that 
profit from American consumers, yet intentionally dodge U.S. 
taxes by moving their headquarters abroad. It is outrageous 
that these so-called ``American'' companies take advantage of 
the benefits of operating in this country and yet shirk even 
the most basic responsibilities of corporate citizenship. 
That's why I strongly support the Tax Shelter Transparency Act, 
sponsored by Senator Baucus, which would close the loopholes 
that allow corporate executives to use evasive accounting 
tactics to enrich themselves on the backs of American 
taxpayers.
    Before I close, I would like to thank Chairman Sarbanes for 
his leadership on this important issue. I also want to thank 
the Chairman as well as the Banking Committee staff for 
conducting a series of ten inclusive and comprehensive hearings 
on the issues addressed in his bill. The content of those 
hearings provided a conceptual foundation for our subsequent 
discussions of Senator Sarbanes' bill and a previous bill 
proposed by Senators Dodd and Corzine. In addition, our work 
has been enhanced by the fine contributions of Senator Enzi, 
who is the Senate's only Certified Public Accountant. The 
deliberative process used to develop this legislation has led 
to an appropriate, thoughtful, bipartisan bill that makes great 
strides in addressing the problems in our financial markets and 
restoring investor confidence.
    Ms. Landrieu. Mr. President, I would like to voice my 
strong support for S. 2673, the Public Company Accounting 
Reform and Investor Protection Act. This legislation will bring 
accountability to our corporate boardrooms and end the 
accounting abuses that threaten to undermine the free 
enterprise system.
    The hallmark of our economic system is free, fair, and open 
competition. The system rewards innovation, efficiently, and 
hard work. It allows individuals to take an idea, a dream, or 
an invention; build a business around it; and turn it into a 
livelihood. Some of our greatest corporations today started 
with just one idea.
    The recent revelations from Wall Street have thrown much of 
this in doubt. For the Enrons, and WorldComs of the world, 
success was based on hiding losses, misstating earnings, 
destroying documents, and getting cozy with their so-called 
``independent'' auditors and the stock analysis who are 
supposed to give the stock buying public objective information. 
Instead of winning through open competition, these companies 
and others won through accounting sleight-of-hand.
    The price of this deception has been too high. While much 
has been made in the media about how far the Dow, the NASDAQ, 
and the S & P 500 have fallen on Wall Street, the real pain is 
being felt on Main Street--in retirement plans, pensions, and 
the investment portfolios of hard working people in our 
country. The pain is being felt by the very wealthy and people 
with modest means. Fortunately no Louisiana-based corporation 
has been caught up in this mess and hopefully that will remain 
the case, but many Louisiana investors were not so lucky.
    Many have said that all of these problems have been caused 
by a few bad apples. But when we hear about corporations hiding 
losses, creating off-book partnerships, insider trading, and 
inside loans to corporate officers, it means that something may 
be wrong with the whole tree: the tree is rotten because of 
loopholes in regulations and limited oversight.
    My State of Louisiana is home to a large number of small 
businesses--94,000 of the employer businesses in my state 
employ fewer than 500 people--and they employ about 54 percent 
of the state's workforce. This does not include the estimated 
135,000 self-employed people in my state. I find myself 
wondering what small business owners think of all of the news 
reports about these big, sophisticated corporations and their 
crooked accounting?
    Small business owners work hard to keep clean books. They 
do not have a team of creative accountants that turn losses 
into gains. The small business does not create sham, off-book 
partnerships to hide losses. I have never heard of a small 
business being forced to restate its earnings. Small business 
grow by playing by the rules. Many small business owners dream 
of taking the honest approach to turning their ideas and dreams 
into big businesses. How disheartening must it be for them to 
see that in the world of big corporate business the way to get 
ahead is by cheating.
    The bill before us today will help restore faith in the 
free market. It creates a strong oversight board that will set 
auditing standards for public companies backed up with the 
power to investigate abuses. It gets rid of the inherent 
conflict of interest faced by accounting firms that provide 
management consulting services to their auditing clients. Here 
on the floor we have added tough criminal penalties to this 
bill and given greater protections to whistles blowers. The 
whistle blower protections are an especially needed reform. We 
want the honest people in business to know that there is still 
a place for them.
    We must take this opportunity to restore confidence in the 
free market. I urge my colleagues to vote in favor of this 
legislation and I want to commend the chairman of the 
Committee, Mr. Sarbanes, for bringing this legislation to the 
floor.

                            VOTE EXPLANATION

 Mr. Kerry. Mr. President, due to a longstanding 
    commitment I was necessarily absent for the vote on cloture 
    on the Public Company Accounting Reform and Investor 
    Protection Act of 2002 (S. 2673). Although my vote would 
    not have affected the outcome, had I been present, I would 
    have voted for cloture on the bill. 
    
    
          VOLUME 148, MONDAY JULY 15, 2002, NUMBER 95,
                      PAGES [S6734-S6793]

  Public Company Accounting Reform and Investor Protection Act of 2002

    The Presiding Officer. Under the previous order, the Senate 
will now resume consideration of S. 2673, which the clerk will 
report.
    The assistant legislative clerk read as follows:

    A bill (S. 2673) to improve quality and transparency in 
financial reporting and independent audits and accounting 
services for public companies, to create a Public Company 
Accounting Oversight Board, to enhance the standard setting 
process for accounting practices, to strengthen the 
independence of firms that audit public companies, to increase 
corporate responsibility and the usefulness of corporate 
financial disclosure, to protect the objectivity and 
independence of securities analysts, to improve Securities and 
Exchange Commission resources and oversight, and for other 
purposes.

    Pending:

    Edwards modified amendment No. 4187, to address rules of 
professional responsibility for attorneys.
    Reid (for Carnahan) modified amendment No. 4286 (to 
amendment No. 4187), to require timely and public disclosure of 
transactions involving management and principal stockholders.

    The Presiding Officer. Under the previous order, the 
Senator from Michigan, Mr. Levin, is recognized.
    Mr. Levin. Mr. President, I wonder if I might inquire as to 
how much time I have on my allotted time under postcloture 
rules.
    The Presiding Officer. The Senator has 36 minutes 
remaining.
    Mr. Levin. I thank the Chair.
    I will at a later time ask unanimous consent that the 
pending second-degree amendment be laid aside so I can offer a 
germane second-degree amendment relative to stock options.
    My amendment, which is at the desk, would direct the 
independent accounting standards board to review the accounting 
rule on stock options and adopt an appropriate rule within 1 
year.
    It should not be necessary to seek unanimous consent. The 
whole purpose of our postcloture rules is to allow those of us 
who have germane amendments such as this one to offer that 
amendment, to have it voted on. It is a frustration of the 
clear intent of our rules to not allow germane amendments to be 
voted on after cloture is invoked.
    We have a strict rule. It is called cloture. It ends 
debate. When cloture was invoked, I had pending an amendment 
which would have given the Securities and Exchange Commission 
greater powers to impose civil fines administratively. It is an 
important addition to SEC powers. They now have that power over 
brokers, but they don't have it over corporate directors. They 
don't have it over corporate managers. They ought to have the 
power to impose civil fines administratively--subject, of 
course, to appeal to the courts--relative to corporate 
directors and corporate officers.
    That amendment, as relevant as it is to this bill, was 
frustrated when cloture was invoked and when all the time up to 
that vote was utilized so that my SEC amendment was not allowed 
to come up for a vote.
    Now we are in postcloture. Now we are under postcloture 
rules. The question is whether or not the intent of those rules 
is going to be carried out, which is to allow those of us who 
have germane amendments to have a vote on those amendments.
    The amendment on which I would like to have a vote cannot 
be voted on because there is a pending first-degree amendment 
and a pending second-degree amendment. So the second-degree 
amendment would have to be laid aside in order to allow a vote. 
As long as the opponents of this stock option accounting 
amendment don't allow the first- and second-degree amendments 
that are pending to come to a vote, we are foreclosed from 
offering germane amendments.
    That is not the intent of our postcloture rule. I believe 
it is an abuse of the intent of our postcloture rule. I hope it 
will not happen here. I am hoping against hope that there will 
not be an objection to my unanimous consent request so that 
this most critical issue can be addressed by the Senate.
    If we don't address this issue, it seems to me we are 
leaving a significant gap in the reforms we are struggling so 
hard to adopt to try to restore honesty to accounting rules.
    In 1994, the Financial Accounting Standards Board issued a 
tentative rule which said that stock options should be expensed 
like all other forms of compensation. That is what they decided 
was the right thing to do.
    Well, Congress intervened. The executives intervened 
strongly, beat back FASB with huge pressure, all set out in the 
FASB account of its rule. By the way, one of the most 
extraordinary documents I have ever read, as a matter of fact, 
in 24 years in the Senate, is that Financial Accounting 
Standards Board history of their effort to bring honesty to 
accounting for stock options, in their judgment, and how that 
effort was beaten back by pressure from executives and from 
Congress so that their very existence was at stake if they 
proceeded in a way which they thought was right. All set forth 
in the record. It is quite an amazing document.
    So what FASB did was, they said: We can't survive if we do 
what we think is right. So what we will do instead is we will 
urge people to expense options. We will urge corporations to 
expense their options, but we will not mandate it.
    FASB said: If you don't expense options, at least disclose 
the cost of the options as a footnote in your financial 
statements.
    That was the way they decided to survive. This body voted, 
put some of the pressure on FASB, basically told them to leave 
stock option accounting alone. So we intervened on an 
accounting issue with a vote of something like 90 to 10 or 
thereabouts.
    The executives weighed in. I was at one of the meetings in 
Connecticut when the executives weighed in heavily on this 
issue. So I saw the pressure that was brought to bear on what 
should be an independent accounting standards board.
    Now we are doing something different in this bill. We are 
saying to the board that we are going to give you an 
independent source of funding. We are not going to make you 
dependent directly for your funding from the very people you 
are seeking to regulate through your accounting standards. So 
we are making some progress now by giving them an independent 
source of funding.
    What my amendment would do is take what is the most 
significant post-Enron issue that is left open, which is 
accounting for these huge amounts of stock options that go 
mainly to executives, and direct this board that now has an 
independent source of funding to review--``review'' is the key 
word--this matter and make an appropriate decision within 1 
year.
    Mr. McCain. Will the Senator yield for a question?
    Mr. Levin. I wonder if I can yield on the time of the 
Senator from Arizona, because time is so limited here that I am 
going to have very little. I think the Senator has a half hour 
and, assuming that the Senator can be recognized, I believe 
that I only have about 10 or 15 minutes of time remaining. I 
wonder if the Senator from Texas would permit that I be allowed 
to yield to the Senator from Arizona, if the Senator from 
Arizona is willing to ask a question to be taken out of his own 
time.
    Mr. Gramm. Reserving the right to object, the Senator 
started out with a unanimous consent request and then launched 
into a speech.
    The Presiding Officer. There is no request pending.
    Mr. Gramm. Maybe if the Senator would do his unanimous 
consent request and then yield, that would be fine.
    Mr. Levin. I would rather do my unanimous consent request 
at the end of the time, rather than at the beginning of the 
time. I make a parliamentary inquiry. If I make a unanimous 
consent--
    Mr. Gramm. I don't object to the Senator yielding. I wanted 
to be sure we had the time we were supposed to have.
    Mr. Levin. I ask unanimous consent that the Senator from 
Arizona, if he is willing, be able to ask a question on his 
time. I yield to the Senator from Arizona for that question and 
then I retain the floor.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. McCain. Mr. President, I will be very brief, due to the 
shortness of time. I wonder if the Senator from Michigan 
remembers my comments last Thursday when I referred to an old 
boxing term, ``the fix is in.'' There was no vote allowed on my 
amendment, which is a clearcut, absolutely unequivocal 
statement about the use of stock options for accounting. Does 
the Senator really believe that, since my amendment was blocked 
by that side, his amendment is not going to be blocked by this 
side?
    The fix is in, I say to the Senator from Michigan. I hope 
he knows that. This is a terrible mistake, a terrible mistake, 
because we are not addressing what every observer knows is a 
vital and critical aspect of reforming this system, which 
continues to so badly erode the confidence of the American 
people, the investors, which is over half of the American 
people.
    I wonder if the Senator from Michigan remembers what I said 
last week, that the fact is the fix is in. I didn't get a vote 
on my amendment and the Senator from Michigan won't get one on 
his. Very frankly, since that side blocked my vote, I can 
understand them blocking this vote. I think it is wrong on both 
sides.
    The American people deserve to know how we stand on the 
issue of stock options. Does the Senator understand that?
    Mr. Reid. Will my friend yield for a question on my time?
    Mr. Levin. I am happy to.
    Mr. Reid. The Senator will recall the Senator from Arizona 
talking about the fix being in, and the Record will clearly 
reflect that the Senator from Arizona asked that his amendment 
be in order postcloture, and, as the Senator from Michigan will 
recall, I objected to that because at that time we had 56 other 
amendments that were pending. They also wanted them to be in 
order.
    Mr. McCain. If the Senator will yield, that is not correct. 
Mine was a motion to recommit.
    Mr. Reid. I am talking about the objection about which I 
was involved, and does the Senator from Michigan recall that 
objection to the unanimous consent request by the Senator from 
Arizona?
    Mr. Levin. I believe I do recall the objection to the 
request, and I would rather let the Record speak for itself as 
to the other matters because I think the issue before us is a 
somewhat different issue than we faced on the McCain-Levin 
amendment last week. Now we have a Levin-McCain-Corzine 
amendment, which is somewhat different. I supported Senator 
McCain's amendment, and, indeed, I have been very active in 
trying to get this accounting rule adopted in the way the 
independent accounting board wants to have it adopted. That is 
the key emphasis.
    Mr. Sarbanes. Will the Senator yield on my time for a 
question?
    Mr. Levin. I am happy to yield.
    Mr. Sarbanes. As I understand the Senator's amendment--the 
one he will be seeking to offer.
    Mr. Levin. I will be seeking unanimous consent to have the 
second-degree amendment laid aside so that I can do so.
    Mr. Sarbanes. As I understand it, this amendment is not the 
Congress trying to legislate what the accounting standard 
should be; is that correct?
    Mr. Levin. The Senator is correct.
    Mr. Sarbanes. I think that is important because I, frankly, 
do not think that the Congress should get into the business of 
trying to legislate accounting standards. I don't think we have 
the expertise or the competence to do it. And it turns 
established accounting standards into a straight-out political 
exercise, and I don't think that is wise.
    As I understand the Senator's amendment, it would simply 
reference the issue of the treatment of stock options to the 
financial accounting standards board, for them to make their 
own independent judgment as to how this matter should be 
treated, is that correct?
    Mr. Levin. The Senator is correct.
    Mr. Sarbanes. And I understand that the terms of reference 
are such that it does not presuppose a particular substantive 
conclusion; it is, in effect, left open, or even level, however 
you want to describe it--a level playing field for FASB, the 
expert body that has been established to make these judgments 
to make its own independent judgment as to how these matters 
should be addressed, is that correct?
    Mr. Levin. The amendment directs FASB to review the issue 
and adopt an appropriate standard. Those are the words in the 
amendment. I must tell my good friend from Maryland, however, 
that there is a history here that cannot be ignored.
    The history is that FASB tried to adopt a standard in 1994. 
They said what the right standard was. They were beaten back 
and brow-beaten and pressured, so they had to give up what they 
believed is right. That is in their own history. Then they 
recommended to corporations to expense options, because that is 
the right thing to do. But they offered an option to 
corporations to simply disclose the value of options in their 
financial statement in a footnote. They left that option open.
    So I have two hopes here. One is that there will not be an 
objection to a vote on this amendment. For the life of me, I 
cannot see how anybody can object to a vote on an amendment, 
which simply tells the independent accounting standards board 
to reach an appropriate decision.
    Now, we did intervene 8 years ago, and I believed it was 
wrong for us to intervene. Nine of us voted no; 90 voted yes. 
We told them: Do not change the rule; do not expense options.
    In my judgment, it was wrong procedurally and it was wrong 
in terms of the substance. But it is my hope that, No. 1, we 
will be allowed to have a vote, and, No. 2, it would be my 
expectation, however, if it is left to the independence of 
FASB, that FASB would continue to do what they said was the 
right thing, which is to expense options.
    It is left to their independent judgment to reach an 
appropriate conclusion under the language of my amendment.
    Mr. Sarbanes. So it would be FASB's call?
    Mr. Levin. It would be FASB's call.
    Mr. Sarbanes. Mr. President, I simply want to say I am 
supportive of this amendment. I think this is the right way to 
go about it.
    Let me repeat, I do not think the Congress itself should be 
in the business of legislating accounting standards, but this 
amendment does not do that. It references the issue to the very 
body that has been established to accomplish that, which has 
the expertise and the competence. The amendment also helps to 
underscore the independence of FASB and a Congressional 
perception that they should call it as they see it. I hope at 
the appropriate time the Senator will be able to obtain 
permission to bring his amendment before the body.
    I thank the Senator for yielding.
    The Presiding Officer. The majority leader is recognized.
    Mr. Daschle. I am sorry. I think the Senator from Michigan 
has the floor.
    The Presiding Officer. The Senator from Michigan has the 
floor.
    Mr. Levin. I ask unanimous consent that I yield to the 
majority leader for whatever time he wishes to take and that 
time not be taken from the few minutes I have remaining, and 
that the floor be returned to me at that time.
    The Presiding Officer. Without objection, it is so ordered.
    Mr. Daschle. Mr. President, I will use my leader time so as 
not to take any time still allotted to the Senator from 
Michigan.
    I hope we can get the unanimous consent request that the 
Senator from Michigan is propounding. I will also say that this 
is not a question of if he can get consent and ultimately bring 
the amendment to the floor. One way or the other we will have a 
vote on the Levin amendment. It may not be on this bill this 
afternoon if we fail, but our colleagues need to know we will 
have a vote on this amendment. This will occur. If I have to 
offer it myself, we will have a vote on this amendment. So we 
can do it this afternoon, we can do it tomorrow, or we can do 
it next week. We are going to have a vote on this amendment. 
Senators need to take that into account before they object.
    Let me say as strongly as I can, this amendment belongs on 
this bill. This is exactly what I think we ought to be doing, 
and I think on a bipartisan basis there is strong support for 
what Senator Levin is proposing.
    I want to speak briefly this afternoon, in my leader time, 
on the amendment itself. I think it is important, as my 
colleagues have been noting, that the Levin amendment contains 
precisely the right solution to the difficult problems of 
determining the proper accounting treatment for stock options. 
It reserves that judgment for the appropriate body, the 
Financial Accounting Standards Board. They are the ones given 
the authority, they are the ones with the credibility, they are 
the ones with the standing to make the right decisions about 
this very important and complex matter.
    I argue this is the heart of our ability to deal with the 
accounting reforms that are in the Sarbanes and Leahy bills.
    It has become all too clear that accounting standards are 
complex and can be easily manipulated by aggressive and 
sometimes unscrupulous corporate executives. Unfortunately, 
FASB's weak, dependent condition has contributed to those 
manipulations. In fact, it is arguable that the undermining of 
FASB's independence was the necessary precondition to the 
crisis in confidence afflicting our capital markets today.
    One of the many virtues of the Sarbanes bill is that it 
corrects that situation. It provides for a new, improved FASB, 
giving it for the first time full financial independence from 
the accounting industry. That certainly is the first and most 
vital improvement we need with respect to establishing clarity 
and regularity of accounting standards.
    Another needed improvement is for those of us in Congress 
to allow FASB to do its job. In 1994--and my colleagues have 
referenced this--when this issue was last taken up by the 
Senate, I am proud to say I was one of nine Senators who voted 
against the Senate intruding itself on FASB's decisionmaking 
process. That is the only reason I opposed my colleague's 
amendment last week. As well intended as it is, in my view it 
did the same thing on the other side that they were trying to 
do 9 years ago. It asserts Congress's authority to undermine 
the independence of that board. I opposed it 9 years ago, and I 
oppose it today, but for obviously different 
results.
    At the same time, the Senate was coming at the options 
issue from the direction of prohibiting expenses back in 1994, 
and as I said today the momentum is the opposite, but the right 
course is the same. Let the experts on the accounting standards 
board do their job and make the appropriate decision. Eight 
years ago, the technical accounting questions were essentially 
the same as they are today, although obviously 8 years have 
given us an entirely different perspective than the one we had 
back then. Nonetheless, the questions are still real. 
Accountants still debate the relative merits of the opposing 
sides. We still have expert opinion going both ways. On the one 
hand, the argument is made that if options are not expensed, 
bottom lines look far more attractive than they actually should 
be, and the investors can be deceived by the distorted 
financial pictures that result.
    On the other hand, we hear that it is inherently impossible 
to value options with no concrete reality behind what the 
options will actually be worth when they are exercised. There 
is also a real debate about the incentive effects of options.
    Supporters argue that they better align an employee's 
interests with the company's. Opponents contend they result in 
a ``pump and dump'' mentality, with senior executives seeking 
to inflate their stock prices at any cost so they can quickly 
and cynically enrich themselves.
    In contrast to those complex questions, the Levin amendment 
is simplicity itself. It is one sentence. It says that FASB 
shall:

    Review the accounting treatment of employee stock options 
and shall, within one year of enactment, adopt an appropriate 
generally-accepted accounting principle for the treatment of 
employee stock options--

    End of issue.
    The business of setting accounting standards is lodged, by 
the Levin amendment, in the board that the Sarbanes bill 
expressly seeks to strengthen and improve. I fully support the 
Levin amendment and the philosophy behind it. Congress should 
not be engaged in setting technical accounting rules. We should 
be seeking to do the reverse: Establish an independent FASB 
that can help restore confidence in the accuracy of financial 
information.
    I observe in this context that because of that principle, 
as I said a moment ago, while well intended, I believe the 
McCain amendment went too far and did exactly what we were 
trying to do in 1994 but on the flip side. Restoring 
independence to the accounting standards is one of the 
overriding objectives of the Sarbanes bill, and that is one of 
my main reasons for supporting it as strongly as I do. That was 
my primary reason for voting in 1994 against a previous attempt 
to direct FASB in its decision about expensing, and it is the 
primary reason for supporting the Levin amendment today.
    So I will end on this particular issue where I began. There 
will be a vote on the Levin amendment. It will be today, 
tomorrow, next week, or at some point in the future, but 
Senators should not be misled. If there is an objection today, 
it by no means ends the debate. We might as well have it. We 
might as well get it. We might as well include it in the 
Sarbanes bill because it will be included in one fashion or 
another, ultimately, before the work has been done in the 
Senate on this very important, complex, and comprehensive 
challenge we face.
    The Presiding Officer. The Senator from Michigan is 
recognized.
    Mr. Levin. How much time do I have remaining?
    The Presiding Officer. The Senator has 25 minutes 
remaining.
    Mr. Levin. Mr. President, I quote from a few observers what 
the stakes are in this vote and what the stakes have been in 
terms of the way in which stock options have not been expensed, 
have been stealth compensation, have fueled the incredible 
increase in terms of executive pay, and have been a driving 
force behind the deceptive accounting practices which have 
bedeviled this Nation and undermined public confidence in the 
credibility of our financial statements.
    Robert Samuelson, an economist, said the following:

    The point is that the growth of stock options has created 
huge conflicts of interest that executives will be hard-pressed 
to avoid. Indeed, many executives will coax as many options as 
possible from their compensation committees, typically composed 
of ``outside'' directors. But because ``directors are 
[manipulated] by manage-
ment, sympathetic to them, or simply ineffectual,'' the amounts 
may well be ex-
cessive. . . .
    Stock options are not evil, but unless we curb the present 
madness, we are courting continual trouble.

    This is what a retired vice president at J.P. Morgan and 
Company said: There can be no real reform without honest 
accounting for stock options. A decade ago, the Financial 
Accounting Standards Board recommended options be counted as a 
cost against earnings like all other forms of compensation, but 
corporate lobbyists resisted and Congress did their bidding. 
Alan Greenspan and Warren Buffett, among others, are calling 
for the same change now, but it remains to be seen whether the 
accounting profession can act without congressional 
interference. Treating options like other forms of pay would 
make executive compensation transparent, diminish the 
temptation to cook the books, and make managers less inclined 
towards excessive risk taking.
    Warren Buffett, who was quoted by Senator McCain last week, 
said the following: If options aren't a form of compensation, 
what are they? If compensation isn't an expense, what is it? If 
expenses shouldn't go into the calculation of earnings, where 
in the world should they go?
    A New York Times editorial of March 31 of this year stated:

    We have no quarrel with the business lobby's claim that 
stock options have helped fuel America's entrepreneurship, 
particularly in Silicon Valley. But in the interest of truthful 
accounting and greater financial integrity, options should be 
treated as what they are, a worthy form of compensation that 
companies must report as an expense.

    Robert Felton, director of McKinsey & Company's Seattle 
office, said:

    Because they have so much at stake with these huge grants, 
options are likely to have encouraged some managers to cheat 
and cook the books.

    Allan Sloan of Newsweek:

    . . . options are a free lunch for companies. . . .
    I'm all in favor of employees becoming millionaires via 
options--I'm an employee, after all--but I'm also in favor of 
companies providing profit-and-loss statements that show the 
real profit and loss. Ignoring options' costs and low-balling 
CEO packages are simply outrageous. When campaigns start 
expensing options and disclosing true CEO and director 
compensation numbers, I'll believe that they've seen the light.
    According to the Economist, last year, stock options 
accounted for 58 percent of the pay of chief executives of 
large American companies. So over half the compensation of our 
CEOs of major companies now comes from stock options. To leave 
that expense off the financial statements' bottom line is to 
distort what is going on at companies. It is part of the reason 
we have not had accurately reflective financial statements at 
our corporations. It is part of the reason for the soup we are 
in right now.

    Where financial statements have been giving a false picture 
of what a company's financial situation is, it has provided 
stealth compensation in huge amounts to executives, it has 
watered down the value of stock to the owners of a corporation. 
That is why now we have such tremendous support from the 
organizations which represent stockholders.
    That is why, for instance, TIAA-CREF, the largest pension 
fund in the United States for teachers is supportive of 
changing the accounting for stock options. It is why the 
Council for Institutional Investors, which is the leading 
shareholders organization for pension funds, now favors 
expensing stock options in order to give an accurate reflection 
of what a company's financial statement is. It is why the AFL-
CIO supports the amendments offered last week and the amendment 
which hopefully will be offered today if we are allowed to have 
a vote on this.
    Alan Greenspan says this is the top post-Enron reform. 
Expensing stock options is the top post-Enron reform. That is 
the Chairman of the Federal Reserve. Paul Volcker, former 
Federal Reserve Chairman, supports a change in stock option 
accounting. Arthur Levitt, former SEC Chairman, supports the 
change; Warren Buffett, as we mentioned; and a host of 
economists. Standard & Poor's believes you have to expense 
stock options if you are going to show an accurate earnings 
calculation; Citizens for Tax Justice; Consumer Federation of 
America; Consumers Union, and on and on.
    The Washington Post of April 18 says the following:

    . . . expert consensus favors treating options as a 
corporate expense, which would mean that reported earnings 
might actually reflect reality. . . . But nobody wants to ban 
this form of compensation; the goal is merely to have it 
counted as an expense.

    That is the end of that particular quote. I would like the 
entire quote printed in the Record, and I ask unanimous consent 
that all the editorials and comments that I referred to be 
printed in the Record in full.
    There being no objection, the material was ordered to be 
printed in the Record, as follows:

               [From the Washington Post, Jan. 30, 2002]

                          Stock Option Madness

                        (By Robert J. Samuelson)

    As the Enron scandal broadens, we may miss the forest for 
the trees. The multiplying investigations have created a 
massive whodunit. Who destroyed documents? Who misled 
investors? Who twisted or broke accounting rules? The answers 
may explain what happened at Enron but not necessarily why. We 
need to search for 
deeper causes, beginning with stock options. Here's a good idea 
gone bad--stock options foster a corrosive climate that tempts 
many executives, and not just those at Enron, to play fast and 
loose when reporting profits.
    As everyone knows, stock options exploded in the late 1980s 
and the '90s. The theory was simple. If you made top executives 
and managers into owners, they would act in shareholders' 
interests. Executives' pay packages became increasingly skewed 
toward options. In 2000, the typical chief executive officer of 
one of the country's 350 major companies earned about $5.2 
million, with almost half of that reflecting stock options, 
according to William M. Mercer Inc., a consulting firm. About 
half of those companies also had stock-option programs for at 
least half their employees.
    Up to a point, the theory worked. Twenty years ago, 
America's corporate managers were widely criticized. Japanese 
and German companies seemed on a roll. By contrast, their 
American rivals seemed stodgy, complacent and bureaucratic. 
Stock options were one tool in a managerial upheaval that 
refocused attention away from corporate empire-building and 
toward improved profit-ability and efficiency.
    All this contributed to the 1990's economic revival. By 
holding down costs, companies restrained inflation. By 
aggressively promoting new products and technologies, companies 
boosted production and employment. But slowly stock options 
became corrupted by carelessness, overuse and greed. As more 
executives developed big personal stakes in options, the task 
of keeping the stock price rising became separate from 
improving the business and its profitability. This is what 
seems to have happened at Enron.
    The company adored stock options. About 60 percent of 
employees received an annual award of options, equal to 5 
percent of their base salary. Executives and top managers got 
more. At year-end 2000, all Enron managers and workers had 
options that could be exercised for nearly 47 million shares. 
Under a typical plan, a recipient gets an option to buy a given 
number of shares at the market price on the day the option is 
issued. This is called ``the strike price.'' But the option 
usually cannot be exercised for a few years. If the stock's 
price rises in that time, the option can yield a tidy profit. 
The lucky recipient buys at the strike price and sells at the 
market price. On the 47 million Enron options, the average 
``strike'' price was about $30, and at the end of 2000, the 
market price was $83. The potential profit was nearly $2.5 
billion.
    Given the huge rewards, it would have been astonishing if 
Enron's managers had not become obsessed with the company's 
stock price and--to the extent possible--tried to influence it. 
And while Enron's stock soared, why would anyone complain about 
accounting shenanigans? Whatever the resulting abuses, the 
pressures are not unique to Enron. It takes a naive view of 
human nature to think that many executives won't strive to 
maximize their personal wealth.
    This is an invitation to abuse. To influence stock prices, 
executives can issue optimistic profit projections. They can 
delay some spending, such as research and development (this 
temporarily helps profits). They can engage in stock buybacks 
(these raise per-share earnings, because fewer shares are 
outstanding). And, of course, they can exploit accounting 
rules. Even temporary blips in stock prices can create 
opportunities to unload profitable options.
    The point is that the growth of stock options has created 
huge conflicts of interest that executives will be hard-pressed 
to avoid. Indeed, many executives will coax as many options as 
possible from their compensation committees, typically composed 
of ``outside'' directors. But because ``directors are 
[manipulated] by management, sympathetic to them, or simply 
ineffectual,'' the amounts may well be excessive, argue Harvard 
law professors Lucian Arye Bebchuk and Jesse Fried and attorney 
David Walker in a recent study.
    Stock options are not evil, but unless we curb the present 
madness, we are courting continual trouble. Here are three ways 
to check the overuse of options.
    (1) Change the accounting--count options as a cost. 
Amazingly, when companies issue stock options, they do not have 
to make a deduction to profits. This encourages companies to 
create new options. By one common accounting technique, Enron's 
options would have required deductions of almost $2.4 billion 
from 1998 through 2000. That would have virtually eliminated 
the company's profits.
    (2) Index stock options to the market. If a company's 
shares rise in tandem with the overall stock market, the gains 
don't reflect any management contribution--and yet, most 
options still increase in value. Executives get a windfall. 
Options should reward only for gains above the market.
    (3) Don't reprice options if the stock falls. Some 
corporate boards of directors issue new options at lower prices 
if the company's stock falls. What's the point? Options are 
supposed to prod executive to improve the company's profits and 
stock price. Why protect them if they fail?
    Within limits, stock options represent a useful reward for 
management. But we lost those limits, and options became a kind 
of free money sprinkled about by uncritical corporate 
directors. The unintended result was a morally lax, get-rich-
quick mentality. Unless companies restore limits--prodded, if 
need be, by new government regulations--one large lesson of the 
Enron scandal will have been lost.

                               ----------

               [From the Washington Post, April 18, 2002]

                              Money Talks

    Alan Greenspan, perhaps the Nation's most revered 
economist, thinks employee stock options should be counted, 
like salaries, as a company expense. Warren Buffet, perhaps the 
Nation's foremost investor, has long argued the same line. The 
Financial Accounting Standards Board, the expert group that 
writes accounting rules, reached the same conclusion eight 
years ago. The London-based International Accounting Standards 
Board recently recommended the same approach. In short, a 
rather unshort list of experts endorses the common-sense idea 
that, whether you get paid in cash or company cars or options, 
the expense should be recorded. Yet today's Senate Finance 
Committee hearing on the issue is likely to be filled with 
dissenting voices. There could hardly be a better gauge of 
money's power in politics.
    Why does this matter? Because the current rules--which 
allow companies to grant executives and other employees 
millions of dollars in stock options without recording a dime 
of expenses--make a mockery of corporate accounts. Companies 
that grant stock options lavishly can be reporting large 
profits when the truth is that they are taking a large loss. In 
2000, for example, Yahoo reported a profit of $71 million, but 
the real number after adjusting for the cost of employee stock 
options was a loss of $1.3 billion. Cisco reported $4.6 billion 
in profits; the real number was a $2.7 billion loss. By 
reporting make-believe profits, companies may have conned 
investors into bidding up their stock prices. This is one cause 
of the Internet bubble, whose bursting helped precipitate last 
year's economic slowdown.
    It is not surprising, therefore, that the expert consensus 
favors treating options as a corporate expense, which would 
mean that reported earnings might actually reflect reality. But 
the dissenters are intimidated by neither experts nor logic. 
They claim that the value of options is uncertain, so they have 
no idea what number to put into the accounts. But the price of 
an option can actually be calculated quite precisely, and 
managers have no difficulty doing the math for the purposes of 
tax reporting. The dissenters also claim that options are 
crucial to the health of young companies. But nobody wants to 
ban this form of compensation; the goal is merely to have it 
counted as an expense. Finally, dissenters say that options 
need not be so counted because granting them involves no cash 
outlay. But giving employees something that has cash value 
amounts to giving them cash.
    The dissenters include weighty figures in both parties. 
Sen. Joe Lieberman (D-Conn.) is the chief opponent of options 
sanity in the Senate, and last week President Bush himself 
declared that Mr. Greenspan is wrong on this issue. What might 
be behind this? Many of the corporate executives who give 
generously to politicians are themselves the beneficiaries of 
options--often to the tune of millions of dollars. High-tech 
companies, an important source of campaign cash, are fighting 
options reform with all they've got. But if these lobbyists are 
allowed to win the argument, they will undermine a key 
principle of the financial system. Accounting rules are meant 
to ensure that investors get good information. Without good 
information, they cannot know which companies will best use 
capital, and the whole economy suffers in the long run.

               [From the New York Times, March 31, 2002]

                         Stock Option Excesses

    In his Congressional testimony last month, Jeffrey 
Skilling, Enron's former chief executive, offered a primer on 
the misuses of stock options. Options, he said, are the most 
egregious way for companies to pump up their profits 
artificially. They also netted him a tidy $62.5 million in 2000 
and helped Enron pay no income taxes in four of the last five 
years.
    Stock options, in theory, aren't a bad idea. By giving 
employees the chance to buy a company's stock in the future at 
today's price, corporations can provide an extra incentive for 
hard work and can augment compensation. The New York Times 
Company awards option to its top executives. But like other 
rational business practices that got out of hand during the 
boom years of the late 1990's, options have been abused by some 
companies and are in need of reform.
    A good place to start would be for Congress to end the 
conflict between how the tax laws and the accounting rules 
treat employees options. Alan Greenspan, the Federal Reserve 
chairman, has identified that as one of the most pressing post-
Enron reforms affecting corporate governance.
    That conflict creates a loophole that has allowed companies 
to treat stock options as essentially free money during the 
recent dot-come bubble. A company does not have to report 
grants of stock options as an expense on its profit-and-loss 
statements, as it does with other forms of compensation, but it 
can deduct the options as an expense from its tax liability 
when employees exercise them.
    As a result, corporate executives can award themselves 
oodles of stock options without fear of denting their profit 
reports. Once the options are exercised, the company can treat 
the appreciation in the shares' value--the employees' profit--
as an expense for tax purposes. At Enron, stock option 
deductions alone turned what would have been a Federal income 
tax bill of $112 million in 2000 into a $278 million refund. 
Mr. Greenspan said last week that Federal Reserve Board 
research found that the average earnings growth rate of the S&P 
500 companies between 1995 and 2000 would have been reduced by 
nearly a quarter if the companies had reported their stock 
options as expenses on financial statements.
    A decade ago, the accounting industry proposed a sensible 
rule to make companies report options as expenses, but it was 
beaten back by fierce corporate lobbying. Now Senators John 
McCain and Carl Levin have proposed a bill that would end the 
double standard, disallowing the tax deduction for any company 
that fails to report options as an expense.
    They are backed in that effort by investors like Warren 
Buffet and big institutions like pension plans, which are 
rightly incensed by abusive executive compensation schemes. 
They are tired of unseemly practices like the repricing of 
options to ensure that executives still get windfalls if the 
stock price falls. Making interest-free loans for executives to 
acquire stock (often forgiven if the bet does not pay off) is 
another dubious compensation practice.
    We have no quarrel with the business lobby's claim that 
stock options have helped fuel America's entrepreneurship, 
particularly in Silicon Valley. But in the interest of truthful 
accounting and greater financial integrity options should be 
treated as what they are: a worthy form of compensation that 
companies must report as an expense.
    Congress must end the dot-com-era notion that options equal 
free money. That would be a first step toward reassuring 
investors that top executives cannot treat publicly traded 
companies as Ponzi schemes created for their own enrichment.

                               ----------

                     [From Newsweek, May 20, 2002]

                     Show Me the Money (All of it)

                            (By Allan Sloan)

    Watching corporate America these days is like watching 
drunks at a revival meeting. They're vowing to sin no more, to 
tell shareholders the straight truth instead of playing 
accounting games, to embrace ``transparency'' so outsiders can 
see what's going on. But talk is cheap. When it comes to action 
on two key reforms--accounting for stock options, and showing 
the value of chief executives' compensation packages--
corporations are as opaque as ever.
    The accounting first. As things stand now, options are a 
free lunch for companies--employees place a high value on them, 
but companies can issue as many as they want without hurting 
corporate profits. That's because companies don't have to count 
options value as an expense. With reform in the air because of 
Enron, old-math types like Warren Buffett and Alan Greenspan 
are pushing to change accounting rules to force companies to 
count the value of stock options as an expense in their profit-
and-loss statements. Accounting rule makers proposed this a 
decade ago, but backed down under political pressure generated 
by corporations, especially in options-happy Silicon Valley. 
Then there's a second, little-known aspect of the options-
accounting debate. If companies have to count the value of 
options as an expense, they would come under huge pressure to 
report their value as compensation to the CEO, and to members 
of the board. Under current rules, a company has to show 
shareholders a table that includes how much it gave the CEO in 
salary, bonus, long-term compensation and other benefits. But 
the table has to show only the number of options granted to the 
CEO, not their economic value. To find that, you have to hunt 
on other pages--and you may not find it at all if the company 
opts to report a different way. ``The original idea was to have 
the value of options in the table, not the number of options,'' 
says Graef Crystal, a compensation expert who worked on the 
disclosure rules. But, he says, the SEC backed down after 
companies objected.
    It's easy to see why companies would have been upset at 
having to count options as compensation. In most pay filings I 
see these days, the economic value of CEO and directors' 
options exceeds their cash payments. So counting options would 
more than double the typical package.
    To see how this works, let's look at Dell Computer and 
Knight Ridder, two companies I just happen to have looked at 
recently. Dell's most recent statement shows that Michael Dell, 
its billionaire owner and founder, earned $2.6 million in 
salary and bonus. Not starvation wages, but not much for a big-
time CEO. On a different page, you see that he got options the 
company valued at $26 million. That's major moolah. Dell 
directors were paid a $40,000 annual retainer fee, but also got 
options on $850,000 worth of Stock. The option's economic 
value: around $300,000. Note that I'm not accusing Dell of 
hiding anything--it's following the rules.
    Dell shows why options have economic value when they're 
granted, even if the stock subsequently falls. The directors 
got their options when Dell stock was about $52, double today's 
price. By getting options on $850,000 of stock rather than 
buying 16,298 shares, directors avoided losing money--and 
didn't have to tie up $850,000. Meanwhile, they had the same 
upside as regular investors who risked $850,000. The company 
says its compensation packages are skewed toward options, so 
that employees and directors don't make out unless regular 
stockholders do.
    Now to Knight Ridder, which has been on a cost-cutting kick 
for years. Last year chairman Tony Ridder got $935,720 in 
salary and no bonus. He also got options on 150,000 shares. 
Knight Ridder values the options at about $1.6 million, but by 
most rules of thumb, they were worth twice that much. Knight 
Ridder directors got a $40,000 annual fee--and 4,000 options. 
The options were worth about $42,500 by Knight Ridder's math, 
about $85,000 by conventional math. Knight Ridder says its 
figures are lower because it assumes its options are exercised 
much quicker than other analysts assume.
    I'm all in favor of employees becoming millionaires via 
options--I'm an employee, after all--but I'm also in favor of 
companies providing profit-and-loss statements that show the 
real profit and loss. Ignoring options' costs and low-balling 
CEO pay packages are simply outrageous. When companies start 
expensing options and disclosing true CEO and director 
compensation numbers, I'll believe they've seen the light. 
Until then, I'll assume that they're still on the bottle.

                               ----------

              [From the Wall Street Journal, May 3, 2002]
                         Accounting for Options
                        (By Joseph E. Stiglitz)
    Deja vu. The post-Enron imbroglio over stock options is a reminder 
that history--if forgotten--does indeed repeat itself. Eight years ago, 
while serving on President Clinton's Council of Economic Advisers, I 
was involved in a heated debate over information disclosure. The 
Financial Accounting Standards Board had proposed a new standard that 
would require firms to account for the value of executive options in 
their balance sheets and income statements.
    When FASB made its proposal for what would have clearly been an 
improvement in accounting practices, Silicon Valley and Wall Street 
were united in their opposition. The arguments put forward then are the 
same as those put forward today, and they are as specious and self-
serving now as they were eight years ago.
                               outrageous
    The most outrageous argument--but the one that had the greatest 
impact--was that disclosing the information would adversely affect 
share prices. That is, if people only knew how much their equity claims 
on the firm could be diluted by options, they would pay less for their 
shares! True, and that is precisely why the disclosure is so important. 
Markets can only allocate resources efficiently when prices accurately 
reflect underlying values, and that requires as good information as 
possible. If markets overestimate the value of a particular set of 
ventures, resources will mistakenly flow in that direction. This is 
partly what caused the dot-com and telecom bubbles. Irrational 
exuberance played its part, but so too did bad accounting--i.e., 
distorted information.
    To be sure, information will never be perfect and asymmetries of 
information are pervasive. But one of the key insights of the modern 
theory of information is that participants do not always have an 
incentive to disclose fully and accurately all the relevant 
information, and so it is important to have standards.
    This is where the second specious argument enters: Critics of 
FASB's proposal claimed that it is impossible to value options 
accurately, and accordingly, it would be misleading to include the 
options within the standard accounting frameworks. To better understand 
the falsity of this argument, let's take a closer look at how stock 
options really work.
    The basic economics of stock options are simple. Issuing stock 
options does not create resources out of thin air. Executives like 
stock options because they have value. But the value however measured, 
comes at the expense of other shareholders. The right of managers to 
buy shares is the right to dilute the ownership claims of existing 
shareholders. When markets work well--when information is good--the 
market will value today the issuance of a right to dilute, even when 
that dilution may never occur, and if it does occur, would happen 
sometime in the future.
    The existing owners of the firm will participate less in the upside 
potential of the market them they would have in the absence of the 
options. In principle, they can calculate the circumstances when the 
executives are likely to exercise their options, and therefore can 
calculate the diminution in their potential gains from owning shares in 
the company. That is why when this information is disclosed in ways 
that can easily be understood by investors, it will lead to a fall in 
the company's share price.
    Making such calculations, however, is not easy or costless. In 
principle, each shareholder could go through each of the items in the 
firm's accounts to construct his own ``estimates'' but that would be a 
foolish waste of resources, and the transaction costs would put a major 
damper on capital markets and the market economy. That is why we have 
accounting standards. Such information is like a public good: Better 
standards--more transparency--lead to better resource allocation and 
better functioning markets; and if participants have more confidence in 
markets, they will be more willing to entrust their money to markets.
    Which brings us back to the argument that it is ``impossible'' to 
value options. Companies do, of course, have ways of calculating the 
value of options and do it themselves all the time for their own 
internal planning purposes.
    AS for the question of whether an estimate based on a publicly-
disclosed formula would be misleading, because it is only an estimate, 
that is true of many line items that are central to our accounting 
frameworks, such as depreciation, `Calculations about the value of 
options would be just as, or even more, accurate than standard 
depreciation estimates are of the market value of the declines in asset 
values that come with use and obsolescence--something which is a line 
item on every accounting framework in corporate America and most of the 
world. Of this much we can be sure: zero, the implied valuation used by 
companies now when describing the cost of options in their balance 
sheets and income statements, is a vast underestimate.
    Those who argue against including options within the standard 
accounting frameworks try to have it both ways: They believe that 
market participants are smart enough to read through dozens of 
footnotes to figure out the implications of options for the value of 
their shares, but so dumb that they would be misled by the more 
accurate numbers that would be provided under the reform proposals, and 
unable to redo the calculations themselves.
                              transparency
    There is one more reason for the U.S. to be resolute in improving 
our accounting standards by including better accounting for options. 
During the East Asia crisis the U.S. preached the virtues of 
transparency but then refused to do anything about regulating the murky 
world of offshore banking. America also preached the virtues of our 
accounting standards only to find that the world was laughing at Enron 
and Arthur Andersen. Tightening our rules on accounting of options 
would signal that the U.S. is serious about openness, serious about 
improving its accounting standards--despite the special interests 
opposed to changes--and willing to learn from its mistakes.
    Many of the same forces that allied themselves in the 1990s against 
changes in accounting for options are now trying to suppress this 
attempt to make our market economy work better. In the earlier episode, 
the National Economic Council, the U.S. Treasury, and the Department of 
Commerce intervened in what was supposed to be an independent 
accounting board, and put pressure on FASB to rescind its proposed 
regulations. They won, and the country lost. Today, there is a risk 
once again of political intervention. At least this time, the voices of 
responsible economic leadership, such as Alan Greenspan, are speaking 
out. I only hope that this time they will succeed.

                               ----------

    Mr. Levin. Mr. President, the Republican staff of the Joint 
Economic Committee put out a report called, ``Understanding the 
Stock Option Debate.''
    They have gone through a lengthy analysis dated July 9, 
2002, in which they conclude the following:

    Existing accounting principles provide an unambiguous 
answer. Stock option awards should indeed be treated as a cost 
in financial statements.

    It is quite clear to me that two things are true. No. 1, 
that how we treat stock options is an essential part of the 
post-Enron reform effort. That is No. 1. No. 2, it seems clear 
to me that there is at least a likelihood that a majority of 
this body, if allowed to vote on this amendment, will vote to 
refer this matter to an independent accounting standards board 
which has its own source of revenue, free from the kind of 
pressure which it was under in 1994 and 1995, to reach an 
appropriate conclusion.
    Do I believe that conclusion will be the same as they 
reached in 1994? I do. It is very clear to me they would reach 
such a conclusion and should reach such a conclusion. But as 
our colleagues have pointed out, that is up to the board under 
this amendment. We would not be adopting a standard.
    In all honesty, I expect they would continue on the same 
course they were on 8 years ago when they were violently thrown 
off course by people who had control over the purse strings of 
the organization. I would expect that would happen. But under 
this amendment, it is their call, not ours.
    I support the McCain amendment because I believe, as I 
believed then, that the accounting standards board wanted to 
expense options and that we, in executive pressure, interfered 
with that decision on their part. That is why I believe Senator 
McCain's amendment is also appropriate. But we cannot even get 
a vote on that amendment. Last week, we were not able to bring 
that amendment to a vote.
    But this amendment is different. This amendment says to the 
independent board: review this issue. Make an appropriate 
decision within a year.
    For the life of me I not only do not see how folks--
regardless of the side of this particular issue that they are 
on--could vote against such an amendment when it does not tell 
them what to do but just asks them to review it and decide 
within a year as to what the appropriate accounting method is. 
I do not understand why, in the middle of a debate on the 
reforms which are essential to restore public confidence after 
the Enron fiasco, this Senate should not be allowed to vote on 
this issue on this bill.
    When the majority leader announced that one way or another 
we will get to a vote on this amendment, I was glad to hear 
that. I didn't know he was going to say that, but I certainly 
was glad he said that. But it seems to me that adds a reason we 
ought to vote for this amendment on this bill.
    This is the right place. Surely it is the right time. There 
has perhaps never been a more critical moment in our economic 
history in the last few decades than we are facing right now, 
to help us restore public confidence. It will be an additional 
contribution to that restoration of public confidence if we 
take this action. If we say yes, 8 years ago we did intervene, 
but now we don't want to tell the accounting standards board 
that they should not expense options. That was 8 years ago. 
What we are telling them now is: Do the right thing.
    We know what they tried to do 8 years ago. It is laid out 
in the record by them. They wanted to do what they believed was 
the right thing. If they had done so, they would have been put 
out of business.
    Now we have an opportunity, it seems to me, to do the right 
thing ourselves, which is to tell the board that has the 
responsibility to adopt accounting standards, to adopt what 
they believe is the appropriate standard. That is the right 
thing to do.
    Mr. Reid. Will the Senator yield for a question on my time?
    Mr. Levin. I will be happy to.
    Mr. Reid. Is the Senator aware that the stock market, the 
Dow as of now is down 338 points as of today?
    Mr. Levin. I was not aware of that. But it surely adds an 
additional urgency, if we need additional urgency, for why we 
should do everything in our power to restore public confidence 
in the financial systems in this country.
    I left off one of my cosponsors before. Senator Biden is a 
cosponsor of the amendment, which is at the desk.
    I will ask unanimous consent we be able to vote on that at 
a later moment.
    I wonder if I could ask the Chair how much time I have 
remaining.
    The Presiding Officer. The Senator has 12 minutes 
remaining.
    Mr. Levin. I understand Senator McCain would like to speak 
at this time. I see the Republican manager on the floor, so I 
do not know if this fits his particular timetable or not.
    I ask unanimous consent I be allowed to yield to Senator 
McCain on his----
    Mr. Reid. I object.
    The Presiding Officer. Objection is heard.
    Mr. Levin. Mr. President, at this time I ask unanimous 
consent to lay aside the pending second-degree amendment, No. 
4286, and call up for consideration my amendment 4283, on stock 
options, which is a second-degree amendment to the Edwards 
amendment No. 4187.
    The Presiding Officer. Is there objection?
    Mr. Gramm. Mr. President, reserving the right to object, 
let me say there is something on which I agree with the 
majority leader. That is, at some point we are going to make a 
judgment on this issue. But we are currently in a situation 
where we have 97 first-degree amendments that have been filed. 
We have 24 second-degree amendments. We have 3 different 
approaches to this issue.
    Senator McCain wants to ma