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The Corporate Reform Weekly:
Citizen Works' look at the Campaign for Corporate Reform

March 18, 2002

1) The week in Washington (a summary of post-Enron reform and rhetoric)
2) News and views
3) Public opinion
4) Action items and how to make your voice heard

THE WEEK IN WASHINGTON:

Quick Summary

• The Justice Department indicts Arthur Andersen LLP on criminal charges for obstruction of justice.
• The Democrats introduce the Corporate and Criminal Fraud Accountability Bill, which expands criminal law to deal with securities fraud more explicitly and expands whistleblower protections.
• The House Ways and Means committee passes The Employee Retirement Savings Bill of Rights, a bipartisan bill that incorporates many of the current proposals. It is the first Enron reform bill to come out of committee.
• John Dingell (D-MI) introduces "The Truth and Accountability in Accounting Act," which essentially calls for increased federal regulatory activity and demands CEOs and CFOs to be responsible for their companies' finances.

The big story last week, of course, was the Justice Department's decision to indict Arthur Andersen LLP for obstruction of justice, charging the firm with "widespread criminal conduct" for destroying "tons" of Enron-related records. It was the first criminal charge ever brought against a major accounting firm.

Deputy District Attorney General Larry Thompson said the shredding of Enron-related documents and the destruction of electronic files was "personally directed" by Andersen partners in mid-October. Thompson said that the partners "knew full well that these documents were relevant to the inquires into Enron's collapse."

According to the indictment, employees shredded documents in London, Portland, Houston, and Chicago in response to the Securities and Exchange Commission's inquiry into Enron.

Andersen's lawyers called the charges "ridiculous" and the company has promised to fire all individuals who were responsible for document destruction.

While it is obvious that Andersen's blatant shredding amounts to criminal conduct, there are some potentially negative unintended consequences. 1) The indictment will sap Andersen's financial resources, making it harder for Enron shareholders, creditors, and employees to recoup losses from Andersen 2) It could spell the end for Andersen, which, as the Washington Post notes in a March 13 editorial, would leave only four major accounting firms, a situation that "threatens to intensify the cozy collusion that already contributes to abuses in the industry."

Several people have also asked why Enron has not yet been charged.

On the legislative front, the Democrats introduced their response to Bush's corporate accountability plan. The plan, Sen. Patrick Leahy's (D-VT) Corporate and Criminal Fraud Accountability Bill (S. 2010), is focused on altering existing criminal law to allow for more effective prosecution of corporate criminals and giving whistleblowers more rights.

Leahy's bill would:

• Create two new 10-year felony charges relating to the destruction or fabrication of evidence, including the shredding of financial and audit records.
• Give state attorney generals and the Securities and Exchange commission more power to bring cases under civil RICO law
• Create, for the first time, federal protection for corporate whistleblowers and allow corporate whistleblowers whose careers are ruined by retaliation to recover damages.
• Prevent securities law violators from hiding assets in bankruptcy.
• Extend the statute of limitations to allow fraud victims enough time to unravel complex cases.

What Leahy had to say:
"This bill is going to save documents from the shredder and send wrongdoers to jail…We need to give our chief state law enforcement officers and the SEC, who are out there on the front lines of this fight, the tools they need to protect consumers."

What Sen. Majority leader Tom Daschle (D-SD), a co-sponsor, had to say:
"We must restore integrity to our investment and pension systems and strengthen government oversight of them. We cannot allow what happened to Enron employees to happen to the rest of America."

Pension reform, meanwhile, is starting to come into sharper focus. The House Ways and Means Committee last week approved a bipartisan pension reform bill, The Employee Retirement Savings Bill of Rights (HR 3669), by a 36-2 vote. HR 3669 is the first post-Enron reform bill to come out of committee.

The bill is typical of many that have been floating around Washington - it requires employees to hold company matching stock for three years, it prohibits employers from forcing employees to own company stock, and it requires advance notice of any "blackout" period (in this case 30 days). Insider stock trades, however, would not be penalized during a "blackout" period.

The bill also lets workers pay for investment advice with pretax dollars automatically deducted from their paychecks. Committee Chairman Bill Thomas (R-CA), added a tax provision to the bill that would exempt stock options and employee stock ownership plans (ESOP) from payroll taxes at a cost of $23.1 billion over 10 years.

According to the Associated Press, the pension bill probably will be merged with other proposals awaiting action in other House committees, and the House could consider a final version next month. (To learn about all the pension proposals, visit our Pensions Bill List and Summaries.

What bill sponsor Rep. Rob Portman (R-OH) had to say:
"This legislation gives workers what they need most - new diversification rights, new disclosure requirements and better access to retirement savings advice."

In the area of Accounting, Rep. John Dingell (D-MI) introduced his "Truth and Accountability in Accounting Act" (HR 3970), which essentially beefs up existing regulatory organizations, creates a new arm of the SEC to audit auditors, and calls on corporate executives to be personally responsible for company finances.

Dingell's bill would:

• Require the Financial Accounting Standards Board (FASB) to improve its accounting principles.
• Require the Federal Energy Regulatory Commission "to justify two loopholes it created that exempt Enron and other electricity marketers from securities and reporting requirements that apply to utilities and other sellers."
• Force CEOs to be directly responsibility for the financial statements of the company.
• Create an "Independent National Board of Accountancy" under the Securities and Exchange Commission to audit the auditors.

What Dingell had to say:
"The time is finally ripe to introduce and enact strong, sensible, targeted legislation that puts investors and employees ahead of greedy corporations and their less-than-truthful green eye-shaded accountants."

Also in the House, Rep. James Maloney (D-CT) introduced Save America's Job Act of 2002 (H.R. 3922), which, like a bill introduced by Rep. Richard Neal (D-MA) two weeks ago, would impose a U.S. tax on companies that move their headquarters offshore without actually relocating their operations. The bill comes in response to a growing number of companies who are incorporating in offshore tax havens to avoid paying U.S. taxes. Maloney's bill would require businesses to actually move substantial assets and shareholders offshore to avoid paying U.S. taxes.

Click here to view Citizen Works' complete summary of post-Enron legislation.

NEWS AND VIEWS:

Enron Inspires Congress to Try Reform Legislation

Audit Firms Rev Up Lobbying Push