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THE NATION | CRISIS IN CORPORATE AMERICA

Senate Backs Stiffer Fraud Penalties

Business: Democrats, GOP unite on measures that would make it easier to prosecute violators.

July 11, 2002|RICHARD SIMON and JANET HOOK | TIMES STAFF WRITERS

WASHINGTON — The Senate unanimously agreed Wednesday to new measures that would make it easier to prosecute corporate fraud and would stiffen the penalties for such crimes, a clear sign of the bipartisan stampede to crack down on corporate wrongdoing.

The measures were approved as amendments to a Democratic-backed accounting reform bill that gained momentum Wednesday as the White House sent its strongest signal yet that it is willing to accept the legislation. The overall bill is expected to win final Senate approval, perhaps by the end of the week.

The votes on the amendments came the day after President Bush delivered a speech to Wall Street that was widely panned as a weak response to the string of corporate accounting scandals that have cost investors billions of dollars.

Democrats who control the Senate sought to show their aggressiveness on the issue, pushing for the changes in the bill that go significantly beyond what Bush proposed.

One amendment would make securities fraud a federal crime. Currently, prosecutors must rely on laws that are not specifically written for securities fraud, such as mail and wire fraud. The amendment's advocates said that makes the cases more complex, and that creating a felony specifically for securities fraud would make it easier to prosecute corporate misdeeds.

The amendment also would provide new protections for corporate whistle-blowers and extend the time for investors to bring securities fraud lawsuits against corporations, among other measures.

The other amendment would treat corporate criminals the same as drug kingpins, subjecting them to prison terms of up to 10 years. Currently, the punishment for corporate wrongdoing in many cases is not as severe as for other crimes.

"These people deserve to go to jail," said Sen. Patrick J. Leahy (D-Vt.), a leading supporter of both measures. "They've ruined the lives of thousands of people, good people, hard-working people, honest people. They have destroyed much of the confidence in Wall Street."

Every Republican present joined Democrats in voting for both measures, demonstrating the political potency of the issue as corporate scandals have shaken financial markets and loom as a political issue in the fall campaign.

The unanimity for the tougher penalties makes it virtually certain that the entire bill will pass by a large margin, increasing the pressure on Bush and congressional Republicans to accept new regulations that some GOP lawmakers have resisted as excessive.

"Any time Republicans vote unanimously with a Democratic proposal, it tells you they know which way the political wind is blowing," said Robert Litan, economic studies director for the nonpartisan Brookings Institution in Washington. "They don't want to stand in the way of a hurricane come November."

The GOP-controlled House earlier this year passed an accounting reform bill that Democrats have criticized as not tough enough.

The Senate on Wednesday also voted--again unanimously--to incorporate into its accounting reform bill a number of the proposals Bush made Tuesday for cracking down on corporate corruption.

These include doubling the maximum prison term, to 10 years, for mail and wire fraud convictions in securities fraud cases; granting the Securities and Exchange Commission authority to bar dishonest corporate officials from serving as officers and directors of public companies; and strengthening laws that criminalize document shredding and other forms of obstruction of justice.

In the wake of Bush's speech and in the face of the strong push for the Senate Democrats' accounting bill, Republicans scrambled to grab a share of the political credit for the burgeoning effort to combat corporate malfeasance.

Republicans downplayed past GOP reservations about the Senate bill drafted by Sen. Paul S. Sarbanes (D-Md.).

After meeting with Bush, Senate Minority Leader Trent Lott (R-Miss.) said the president "didn't see any major problems" with the Sarbanes bill.

At the White House, spokesman Ari Fleischer said Bush told congressional leaders over breakfast Wednesday that he believes the House and Senate bills are actually "very close."

Fleischer said key differences between them are "all bridgeable."

He added: "From the president's point of view, there is about 95% agreement between the administration and Congress on the various pieces of legislation."

"We're not that far apart," said Rep. Michael G. Oxley (R-Ohio), lead sponsor of the version of the House accounting bill. Democrats have derided the measure as weak, largely because it would not give a new oversight accounting board as much authority as in a provision in the Senate bill.

Some House Republicans are showing signs of giving ground on another hot anti-corporate issue: measures to crack down on companies that move their legal address to tax havens like Bermuda to avoid U.S. taxes. House GOP leaders have steadfastly opposed legislation by Rep. Richard E. Neal (D-Mass.) to bar such corporate relocations.

The House Appropriations Committee voted Tuesday to approve an amendment to a Treasury-Post Office funding bill to cut off federal contracts from those agencies to companies that move offshore to avoid taxes.

Times staff writer Edwin Chen contributed to this report.

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