Bush signs bill to battle fraud by businesses

Sweeping reform crafted by Sarbanes responds to market fall, public anxiety

`Era ... of false profits is over'

Law toughens scrutiny of accounting industry, limits consulting services

July 31, 2002|By David L. Greene | David L. Greene,SUN NATIONAL STAFF

WASHINGTON - Hoping to quell fears about the economy and boost investors' confidence, President Bush signed a sweeping measure into law yesterday giving the government broad new tools to combat corporate fraud.

Bush celebrated the law in a formal White House ceremony just a few weeks after he had opposed some of its main elements. The measure, he said, includes "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt."

"This law says to every dishonest corporate leader: `You will be exposed and punished,'" the president said. "The era of low standards and false profits is over."

Bush's Republican allies in Congress had also initially resisted many of the reforms in the bill, which was crafted largely by Sen. Paul S. Sarbanes, the Maryland Democrat who leads the banking committee. They favored a weaker version the House had passed.

But with public anxiety rising and the financial markets tumbling after a spate of corporate scandals, the White House and many Republicans dropped most of their objections to the Democratic approach.

For Sarbanes, Bush's signing was a major personal victory. Having long operated in relative obscurity, he was thrust this month into his most visible public role since he first rose to national attention during the Watergate scandal.

The new law creates an independent oversight board to scrutinize the accounting industry. It also restricts the ability of accounting firms to provide consulting services to public companies they audit.

Under the new law, corporate executives must also personally vouch for their company's earnings reports. And executives will face additional charges and longer prison terms if convicted of corporate fraud or other crimes.

"No more easy money for corporate criminals," Bush said. "Just hard time."

Yesterday's ceremony carried an air of bipartisanship. Besides Sarbanes, those gathering with Bush included Senate Majority Leader Tom Daschle, a South Dakota Democrat, as well as Senate Minority Leader Trent Lott, a Mississippi Republican, and Rep. Michael G. Oxley, the Ohio Republican who co-wrote the bill.

But Democrats made clear that they are in no mood to accord the president much credit for the law. And they signaled that they plan to raise Bush's initial opposition to the Sarbanes bill - as well as his history as a corporate executive in Texas - as the November congressional elections approach to suggest to voters that Bush can't be trusted to tackle corporate abuses.

"He can say he was not resistant to it in the end," Sen. Jon Corzine, a New Jersey Democrat, said in an interview after the bill signing. "But I don't think they ought to be taking victory laps."

Democrats insisted that far more needs to be done to restore faith in the economy and in corporate America, including passing laws to protect employee pensions and to prevent corporations from avoiding taxes by establishing headquarters overseas.

Bush has proposed legislation on both fronts, but Democrats complain that his plans are too weak to have much effect.

House Minority Leader Richard A. Gephardt, a Missouri Democrat, called Bush's signing of the new law "a good first step" but added, "Republicans' obstructionist tactics and special-interest lobbying efforts have stalled reform and contributed to the crisis of confidence facing our country."

But House Speaker Dennis Hastert, an Illinois Republican, complained that Senate Democrats are standing in the way of further reform by refusing to consider a bill to protect pensions - a bill that mirrors Bush's plan and that the House has passed.

Analysts have said it will take some time to know whether the new law will prevent any corporate accounting scandals. Yesterday, though, was symbolically important for both parties.

For Bush and his allies - and for Democrats - there is a growing sense that the state of the economy will be a major election issue this year and a rising urgency to present themselves as best able to manage economic woes.

In responding to deep concerns among Americans about the accounting scandals at Enron Corp. and WorldCom Inc., among other companies, Bush has faced a considerable obstacle: his past. Democrats have raised questions about his years as an executive in the Texas oil patch and have suggested that he engaged in some of the same practices that the new legislation outlaws.

The president portrayed himself yesterday as a staunch advocate for ordinary workers who are hurt by the misconduct of corporate executives.

"Those who break the rules tarnish a great economic system that provides opportunity for all," Bush said. "Their actions hurt workers who committed their lives to building the company that hired them."

Yet late in the day, the White House quietly issued a statement that appeared to weaken a provision of the law that grants federal protection to company whistle-blowers who present Congress with evidence of fraud.

White House spokeswoman Claire Buchan said the administration would interpret the provision as shielding whistle-blowers from company retaliation only if they talk to a congressional committee "in the course of an investigation." The protections would not apply when information is provided to individual lawmakers or aides, she said.

Democratic Sen. Patrick J. Leahy of Vermont, who helped craft the whistle-blower section, said, "I would hope the administration is not beginning to water down the law within hours of signing it."

The Associated Press contributed to this article.

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