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The Honolulu Advertiser

Posted on: Friday, July 26, 2002

Corporate fraud bill delivered by Congress

Skeptics may have a point that, in some respects, the sweeping overhaul of accounting and corporate-governance laws agreed to by House and Senate negotiators this week is a bit like closing the barn door after the horse is gone.

There will always be corporate pirates whose greed becomes criminal, and when Congress blocks the crooked trails blazed by the Enrons, WorldComs and Adelphias, they will simply find others.

Other critics say the bill is an overreaction in a crisis atmosphere; that fixes a problem in only a tiny fraction of the American market.

But those views are overly cynical. The new legislation goes a long way toward restoring tried and true Depression-era institutions that were fairly gutted by a Republican onslaught led by Newt Gingrich a decade ago.

And it gives a needed boost of confidence to the American system of asset allocation, which, while rattled in recent weeks, remains the best in the world.

The legislation kept much of the stricter language in the Senate bill, while including stiffer criminal penalties from the House version. Among other provisions, it creates a regulatory board to oversee the accounting industry and punish corrupt auditors, establishes new grounds for prosecuting corporate wrongdoing and gives broad new protections to corporate whistle-blowers. Anyone who uses a "scheme or artifice" to defraud investors would face long prison terms.

There had been some doubt about strong legislation emerging from the conference committee, but the continuing, alarming slide of the stock market, occurring in an election year, was sufficient to overcome the reluctance of many lawmakers to offend business interests. Indeed, the Business Roundtable, an association of chief executives of leading corporations, hailed the agreement. It's "the right bill at the right time," said the chairman of International Paper.

The full House approved the bill yesterday by a vote of 423 to 3. The Senate is likely to approve it today, and President Bush says he is eager to sign it. We hope he does so before month's end.

Loose ends remain. First, many of the provisions of the bill rely on vigorous enforcement by the Securities and Exchange Commission. President Bush must ensure that this happens, even if it feels a bit unnatural. Second, Congress must not forget the victims of the Enron and other debacles. It still must pass legislation setting up a system so that companies can report the cost of issuing stock options to employees as an expense; and it must give government a more substantial role in regulating corporate retirement schemes.