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Monday, 8 July, 2002, 20:31 GMT 21:31 UK
Congress pushes accounting reform
Michael Oxley of the House of Representatives signs a subpoena ordering testimony from WorldCom bosses
WorldCom bosses are now facing subpoenas from Congress
US legislators' willingness to crack down on accounting scandals faced a major test on Monday as senators debated a bill to crack down on the accountancy business.

The bill, proposed by Senate Finance Committee chairman Paul Sarbanes, a Maryland Democrat, aims to create an independent board to oversee the profession.

The board would include two retired accountants, and would have power to set standards, fine or even ban accountants and auditors, and police sharp limits on what extra services - such as lucrative consultancies - they can offer clients.

Democratic Senator Paul Sarbanes from Maryland
Sarbanes: "Strain on the economy is deep"
The proposals are harsher than a bill passed by the House of Representatives in April, and come less than 24 hours before President George W Bush is due to offer his own proposals for reform.

The proposal passed the Senate Banking Committee late last month, and on Monday went before the full 100-member Senate, which has a slim Democrat majority.


At a press conference on Monday, Mr Sarbanes said Wall Street scandals were depressing the chances of a healthy economic recovery.

"It is becoming increasingly clear that something has gone seriously wrong," he said.

"The strain on the economy is deep and spreading."

Recent corporate scandals demonstrated that self-regulation for the accounting industry did not work, he said, promising his bill would ensure that federal regulators have the power to halt corporate fraud.

He also suggested that Senate Democrats are ready to attach separate legislation authored by Senate Judiciary Committee chairman Patrick Leahy to his bill - legislation that would punish any scheme to defraud shareholders a criminal offense with 10 years in jail.

Head to head

However, the Sarbanes bill is not the only legislative attempt to clean up the bean-counting business.

The House, whose own Financial Services Committee is due to hold hearings into WorldCom, passed a bill proposed by Republican Michael Oxley in April.

The Oxley bill is less stringent than its Senate equivalent, and some pressure groups have suggested this is because accountancy firms have spent more on lobbying the House than the Senate.

In all, the Big Five have contributed more than $27m in the past 10 years to federal politicians.

Campaigners say even if the Sarbanes bill makes it through the Senate unadulterated, the joint committee to bring the two bills in line will almost certainly dilute it severely.

"There is an extraordinary gulf between the Osley bill and the Sarbanes bill," said Joel Seligman, dean of the Washington University School of Law in St Louis, Missouri and an expert on securities law.

"Here is where you need SEC (Securities and Exchange Commission) and White House leadership."

Too close for comfort?

The commission, which oversees quoted companies such as Enron and WorldCom, has its own take on reform, which is much closer to the House proposals than those of the Senate.

Harvey Pitt
Pitt: SEC trying to restore lost credibility

But its chairman, Harvey Pitt, is himself in the firing line.

His previous career as a Wall Street lawyer means that all the Big Five are past clients, not to mention dubious figures such as insider dealer Ivan Boesky.

He now faces calls from senior lawmakers on both sides to stand down.

For the Democrats, Senate Majority Leader Tom Daschle told CBS TV that the US could "do a lot better than Harvey Pitt", labelling his relationship with those he is meant to oversee as "cosy" and "permissive".

On the Republican side, John McCain - the Senator who ran against George W Bush for the presidential nomination and is the most vocal proponent of campaign finance reform - also wants Mr Pitt to go, thanks to his "slow and tepid" response to the scandals.

Taking the initiative

As for the White House, President George W Bush is due to unveil his own proposals tomorrow for cleaning up US Inc.

Criminal penalties including jail terms will probably be on offer for executives who sign off on inaccurate - if not actually fraudulent - accounts.

The White House is facing its own embarrassments about corporate misbehaviour, including an investigation into alleged improprieties in the accounts of Halliburton, the oil company run till 2000 by Vice-President Dick Cheney.

Mr Bush, too, is in trouble, following revelations that he delayed reporting stock sales worth more than $1m while serving as a director of Texas-based Harken Energy more than a decade ago.


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