SARBANES OXLEY ACT

Title IX: White-Collar Crime Penalty

Enhancements

Background of SARBANES

WHAT IS THE SARBANES-OXLEY ACT?

The Sarbanes-Oxley Act is a U.S. law that encourages transparency in financial

reporting and corporate governance in public companies with the intention to
protect investors and the public against corporate financial fraud and
mismanagement. The law, also known as SOX or Sarbox, closes loopholes in
accounting practices that in the past permitted misstatements of company value.
The law also holds corporate management accountable; this includes CEOs,
CFOs, boards of directors, and the public accounting firms that may work with and
conduct audits for public companies. 

To ensure higher standards of governance, companies must establish and comply

with internal controls on financial reporting. These controls are intended to protect
the integrity of the data that builds financial records and the integrity of the annual
report. As information security consultant Terumi Laskowsky says, “Integrity means
people are not able to tamper with the data and that it is accurate.” 

In addition to providing an assessment of the financial statements, external auditors

also must provide an opinion on the adequacy of the company’s internal control
structure. In addition, both CEOs and CFOs must certify the accuracy of the
company’s financial statements and annual reports. CEOs and CFOs who sign
misleading or fraudulent reports can be prosecuted; if found guilty, penalties include
up to 20 years in prison and fines of up to five million dollars. 

Although the main goal of the 11 parts (or titles) of Sarbanes-Oxley is to increase
transparency in accounting and reporting, many provisions also influence
information security, data storage and exchange, and electronic communication.
HISTORY OF SARBANES-OXLEY

Multiple instances of questionable financial practices in large U.S. companies and

accounting firms in the late 1990s and early 2000s precipitated the creation of
Sarbanes-Oxley. In companies such as WorldCom, Tyco, and Peregrine
Industries, misleading financial reports resulted in artificially-inflated stock values. 

Revelations of corporate financial misconduct culminated with the bankruptcy of

Enron. As one of the top-ten largest corporations in the U.S. at the time, Enron
managed a diversified portfolio of oil and gas development, energy sales, and
telecommunications. However, undisclosed partnerships hid failing aspects of the
company — this allowed earnings to be overstated, which generated increased
stock prices. 

Enron employee pension funds and individual 401Ks were heavily invested in
Enron stock. When the company failed, millions of investors found their stock
portfolios devalued and depleted. In the case of Enron, reallocations to other stock
choices were unavailable during the time when the stock was losing market value.
Many individuals lost as much as ninety-four percent of the value of their
retirement plan. By contrast, some C-suite employees had significant financial

gains in preceding years by exercising stock options that were valued at less than
the current price. 

The financial controversies also raised questions about practices in large

accounting firms, such as Arthur Andersen. Among other activities, some Arthur
Andersen employees were accused of destroying paper and electronic documents
while the SEC conducted a review of Enron.

With the 2001 bankruptcy of Enron, Senator Paul Sarbanes and Congressman
Michael Oxley drafted new legislation to strengthen existing SEC legislation and to
create new laws. The full formal name is Sarbanes–Oxley Act of 2002, and was
known in the Senate as the Public Company Accounting Reform and Investor
Protection Act, and in the House of Representatives as the Corporate and Auditing
Accountability, Responsibility, and Transparency Act. SOX aimed to provide
greater oversight over public accounting firms, increase executive accountability for
the content and accuracy of company financial reports, and escalate penalties for
not adhering to the new legislation. 

When signed into law, President George W. Bush called it "The most far-reaching
reforms of American business practices since the time of Franklin D. Roosevelt.
The era of low standards and false profits is over; no boardroom in America is
above or beyond the law."
The Securities Exchange Commission (SEC) administers Sarbanes-Oxley.
Established in the wake of the stock crash of 1929, the formation of the SEC
followed the 1933 Securities Act, which required that brokers provide, at a
minimum, a detailed stock prospectus to potential investors. The creation of the
commission in 1934 is considered the most important U.S. financial security
legislation of the 20th century. 

Title IX White-Collar Crime Penalty Enhancements

Title IX raises penalties for crimes such as mail and wire fraud and
violations of the Employee Retirement Income Security Act
(ERISA).

Title IX, also known as the "White-Collar Crime Penalty Enhancement Act
of 2002" reviews the rules and penalties regarding offenses considered
white-collar crime. It begins with elevating the status of attempt and
conspiracy to the same level as a completed action— it dictates that the
penalties prescribed for the attempt and conspiracy of an offense shall be
the same as the penalties for the offense itself.

This title increases penalties for various forms of fraud—mail and wire
fraud carries a maximum sentence of 20 years, up from five, and violations
of the Employee Retirement Income Security Act of 1974 carry an
increased maximum fine of $500,000 from $100,000 and a imprisonment
sentence of up to ten years, up from one year. Title nine then issues a
mandate for a general review of the sentencing guidelines regarding white-
collar offenses and requires corporate officers to certify financial reports.

Sarbanes-Oxley Act of 2002/Title IX

SEC. 901. SHORT TITLE.[edit]
This title may be cited as the ``White-Collar Crime Penalty
Enhancement Act of 2002´´.
SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL
FRAUD OFFENSES.[edit]
(a) IN GENERAL—
 Chapter 63 of title 18, United States Code, is amended by inserting after
section 1348 as added by this Act the following:
``Sec. 1349. Attempt and conspiracy
``Any person who attempts or conspires to commit any offense under this
chapter shall be subject to the same penalties as those prescribed for the
offense, the commission of which was the object of the attempt or
conspiracy.
(b) CLERICAL AMENDMENT—
The table of sections at the beginning of chapter 63 of title 18, United
States Code, is amended by adding at the end the following new item:
``1349. Attempt and conspiracy.´´.
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.[edit]
(a) MAIL FRAUD—
Section 1341 of title 18, United States Code, is amended by striking ``five´´
and inserting ``20´´.
(b) WIRE FRAUD—
Section 1343 of title 18, United States Code, is amended by striking ``five´´
and inserting ``20´´.
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.[edit]
Section 501 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1131) is amended—
(1) by striking ``$5,000´´ and inserting ``$100,000´´;
(2) by striking ``one year´´ and inserting ``10 years´´; and
(3) by striking ``$100,000´´ and inserting ``$500,000´´.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.[edit]
(a) DIRECTIVE TO THE UNITED STATES SENTENCING COMMISSION
—
Pursuant to its authority under section 994(p) of title 18, United States
Code, and in accordance with this section, the United States Sentencing
Commission shall review and, as appropriate, amend the Federal
Sentencing Guidelines and related policy statements to implement the
provisions of this Act.
(b) REQUIREMENTS—
In carrying out this section, the Sentencing Commission shall—
(1) ensure that the sentencing guidelines and policy statements reflect the
serious nature of the offenses and the penalties set forth in this Act, the
growing incidence of serious fraud offenses which are identified above,
and the need to modify the sentencing guidelines and policy statements to
deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy statements
adequately address whether the guideline offense levels and
 enhancements for violations of the sections amended by this Act are
sufficient to deter and punish such offenses, and specifically, are adequate
in view of the statutory increases in penalties contained in this Act;
(3) assure reasonable consistency with other relevant directives and
sentencing guidelines;
(4) account for any additional aggravating or mitigating circumstances that
might justify exceptions to the generally applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing guidelines;
and
(6) assure that the guidelines adequately meet the purposes of sentencing,
as set forth in section 3553(a)(2) of title 18, United States Code.
(c) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION
ACTION—
The United States Sentencing Commission is requested to promulgate the
guidelines or amendments provided for under this section as soon as
practicable, and in any event not later than 180 days after the date of
enactment of this Act, in accordance with the procedures set forth in
section 219(a) of the Sentencing Reform Act of 1987, as though the
authority under that Act had not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
[edit]
(a) IN GENERAL—
Chapter 63 of title 18, United States Code, is amended by inserting after
section 1349, as created by this Act, the following:
``Sec. 1350. Failure of corporate officers to certify financial reports
``(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS— Each
periodic report containing financial statements filed by an issuer with the
Securities Exchange Commission pursuant to section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be
accompanied by a written statement by the chief executive officer and
chief financial officer (or equivalent thereof) of the issuer.
``(b) CONTENT— The statement required under subsection (a) shall
certify that the periodic report containing the financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information
contained in the periodic report fairly presents, in all material respects, the
financial condition and results of operations of the issuer.
``(c) CRIMINAL PENALTIES— Whoever—
``(1) certifies any statement as set forth in subsections (a) and (b) of this
section knowing that the periodic report accompanying the statement does
not comport with all the requirements set forth in this section shall be fined
not more than $1,000,000 or imprisoned not more than 10 years, or both;
or
``(2) willfully certifies any statement as set forth in subsections (a) and (b)
of this section knowing that the periodic report accompanying the
statement does not comport with all the requirements set forth in this
section shall be fined not more than $5,000,000, or imprisoned not more
than 20 years, or both.´´.