Assessing the Deterrent Effect of the Sarbanes-Oxley Act's Certification Provisions: A Comparative Analysis Using the Foreign Corrupt Practices Act

By Lacey, Kathleen A.; George, Barbara Crutchfield et al. | Vanderbilt Journal of Transnational Law, March 2005 | Go to article overview

Assessing the Deterrent Effect of the Sarbanes-Oxley Act's Certification Provisions: A Comparative Analysis Using the Foreign Corrupt Practices Act


Lacey, Kathleen A., George, Barbara Crutchfield, Stoltenberg, Clyde, Vanderbilt Journal of Transnational Law


ABSTRACT

In the 1970s, Congress reacted to the financial wrongdoing of Lockheed Corp. and others by enacting [section] 102 of the Foreign Corrupt Practices Act (FCPA), which (1) requires corporations to keep records that accurately reflect financial transactions and (2) mandates a system of internal accounting controls. Going a step further in 2002, Congress responded to the Enron scandal by imposing personal accountability on chief executive officers in the Sarbanes-Oxley Act (SOA). After recounting responses prior to the existence of the Securities and Exchange Commission (SEC) to corporate abuses and the historical background of the SEC's requirements for corporate financial reporting and disclosure, the Authors examine whether lessons can be drawn from the FCPA experience regarding the deterrent effect of the SOA's corresponding provisions against fraudulent and unethical behavior.

TABLE OF CONTENTS

   I. INTRODUCTION
  II. HISTORICAL BACKGROUND
      A. Historical Context of Corporate Abuses
         Leading to State Action on Disclosure:
         1694-1852
      B. State Action and Federal Activities in
         the Securities Area Before the 1933 Act:
         1852-1933
      C. Chronology of Disclosure and Reporting
         Legislation: 1933-present
      D. Historical Context for Increasing Personal
         Accountability of Corporate Officers
      E. The Evolution of Corporate Abuses and the
         FCPA and SOA
III. THE SIMILARITY OF CORPORATE REPORTING
     ISSUES AND THE LEGISLATIVE RESPONSE TO
     THE WATERGATE SLUSH FUND DEBACLE AND
     RECENT ACCOUNTING FRAUD SCANDALS
     A. Reporting Issues in and the Legislative Response
        to the Watergate Slush Fund Debacle
        Resulting in Passage of the Foreign
        Corrupt Practices Act
        1. The Faulty Accounting Systems
           Used by U.S. Corporations in the
           Watergate Scandal
        2. "Voluntary Disclosure Program"
           Before the Adoption of the FCPA
        3. The Anti-Bribery and Accounting
           Provisions of the FCPA
        4. The Statutory Language That
           Expanded the Role of the SEC
     B. Reporting Issues in and the Legislative Response to
        Recent Accounting Fraud Scandals
        Resulting in the Passage of the
        Sarbanes-Oxley Act
        1. The Faulty Accounting Systems
           Used by Enron
        2. The SEC Order Requiring Certification
           of Existing Financial Statements
           Before the Adoption of the
           Sarbanes-Oxley Act
        3. Sarbanes-Oxley: Section 302's
           Certification Requirement
        4. Sarbanes-Oxley: Section 906's
           Certification Requirement
        5. SEC Rules Implementing the Provisions
           of the Sarbanes-Oxley Act
  IV. THE POSSIBILITY OF SUCCESS OF THE CEO
      CERTIFICATION PROVISIONS OF SARBANES-OXLEY
      BASED ON CURRENT LEGAL ISSUES, EXPERIENCE
      WITH THE FCPA, AND ADDITIONAL FACTORS
      A. Currently Pending Legal Issues Concerning
         the Certification Provisions of the
         Sarbanes-Oxley Act That May Negatively
         Affect Its Success
         1. Potential Due Process Concerns
         2. The Pending HealthSouth Case
      B. Following the Learning Curve (or Lack
         Thereof) of a Corporate Wrongdoer From
         the FCPA to the SOA
         1. 1976: Lockheed Bribery I--One of
            the Precipitating Factors for the
            Passage of the FCPA
         2. 1986-1992: Lockheed Bribery II--Lesson
            Ignored!
         3. 1995: Lockheed Bribery III--Lesson
            Yet Unlearned!
         4. 2004: Lockheed IV--A Change of
            Culture?
      C. Additional Factors That Can Be Used to
         Make Assumptions About the Possibility
         of Success
         1. The United States' Ranking in Transparency
            International's 2004 Corruption
            Perception Index and Its 2002
            Bribes Perception Index (as an
            Indicator of the Effect of Legislation,
            Regulation, and Judicial Decisions
            in the United States after 1977)
            a. … 

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