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
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. …