The U.S. government is becoming increasingly concerned with how to battle corporate fraud and the ensuing loss of confidence in the financial markets. President George W. Bush has outlined a plan that seeks to crack down on unscrupulous business practices.
Washington, 10 July 2002 (RFE/RL) -- Concerned that business scandals could shake public confidence in the free-enterprise system, U.S. President George W. Bush has pledged to use the full weight of the law to combat corporate corruption in America.
Bush made a speech on 9 July aimed at strengthening public confidence in American corporations. The speech was delivered in New York, the center of the U.S. financial world. Wall Street did not react positively to it. At the end of trading, the closely watched Dow Jones Industrial average sank more than 178 points, landing at 9,096, about a 2 percent loss.
Analysts said that after months of accounting scandals and disappointing financial results, it will take more than a few words to convince investors that it is safe to come back to the stock market.
Americans' attention has been focused on companies whose executives use unorthodox accounting techniques to inflate their firms' value. This usually leads to an increase in the value of the companies' stocks. The company executives sell their shares shortly before their accounting irregularities are about to be exposed, which will lead to a collapse in the value of the stock. This leaves the executives with a financial windfall, and their employees and stockholders in financial distress.
Bush called for stiff new penalties for executives responsible for such practices. "Government can do more to promote transparency and ensure that [investment] risks are honest. And government can ensure that those who breach the trust of the American people are punished," Bush said.
Bush said there is nothing fundamentally wrong with the free-enterprise system and that most corporate executives are honest. But he added: "Too many corporations seem disconnected from the values of our country. Their scandals have hurt the reputations of many good and honest companies. They have hurt the stock market. And worst of all, they are hurting millions of people who depend on the integrity of the businesses for their livelihood and their retirement, for their peace of mind and their financial well-being."
Bush spoke a day after former top executives of the U.S. telecommunication firm WorldCom invoked their constitutional rights against self-incrimination rather than answer questions from members of Congress about a nearly $4 billion discrepancy in the company's financial records. WorldCom is America's second-largest long-distance telephone company.
The Securities and Exchange Commission, or SEC, has charged WorldCom with fraud, alleging that it improperly booked routine expenses as long-term capital investments starting in 2001. The SEC, a federal agency that monitors businesses, said this practice was aimed at hiding losses of more than $1.2 billion.
The proposals outlined by Bush need approval by the U.S. Congress before they can become law. Top congressional Democrats called for speedy action.
House Minority Leader Dick Gephardt said, "What is important is what is done, not what is said."
Senate Majority Leader Tom Daschle added, "To us, it is not enough to talk about accountability, you have to act to ensure it."
The scandal began last December with the collapse of the Texas-based energy trader Enron, which also used questionable accounting that inflated its value. The firm that audited Enron's finances, the Arthur Andersen company, was found guilty of obstruction of justice for destroying documents. Andersen was once also an auditor for WorldCom.
Asked about the wave of corporate scandals, John Snow, chairman of the Virginia-based transportation company CSX, said: "It's absolutely outrageous. I am offended by it. I am appalled by it."
Representative Maxine Waters, a Democratic congresswoman from California, said, "This cowboy capitalism must stop."
Bush's record as a businessman has also come under scrutiny. At a news conference on 8 July, the president sought to defend himself against questions about his own corporate stock dealings a decade ago.
Bush failed to properly disclose a 1980 stock sale, though federal regulators say Bush broke no laws. The president said current questions about the episode are politically motivated, but he acknowledges that he still does not know how the error occurred.