One day after the Senate passed legislation to clean up corporate accounting practices, the House seemed in a rush to prove it could come up with equally stringent criminal penalties for corporate fraud.
By a 391-28 vote, the chamber quickly passed legislation on Tuesday that House Majority Whip Tom DeLay, R-Texas, described as "tougher than the Senate bill" because it allows for up to 20 years imprisonment for corporate fraud convictions.
The House had rejected the same legislation in April in favor of milder reforms, but after a wave of corporate scandals that has not yet reached its crest, and a 97-0 Senate vote on Monday for strict reforms, lawmakers decided to put the harsher bill — with its stiffer penalties — on the fast track.
The approved bill allows for criminal penalties on company officials who retaliate against whistle-blowers, which is one step further than the civil penalties the Senate provides.
While Democrats supported the last-minute changes, they accused Republicans of a "deathbed conversion" to stronger rules after seeing that it was resonating as an election-year issue.
"You're trying to jump on the bandwagon at the last minute when you should have been there a long time ago," said Rep. Maxine Waters, D-Calif.
The decision to vote on the bill came as Federal Reserve Chairman Alan Greenspan worked some of his usual magic in congressional testimony that revealed the economy is well on it way to a full recovery though it will suffer some setbacks left over from last year's recession.
Greenspan said that he was pleased to see the changes the Senate made in corporate governance, particularly the penalties for executives who commit fraudulent activities, but the system is not nearly on the verge of collapse as some would suggest.
"Beneath all of the problems that we have is still a very sound structure and if we endeavor to try to change the system in a fundamental way, we may end up doing more damage than help. So I'm merely saying that to go slow in this area. There is not a particular need to rush because I will tell you that corporate governance will be just fine for the next two years because everyone has been chastened," Greenspan told the Senate Banking Committee.
The House was to take initial procedural steps to reconcile the differences in the Senate bill and the one passed by the House in April, according to a spokesman for House Speaker Dennis Hastert, R-Ill. But that was upended by the House's move on Tuesday to show that representatives up for election in the fall have the mettle to impose strict rules on corporate executives.
The Senate bill, proposed by Sen. Paul Sarbanes, D-Md., chairman of the Senate Banking Committee, contains a series of new penalties, including 10-year prison terms for securities fraud, a new crime. Chief executive officers and chief financial officers who certified false company financial reports would be slapped with prison terms of five years to 10 years and fines of $500,000 to $1 million.
"Americans must know that they can save with confidence for their children's education or for retirement — that they can look ahead confidently to the future," Sarbanes said.
The Senate bill would ban personal loans from companies to their top officials and directors, and would require company insiders to notify the SEC more promptly when they buy or sell company stock.
The measure creates a new private-sector oversight board for the accounting industry with disciplinary powers, to replace the current system in which the industry polices itself. The board would be overseen by the SEC.
President Bush, who had expressed support for the earlier House bill before the Senate vote, congratulated the Senate for its quick action.
"I am pleased the Senate has now acted on a tough bill that shares my goals. ... We owe it to America's workers and shareholders to crack down on wrongdoing and fix the system to prevent future abuses," he said, urging that a bill be sent to his desk for his signature before the summer break.
The Associated Press contributed to this report.