The chairman of the Securities and Exchange Commission told a Senate committee yesterday that he supports major revisions in a law designed to prohibit illegal activities abroad by American corporations.
John S. R. Shad, making his first substantive appearance as chairman of the commission, told the Senate Banking Committee that the Foreign Corrupt Practices Act "has spawned unintended problems for American commerce abroad" and created further problems because its accounting provisions are unclear.
Sen. John H. Chafee (R-R.I.) has proposed a substantial rewrite of the law, which was adopted in 1977 after revelations of widespread bribery and abuses by U.S. firms, including the operation of huge slush funds used for corrupt purposes. The law has been under attack by American business officials who say they oppose bribery but believe the act goes too far.
Shad -- a Reagan appointee to the SEC, which is an independent agency -- stopped short of the Reagan administration's position on the Foreign Corrupt Practices Act, which would remove accounting and bookkeeping provisions of the act that are administered by the SEC. The provisions require all publicly owned businesses, whether engaged in overseas trade or not, to maintain accurate books and records and a system of internal controls to guarantee that management knows how a company's assets are being used.
Shad did support a modification of those provisions to meet complaints by business that the standards might be used to nail corporate officials for extremely minor or inadvertent accounting errors. Even if the SEC's mandate to require accurate books were removed from the Foreign Corrupt Practices Act, it would have that authority under other legislation, he said.
The Chafee bill would require that corporate records reflect only information that is "material" rather than keeping records in "reasonable detail" -- a standard that has been criticized as one that would allow major illegal payments to slip by large corporations unnoticed while imposing tougher standards on smaller companies.
Shad said the commission would prefer requiring corporate records to reflect information similar to "that which a prudent businessman would require in managing his own affairs."
"In so many of the cases of foreign payments, management wasn't aware of it," said Shad. "This would facilitate this information being brought to management's attention so they can decide what to do with it," he said.
But he also said the commission is proposing revisions in the bill that would require businesses to change or improve internal controls only when the economic benefits "significantly" exceed costs, a standard that would provide considerable latitude.
Shad also told the Senate committee that the SEC is sanguine about a provision in the Chafee bill that would consolidate enforcement of all of the act's antibribery provisions in the Justice Department, where most of it is now.
In another proposal, sharply criticized by Sen. William Proxmire (D-Wis.), the SEC also asked Congress to limit access to corporate documents and records describing the overseas activities of American companies.
Companies who made information available might now be "subject to the embarrassment of reading about confidential financial details in The Wall Street Journal," he said. The SEC asked the Congress to exempt that type of information, acquired in the course of investigations of foreign corrupt payments, from the FOIA.
"That seems to me to be an extraordinary request from an agency created for full disclosure," said Proxmire.