(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1208Thank you for having me here today.
It's always great to come back to GW, and to have a chance to share with you some of the things I've learned since I was studying here, like you.
When you're in graduate school, you're dreaming big -- which is what you should be doing, and I want you to keep doing that, even after you've finished your degree.
This is a wonderful time to plan your future and know no limits.
We owe a lot of the success of this country to that kind of thinking -- big dreams, and a lack of limitations on those dreams.
It's also called freedom, and it works.
Freedom has enabled Americans to be creative, cutting-edge, and, ultimately, very prosperous.
That's why freedom is such a great gift. But if we aren't responsible stewards of that gift, the negative consequences on the other side of the equation can be just as great.
You will be entering -- or for some of you, re-entering -- the world of work at an interesting time in our history... one in which we have recently been made aware of, and regretted, abuse of our freedoms in the world of business.
Almost three years ago, corporate scandals erupted in the headlines. And beneath those headline-level stories, there was a deeper erosion of some of the basic tenets of corporate capitalism. What Federal Reserve Chairman Alan Greenspan called infectious greed had gotten out of hand.
The selfish lack of responsibility caught up with those who perpetuated it, and their behavior, tragically, dealt a blow to those around them... including other companies, the majority of whom had been operating well and honorably... and it was a blow to our economy. It shook confidence in markets, and with over 50 percent of Americans owning stock, that was significant.
Coming just months after the shock of September 11th to our economy, the revelation of these events of the 90's was terrible timing to say the least, shaking trust in the capital markets, in corporate leadership, and in the whole system of corporate governance.
Trust is a precious thing. Once lost it is hard to retrieve. And trust is a cornerstone to the development of a smooth and efficient capital market.
We must remember the damage caused by the era of infectious greed if we are to avoid future occurrences, because the widespread consequence of the erosion of basic responsibilities took a terrible toll.
The President took action immediately, to improve our system of corporate governance. The resulting Sarbanes-Oxley Act of 2002 ended the era of low standards and false profits. It showed every board room in America that none were above or beyond the law. It was a critical piece of legislation at a critical time -- its passage was also a necessary part of the healing process, of letting investors know that they could once again be confident in our markets.
The new law holds accountants accountable and subjects auditors to audit.
It gave shareholders greater confidence that the financial information they receive from a company would be reliable, because the CEOs who sign their names to the documentation will be held responsible, and punished if they lie.
Sarbanes-Oxley sent a message to every American: that there can not be a different ethical standard for corporate America. They are expected to operate with the same high level of honesty and accountability as a small business, family or community.
Furthermore, their position as leaders in the world of business demands an extra measure of vigilance. Their high profile and impact on our economy and their employees demands that their financial reporting must be straightforward and honest, fairly presenting the true condition of the enterprise.
The President and Congress took this action because the free market is an incredible thing that can bring wealth and prosperity to everyone... but only if there are clear rules that investors can depend upon, and are enforced. A greedy few had abused the system that was in place, so it had to be tightened up.
Our concentrated effort on corrupt corporate conduct is working. Just yesterday, former WorldCom CEO Bernard Ebbers was indicted on federal charges of conspiracy and fraud for his role in the multibillion-dollar accounting scandal at that company. Just a few hours before he was indicted, Ebbers' top financial officer pleaded guilty to charges against him and agreed to testify against Ebbers.
The news made it clear, once again: Corporate governance and responsibility is taken seriously by this Administration. Since it's creation in July of 2002, the President's Corporate Fraud Task Force has charged more than 660 violators, over 250 of whom have already been convicted or have pleaded guilty.
Another element of corporate and professional responsibility has to do with taking advantage of our tax code.
So-called technical tax shelters proliferated in the 1990s because taxpayers and promoters believed that taxpayers could enter into aggressive transactions with little risk of detection and with little risk of owing anything more than the tax plus interest even if caught.
The Bush Administration's approach to tax shelters is changing that risk-reward calculus. Over the past three years, the IRS has focused in on auditing the promoters of these abusive tax shelters.
Taxpayers and promoters will now find it much more difficult to avoid detection, and the Treasury Department and the IRS are continuing to take the steps necessary to shut down tax shelters -- including appropriate enforcement action against taxpayers and promoters -- as they are identified.
Tax shelters are now being addressed more effectively through increased disclosure requirements, timely response by the Treasury Department and the IRS to transactions when they are identified, and, where necessary, targeted legislative changes to the substantive tax laws.
We're using our regulatory authority to shut down abusive tax shelters and have proposed legislation that would impose meaningful penalties on taxpayers who fail to disclose, as well as increase penalties on promoters of these shelters who fail to register a transaction or maintain lists of taxpayers who have engaged in potential tax shelters.
One legislative proposal we've made deserves particular mention. The Administration has proposed to limit certain types of abusive leasing transactions, known as SILOs (which stands for Sale In, Lease Out).
These arrangements are entered into with tax-indifferent parties, such as foreign governments, domestic municipalities, and tax-exempt organizations. They purport to be leasing transactions but, in substance, provide no financing to the tax-indifferent party aside from a fee. These arrangements have no meaningful financial or economic utility other than the transfer of tax benefits to a U.S. taxpayer (by means of a purported sale of property) in exchange for the payment of an accommodation fee to the tax-indifferent party.
Although Treasury has been aware of SILOS for some time, the extent of the problem has only recently come to light. Our data indicates that as much as $750 billion dollars of SILOs have been done in just the last four years. We have every reason to believe that, left unchecked, this trend will continue and grow. Because these transactions essentially involve no risk to either party, and require very little in the way of actual cash investment, corporations seeking to reduce their U.S. tax liability face no economic bar to seeking out these arrangements on an increasing basis.
SILOs represent a threat to the viability of the corporate tax base, and it is essential that Congress deal with this issue. Otherwise, any corporation with will and the wherewithal to do so could plan itself out of the corporate income tax. The American citizenry rightfully expect their government to ensure that all taxpayers pay the taxes they owe, unreduced by artificial transactions. We need Congress to act promptly to ensure that SILOs are not permitted to continue.
Shutting down abusive transactions of all kinds is not amenable to an easy, one size fits all solution. There simply is no silver bullet to the problem of tax shelters, and the Administration's actions reflect the comprehensive steps needed to effectively address this problem.
In other words, we've got to work hard, with other branches of government and with private citizens, to keep on top of this issue. It isn't easy to fix... most important things aren't.
Whether we are shutting down tax shelters or holding CEOs, boards, accountants and auditors responsible, we must be vigilant. I think we're doing a better job on all counts, but it's a job that never ends for the government, or for private individuals.
Tax advisors, for example, play an important role in maintaining the integrity of our tax system. That's why the Treasury Department is working to maintain high ethical standards through regulations governing practice before the IRS and by working with professional organizations on these matters.
Government enforcement can never solve all of the issues -- we simply could never have enough resources. So we also depend on the citizenry knowing the difference between right and wrong and deciding to do what's right.
After all, we each have a morality that tells us the difference between right and wrong... I think that's why the corporate scandals angered us so as a nation... especially since we were recovering from terrorist attacks and feeling united in the fight against terrorism. That context made it even more upsetting to see that those among us had strayed so far from their own moral code.
The new Sarbanes-Oxley law reflects the American people's demand that strong action be taken to hold people in charge accountable so the integrity and the basic legitimacy of this incredibly important institution of corporate capitalism -- that is at the center of our prosperity -- could be restored and strengthened.
SEC Chairman William Donaldson issued a challenge at the time that I think sums up how we were all feeling. He asked that corporate America look beyond rules, regulations and laws and look to the principles upon which sound business is based. He added, In order to restore their trust, American investors must see businesses shift from constantly searching for loopholes and skating up to the line of legally acceptable behavior. They must see a new respect for honesty, integrity, transparency, accountability, and for the good of shareholders, not only an obsession with the bottom line at any cost.
His words are ones to remember as you venture into a world that will truly be your oyster... but one where you'll also have to keep your principles foremost or suffer the consequences. Remember that our financial system does reward, often very well, those who follow their principles. But, ultimately, your principles are always more important than financial rewards or success.
More simple words to remember would be this: there is no such thing as a freebie, or a free lunch. There is earning, and there is stealing. There isn't a whole lot of gray in between... and we all know it, in our hearts and our guts. So never stop listening to those places inside yourself.
Work hard and dream big, but hold on to your moral compass -- that's what being a real professional is all about.
Thank you for having me here today... I'd be happy to take your questions now.
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