[Pages S733-S745]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. SPECTER (for himself and Mr. Durbin):
S. 1937. A bill to set forth certain requirements for trials and
sentencing by military commissions, and for other purposes; to the
Committee on Armed Services.
Mr. SPECTER. Mr. President, I have sought recognition to introduce,
on behalf of Senator Durbin and myself, legislation entitled the
``Military Commission Procedures Act of 2002.''
The President issued an order establishing generalized procedures for
trying members of al-Qaida and the Taliban. It is my view and Senator
Durbin's view that Congress ought to consider what are the appropriate
procedures pursuant to our authority under the Constitution, article I,
section 8, which gives to the Congress the responsibility and authority
``To define and punish . . . Offenses against the Law of Nations.''
We have already legislated in part, delegating to the President the
authority to establish military tribunals ``by regulations which shall,
so far as he considers practicable, apply the principles of law and the
rules of evidence generally recognized in the trial of criminal cases
in the United States district courts, but which may not be contrary to
or inconsistent with this chapter.''
The President promulgated his order without consultation with
Congress. This legislation is a starting point for what we believe
ought to be consideration by the Judiciary Committee.
In the President's order, there was a provision that there could be
no appeal from any order of the military tribunal. But that, on its
face, was inconsistent with the Constitution, which preserves the right
of habeas corpus unless there is rebellion or invasion, neither of
which had occurred here.
The President's order also allowed for conviction of a capital
offense by a two-thirds vote, but that is inconsistent with the Uniform
Code of Military Justice, and the law does not allow a regulation to be
inconsistent with that law.
So Senator Durbin and I have provided the modifications that two-
thirds is acceptable generally. But if the sentence carries 10 years or
more, it requires a three-fourths vote. And for the death penalty, it
would require a unanimous vote.
This legislation further provides for right to counsel consistent
with the Uniform Code of Military Justice, which would be either
military counsel or could be private counsel. But that right is
preserved.
On one provision, we have provided that there would be no ``Miranda''
rights for suspects who are interrogated. I candidly concede that in
abrogating ``Miranda'' rights, that will be a source of some
contention, which can be the subject of hearings. But it is our view
that we should not give al-Qaida or Taliban prisoners access to counsel
before they are questioned, first, for the safety of the soldiers who
are doing the questioning, and, second, because of the importance,
potentially, that eliciting information would stop further terrorist
attacks.
Of course, we could provide no ``Miranda'' warnings in advance but
not allow admissions to be used at trial, but it is our view, subject
to hearings and further consideration, that ``Miranda'' rights ought
not to be required.
We have provided for an open trial unless there is classified
information; and, if classified information is used, we have
incorporated the provisions of the Anti-Terrorism Act of 1996--a
compromise worked out by Senator Simon and myself on the floor--which
provides for a summary to be given to the defendant and the commission,
to be reviewed by the commission, to see if it is adequate to protect
sources and methods of classified information and also adequate to
inform the defendant of the evidence so that the defendant would have
substantially the same ability to make his defense as he would if the
classified information was disclosed.

[[Page S734]]

We have not provided any restrictions on rules of evidence, since it
is the custom of Congress not to do so. But we think this legislation
is an important first step. We now know there is a large contingent of
those captive in Guantanamo Bay.
I believe the President made a sound decision in saying that al-Qaida
members were not prisoners of war, not subject to the Geneva Convention
because they are terrorists, murdering innocent civilians. The
President did accord Taliban members the protections of the Geneva
Convention.
But these trials will soon start. It is very important that our
country and our Government proceed with accepted norms for criminal
trials. To have a death penalty imposed on a two-thirds vote, as is in
the Presidential order, would not be consistent with our generalized
standards. To provide for no appeal is not consistent with the
constitutional provisions.
The ACTING PRESIDENT pro tempore. The Senator's time has expired.
Mr. SPECTER. I ask unanimous consent for 30 seconds to finish my
sentence, Mr. President.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. SPECTER. We believe this is a starting point. We urge early
hearings so we can establish the parameters, so when we deal with these
treacherous terrorists, we will, in accordance with American standards,
give them basic due process--no more, but basic due process.
Mr. DURBIN. Mr. President, on November 13, 2001, President Bush
issued a military order authorizing the use of military commissions to
prosecute individuals who may be engaged in activities related to the
subject of our campaign against terrorism.
The initial public reaction to the White House action was one of
surprise and skepticism: Surprise that the order was issued without any
advance notice, and skepticism as to whether the decision is based on
sound legal or policy grounds. Many commentators also raised legitimate
concerns that the Administration's use of military tribunals could
potentially undermine our long-held foreign policy of criticizing other
nations' reliance on such tribunals.
My reaction, which, I believe, was echoed by many of my colleagues in
Congress, was one of disappointment, in addition to the surprise and
skepticism. I was disappointed that Congress was excluded from
deliberating a policy as important as this one before the White House
announced the order.
I have said repeatedly since September 11 that I fully support the
President in his efforts to combat terrorism both here and abroad. In
response to September 11, Congress worked hand in hand with the
administration on a host of items in a truly cooperative and bipartisan
manner, from the passage of a joint resolution authorizing the
President to use all necessary force, to the passage of the sweeping
anti-terrorism bill.
Yet on the drafting of this military order, Congress was left
completely in the dark. The Constitution provides executive powers to
the President, not exclusive powers. Our Nation remains strong only if
the co-equal branches of government work together.
Any proceeding that takes place under President Bush's order will
have to withstand the test of legal scrutiny for years to come. But
more importantly, it will also have to pass the scrutiny of our
citizens at home and of our friends and enemies abroad who are watching
to see how the greatest democracy in history carries out justice.
At the Judiciary Committee hearing held in early December, Senator
Specter and I both questioned the administration's witness to ascertain
the precise constitutional authority upon which the administration was
relying in creating this tribunal. We did not receive a satisfactory
answer.
We also wanted to know the precise scope and reach of the order in
terms of who will be brought before such a tribunal, what procedural
and evidentiary standards are to be applied, and what due process
safeguards, including appeals, will be in place. We did not receive
many details here either.
Instead, the administration asked us to wait for the regulations
implementing the order that the Defense Department was preparing.
It has been over 3 months since the President's order was issued, and
we have not seen the Defense Department regulations. So I believe it is
appropriate for Congress to act now to provide the constitutional
authority and guidance on procedures before the first military
commission is empaneled under the President's order.
I am introducing the ``Military Commission Procedures Act of 2002''
with Senator Specter. I believe this bill will provide the executive
branch with the legal authority to prosecute potential terrorists
captured in the current military campaign abroad.
Our bill is designed to ensure that military commissions are used in
the most narrow and necessary circumstances while protecting the basic
rights of defendants. The bill limits the jurisdiction of military
commissions to try defendants only for violations of the law of war,
and not any domestic laws.
The defendants would be entitled to representation by counsel in the
same manner as military service members under the Uniform Code of
Military Justice. The prosecution would need to prove its case beyond a
reasonable doubt, and the death penalty could not be imposed without a
unanimous vote as to guilt and to the sentence.
Furthermore, in order to keep the proceedings as open as possible,
our bill provides for classified information procedures where the
defendant would receive a summary of such evidence while the commission
considers the actual evidence in camera and ex parte. The bill also
authorizes convicted defendants to petition the U.S. Supreme Court for
certiorari.
In short, Senator Specter and I believe this bill includes the
details that the President's military order of November 13 should have
included. More importantly, the bill provides the full force of the
congressional and constitutional support behind the President's
continuing efforts to wage a war against terrorism.
I urge my colleagues to join us in supporting this legislation.
______

By Mr. REID (for himself, Mr. Bennett, Mr. Hatch, and Mr.
Ensign):
S. 1939. A bill to establish the Great Basin National Heritage Area,
Nevada and Utah; to the Committee on Energy and Natural Resources.
Mr. REID. Mr. President, I rise today for myself, Senator Ensign,
Senator Hatch, and Senator Bennett to introduce this bill, which will
establish a National Heritage Area in eastern Nevada and western Utah.
National Heritage Areas are regions in which residents, businesses,
as well as local and tribal governments have joined together in
partnership to conserve and celebrate cultural heritage and special
landscapes. For Nevada, these include such nationally significant
historic areas as the Pony Express and Overland Stage Route, Mormon and
other pioneer settlements, historic mining camps and ghost towns, as
well as Native American cultural resources such as the Fremont Culture
archeological sites.
The bill will also highlight some of Nevada's natural riches. The
Great Basin contains great natural diversity, including forests of
bristlecone pine, which are renowned for their ability to survive for
thousands of years. The Great Basin National Heritage Area includes
White Pine County and the Duckwater Reservation in Nevada and Millard
County, UT. The Heritage Area will also ensure the preservation of key
educational and inspirational opportunities in perpetuity without
compromising traditional local control over--and use of--the landscape.
Finally, the Great Basin National Heritage Area will provide a
framework for celebrating Nevada's and Utah's rich historic,
archeological, cultural, and natural resources for both visitors and
residents.
The bill will establish a board of directors to manage the area.
Consisting of local officials from both counties and tribes, the board
will have the authority to receive and spend federal funds and develop
a management plan within five years of the bill's passage. The bill
mandates the Secretary of the Interior to enter into a memorandum of
understanding with the Board of Directors for the management of the
resources of the heritage area. The bill also authorizes up to $10
million to carry out the Act but limits Federal

[[Page S735]]

funding to no more than fifty percent of the project's costs. The bill
allows the Secretary to provide assistance until September 20, 2020.
This bill benefits not just Nevada and Utah, but citizens of all
States. It highlights some areas of outstanding cultural and natural
value and brings people together to celebrate values that they can be
proud of.
______

By Mr. LEVIN (for himself, Mr. McCain, Mr. Fitzgerald, Mr.
Durbin, and Mr. Dayton):
S. 1940. A bill to amend the Internal Revenue Code of 1986 to provide
that corporate tax benefits from stock option compensation expenses are
allowed only to the extent such expenses are included in a
corporation's financial statements; to the Committee on Finance.
Mr. LEVIN. Mr. President, today I am pleased to introduce Ending the
Double Standard for Stock Options Act along with my colleagues Senator
McCain, Senator Fitzgerald and Senator Durbin.
As another lesson learned from the Enron debacle, this bill addresses
a costly and dangerous double standard that allows a company to take a
tax deduction for stock option compensation as a business expense while
not showing it as a business expense on its financial statement.
Stock options were a driving force behind management decisions at
Enron that focused on increasing Enron's stock price rather than the
solid growth of the company.
Stock options are opportunities given to certain employees, usually
top executives, to purchase a company's stock at a set price for a
specified period of time, such as 5 or 10 years. When the stock price
increases, the potential profit to the executive rises, and the more
stock options an executive has, the smaller the increase needed to
realize significant gain.
Stock options are a stealth form of compensation, because they do
not, under current accounting rules, have to be shown as an expense on
the corporate books. In fact they're the only form of compensation that
doesn't have to be treated as an expense at any time. But, like other
forms of compensation, option expenses are allowed as a tax deduction
for a corporation. It doesn't make sense, but that's the way it is. And
this long-standing mismatch between U.S. accounting and tax rules was
exploited by Enron to the hilt. The result was both misleading
financial statements and an incentive to push accounting rules to the
limit in order to artificially raise stock prices so as to make the
stock options more valuable.
A New York Times article from last October 21, reports that, ``Since
1993, studies from Wall Street to Washington have shown that pushing
[stock option] expenses off the income statement has inflated corporate
earnings and misled investors about profits, particularly at technology
concerns. Options are also a titanic but stealthy transfer of wealth
from shareholders to corporate management.''
Let's look at how it worked at Enron. We've all heard about the many
ways that Enron inflated its earnings and hid its debts by keeping
various partnerships off the company books. Well, Enron did the same
thing with stock options.
For five years, from 1996 until the year 2000, Enron told its
shareholders that it was rolling in revenues. One analysis by Citizens
for Tax Justice, using Enron's public filings, reports that Enron
claimed a total 5-year income of $1.8 billion. This figure apparently
included, however, a number of accounting gimmicks, one of which was
Enron's decision to relegate all stock option compensation it had
provided to a footnote and to exclude such compensation from its total
expenses, even though, according to the same study, the stock option
pay over five years had reached almost $600 million. That $600 million,
by the way, represented one-third of all the income reported by Enron
over a 5-year period.
Yet all $600 million was, legally, kept off-the-books, away from
Enron's bottom line. That's because existing U.S. accounting rules
allow U.S. companies to omit employee stock option compensation as a
charge to earnings on their financial statements. That is a unique
rule. Stock option compensation is the only kind of employee
compensation that a U.S. company never has to record on its financial
statements at any time as an expense. That means Enron could give its
executives, directors and other employees $600 million in stock options
and never show one penny of that pay on its books. It could dole out
stock options like candy and never reduce by one penny its alleged
income of $1.8 billion.

The result was that Enron was able to provide extravagant
compensation, without ever having to account for that extravagance on
its bottom line where stockholders and the public might take notice.
But Enron's misleading financial statements are not the end of the
story. The backside of the story is that, at the same time Enron was
touting its skyrocketing revenues and providing extravagant pay to
insiders, it was apparently telling Uncle Sam that its expenses
exceeded its income and its tax liability was little or nothing. The
study by Citizens for Tax Justice, after reviewing Enron's public
filings, has calculated that, despite claiming a 5-year revenue total
of $1.8 billion, Enron apparently failed to pay any U.S. tax in 4 out
of the last 5 years. How did a company with $1.8 billion in revenue
apparently pay so little in taxes? The same study calculated that with
a 35 percent corporate tax rate, Enron should have paid about $625
million over five years. But, apparently, according to the study, the
principal way Enron avoided paying these taxes was by claiming that its
income had been wiped out by nearly $600 million in stock option
expenses, the same $600 million that Enron chose not to put on its
financial statements as an expense. While these numbers are based on
public filings and not based on a review of the actual tax returns, the
significance of Enron's actions is the same, avoiding tax liability
through the use of stock options.
As I noted earlier, Enron was not acting illegally here, nor were its
actions unique. It took advantage of the tax provisions which we hope
to change in our bill which allow a company to claim a stock option
expense on its tax return even if the company never lists that expense
on the company books. These tax provisions incomprehensibly and
indefensibly allow companies to tell Uncle Sam one thing and their
stockholders something else.
And to add insult to injury, last year the IRS issued Revenue Ruling
2001-1 which determined that companies whose tax liability was erased
through stock option expenses are not subject to the corporate
Alternative Minimum Tax. That revenue ruling means that our most
successful publicly traded companies, if they dole out enough stock
options to insiders, can arrange their affairs to escape paying any
taxes. That absurd result leaves the average taxpayer feeling like a
chump for paying his fair share when a company like Enron can use its
success in the stock market to apparently end up tax free.
Now you may have noticed that, in discussing Enron's tax returns, I
have been using the words ``appears to'' and ``apparently.'' That is
because, despite a pending request from Senators Baucus and Grassley of
the Senate Finance Committee, Enron has yet to release its tax returns
to either Congress or the public.
The lack of direct access to Enron's tax returns requires Congress
and the public to have to continue making educated guesses about
Enron's tax conduct, without having the actual facts. It is much too
late and much too serious for Enron to be asking everyone to play this
guessing game. Enron is in bankruptcy; it has brought economic loss to
individuals and financial institutions across this country; its
management claims to have done nothing wrong, and the company professes
to be cooperating with investigators.
Enron should immediately release to the public the last five years of
its tax returns. Then we'll know with certainty if Enron paid no taxes
in 4 out of the last 5 years and why. Then we'll know with certainty if
Enron eliminated its taxes primarily through stock option deductions,
or whether it used other tax provisions to avoid payment of tax such as
diverting income through offshore tax havens. The public and the
Congress have a right to know what really happened at Enron.

It is also important to realize that most companies treat stock
options

[[Page S736]]

the same way Enron did. A recent USA Today article reports that out of
the S&P 500 companies, only Boeing and Winn-Dixie currently record
stock option expenses on both their financial statements and tax
returns. The other 498 companies apparently do not. The article says
that had stock option expense been recognized on their earnings
statements, the S&P 500's revenues would have fallen by 9 percent,
another measure of how much off-the-books stock option pay is out
there.
Even more troubling, and something that needs more investigation and
attention is the claim in the article that ``half a dozen academic
studies have concluded that companies time the release of good or bad
news near the date that executives are issued their options,
orchestrating a potential windfall.'' In other words, some believe that
executives are timing the release of company information around the
dates they are to receive their stock options, thereby artificially
inflating the value of their options.
The future promises more of the same. A February 3rd New York Times
article entitled, ``Even Last Year, Option Spigot Was Wide Open,''
reports that companies are providing more stock options than ever to
their executives, even in the face of poor company performance and
diluted stockholder earnings. ``It's a great time to give options,''
one expert is quoted as saying. ``They're cheap because they involve no
change to earnings, and that's important at a time when profits are
down.''
Ten years ago, some of us tried to end corporate stock option abuses
by urging the Board that issues generally accepted accounting
principles, the Financial Accounting Standards Board or FASB, to
require stock option expenses to be shown on company books. We were not
successful. Corporate America fought back tooth and nail. Intense
pressure was brought to bear on FASB. Arthur Levitt told the
Governmental Affairs Committee last month that he spent 50 percent of
his first four months at the SEC talking to corporate executives who
wanted to keep their stock option pay off the books. On one day during
the height of the campaign, 100 CEOs flew into Washington to lobby
Members of Congress on this issue. In 1994, in the midst of this
intense lobbying, the Senate voted 88-9 to recommend against putting
stock option pay on the books.
Arthur Levitt testified before our committee that one of his greatest
regrets from his days at the SEC was that he didn't work harder to get
stock options treated as an expense on a company's financial statement.
Several accounting firms, including Andersen and Deloitte, now support
expensing options. They are joined by more than 80 percent of U.S.
financial analysts, as reported in a September 2001 survey conducted by
the leading financial research organization, the Association for
Investment Management and Research.
In addition, the newly re-constituted International Accounting
Standards Board in London, the international equivalent of our FASB,
has announced that one of its first projects will be to propose
international standards requiring stock options to be expensed on
company books. But in a repeat of what happened here in the United
States, corporate lobbyists are already organizing to oppose this
project. An Enron document uncovered by my Subcommittee casts light on
how this battle may be fought.
The document is an email dated February 23, 2001, from David Duncan,
the lead auditor of Enron at Andersen, to several Andersen colleagues,
describing Enron's reaction to a request that it consider donating
funds to the new International Accounting Standards Board.

Today [Enron Chief Accountant] Rick Causey called to say
that Paul Volker had called Ken Lay (Enron Chairman) and
asked Enron to make a 5 year, 100k per year commitment to
fund the Trust Fund of 'the FASB's International equivalent'
. . . . While I believe Rick is inclined to do this given
Enron's desire to increase their exposure and influence in
rulemaking broadly, he is interested in knowing whether these
type of commitments will add any formal or informal access to
this process (i.e., would these type commitments present
opportunities to meet with the Trustees of these groups or
other benefits). I think any information along this front or
further information on the current strategic importance of
supporting these groups for the good of consistent rulemaking
would help Enron with its decision to be supportive.

First, let me be clear that I'm not suggesting in any way that Paul
Volker's request of Enron for a contribution to FASB's international
equivalent was in any way improper. It wasn't. That is exactly how
these accounting standards boards get funded. And the response by Enron
is not really suprising, it's something we've all known but we've never
had written confirmation of it. Contributions to the accounting
standards boards affect the boards' independence, and that's bad news
for reliable accounting.
No one was mincing any words here. Enron wanted to know whether its
money would buy access and influence at the new accounting standards
board, and its auditor didn't bat an eye at this inquiry but asked his
colleagues for ``any information along this front.''
The bill we are introducing today does not require that stock options
be charged to earnings. That is a decision for the accounting standards
boards to make. And many of us in Congress will be working on
legislation to make the accounting standards board more independent and
less vulnerable to pressures from its contributors. The legislation we
are offering today would simply state, in essence, that companies can
take a tax deduction or tax credit for stock option expenses only to
the extent that the company actually recognizes the same stock option
expenses in the company books.
The bill does not get into the accounting side of the issue. It does
not, for example, tell companies that they have to expense stock
options. It does not tell them when to take a stock option expense or
how to book that expense. It focuses solely on the income tax deduction
and states, in essence, that any tax deduction must mirror the company
books. If a company declares a stock option expense on its books, then
the company can deduct the expense on its tax return. If there is no
stock option expense on the company books, there can be no expense on
the company tax return.
That's tax honesty. That will end the stock option double standard.
The stock option double standard has been a long festering problem in
corporate America. It has been one of the driving engines of stretching
accounting rules to increase the value of a company's stock. Enron has
put a face on this faceless problem and shown the cost of off-the-books
stock option pay. Like other accounting gimmicks, off-the-books stock
option pay coupled with a large tax deduction doesn't pass the smell
test, because we all know that ``off-the-books'' means stealth
compensation that is harder to track and easier for insiders to abuse.
Add to the stealth factor and the insider abuse factor, a government
policy of giving large corporate tax deductions which can completely
eliminate a company's tax liability, and you've set the stage for just
the type of stock option results we saw at Enron.
It is time to end the stock option double standard, and I urge all of
my colleagues to support enactment of this legislation this year.
I ask unanimous consent to print in the Record, a bill summary, a
section-by-section analysis, and the following materials: ``Less than
Zero Enron's Corporate Income Tax Payments, 1996-2000'' (Citizens for
Tax Justice, January 17, 2002); Duncan email (2/23/01); ``Enron's fall
fuels push for stock option law'' (USA Today, 2/8/02); ``Even Last
Year, Option Spigot Was Wide Open'' (New York Times, 2/3/02); ``Stock
Option Madness'' (Washington Post, 1/30/02); ``Enron's Way: Pay
Packages Foster Spin, Not Results'' (New York Times, 1/27/02); and
stock option survey results by Association for Investment Management
Research, as posted on the AIMR website on 2/8/02.
There being no objection, the material was ordered to be printed in
the Record, as follows:

[From Citizens for Tax Justice, Jan. 17, 2002]

Less Than Zero: Enron's Corporate Income Tax Payments, 1996-2000

A January 17, analysis of Enron's financial documents by
Citizens for Tax Justice finds that Enron paid no corporate
income taxes in four of the last five years--although the
company was profitable in each of those years.
Over the five-year period from 1996 to 2000, Enron received
a net tax rebate of $381 million. This includes a $278
million tax rebate in 2000 alone.
Over the same period, the company's profit before federal
income taxes totaled $1.785 billion. In none of these years
was the company's profit less than $87 million.

[[Page S737]]

LESS THAN ZERO: CORPORATE INCOME TAX PAYMENTS BY ENRON, 1996 TO 2000
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 96-00
----------------------------------------------------------------------------------------------------------------
U.S. profits before federal income taxes.................... $618 $351 $189 $87 $540 $1.785
Tax at 35% corporate rate would be.......................... 216 123 66 30 189 625
Less tax benefits from stock options........................ -390 -134 -43 -12 -19 -597
Less tax savings from other loopholes, etc.................. -104 -94 -36 -1 -173 -409
---------------------------------------------------
Federal income taxes paid (+) or rebated(-)................. -278 -105 -13 17 -3 -381
----------------------------------------------------------------------------------------------------------------

At the 35 percent tax rate, Enron's tax on profits in the
past five years would have been $625 million, but the company
was able to use tax benefits from stock options and other
loopholes to reduce its five-year tax total to substantially
less than zero.
Among the loopholes used to reduce the company's tax
liability was the creation of more than 800 subsidiaries in
``tax havens'' such as the Cayman Islands.
____

Summary of Levin-McCain-Fitzgerald-Durbin Ending the Double Standard
for Stock Options Act, February 13, 2002

The Enron fiasco has brought to light a long-festering
problem in how some U.S. corporations use stock options to
avoid paying U.S. taxes while overstating earnings. According
to one recent analysis reported in the New York Times, Enron
apparently failed to pay any U.S. tax in four out of last
five years, despite skyrocketing revenues and an alleged
five-year pre-tax income from 1996 to 2000, of $1.8 billion.
To sidestep paying about $625 million in taxes on its $1.8
billion in income, Enron apparently claimed stock option tax
deductions totaling almost $600 million. At the same time,
Enron never reported this $600 million as an expense on its
financial statements--an expense which, had it been reported,
would have reduced Enron's income by one-third.
Enron was able to employ this stock option double standard,
because of accounting rules that allow stock option
compensation to be kept off a company's books. Right now,
many U.S. companies routinely give their executives large
numbers of stock options as part of their compensation. When
an executive exercises those options, the company can claim a
corresponding compensation expense on its tax return, while
at the same time employ accounting rules to omit reporting
any expense at all on its books. The company can tell Uncle
Sam one thing and its shareholders the opposite. That's just
what Enron did--it lowered its tax bill by claiming stock
option expenses on its tax returns, while overstating its
earnings by leaving stock option expenses off its financial
statements.
The stock option loophole Enron used makes no sense, but
when the Financial Accounting Standards Board--the board that
issues accounting standards--tried to change the rules ten
years ago, corporations and audit firms fought the Board
tooth and nail. They demanded that companies be allowed to
continue to keep stock option compensation off the books. In
the end, the best the Board could get was a footnote noting
the earning charge that should be taken on a company's books.
But that stock option footnote--like so many Enron
footnotes--doesn't tell the true financial story of a
company.
It's time to end the stock option double standard. The
Levin-McCain-Fitzgerald-Durbin bill would not legislate
accounting standards for stock options or directly require
companies to expense stock option pay, but it would require
companies to treat stock options on their tax returns the
exact same way they treat them on their financial statements.
In other words, a company's stock option tax deduction would
have to mirror the stock option expense shown on the
company's books. If there is no stock option expense on the
company books, there can be no expense on the company tax
return. If a company declares a stock option expense on its
books, then the company can deduct exactly the same amount in
the same year on its tax return. The bill would require
companies to tell Uncle Sam and their stockholders the same
thing--whether employee stock options are an expense and, if
so, how much of an expense against company earnings. Enron
has already shown how much damage, if not corrected, that the
existing stock option double standard can inflict on company
bookkeeping, investor confidence, and tax fairness.
The bill cosponsors are Senators Levin, McCain, Fizgerald
and Durbin, and the bill is expected to be referred to the
Senate Committee on Finance.

Section-by-Section Analysis of Ending the Double Standard for Stock
Options Act

Section 1. Short Title. The short title of the bill is
``Ending the Double Standard for Stock Options Act.''
Section 2. Stock Option Deductions and Tax Credits. This
section of the bill would amend two Internal Revenue Code
sections to address stock options compensation. The first tax
code section, 26 U.S.C. 83(h), addresses employer deductions
for employee wages paid for by a stock option transfer. The
second tax code section, 26 U.S.C. 41(b)(2)(D), addresses
employer tax credits for research expenses, including
employee wages.
Subsection (a) of this section of the bill would add a new
paragraph (2) to the end of 26 U.S.C. 83(h) that would
restrict the compensation deduction that a company could
claim for the exercise of a stock option by limiting the
stock option deduction to the amount that the company has
claimed as an expense on its financial statement. This
section would also make it clear that the deduction may not
be taken prior to the year in which the employee declares the
stock option income. In addition, a new subparagraph (2)(B)
would require the Treasury Secretary to promulgate rules to
apply the new restriction to cases where a parent corporation
might issue stock options to the employees of a subsidiary
corporation or vice versa.
Subsection (b) of this section of the bill would add a new
clause (iv) to the end of 26 U.S.C. 41(b)(2)(D). This new
clause would restrict the research tax credit that a company
could claim for employee wages paid for by the transfer of
property in connection with a stock option by saying that the
amount of the credit shall not exceed the amount of the
corresponding stock option deduction allowed under 26 U.S.C.
83(h).
The purpose of both new statutory provisions is to ensure
that any stock option deduction or credit claimed on a
taxpayer's return will mirror, and not exceed, the
corresponding stock option expense shown on the taxpayer's
financial statement. If no stock option expense is shown on
the taxpayer's financial records, there can be no expense
taken as a deduction or credit on the taxpayer's return. If a
taxpayer declares a stock option expense on its financial
statement, then the taxpayer is permitted to claim a
corresponding deduction or credit on its return in the same
taxable year for exactly the same amount of expense.
Subsection (c) of the bill provides that the amendments
made by the Act apply only to wages and property transferred
on or after the date of enactment of the Act.
____

To: Steve M. Samek@ANDERSEN WO; Lawrence A. Reiger@ANDERSEN
WO; Gregory J. Jonas@ANDERSEN WO; Jeannot
Blanchet@ANDERSEN WO
CC: Michael L. Bennett@ANDERSEN WO; D. Stephen Goddard
Jr.@ANDERSEN WO
Date: 02/23/2001 09:56 AM
From: David B. Duncan
Subject: Enron Funding of FASB Trust
Attachments:
I recently asked Enron to consider funding the FASB Trust
pursuant to a Steve Samek request.
Today, Rick Causey called to say that Paul Volker had
called Ken Lay (Enron Chairman) and asked Enron to make a 5
year, 100k per year commitment to fund the Trust Fund of
``the FASB's International equivalent'' (best Rick could
remember). Lay is asking Causey if this is something that
they should do.
While I believe Rick is inclined to do this given Enron's
desire to increase their exposure and influence in rulemaking
broadly, he is interested in knowing whether these type of
commitments will add any formal or informal access to this
process (i.e., would these type commitments present
opportunities to meet with the Trustees of these groups or
other benefits). I think any information along this front or
further information on the current strategic importance of
supporting these groups for the good of consistent rulemaking
would help Enron with its decision to be supportive.
Could any of you guys help me out with more information or
point me to someone who could? Thanks.
____

[From USA Today, Feb. 8, 2002]

Enron's Fall Fuels Push for Stock Option Law

(Matt Krantz and Del Jones)

The Enron implosion has breathed life into legislation that
business leaders thought they had killed in the mid-1990s.
In a highly controversial move, at least three senators
want to end the legal tax deductions companies take for stock
options they issue to executives and workers unless they
subtract the same expense from their earnings.
As it is, almost every company takes a tax deduction for
options, but ignores them when it comes to reporting their
profits. Among the S&P 500, only Boeing and Winn-Dixie follow
the advice of the Financial Accounting Standards Board in
recording the cost of options on both ledgers, says David
Zion, analyst with Bear Stearns. The rest are like Enron,
which took a $625 million tax deduction for options from 1996
to 2000, yet legally included the $625 million on its
earnings.
If stock options were treated as an expense, the earnings
reported by firms in the S&P 500 would have been 9% lower in
2000, Zion says. Technology companies, more likely to use
options for rank-and-file compensation, would be harder hit.
Fourteen companies, including Yahoo and Citrix Systems, would
have posted losses in 2000, rather than gains. Microsoft and
Cisco take large tax deductions for options.
Options are contracts that allow the purchase of stock,
usually within five years, at today's price. If the stock
rises, the stock can be bought at a discount.
Conventional wisdom has long held that options align the
goals of executives and workers with those of the
shareholders. Enron has given pause to that thinking because
its executives artificially boosted the stock price at the
risk of shareholders.
Outright frauds is rare, but at least a half-dozen academic
studies have concluded that

[[Page S738]]

companies time the release of good or bad news near the date
that executives are issued their options, orchestrating a
potential windfall.
Sens. Carl Levin, D-Mich., John McCain, R-Ariz., and Peter
Fitzgerald, R-Ill., are dusting off the tax-deduction
proposal that was defeated by a vote of 88-9 in 1994. At the
time, Home Depot founder and CEO Bernard Marcus said he had
``never been more strongly opposed to anything.''
Citigroup CEO Sanford Weill was quick out of the chute
Thursday, warning on CNBC's Squawk Box not to get into an
Enron frenzy and hurry through bad legislation.
But Matt Ward, CEO of WestWard Pay Strategies, an options
consulting firm in San Francisco, says he fears the
legislation stands a better chance of passing this time
because of what he calls the ``Enron thieves'' and because
technology companies have been weakened by the economy and
don't have the resources or energy to influence Washington.
Ward says a law change would result only in rank-and-file
employees losing their stock options. CEOs would continue to
get theirs, he says.
``Noises are coming from Washington because some oil
company guys have been greedy,'' Ward says.
David Yermack, associate professor of finance at New York
University's Stern School of Business, says he doubts if
stock options could have pushed Enron executives into hiding
millions of dollars of losses in off-book partnerships. That
said, there is no reason options should not count against
earnings jut as cash compensation does.
``If Enron has made them reconsider this horrible position,
there is silver lining to this debacle,'' Yermack says.
More than 80% of financial analysts and portfolio managers
agree with Yermack, according to a survey by the Association
for Investment Management and Research.
``I'm dissatisfied with using fuzzy numbers in doing
accounting,'' says Dick Wagner, president of the Strategic
Compensation Research Associates.
____

[From the New York Times, Feb. 3, 2002]

Even Last Year, Option Spigot Was Wide Open

(By Stephanie Strom)

Surprise, surprise. Early reports suggest that top
executives across America got a bigger dollop of stock
options last year as part of their pay.
As corporate earnings and cash flow have ebbed and stock
prices have fallen, boards have been doling out options as a
cheap, balance-sheet-friendly way of compensating mangers.
The annual proxy season, when companies reveal compensation,
is just starting. If the disclosures show the trend toward
larger option grants holding after a year that most companies
would lie to forget, it would seem to make a mockery of the
concept of pay for performance. That was the reason options
grew so popular in the first place. Yet while some companies
are trying to make options better reflect their fortunes,
most other simply contend that options are primarily a
motivational tool and have never been a reward for
performance.
With stock prices stalled, options may not seem attractive
now. But executives who receive them can usually count on
rich rewards eventually, even if a company does only
marginally better. The increase in options, however imposes
additional costs on shareholders; the more options granted,
the lower the return for investors, since their holdings are,
one way or the other, diluted.
But the options keep coming. Chief executives who received
more of them last year, even as their companies suffered,
include Daniel A. Carp of Eastman Kodak, John T. Chambers of
Cisco Systems, Scott G. McNealy of Sun Microsystems and
Harvey R. Blau of Aeroflex
And Henry B. Schacht, returning to the helm of troubled
Lucent, received annual options grants almost five times the
size of those his predecessor received--and more than 17
times the size of the last grant he received the year he
retired. ``Fiscal 2001 was rather challenging for Lucent, so
the grants were made to ensure Henry had management stability
through the turnaround,'' said Mary Lou Ambrus, a Lucent
spokeswoman, in explanation.
Changes are, many chief executives received bigger options
awards, as proxy statements, filed each March and April by
most companies, are expected to show, experts say. Some were
no doubt issued to make up for previous grants that had been
rendered worthless by tumbling stock prices.
At the same time, the market's recovery has revived hopes
that old option grants will not be worthless. ``Options
typically run for 10 years, and already many of the ones
issued in the last year are back in the money,'' said John N.
Lauer, chief executive of Oglebay Norton, a shipping company.
``If the economy recovers, those issued in previous years
will also regain value.''
Mr. Lauer has gained notoriety in corporate circles for his
insistence on being paid entirely in options priced well
above Oglebay's stock price. Though Oglebay's performance
has improved somewhat, options he received five years ago
are still worth nothing.
``In a social setting where I'm in a room with other
C.E.O.'s, someone will teasingly suggest that they pass the
hat for me because I'm not making any money,'' he said. ``I
think they figure I'm loony or something.''
Mr. Lauer is not the only executive to have high
performance goals, but it is safe to say that most executives
keep drawing large salaries, plus more and more options.
According to a survey done in the third quarter of last year
by Pearl Meyer & Partners, a human resources consulting firm
in New York, the number of options granted by 50 major
companies that will report their 2001 compensation this
spring was up an average of 12 percent from 2000.
Consultants expect that trend to continue as companies
report 2001 compensation practices this spring. ``It's a
great time to give options,'' said Pearl Meyer, president of
the firm. ``They're cheap because they involve no charge to
earnings, and that's important at a time when profits are
down and boards are trying to make up for the fact that
salaries and bonuses are both down.''
But Ms. Meyer and many others in the field--as well as,
they say, the members of corporate compensation committees--
are not happy to see the increase in options grants. Their
expressions of concern are striking because of compensation
consultants have been among the biggest champions of the use
of options as performance incentives.
The consultants are worried, in part, about the option
``overhang''--options outstanding, plus those shares that
investors have authorized but that have yet to be granted.
More fundamentally, they suggest that the links between a
manager's pay and a company's performance--as measured by,
say, profitability, market-share growth and smart acquisition
strageties--have become more tenuous.
Ms. Meyer suggests that the at-risk components of executive
pay be viewed as the legs of a stool; the legs reflecting
stock performance has grown longer and longer, while those
reflecting business and financial performance have become
shorter.
``We have overdosed on options and the stock market,'' she
said. ``We're dependent on the stock market for executive
compensation, pension payments, directors' compensation,
401(k) plans--our whole economy, practically, is dependent on
the market's performance.''
That reliance has produced an overhang that dangles like a
sword of Damocles over investors. Eventually, their stakes
will be diluted--either when companies issue vast quantities
of new shares to make good on options grants, or when they
undertake share-repurchase programs that eat up cash they
might use for operations.
According to a study by Watson Wyatt Worldwide, a human
resource consulting company, the average options overhang of
the companies in the Standard & Poor's 500-stock index was
14.6 percent of outstanding shares in 2000, up from 13
percent a year earlier.
This spring's numbers will probably show another rise. The
overhang ``is definitely going to be up'' by a percentage
point or more in 2001, said Ira T. Kay, a consultant at
Watson Wyatt Worldwide, ``because people aren't exercising
their options the way they were when the stock market was
booming.''
Mr. Kay predicted that the slowdown in the exercising of
options would work to curb the issuing of new ones this year
and next, although he anticipates a slow increase over the
long term. ``I've been in meetings of five boards that were
very reluctant to go to shareholders to ask for more shares
to underwrite options grants,'' he said, ``They don't
think they can justify it.''
Companies are losing out on another salutary benefit of
options compensation as well--their ability to reduce
corporate taxes. Employers get a deduction when employees
exercise options, but as Mr. Kay and other compensation
consultants note, these days few are cashing them in.
Oddly, shareholder advocates and institutional investors,
who stand to lose the most from an option glut, seem sanguine
thus far. Some note that while option awards have increased,
the value of the awards has collapsed. Pearl Meyer's research
shows that the value of option grants fell 7 percent in the
first eight months of 2001 after rising steadily for several
years.
Some shareholder advocates say that will also help curb
future grants, as long as stocks are sluggish.
``We've had a 20 percent drop in the Standard & Poor's
index,'' said Patrick S. McGurn, of Institutional Shareholder
Services, a consulting business in Rockville, MD. ``And the
standard valuation method for options would tell that you'd
have to double or triple grants just to get to the level
where you were the previous year. Most boards are going to
balk at those numbers, particularly when corporate
performance has been so poor.''
But that may be wishful thinking. Last year, Eastman Kodak
took $659 million in restructing charges that, combined with
falling sales and market share, pushed its earning down 95
percent. In November it awarded its chief executive, Mr.
Carp, options for 250,000 shares at an exercise price of
$29.31, Kodak's stock price at the time. All Mr. Carp must do
to gain is keep Kodak's stock level.
That grant came on top of the 100,000 options he received
in January 2001 at a strike price of $40.97. So Mr. Carp
received three and a half times as many options in 2001 as he
did in 2000--at markedly lower strike prices. Sandra R. Feil,
director for worldwide total compensation at Kodak, said Mr.
Carp received two awards last year because the company had
changed the time of its grants, to November from January.
As for the increase, Ms. Feil said Kodak had worked with
Frederic W. Cook & Company, a compensation consultant, which

[[Page S739]]

found that Mr. Carp was in the lowest 25 percent of
executives receiving options. ``What we've done,'' she said,
``is taken a step, and even a conservative step at that, in
getting him out of the lowest quartile.''
But what about Kodak's dismal performance last year? ``We
look at stock options as a long-term incentive that's
forward-looking,'' Ms. Feil said. ``We don't look at them as
a reward for past performance.
To understand just how easy it is to get richer and richer
on options, consider the case of Lawrence J. Ellison,
chairman, chief executive and co-founder of the Oracle
Compensation, the software maker. In January, with Oracle's
stock trading just above $30, near its yearly high of $34,
Ellison exercised option grants for about 23 million shares
at an average price of 23 cents, for a paper profit of more
than $700 million.
It was the biggest options bonanza on record--and Mr.
Ellison holds options to buy an additional 47.9 million
shares. ``He could end up taking $3 billion out of the
company,'' said Judith Fischer, managing director of
Executive Compensation Advisory Services, a consulting firm.
Investors are often forgiving of founders like Mr. Ellison,
many of whom staked personal assets and invested buckets of
sweat equity to get companies off the ground. His paper
profit has shrunk to $378 million as Oracle's stock has
sagged.
But investors were still piqued by Mr. Ellison's timing. He
exercised his options a month before Oracle issued an
earnings warning. The options expired on Aug. 1; he was under
no pressure to sell them in January.
To protect shareholders from dilutions from options, Oracle
routinely buys shares in the market. Other big corporate
users of options, like Microsoft and Dell Computer, do, too,
contending that it not only protects shareholders, but offers
them tax advantages.
But repurchase programs can also have a huge impact on a
company's cash flow. Oracle started the fiscal year that
began June 1, 2000, with $7.4 billion in cash, then spent
$4.3 billion to repurchase shares largely for use in its
options program.
At the end of the fiscal year, the company's overhang stood
at 28 percent of total outstanding shares. Microsoft has a
similarly large overhang, but it also has more cash.
For years, shareholders have pushed companies to make chief
executives earn their keep, and they initially applauded the
use of options to accomplish that goal. But companies found
ways to make sure the options were worth something regardless
of performance, by repricing worthless options or replacing
them with fistfulls of new ones.
The outcry over those practices, however, may be pushing
some companies to make changes.
In the spring of 1999, the Longview Collective Investment
Fund, which manages some A.F.L.-C.I.O. pension money,
submitted a shareholder proposal to the Chubb Corporation,
the insurer, asking it to grant options that would more
closely align compensation with performance.
The proposal was defeated. But when Beth W. Young, an
independent consultant who advises the A.F.L.-C.I.O. and
other pension fund managers, called Chubb the next spring to
resubmit the proposal, she was told that Chubb had already
incorporated into its incentive plan options that could be
exercised only if the stock price rose significantly.
Roughly half the options handed out to Chubb's senior
management in 2000 and 2001 have an exercise price 25 percent
higher than the stock price on the day they wre granted. But
only 2 percent to 4 percent of large companies use such
``premium priced'' options, consultants say.
``The executives who were granted these options will, at
least in theory, have a much stronger incentive to take steps
to increase the stock price,'' said Donald B. Lawson, the
Chubb senior vice president who manages compensation and
benefits.
Chubb also uses ``performance shares,'' which can typically
be redeemed only after three years and only if the company
clears specific hurdles. In 2000, for example, the
performance shares it handed out in 1998 were worthless
because the company did not hit those targets.
For Dean R. O'Hare, Chubb's chief executive, that meant his
total compensation fell by $448,508 from the previous year.
he did get more options, but those largely replaced
restricted shares--those that cannot be sold right away--
after the company decided not to use them to reward
executives, Mr. Lawson said.
Performance shares held by C. Michael Armstrong, the chief
executive of AT&T, have proved to be worthless for three
years as the company has fallen short of the board's goals
for increases in total return to shareholders.
An options award for 419,200 shares granted to Mr.
Armstrong at the end of 2000 was also tied to better
performance. The options can be exercised only if AT&T
produces a $145 billion pretax gain for shareholders in the
year that started March 31. On the other hand, another twist
on options accelerates the vesting period if a company's
shares reach a certain target. In 2000, the Williams
Companies granted options with the condition that if, on
certain days, the stock traded at 1.4 times the price at the
beginning of the year, the options could be exercised
immediately rather than over three years.
Other companies are working to get more plain-vanilla
stock, not options, into executives' hands--stock they must
buy. When Beazer Homes USA, a home builder, went public in
1994, it adopted a management stock purchase program to
increase managers' stakes. At the beginning of each year,
some 80 executives can choose to give up a percentage of
their bonuses to buy stock at a 20 percent discount on the
year-end closing price. The stock cannot be sold for three
years.
Executives now own roughly 8 percent of the company, said
David S. Weiss, Beazer's chief financial officer. ``We think
it's a good idea to have them put real money at risk, as
opposed to just receiving a reward,'' he said. ``Options feel
like a gift from the company that the market, through its
whims, will reward or not. Shares reflect the company's
performance, whether good or bad.''
Mr. Kay, at Watson Wyatt, said such pure stock subsidies
were gaining popularity. More companies, he said, plan to use
contingent options like those at Chubb and AT&T, which try to
reflect financial and business performance.
Investors expect the BellSouth Corporation and the Eaton
Corporation, for example, to disclose such adjustments in
their new proxy statements. A spokesman for Eaton said he was
unaware of such a move, and a spokesman for BellSouth
declined to comment until the proxy is released in March.
But other boards are already finding ways to limit the
risks that performance shares, premium-priced options,
performance-accelerated options and other performance-linked
tools pose.
Until last April, Archie W. Dunham, chief executive of
Conoco, had options giving him the right to buy 700,000
shares. But he could exercise them only if Conoco's shares
traded about $35 on each of the five days before Aug. 17 of
this year.
Before Conoco bought Gulf Canada Resources in July,
however, its board granted a two-year extension to Mr. Dunham
and at least six other executives holding those options.
``The board thought the climate was right this year for some
kind of an acquisition but that it could have an adverse
effect on the stock price,'' John McLemore, a Conoco
spokesman, said. ``They thought it wouldn't be really fair
for those people who held these options to be punished for
something that might make it harder for them to meet the
conditions.''
That means the board rewarded Mr. Dunham and his colleagues
for an acquisition that it knew was likely to hurt Conoco's
shares, at least temporarily--a courtesy not extended to
shareholders.
____

[From the Washington Post, Jan. 30, 2002]

Stock Option Madness

(By Robert J. Samuelson)

As the Enron scandal broadens, we may miss the forest for
the trees. The multiplying investigations have created a
massive whodunit. Who destroyed documents? Who misled
investors? Who twisted or broke accounting rules? The answers
may explain what happened at Enron but necessarily why. We
need to search for deeper causes, beginning with stock
options. Here's a good idea gone bad--stock options foster a
corrosive climate that tempts many executives, and not just
those at Enron, to play fast and loose when reporting
profits.
As everyone knows, stock options exploded in the lasted
1980s and the 1990s. The theory was simple. If you made top
executives and managers into owners, they would act in
shareholders' interests. Executives' pay packages became
increasingly skewed toward options. In 2000, the typical
chief executive officer of one of the country's 350 major
companies earned about $5.2 million, with almost half of that
reflecting stock options, according to William M. Mercer
Inc., a consulting firm. About half of those companies also
had stock-option programs for at least half their employees.
Up to a point, the theory worked. Twenty years ago, America's
corporate managers were widely criticized. Japanese and
German companies seemed on a roll. By contrast, their
American rivals seemed stodgy, complacent and bureaucratic.
Stock options, were one tool in a managerial upheaval that
refocused attention away from corporate empire-building and
toward improved profitability and efficiency.
All this contributed to the 1990s' economic revival. By
holding down costs, companies restrained inflation. By
aggressively promoting new products and technologies,
companies boosted production and employment. But slowly,
stock options became corrupted by carelessness, overuse and
greed. As more executives developed big personal stakes in
options, the task of keeping the stock price rising became
separate from improving the business and its profitability.
This is what seems to have happened at Enron.
The company adored stock options. About 60 percent of
employees received an annual award of options, equal to 5
percent of their base salary. Executives and top managers got
more. At year-end 2000, all Enron managers and workers had
options, that could be exercised for nearly 47 million
shares. Under a typical plan, a recipient gets an options to
buy a given number of shares at the market price on the day
the option is issued. This is called ``the strike price.''
But the option usually cannot be exercised for a few years.
If the stock's price rises in that time, the option can yield
a tidy profit. The lucky recipient buys at the strike price
and sells at the market price. On the 47 million Enron
options, the average ``strike price was about

[[Page S740]]

$30 and at the end of 2000, the market price was $83. The
potential profit was nearly $2.5 billion.
Given the huge reward, it would have been astonishing if
Enron's managers had not become obsessed with the company's
stock price and--to the extent possible--tried to influence
it. And while Enron's stock soared, why would anyone complain
about accounting shenanigans? Whatever the resulting abuses,
the pressures are not unique to Enron. It takes a naive view
of human nature to think that many executives won't strive to
maximize their personal wealth.
This is an invitation to abuse. To influence stock prices,
executives can issue optimistic profit projections. They can
delay some spending, such as research and development (this
temporarily helps profits). They can engage in stock buybacks
(these raise per-share earnings, because fewer shares are
outstanding). And, of course, they can exploit accounting
rules. Even temporary blips in stock prices can create
opportunities to unload profitable options.
The point is that the growth of stock options has created
huge conflicts of interest that executives will be hard-
pressed to avoid. Indeed, many executives will coax as many
options as possible from their compensation committees,
typically composed of ``outside'' directors. But because
`'directors are [manipulated] by management, sympathetic to
them, or simply ineffectual,'' the amounts may well be
excessive, argue Harvard law professors Lucian Arye Bebchuk
and Jesse Fried and attorney David Walker in a recent study.
Stock options are not evil, but unless we curb the present
madness, we are courting continual trouble. Here are three
ways to check the overuse of options:
(1) Change the accounting--count options as a cost.
Amazingly, when companies issue stock options, they do not
have to make a deduction to profits. This encourages
companies to create new options. By one common accounting
technique, Enron's options would have required deductions of
almost $2.4 billion from 1998 through 2000. That would have
virtually eliminated the company's profits.
(2) Index stock options to the market. If a company's
shares rise in tandem with the overall stock market, the
gains don't reflect any management contribution--and yet,
most options still increase in value. Executives get a
windfall. Options should reward only for gains above the
market.
(3) Don't reprice options if the stock falls. Some
corporate boards of directors issue new options at lower
prices if the company's stock falls. What's the point?
Options are supposed to prod executives to improve the
company's profits and stock price. Why protect them if they
fail?
Within limits, stock options represent a useful reward for
management. But we lost those limits, and options became a
kind of free money sprinkled about by uncritical corporate
directors. The unintended result was a morally lax, get-rich-
quick mentality. Unless companies restore limits--prodded, if
need be, by new government regulations--one large lesson of
the Enron scandal will have been lost.
____

[From the New York Times, Jan. 27, 2002]

Economic View; Enron's Way: Pay Packages Foster Spin, Not Results

(By David Leonhardt)

As the stock plummeted, investors and employees alike were
left with big losses. But one group of shareholders came out
ahead--management. Many board members and top executives
managed to sell millions of dollars of shares before the big
fall and still have something to show for the stock's once-
lofty price.
This is the story of Enron, of course, but it hardly ends
there. Over the last two years, as the stock market has
fallen about 30 percent from its peak, the description fits
dozens of other companies as well. For example, Roger G.
Ackerman, the former chairman of Corning, sold $14 million of
the company's stock last year, mostly when it was trading at
about $57 a share, or seven times its current price. Donald
R. Scifres, the co-chairman of JDS Uniphase, made $23 million
selling company shares last year; the stock has lost nearly
90 percent of its value since January 2001. David R. Alvarez
sold $14 million worth of stock in Providian Financial, where
he is vice chairman, last year before the company
acknowledged that its balance sheet wasn't quite what it was
cracked up to be. The stock, which traded at $60 a share last
summer, now trades at around $4.
Some of the biggest paydays have come at obscure companies
that were once market darlings, John J. Moores, better known
as the owner of the San Diego Padres baseball team, made $101
million last year selling shares of Peregrine Systems, on
whose board he serves, before its shares fell by more than
two-thirds. Richard Aube, a director at Capstone Turbine,
made $51 million selling its stock last year, according to
Thomson Financial. If you bought when we sold at around $30 a
share, your investment would be showing an 80 percent loss
now.
The contrast is obviously cringe-inducing. But it is more
than that. Even when executives simply fail to live up to
their own predictions--rather than break the law, as some
people suspect that Enron managers did--the big insider
paydays offer a good lesson in how economic incentives are
askew in corporate America.
Corporate spin aside, executives do not always prosper most
by making their companies great. They can often profit more
from creating unrealistic expectations than from delivering
consistently impressive results.
Consider two companies. One has a stock price that has
appreciated slowly, starting at $20 five years ago and
gaining $2 a year, to $30 today. The second company's stock
also started at $20 five years ago, then zoomed to $100 after
a few years but has since fallen back to $20.
By any reasonable measure, the leaders of the first company
have done a better job. Their share price has grown 50
percent, and they have avoided making gradiose predictions
that cause Wall Street analysts to set silly targets. The
second company has a stock that has underperformed a
savings account over the long run, and scores of workers
and investors have been burned by false hopes.
Yet if the top executives of both companies had received
similar amounts of stock and both sold their shares on a
regular schedule, the executives of the second company would
actually be ahead. They would have made so much money selling
the stock when it was trading near $100 that they would be
multimillionaires despite the humbling decline.
This is the Enron model of pay for performance, and it has
become common. Executives receive enormous grants of stock or
options, saying they are simply aligning their own interests
with those of their shareholders. But the packages are so
generous that even a temporary rise in the share price,
accompanied by the sale of a portion of an executive's stock,
can leave him set for life. The appeal of overly aggressive
accounting methods and manipulated earnings becomes obvious.
``You're providing C.E.O.'s with a perverse incentive,''
said Nell Minow, the editor of the Corporate Library, a
research firm in Washington. ``You're rewarding them for a
goal that is not in the interest of long-term shareholders.''
The executives who have made millions of dollars selling
once-expensive shares say they have done nothing wrong. They
simply followed a regular, legal schedule of selling stock,
they say, and would be far richer if the stock price had not
dropped.
All of that is usually true. But it is also true that when
an economic system richly rewards certain behavior, no one
should be surprised when that behavior becomes the norm. If
you want to change it, you have to change the incentives. The
Enron mess has the potential to focus people's attention on
the complicated task of doing precisely that.
____

[From AIMR Exchange, Jan.-Feb. 2002]

Employee Stock Options Should Be Expensed on Income Statements, Survey
Shows

In September 2001, AIMR surveyed more than 18,000 members
to gauge their responses to a proposed agenda topic of the
International Accounting Standards Board (IASB) that could
require companies to report the fair value of stock options
granted--including those to employees--as an expense on the
income statement, reducing earnings. Although share-based
payments to employees and others are increasing worldwide,
few countries currently have national standards on the topic.
Do you consider share-based (or stock option) plans to be
compensation to the parties receiving the benefits of these
plans?
Answer. Yes, 88%; no, 6%; it depends, 6%.
Do firms you evaluate and monitor have shared-based (or
stock option) plans that grant shares of the firm's stock?
Answer. Yes, 85%; no, 6%; not sure, 9%.
Do you use the information and data that companies provide
on share-based plans in your evaluation of the firm's
performance and determination of its value?
Answer. Yes, only when it is recognized as a compensation
in the income statement; 15%; yes, regardless of whether it
is recognized in the income statement, 66%; no, 19%.
Survey results are based on a random polling of more than
18,000 AIMR members, with a 10% response rate.
Do the current accounting requirements for share-based
payments need improving, in particular, for those plans
covering employees?
Answer. Yes, 74%; no, 26%.
Should the accounting method for all share-based payment
transactions (including employee stock option plans) require
recognition of an expense in the income statement?
Answer. Total response: Yes, 83%; no, 17%.

Mr. McCAIN. Mr. President, I rise today to introduce legislation with
Senators Levin, Fitzgerald, and Durbin, entitled Ending the Double
Standard for Stock Options Act. This legislation requires companies to
treat stock options for employees as an expense for bookkeeping
purposes if they want to claim this expense as a deduction for tax
purposes. We introduced similar legislation in 1997 during the 105h
Congress but unfortunately, the special interest with a vested stake in
the status quo prevented this legislation from seeing the light of day.
Currently, corporations can hide these multimillion-dollar
compensation plans from their stockholders or other investors because
these plans are not counted as an expense when calculating company
earnings. Even the Federal Accounting Standards Board, FASB, recognized
that stock options

[[Page S741]]

should be treated as an expense for accounting purposes. Accounting
disclosure rules issued by FASB require that companies include in their
annual reports a footnote disclosing what the company's net earnings
would have been if stock option plans were treated as an expense.
The latest scandals involving the collapse of Enron highlight the
problem of misleading annual statements and financial statements.
According to a recent analysis, from 1996 to 2000, Enron issued nearly
$600 million in stock options, collecting tax deductions which allowed
the corporation to severely reduce their payment in taxes. Whether or
not Enron took advantage of current disclosure rules to hide their
financial problems remains a question. The fact remains that current
rules allow companies such as Enron to discuss as little as possible.
And this prevents investors, Wall Street analyst, corporate executives,
and auditors from properly understanding the bottom line of
corporations.
One might reasonably ask how an arcane accounting rule could have
such a large impact on the bottom line of corporations. The answer lies
in the growth and value of stock options as a means of executive
compensation.
We have heard the reports of executives making multimillion-dollar
salaries, while average worker salaries stagnate or fall. According to
one recent report, almost half of the earnings of the typical chief
executive officer of a top company reflects stock options. Why
shouldn't the value of this compensation package be included in
calculating a company's earnings? How can stockowners evaluate the true
value of employee compensation if the value is just buried in a
footnote somewhere the annual report?
No other type of compensation gets treated as an expense for tax
purposes, without also being treated as an expense on the company
books. This double standard is exactly the kind of inequitable
corporate benefit that makes the American people irate and must be
eliminated. If companies do not want to fully disclose on their books
how much they are compensating their employees, then they should not be
able to claim a tax benefit for it.
This legislation does not require a particular accounting treatment;
the accounting decision is left to the company. This legislation simply
requires companies to treat stock options the same way for both
accounting and tax purposes.
I hope my colleagues will join us in cosponsoring this important
legislation that will end the double standard for stock option
compensation.
______

By Mr. LEAHY (for himself and Mr. Durbin):
S. 1941. A bill to authorize the President to establish military
tribunals to try the terrorists responsible for the September 11, 2001
attacks against the United States, and for other purposes; to the
Committee on Armed Services.
Mr. LEAHY. Mr. President, on November 13, 2001, President Bush signed
a military order authorizing the use of military commissions to try
suspected terrorists. This order stimulated an important national
debate and led to a series of Judiciary Committee hearings with the
Attorney General and others to discuss the many legal, constitutional,
and policy questions raised by the use of such tribunals. Our hearings,
and the continued public discourse, helped to clarify the scope of the
President's order and better define the terms of the debate.
For example, the Judiciary Committee held a hearing on November 28,
2001, at which several legal experts challenged the validity of the
military order. Philip Heymann of Harvard Law School, a former Deputy
Attorney General, testified that the order was so broad that it
amounted to a dangerous claim of executive power. In his view, the
order improperly bypassed congressional review, undermined confidence
in our civil justice system, and jeopardized relationships with our
allies abroad. Retired Air Force Colonel Scott Silliman who is now at
Duke Law School, questioned the President's authority to use military
commissions with respect to the September 11 attacks absent authorizing
legislation by Congress. Professor Silliman also echoed the comments of
Professor Heymann, arguing that tribunals convened under the order
could adversely impact our international credibility as a Nation under
the rule of law.
On December 4, 2001, Senator Schumer chaired another important
hearing on the issue of military commissions. Harvard Law Professor
Laurence Tribe testified at that hearing that ``Congress alone can
avoid the constitutional infirmities that plague the Military Tribunal
Order of November 13.'' Professor Tribe argued for the establishment of
procedural guidelines to ensure the protection of defendants' due
process rights, and called for Congress to set limits in consultation
with the President. He cautioned that if the Administration acted on
its own--under authority that Professor Tribe believed was
constitutionally infirm, any convictions could later be overturned by
the courts, with the result that dangerous individuals could be set
free. By contrast, convictions obtained by military tribunals
constituted under the authority of the Congress and the President
acting together would more likely be shielded from constitutional
challenge on appeal.
At the same December 4 hearing, Cass Sunstein of the University of
Chicago Law School testified that ``from the standpoint of both
constitutional law and democratic legitimacy, it is far better if the
President and Congress act in concert,'' adding that ``the executive
branch stands on the firmest ground if it acts pursuant to clear
congressional authorization.'' Professor Sunstein suggested that
Congress limit the scope of military tribunals by allowing the use of
military tribunals ``only on certain essential occasions.''
Finally, on December 6, the Judiciary Committee heard from Attorney
General Ashcroft on military commissions and a number of other
unilateral actions taken by the Administration last fall. I believe
that we had a constructive conversation that day, despite our
disagreements on substantive points. The Attorney General took issue
with anyone who dared question the thinking of the executive branch on
such topics, charging them with ``fearmongering'' and aiding the
terrorists. I would note, however, that several members of the
Committee, including some of my colleagues from the other side of the
aisle, suggested to the Attorney General that if military tribunals
were used, they should provide a number of basic due process
guarantees. Suggestions like these, coming from both Republicans and
Democrats, are not intended to bait the Administration. Rather,
constructive criticism can be, should be and has been useful in
developing sound policy that can better protect Americans and American
soldiers, particularly when they are serving abroad.

The Attorney General testified at our hearing on December 6 that the
President does not need the sanction of Congress to convene military
commission, but I disagree. Military tribunals may be appropriate under
certain circumstances, but only if they are backed by specific
congressional authorization. At a minimum, as the distinguished senior
Senator from Pennsylvania stated on this floor on November 15, ``the
executive will be immeasurably strengthened if the Congress backs the
President,'' Clearly, our government is at its strongest when the
executive and legislative branches of government act in concert.
We demonstrated this unified strength in negotiating the USA Patriot
Act last fall. The Congress, the White House and the Department of
Justice worked intensively for seven weeks to craft a bill that
provided law enforcement agencies with the tools they said were needed
to fight terrorism while preserving American values and democratic
principles.
In that same spirit, and with my friend, the senior Senator from
Illinois, I am today introducing the Military Tribunal Authorization
Act. This legislation would provide the executive branch with the
specific authorization it now lacks to use extraordinary tribunals to
try members of the al Qaeda terrorist network and those who cooperated
with them.
Specifically, this legislation authorizes the use of ``extraordinary
tribunals'' for al Qaeda members, and for persons aiding and abetting
al Qaeda in terrorist activities against the United States, who are
apprehended in, or fleeing from, Afghanistan. It also authorizes the
use of tribunals for those al Qaeda members and abettors who are
captured in any other place where

[[Page S742]]

there is armed conflict involving the U.S. Armed Forces.
Like the November 13 order, the Military Tribunal Authorization Act
exempts U.S. citizens from the jurisdiction of the tribunals, as well
as those individuals determined to be prisoners of war under the Geneva
Convention. The bill also exempts individuals arrested while present in
the United States, since our civilian court system is well-equipped to
handle such cases. These exemptions are consistent with the
Administration's treatment of Zacharias Moussaoui, the suspected 20th
hijacker in the September 11 attacks, who is awaiting trial in Federal
district court. A second terrorist suspect, Richard Reid, the so-called
``shoe bomber,'' is also being tried in Federal district court. In
fact, one of the nine charges against Reid, ``attempted wrecking of a
mass transportation vehicle,'' is a new anti-terrorism offense that was
created by the USA Patriot Act. Finally, the Administration has decided
to bring Federal criminal charges against John Walker Lindh, who
allegedly took up arms against Americans to fight with al Qaeda and the
Taliban in Afghanistan.

A significant question raised about the November 13 order is that it
vests the President with plenary and unreviewable discretion to
determine who is subject to trial by military tribunal. The President's
order also implied that those who were arrested under its terms could
be held indefinitely. Detainees were to receive a ``full and fair
trial,'' but no explanation of the terms ``full'' and ``fair'' is
offered. While the Administration has deferred providing any
explanation to the development of regulations by the Secretary of
Defense, requests for an opportunity to review and be consulted about
the draft regulations have been denied. This leaves introduction of
legislation showing how military tribunals may be constituted to
comport with constitutional mandates and values as one of the few
avenues to inform the process in development of regulations.
The Military Tribunal Authorization act defines the jurisdiction and
procedure of tribunals in a way that ensures a ``full and fair'' trial
for anyone detained. Under the bill, the Secretary of Defense is
charged with elaborating on the procedures that the tribunals must
follow and publishing any draft regulations in the Federal Register.
First, the bill makes clear that tribunals may adjudicate violations
of the law of war, including international laws of armed conflict and
crimes against humanity, targeted against U.S. persons. Wars have
rules, as defined by the Geneva Conventions and other international
agreements. These rules protect civilians from harm and define how
captured soldiers must be treated Under the bill, individuals who
violated those rules by targeting innocent American civilians can face
trial in a military tribunal. In addition, individuals who committed
crimes against humanity, such as murder, torture, or other inhumane
acts, may face charges in a tribunal.
Second, on the length of detention, the bill authorizes detention of
individuals subject to military tribunals for as long as the President
certifies that the United States is in armed conflict with al Qaeda or
Taliban forces in Afghanistan or elsewhere, or that an investigation,
prosecution or post-trial proceeding against the detainee is ongoing.
The certification must be made every six months.
Third, on the conditions of confinement, the bill requires that
detainees be ``treated humanely,'' which is consistent with the Body of
Principles for the Protection of All Persons under Any Form of
Detention or Imprisonment, a resolution adopted by the United Nations
General Assembly in 1988. this includes adequate food, water, shelter,
clothing and medical treatment, hygienic conditions, the necessary
means of personal hygiene, and the free exercise of religion. Detention
determinations and the conditions of detention are subject to review by
the Court of Appeals for the D.C. Circuit.
Fourth, the bill incorporates basic due process guarantees, including
the right to independent counsel. In imposing this requirement, I am
not suggesting that suspected terrorists deserve special treatment.
Rather, the bill follows well-established standards for indigent
defense. In the first of its ``Ten Commandments'' of public defense
programs, the Department of Justice calls for full independence of
defense counsel and judicial functions. The department's ``Ten
Commandments'' also require that counsel's ability, training, and
experience must be matched to the complexity of the case. Providing
independent counsel and judicial review is critical to ensuring that
any convictions are free from political influence. An independent
process with experienced counsel will also safeguard against otherwise
valid convictions being overturned for violations of due process or
incompetent counsel.

Under the terms of this bill, tribunals would be required to apply
reasonable rules of evidence to ensure that material admitted at trial
was of probative value. Defendants would be presumed innocent until
proven guilty, and proof of guilt must be established beyond a
reasonable doubt. Defendants may not be compelled to testify against
themselves. Finally, defendants could appeal their convictions and
sentences to a higher tribunal, the U.S. Court of Appeals for the Armed
Forces.
These procedures do not, as some have claimed, provide greater
protections to suspected terrorists than we offer our own soldiers.
These are, rather, the very basic guarantees provided under various
sources of international law, including the Geneva Conventions, the
International Covenant on Civil and Political Rights, the Universal
Declaration of Human Rights, and the Statute of the International
Criminal Tribunal for former Yugoslavia, among others. Several of the
procedural protections are also drawn from the U.S. Rules of Courts-
Martial and the Military Rules of Evidence. In addition, the trial
procedure statute of the Uniform Code of Military Justice, which is
cited in the President's military order, recommends that the President
apply to military commissions the principles of law and rules of
evidence that are generally recognized by the federal district courts.
I submit for the record a list the international conventions that
serve as sources for the eighteen procedural protections included in my
bill. As the ABA resolution urges, in establishing military tribunals,
we should ``give full consideration to the impact . . . as precedents
in . . . the use of international legal norms in shaping other nations'
responses to future acts of terrorism.'' Respecting those international
legal norms, will redound to the benefit of Americans.
It is important to note that last week the President reevaluated his
position on a related issue. He decided to apply the Geneva Conventions
to Taliban captives. This decision sends a signal to the world that the
United States respects the Geneva Conventions and expects them to be
applied to American soldiers captured overseas. I commend Secretary
Powell, who supported this application of the Geneva Conventions. I
also commend Secretary Rumsfeld, whose draft rules on military
commissions contained a number of important procedural protections.
Both Secretaries Powell and Rumsfeld have worked to bring the original
military order and subsequent decisions over detention within the
framework of international law. I urge the Administration to follow
this example of flexibility and inclusiveness by working with Congress
to establish tribunals that are authorized by statute and consistent
with international law.
Finally, the bill comes down squarely on the side of transparency in
government by providing that tribunal proceedings should be open and
public, and include public availability of the transcripts of the trial
and the pronouncement of judgment. The only exceptions are for
demonstrable reasons of national security or the necessity to secure
the safety of observers, witnesses, tribunal judges, counsel or other
persons.
In sum, the Military Tribunal Authorization Act establishes a legal
framework for proceedings that are truly ``full and fair.'' The
provisions of this bill track very closely with recommendations arrived
at independently by the American Bar Association and issued on February
4, 2002. The ABA calls on the executive branch to provide due process
guarantees similar to those used in courts-martial, including a number
of rights included in this

[[Page S743]]

bill. It also urged the Administration to work with Congress in
defining the rules for military commissions.
Passage of authorizing legislation would ensure the constitutionality
of military tribunals and protect any convictions they might yield,
while at the same time showing the world that we will fight terrorists
without sacrificing our principles. We can also show by example how we
expect our soldiers and nationals to be treated if they are swept into
foreign courts or tribunals.
Our government is at its strongest when its executive and legislative
branches act in concert. I provided earlier drafts of this legislation
to the Attorney General and Secretary of Defense, but received no
response. With the introduction of this bill, I again invite the
Administration's cooperation and comment.
I ask unanimous consent that the text of the bill and the sectional
analysis be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 1941

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Military Tribunal
Authorization Act of 2002''.

SEC. 2. FINDINGS.

Congress makes the following findings:
(1) The al Qaeda terrorist organization and its leaders
have committed unlawful attacks against the United States,
including the August 7, 1998 bombings of the United States
embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania, the
October 12, 2000 attack on the USS Cole and the September 11,
2001 attacks on the United States.
(2) The al Qaeda terrorist organization and its leaders
have threatened renewed attacks on the United States and have
threatened the use of weapons of mass destruction.
(3) In violation of the resolutions of the United Nations,
the Taliban of Afghanistan provided a safe haven to the al
Quaeda terrorist organization and its leaders and allowed the
territory of that country to be used as a base from which to
sponsor international terrorist operations.
(4) The United Nations Security Council, in Resolution
1267, declared in 1999 that the actions of the Taliban
constitute a threat to international peace and security.
(5) The United Nations Security Council, in Resolutions
1368 and 1373, declared in September 2001 that the September
11 attacks against the United States constitute a threat to
international peace and security.
(6) The United States is justified in exercising its right
of self-defense pursuant to international law and the United
Nations Charter.
(7) Congress authorized the President on September 18,
2001, to use all necessary and appropriate force against
those nations, organizations, or persons that he determines
to have planned, authorized, committed, or aided the
September 11 terrorist attacks or harbored such organizations
or persons, in order to prevent any future acts of
international terrorism against the United States, within the
meaning of section 5(b) of the War Powers Resolution.
(8) The United States and its allies are engaged in armed
conflict with al Qaeda and the Taliban.
(9) Military trials of the terrorists may be appropriate to
protect the safety of the public and those involved in the
investigation and prosecution, to facilitate the use of
classified information as evidence without compromising
intelligence or military efforts, and otherwise to protect
national security interests.
(10) Military trials that provide basic procedural
guarantees of fairness, consistent with the international law
of armed conflict and the International Covenant on Civil and
Political Rights (opened for signature December 16, 1966),
would garner the support of the community of nations.
(11) Article I, section 8, of the Constitution provides
that the Congress, not the President, has the power to
``constitute Tribunals inferior to the Supreme Court; . . .
define and punish . . . Offenses against the Law of Nations;
. . . make Rules concerning Captures on Land and Water; . . .
make all Laws which shall be necessary and proper for
carrying into Execution the foregoing Powers and all other
Powers vested by this Constitution in the Government of the
United States, or in any Department or Officer thereof.''.
(12) Congressional authorization is necessary for the
establishment of extraordinary tribunals to adjudicate and
punish offenses arising from the September 11, 2001 attacks
against the United States and to provide a clear and
unambiguous legal foundation for such trials.

SEC. 3. ESTABLISHMENT OF EXTRAORDINARY TRIBUNALS.

(a) Authority.--The President is hereby authorized to
establish tribunals for the trial of individuals who--
(1) are not United States persons;
(2) are members of al Qaeda or members of other terrorist
organizations knowingly cooperating with members of al Qaeda
in planning, authorizing, committing, or aiding in the
September 11, 2001 attacks against the United States, or,
although not members of any such organization, knowingly
aided and abetted members of al Qaeda in such terrorist
activities against the United States;
(3) are apprehended in Afghanistan, fleeing from
Afghanistan, or in or fleeing from any other place outside
the United States where there is armed conflict involving the
Armed Forces of the United States; and
(4) are not prisoners of war within the meaning of the
Geneva Convention Relative to the Treatment of Prisoners of
War, done on August 12, 1949, or any protocol relating
thereto.
(b) Jurisdiction.--Tribunals established under subsection
(a) may adjudicate violations of the law of war,
international laws of armed conflict, and crimes against
humanity targeted against United States persons.
(c) Authority To Establish Procedural Rules.--The Secretary
of Defense, in consultation with the Secretary of State and
the Attorney General, shall prescribe and publish in the
Federal Register, and report to the Committees on the
Judiciary of the Senate and the House of Representatives, the
rules of evidence and procedure that are to apply to
tribunals established under subsection (a).

SEC. 4. PROCEDURAL REQUIREMENTS.

(a) In General.--The rules prescribed for a tribunal under
section 3(c) shall be designed to ensure a full and fair
hearing of the charges against the accused. The rules shall
require the following:
(1) That the tribunal be independent and impartial.
(2) That the accused be notified of the particulars of the
offense charged or alleged without delay.
(3) That the proceedings be made simultaneously
intelligible for participants not conversant in the English
language by including translation or interpretation.
(4) That the evidence supporting each alleged offense be
given to the accused.
(5) That the accused have the opportunity to be present at
trial.
(6) That the accused have a right to be represented by
counsel.
(7) That the accused have the opportunity--
(A) to respond to the evidence supporting each alleged
offense;
(B) to obtain exculpatory evidence from the prosecution;
and
(C) to present exculpatory evidence.
(8) That the accused have the opportunity to confront and
cross-examine adverse witnesses and to offer witnesses.
(9) That the proceeding and disposition be expeditious.
(10) That the tribunal apply reasonable rules of evidence
designed to ensure admission only of reliable information or
material with probative value.
(11) That the accused be afforded all necessary means of
defense before and after the trial.
(12) That conviction of an alleged offense be based only
upon proof of individual responsibility for the offense.
(13) That conviction of an alleged offense not be based
upon an act, offense, or omission that was not an offense
under law when it was committed.
(14) That the penalty for an offense not be greater than it
was when the offense was committed.
(15) That the accused--
(A) be presumed innocent until proven guilty, and
(B) not be found guilty except upon proof beyond a
reasonable doubt.
(16) That the accused not be compelled to confess guilt or
testify against himself.
(17) That, subject to subsections (c) and (d), the trial be
open and public and include public availability of the
transcripts of the trial and the pronouncement of judgment.
(18) That a convicted person be informed of remedies and
appeals and the time limits for the exercise of the person's
rights to the remedies and appeals under the rules.
(b) Imposition of the Death Penalty.--The requirements of
the Uniform Code of Military Justice for the imposition of
the death penalty shall apply in any case in which a tribunal
established under section 3 is requested to adjudge the death
penalty.
(c) Public Proceedings.--Any proceedings conducted by a
tribunal established under section 3, and the proceedings on
any appeal of an action of the tribunal, shall be accessible
to the public consistent with any demonstrable necessity to
secure the safety of observers, witnesses, tribunal judges,
counsel, or other persons.
(d) Confidentiality of Evidence.--Evidence available from
an agency of the Federal Government that is offered in a
trial by a tribunal established under section 3 may be kept
secret from the public only when the head of the agency
personally certifies in writing that disclosure will cause--
(1) identifiable harm to the prosecution of military
objectives or interfere with the capture of members of al
Qaeda anywhere;
(2) significant, identifiable harm to intelligence sources
or methods; or
(3) substantial risk that such evidence could be used for
planning future terrorist attacks.
(e) Review.--
(1) Procedures required.--The Secretary of Defense shall
provide for prompt review of convictions by tribunals
established under section 3 to ensure that the procedural
requirements of a full and fair hearing have

[[Page S744]]

been met and that the evidence reasonably supports the
convictions.
(2) United states court of appeals for the armed forces.--
The procedures established under paragraph (1) shall, at a
minimum, allow for review of the proceedings of the tribunals
by the United States Court of Appeals for the Armed Forces
established under the Uniform Code of Military Justice.
(3) Supreme court.--The decisions of the United States
Court of Appeals for the Armed Forces regarding proceedings
of tribunals established under section 3 shall be subject to
review by the Supreme Court by writ of certiorari.

SEC. 5. DETENTION.

(a) In General.--The President may direct the Secretary of
Defense to detain any person who is subject to a tribunal
established under section 3 pursuant to rules and regulations
that are promulgated by the Secretary and are consistent with
the rules of international law.
(b) Duration of Detention.--
(1) Limitation.--A person may be detained under subsection
(a) only while--
(A) there is in effect for the purposes of this section a
certification by the President that the United States Armed
Forces are engaged in a state of armed conflict with al Qaeda
or Taliban forces in the region of Afghanistan or with al
Qaeda forces elsewhere; or
(B) an investigation with a view toward prosecution, a
prosecution, or a post-trial proceeding in the case of such
person, pursuant to the provisions of this Act, is ongoing.
(2) Certification and recertification.--A certification of
circumstances made under paragraph (1) shall be effective for
180 days. The President may make successive certifications of
the circumstances.
(c) Disclosure of Evidence.--Evidence that may establish
that an accused is not a person described in subsection (a)
shall be disclosed to the accused and his counsel, except
that a summary of such evidence shall be provided to the
accused and his counsel when the Attorney General personally
certifies that disclosure of the evidence would cause
identifiable harm to the prosecution of military objectives
in Afghanistan, to the capture of other persons who are
subject to this Act or reside outside the United States, or
to the prevention of future terrorist acts directed against
Americans. A summary of evidence shall be as complete as is
possible in order to provide the accused with an evidentiary
basis to seek release from detention.
(d) Detention Review.--The United States Court of Appeals
for the District of Columbia Circuit shall have exclusive
jurisdiction to review any determination under this section
that the requirements of this section for detaining an
accused are satisfied.
(e) Conditions of Detention.--A person detained under this
section shall be--
(1) detained at an appropriate location designated by the
Secretary of Defense;
(2) treated humanely, without any adverse distinction based
on race, color, religion, gender, birth, wealth, or any
similar criteria;
(3) afforded adequate food, drinking water, shelter,
clothing, and medical treatment;
(4) sheltered under hygienic conditions and provided
necessary means of personal hygiene; and
(5) allowed the free exercise of religion consistent with
the requirements of such detention.

SEC. 6. SENSE OF CONGRESS.

It is the sense of Congress that the President should seek
the cooperation of United States allies and other nations in
conducting the investigations and prosecutions, including
extraditions, of the persons who are responsible for the
September 11, 2001 attacks on the United States, and use to
the fullest extent possible multilateral institutions and
mechanisms for carrying out such investigations and
prosecutions.

SEC. 7. DEFINITIONS.

In this Act:
(1) September 11, 2001 attacks on the united states.--The
term ``September 11, 2001 attacks on the United States''
means the attacks on the Pentagon in the metropolitan area of
Washington, District of Columbia, and the World Trade Center,
New York, New York, on September 11, 2001, and includes the
hijackings of American Airlines flights 77 and 11 and United
Airlines flights 175 and 93 on that date.
(2) United states person.--The term ``United States
person'' has the meaning given that term in section 101(i) of
the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C.
1801(i)).

SEC. 8. TERMINATION OF AUTHORITY.

The authority under this Act shall terminate at the end of
December 31, 2005.
____

Military Tribunal Authorization Act of 2002--Section-by-Section
Analysis

Sec. 1. Short Title. The Military Tribunal Authorization
Act of 2002.
Sec. 2. Findings. This section outlines twelve findings,
including that the al Qaeda terrorist organization and its
leaders committed unlawful acts against the United States on
September 11, 2001 and on prior occasions; the U.S. is
justified in exercising its right to self-defense under
international law and the U.N. Charter; the Congress
authorized the President to use all necessary force against
those who committed, aided or abetted the September 11
attacks in order to prevent future attacks, within the
meaning of the War Powers Resolution; military trials may be
appropriate to protect public safety, to protect classified
information used as evidence, and to protect national
security interests; Article I, section 8 of the Constitution
provides that the Congress, not the President, has the power
to constitute tribunals and to define and punish offenses
against the law of nations; and congressional authority is
necessary to establish extraordinary tribunals to adjudicate
offenses arising from the September 11 attacks.
Sec 3. Establishment of Extraordinary Tribunals. The
President is authorized to establish tribunals to try non-
U.S. persons who are al Qaeda member (and persons aiding and
abetting al Qaeda in terrorist activities against the United
States); are apprehended in Afghanistan, apprehended fleeing
from Afghanistan, or apprehended in or fleeing from any other
place where there is armed conflict involving the U.S. Armed
Forces; and are not prisoners of war, as defined by the
Geneva Conventions. Tribunals may adjudicate violations of
the laws of war targeted against U.S. persons. The Secretary
of Defense is charged with promulgating rules of evidence and
procedure for the tribunals.
Sec. 4. Procedural Requirements. Rules for tribunals shall
require (1) an independent and impartial proceeding; (2) that
the accused be informed of the charges against him; (3) that
proceedings be conducted with simultaneous translation for
non-English speakers; (4) that the accused be shown the
evidence against him; (5) that the accused be present at
trial if he so chooses; (6) that the accused have the right
to be represented by counsel; (7) that the accused have the
right to respond to the evidence, and to obtain exculpatory
evidence from the prosecution; (8) that the accused have the
right to confront and cross-examine adverse witnesses, and to
offer witnesses; (9) an expeditious trial and disposition;
(10) that the rules of evidence admit only reliable
information of probative value; (11) that the accused be
afforded all necessary means of defense; (12) that
convictions be based only upon proof of individual
responsibility; (13) that a conviction may not be based on an
act, offense, or omission that was not an offense under law
when committed; (14) that the penalty for conviction not be
greater than it was when the offense was committed; (15) that
the accused is presumed innocent until proven guilty, and
that proof of guilt be established beyond a reasonable doubt;
(16) that the accused may not be compelled to confess guilt
or testify against himself; (17) that trials to be open and
public and include public access to transcripts and
pronouncement of judgment, with the exceptions described
below; and (18) that convicted persons be informed of
available remedies and appeals. The bill follows the
Uniform Code of Military Justice in requiring a unanimous
vote for imposition of the death penalty.
Trial proceedings will generally be accessible to the
public with limited exceptions for demonstrable public safety
concerns. The bill allows for evidence to be kept secret from
the public where disclosure may compromise national security
or intelligence sources.
Convictions may be appealed to the U.S. Court of Appeals
for the Armed Forces. Any decisions of that court regarding
proceedings of tribunals are subject to review by the U.S.
Supreme Court by writ of certiorari.
Sec. 5. Detention. This section authorizes detention of
individuals who are subject to a tribunal under section 3. In
order to detain an individual under the authority of this
section, the President must certify that the U.S. is in armed
conflict with al Qaeda or Taliban forces in Afghanistan or
elsewhere, or that an investigation, prosecution or post-
trial proceeding against the detainee is ongoing. This
certification must be made every 6 months.
Evidence that may establish that an accused is not subject
to detention under this section shall be disclosed to the
accused, except that a summary of such evidence will be
provided if the Attorney General certifies that disclosure
would cause certain identifiable harms. Detentions under this
section may be appealed to the U.S. Court of Appeals for the
D.C. Circuit.
This section also defines the conditions of detention,
requiring that detainees be treated humanely. Humane
treatment includes adequate food, water, shelter, clothing
and medical treatment, hygienic conditions, the necessary
means of personal hygiene, and the free exercise of religion.
Detention determinations and the conditions of detention are
subject to review by the Court of Appeals for the D.C.
Circuit.
Sec. 6. Sense of the Congress. This section calls for the
President to seek the cooperation of U.S. allies and other
nations in the investigations and prosecutions of those
responsible for the September 11 attacks. It also calls for
the President to use multilateral institutions to the fullest
extent possible in carrying out such investigations and
prosecutions.
Sec. 7. Definitions. This section defines the terms,
``September 11, 2001 attacks on the U.S.,'' and ``U.S.
person.'' The latter takes its meaning from the definition of
the term ``U.S. person'' in the Foreign Intelligence
Surveillance Act of 1978, and includes a citizen of the
United States or an alien lawfully admitted for permanent
residence.
Sec. 8. Termination of Authority. Authority under the act
terminates on December 31, 2005.
______

By Mr. CAMPBELL:
S. 1944. A bill to revise the boundary of the Black Canyon of the
Gunnison

[[Page S745]]

National Park and Gunnison Gorge National Conservation Area in the
State of Colorado, and for other purposes; to the Committee on Energy
and Natural Resources.
Mr. CAMPBELL. Mr. President, today I introduce the Black Canyon of
the Gunnison National Park and Gunnison Gorge National Conservation
Area Boundary Revision Act of 2002. This bill improves upon my earlier
efforts designating the initial park and conservation area.
The Black Canyon of the Gunnison Gorge is a national treasure to be
enjoyed by all. The park's combination of geological wonders and
diverse wildlife make it one of the most unique natural areas in North
America.
The first person to survey the canyon, Abraham Lincoln Fellows, noted
in 1901, ``our surroundings were of the wildest possible description.
The roar of the water . . . was constantly in our ears, and the walls
of the canyon, towering half mile in height about us, were seemingly
vertical.'' Similarly, today, visitors can enjoy hiking the deep gorge
to the Gunnison River raging below, or look overhead to marvel at
eagles and peregrine falcons soaring in the sky.
This bill modifies the legislative boundary of the Gunnison Gorge
National Conservation Area allowing even greater access to the park's
many recreational opportunities including boating, fishing, and hiking.
This important legislation would expand the National Park by 2,725
acres, for a total of 33,025 acres. The Conservation area will be
increased by 5,700 acres, for a total of 63,425 acres. In total this
bill adds 7,296 acres to provide habitat for several listed,
threatened, endangered and BLM sensitive species including, the Bald
Eagle, the River Otter, Delta Lomation, Clay-Loving Buckwheat.
This legislation helps preserve a unique national resource and a
source of national pride.
I urge quick passage of this important bill. I ask that the text of
the bill be printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

S. 1944

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Black Canyon of the Gunnison
National Park and Gunnison Gorge National Conservation Area
Boundary Revision Act of 2002''.

SEC. 2. BLACK CANYON OF THE GUNNISON NATIONAL PARK BOUNDARY
REVISION.

(a) Establishment.--Section 4(a) of the Black Canyon of the
Gunnison National Park and Gunnison Gorge National
Conservation Area Act of 1999 (16 U.S.C. 410fff-2(a)) is
amended--
(1) by striking ``There is hereby established'' and
inserting the following:
``(1) In general.--There is established''; and
(2) by adding at the end the following:
``(2) Boundary revision.--The boundary of the Park is
revised to include the addition of not more than 2,725 acres,
as depicted on the map entitled `Black Canyon of the Gunnison
National Park and Gunnison Gorge NCA Boundary Modifications'
and dated January 22, 2002.''.
(b) Administration.--Section 4(b) of the Black Canyon of
the Gunnison National Park and Gunnison Gorge National
Conservation Area Act of 1999 (16 U.S.C. 410fff-2(b)) is
amended--
(1) by striking ``Upon'' and inserting the following:
``(1) Land transfer.--
``(A) In general.--On''; and
(2) by striking ``The Secretary shall'' and inserting the
following:
``(B) Additional land.--On the date of enactment of the
Black Canyon of the Gunnison National Park and Gunnison Gorge
National Conservation Area Boundary Revision Act of 2002, the
Secretary shall transfer the land under the jurisdiction of
the Bureau of Land Management identified as `Tract C' on the
map described in subsection (a)(2) to the administrative
jurisdiction of the National Park Service for inclusion in
the Park.
``(2) Authority.--The Secretary shall''.

SEC. 3. GRAZING PRIVILEGES AT BLACK CANYON OF THE GUNNISON
NATIONAL PARK.

Section 4(e) of the Black Canyon of the Gunnison National
Park and Gunnison Gorge National Conservation Area Act of
1999 (16 U.S.C. 410fff-2(e)) is amended--
(1) in paragraph (1)--
(A) by redesignating subparagraphs (B) and (C) as
subparagraphs (C) and (D), respectively; and
(B) by inserting after subparagraph (A) the following:
``(B) Transfer.--If land authorized for grazing under
subparagraph (A) is exchanged for private land under this
Act, the Secretary shall transfer any grazing privileges to
the private land acquired in the exchange in accordance with
this section.''; and
(2) in paragraph (3)--
(A) in subparagraph (A), by striking ``and'' at the end;
(B) by redesignating subparagraph (B) as subparagraph (D);
(C) by inserting after subparagraph (A) the following:
``(B) with respect to the permit or lease issued to
LeValley Ranch Ltd., a partnership, for the lifetime of the 2
limited partners as of October 21, 1999;
``(C) with respect to the permit or lease issued to Sanburg
Herefords, L.L.P., a partnership, for the lifetime of the 2
general partners as of October 21, 1999; and''; and
(D) in subparagraph (D) (as redesignated by subparagraph
(B))--
(i) by striking ``partnership, corporation, or'' in each
place it appears and inserting ``corporation or''; and
(ii) by striking ``subparagraph (A)'' and inserting
``subparagraphs (A), (B), or (C)''.

SEC. 4. ACQUISITION OF LAND.

(a) Authority To Acquire Land.--Section 5(a)(1) of the
Black Canyon of the Gunnison National Park and Gunnison Gorge
National Conservation Area Act of 1999 (16 U.S.C. 410fff-
3(a)(1)) is amended by inserting ``or the map described in
section 4(a)(2)'' after ``the Map''.
(b) Method of Acquisition.--
(1) In general.--Land or interest in land acquired under
the amendments made by this Act shall be made in accordance
with section 5(a)(2)(A) of the Black Canyon of the Gunnison
National Park and Gunnison Gorge National Conservation Area
Act of 1999 (16 U.S.C. 410fff-3(a)(2)(A)).
(2) Consent.--No land or interest in land may be acquired
without the consent of the landowner.

SEC. 5. GUNNISON GORGE NATIONAL CONSERVATION AREA BOUNDARY
REVISION.

Section 7(a) of the Black Canyon of the Gunnison National
Park and Gunnison Gorge National Conservation Area Act of
1999 (16 U.S.C. 410fff-5(a)) is amended--
(1) by striking ``(a) In General.--There is established''
and inserting the following:
``(a) Establishment.--
``(1) In general.--There is established''; and
(2) by adding at the end the following:
``(2) Boundary revision.--The boundary of the Conservation
Area is revised to include the addition of not more than
5,700 acres, as depicted on the map entitled `Black Canyon of
the Gunnison National Park and Gunnison Gorge NCA Boundary
Modifications' and dated January 22, 2002.''.

____________________