Dear EarthTalk: What’s the latest in regard to putting limits on greenhouse gas emissions in the U.S.? Is there any hope that Obama can get something done? -- Bradley Johnson, Helena, MT

Our best hope to date was 2009’s American Clean Energy and Security Act (ACES), a bill that called for the implementation of a “cap-and-trade” system to limit carbon dioxide emissions by capping overall emissions and allowing polluters to buy or sell greenhouse gas pollution credits—similar to what the European Union has been doing since 2005 to successfully reduce its own emissions—depending upon whether they were exceeding established limits or had succeeded in coming in below them.

According to the bill, U.S. businesses needing to pollute more could buy emissions credits on the open market; those able to reduce emissions could sell their pollution credits on the same trading floor. Thus there is a built-in incentive to reduce emissions: If you exceed pollution limits you have to keep buying costly credits; and if you can get below limits you can profit from the sale of credits for the difference.

Among the bill’s key provisions was a 17 percent reduction in greenhouse gas emissions below 2005 levels by 2020, with a mid-century goal of an 80 percent reduction. Also, billions of dollars would have gone to initiatives bolstering green transportation, energy efficiency and related research and development. The bill was approved by the House in June 2009 by a narrow 219-212 vote. But Senate Democrats decided they didn’t have enough votes to get a version of the bill passed, and tabled the discussion.

While ACES may not have made it into the law books, its passage by the House was significant as it represented the first time the legislative branch called for sweeping climate legislation. Also, the bill’s provisions served as a guideline for U.S. negotiators heading to Denmark later in 2009 for the COP15 international climate talks (although in the end nothing binding was agreed upon there).

Then, in May 2010 Senators John Kerry and Joe Lieberman unveiled their own cap-and-trade climate bill for the Senate. Dubbed the American Power Act, it aimed to reduce overall U.S. greenhouse gas emissions by similar amounts as ACES. But with the nation still reeling from the effects of BP’s Gulf oil spill—the American Power Act include provisions for offshore drilling—and Senate Republicans leery of any climate legislation, the bill failed to make it to a floor vote. Some point the finger at a handful of Democratic Senators from coal-producing states for not supporting their party colleagues. Others say Obama wasn’t advocating strongly enough despite his campaign rhetoric on the topic.

“The best one could plausibly hope for in the next Congress, assuming only modest Republican gains, is some sort of weak cap on utility emissions, possibly with some weak oil saving measures, though that would still require Obama to do what he refused to do under more favorable political circumstances—push hard for a bill,” writes commentator Joe Romm of Think Progress, a liberal political blog. Romm adds that it’s inconceivable to think the next Congress would even contemplate strong climate or clean energy legislation “without Obama undergoing a major strategy change and taking a very strong leadership role in crafting the bill and lobbying for the bill and selling it to the public.”

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After days of intense political drama, House and Senate negotiators on the financial reform bill agreed to toss a key shareholder governance issue -- proxy access -- back to the Securities and Exchange Commission.

Investor activists had reacted with alarm to efforts by Sen. Christopher Dodd (D-Conn) to require shareholders to own at least 5% of a company's shares for at least two years in order to gain access to corporate proxy procedures.

And Sen. Charles Schumer had floated a 3%-three-year ownership proposal.  House negotiators, meanwhile, stoutly resisted the Senate limits.

In the end, negotiators reverted to Senate language giving the SEC authority to write proxy access rules, but without imposing particular ownership requirements.

They also gave the SEC authority to exempt small public  companies from the proxy access rule.

Some limits to proxy access -- or the ability of shareholders to nominate candidates for corporate boards through the corporate proxy system -- still may emerge.  The SEC last year proposed permitting shareholders to nominate directors if they owned at least 1% of the voting securities of a large company, at least 3% of the voting securities of a mid-sized ($75 million to $700 million in market value), or at least 5% of a smaller company. Shareholders could aggregate holdings to meet those levels.  The proposal also would require ownership for at least a year.

The proposal is still pending, and a mountain of public comments have been received. In view of the recent financial reform debate, it seems likely that the SEC may propose revisions and seek further comment.

RiskMetrics reported that the conferees had agreed to allow companies to propose advisory votes on companies every two or three years, instead of every year, something of a setback for "say on pay" advocates.

To the dismay of activist investor groups, Senate negotiators are seeking to limit proposed proxy access provisions in the financial reform bill.

Senate Banking Committee chairman Christopher Dodd  of Connecticut proposed this week that investors seeking to nominate directors for shareholder votes -- the essence of a proxy access provision already approved separately in the Senate and House -- would be required to own at least a 5% interest in the company for two years.

Few, if any, institutional investors would be able to meet such a requirement.

Senate conferees Thursday defeated 8-4 an effort by Sen. Charles Schumer of New York to eliminate the threshold.

Sen. Dodd's move prompted the Council of Institutional Investors to urge members opposed to the 5% limit to contact White House advisor Valerie Jarrett, a key figure in the negotiations.  Various reports said Jarrett, the administration's liaison to the Business Roundtable, was encouraging the proxy access limitations.

"As a senior advisor to President Obama, Jarrett has significant influence over the ongoing House-Senate conference committee negotiations, particularly regarding the proxy access provision," the Council said in an "Urgent" email to members.  "Tell Valerie Jarrett and the Obama administration to publicly oppose the Senate's proxy access amendment imposing a 5% ownership requirement." 

The  Dow Jones Newswires quoted Kurt Schacht, managing director of the CFA Institute, an association for investment professionals, saying the proposed 5% threshold would "render this important shareholder right useless."

Bloomberg reported that the chief investment officer of the  California Public Employees Retirement System wrote Ms. Jarrett that the 5% limit "is completely unacceptable to responsible long-term investors such as Calpers."

The Senate proposal  would still have to be accepted by House negotiators.

Other shareholder-related provisions previously adopted by the House or Senate also appear to be under attack. RiskMetrics Group's blog said Senator Dodd had indicated Senate conferees had agreed to drop a provision requiring public companies to have a majority voting threshold in uncontested director elections. "While a large majority of S&P 500 firms have adopted majority voting policies, most mid- and small-cap companies have not done so," RiskMetrics said.

And it said Senate conferees had declined to accept a provision in the House bill to mandate votes on "golden parachute" pay packages.

Shareholder activists will find several provisions to their liking in the Senate Finance Committee's new 1,566-page  financial reform bill, which passed the U.S. Senate by a vote of 59-39; the measure must be reconciled with a House bill.

The Senate measure includes major provisions affecting the election of corporate board members and executive compensation.

The Senate bill requires directors to win by majority vote in uncontested elections, according to The Wall Street Journal, and would give the SEC authority to grant shareholders proxy access to nominate directors.

On executive compensation, the bill gives shareholders the right to a nonbinding vote on executive pay, excluding golden parachutes.  The Senate bill also requires so-called clawback provisions that force executives to repay any earnings based on inaccurate financial statements, according to the New York Times.

(In the House bill, shareholders would have the same rights on say-on-pay.  Regulators would have a say on compensation practices, not on pay itself, according to the Associated Press.)

The Wall Street Journal reported that the Senate bill also creates an Investment Advisory Committee within the Securities and Exchange Commission, as well as an Office of Investor Advocate within the SEC to identify problems in dealing with SEC.

The Senate bill also creates a federal regulator to write and enforce rules protecting consumers of financial products like checking accounts, mortgages and payday loans. The bill increases the authority of state regulators to enforce protections, according to the Times.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, told CNBC that a bank reform bill will be signed by the president well before July 4.  "I've cleared my calendar for the month of June to get this done," said Frank.

This article has been updated from the original to reflect subsequent publication of the full text of the Senate Finance Committee Bill.

A provision in the financial reform legislation now before Congress could lead to an increase in multi-million dollar awards to whistleblowers, prompting more government enforcement actions and increasing pressure on companies to report misconduct early.

The legislation would require the Securities and Exchange Commission (SEC) to award whistleblowers up to 30 percent of the fines collected by the government for providing “original information” regarding violations of securities laws.

While the new measure would apply to all fraud, it could have a particular impact on anti-bribery cases involving the U.S. Foreign Corrupt Practices Act (FCPA), where prosecutions and settlements have risen to record levels in recent years.  Based on some recent cases, payouts to whistleblowers could be substantial.

Siemens Corp., for example, agreed in December 2008 to pay $800 million to the U.S. government as part of a larger international settlement of FCPA charges.   And in a case that was initially prompted by evidence from a whistle-blowing employee, Daimler AG agreed in March of this year to pay $180 million to settle charges that it had made improper payments to officials in at least 22 countries to obtain government contracts for Daimler vehicles.

While the Senate and House bills differ somewhat – the Senate version includes a 10 percent minimum award, for example – it seems likely that some compromise version will be incorporated and approved by Congress.

False Claims Act

Monetary awards to encourage whistleblowing are not new.  The U.S. False Claims Act allows citizens with evidence of fraud against the federal government to file qui tam lawsuits, on behalf of the government, in order to recover the stolen funds.  In the 1980s, most qui tam suits were against defense contractors; in recent years they’ve largely involved health care fraud or instances of illegal marketing of drugs by pharmaceutical companies.

Pfizer Corp.’s record 2009 $2.3 billion settlement of charges related to the marketing of several drugs led to a payout of about $51 million to one former company salesman who provided evidence to investigators.

And only last week, drug maker AstraZeneca agreed to pay $520 million to settle charges brought by the federal government based on evidence provided by whistleblower James Wetta, a former AstraZeneca sales representative.  For Wetta, it’s something of a repeat performance – he assisted a government probe of his former employer, Eli Lilly, and was one of several sales reps who shared in a 2009 $100 million payout to several whistle-blowers.

On average, successful qui tam whistleblowers collect $46.7 million, according to a recent study published by professors at the University of Chicago and the University of Toronto, who conclude that “a strong monetary incentive to blow the whistle does motivate people with information to come forward.”

However, the study notes, whistleblowers aren’t always successful in their suits and many say they pay a price. “In 82 percent of cases with named employees, the individual alleges that they were fired, quit under duress, or had significantly altered responsibilities as a result of bringing the fraud to light. Many of them are quoted saying, ‘If I had to do it over again, I wouldn’t.’”

A “Race” to Disclose?

The expansion of monetary awards for whistleblowers in the finance reform bill “is likely to greatly increase the number of FCPA matters under government investigation,” notes an analysis by attorneys at the law firm of Morgan Lewis, who think it may also have an impact on how management reacts when fraud is first identified.

Companies that discover potential fraud have customarily been given “credit” by the SEC and federal prosecutors for voluntarily disclosing problems. The Morgan Lewis analysis suggests the new legislation will “change the calculus in deciding whether to self-report a violation, as the risk of disclosure by a current or former employee will be greatly heightened.”

Attorneys at the firm of Latham & Watkins agree, suggesting in a white paper that a new “cooperation regime” by the SEC “increases the odds that senior management or the board will first learn of misconduct at the company not through a hotline or internal audit report, but in a telephone call from SEC Enforcement.”

Mike Koehler, a law professor at Butler University and an expert in the FCPA, says the changes have “the very real potential of putting the company and the whistleblower in a competitive ‘race’ to see who can disclose first, recognizing that both ‘race participants’ have incentives to do so.” Koehler thinks this will very likely lead to more FCPA “issues” being disclosed “at premature stages without a clear basis for even concluding or suspecting that the statute has been violated.”

Koehler says that while he is generally in favor of “whistleblower-like” provisions in laws, he does not favor the proposed new monetary awards because of how they might apply to the FCPA.  Often, he says, a company will settle with the government because it “is simply easier, more cost effective, and more predictable for a company to settle an FCPA enforcement action – often through a non-prosecution or deferred prosecution agreement -  than challenge the government’s interpretation of facts and law in an adversary proceeding.”

“Settled FCPA enforcement actions do not necessarily represent the triumph of the government’s legal position,” Koehler says. “Given these dynamics, it would seem silly to reward a whistleblower when it is debatable whether the conduct at issue even violated the law. “

Nonetheless, with new and hefty financial incentives for whistleblowers likely to become law, experts say it’s important for businesses to reassure those who might be inclined to reach out first to federal prosecutors rather than the company itself. Recommendations include making sure that employees understand that retaliation for reporting legitimate concerns of potential misconduct will not be tolerated.

“From the highest levels of the company, regularly emphasize to all employees the company’s desire to address potential wrongdoing and to make it easy for potential whistleblowers to report concerns to the relevant company personnel,” recommends the Latham & Watkins firm.

Senate Democrats officially launched their long-expected legislative response to the Supreme Court’s January ruling freeing up corporations, unions and other groups to make political contributions.

Sen. Charles Schumer and Rep. Chris Van Hollen (File Photo)

The 5-4 Citizens United decision had prompted a variety of proposals to blunt or cancel its effect.

Today (April 29) five U.S. Senators officially released their version of the DISCLOSE Act – an acronym for  the “Democracy is Strengthened by Casting Light on Spending in Elections” Act.

The sponsors said their goal is to pass the new measure by July 4 “so the law can take effect in time for the 2010 midterm elections.”

Sen. Charles Schumer (D-NY) declared “If we don’t act quickly to confront this ruling, we will have let the Supreme Court predetermine the outcome of next November’s elections. It won’t be Republicans or Democrats; it will be Corporate America and other special interests.”

The proposal would bar foreign-controlled corporations, government contractors and companies that have received government assistance from making political expenditures – and also require corporations, unions, and other organizations that make political expenditures to disclose their donors and stand by their ads.

“If the Supreme Court wants to treat corporations as individuals then we will hold those entities to the same standards of accountability that we do individuals, which means requiring that CEO's, labor leaders and even political consultants stand by their ads," declared Sen. Ron Wyden (D-Or).

Other sponsors include Sens. Russ Feingold (D-WI), Evan Bayh (D-IN), and Al Franken (D-MN).

An announcement from the Senate sponsors said:

“Under the Senators’ proposal, the heads of any organization sponsoring an ad—including corporate CEOs—would be required to appear during the ad, as is currently required of candidates for federal office. In cases where special interests funnel their money into shell groups, the top five organizations that have donated to the group would have to be identified on screen during any ad sponsored by that group. The CEO of the group’s top funder for that particular advertisement would also be required to appear on screen to deliver a “stand by your ad” disclaimer.”

They said the measure would also require corporations and advocacy groups that make political expenditures to “establish easy-to-track campaign accounts,” including having all donations exceeding $1,000 and all expenditures to be reported within 24 hours to the Federal Election Commission, on public websites, and to shareholders in corporate filing statements.

House Version

A similar measure was introduced in the House by two Democrats – Rep. Chris Van Hollen (D.-Md) and Rep. Robert Brady, (D.-Pa) and two Republicans -- Rep. Walter Jones (R-NC) and Rep. Mike Castle (R-De.)

“Every citizen has a right to know who is spending money to influence elections, and our legislation will allow voters to follow the money and make informed decisions,” Rep. Van Hollen said.

Rep. Jones said: “I don’t know many people in Eastern North Carolina who believe that transparency is a bad idea, or that Chinese or Russian-flagged companies should be able to spend unlimited amounts to influence U.S. elections, or that Wall Street banks should be allowed to spend their bailout money on campaign ads.  This bill would address those issues.”

It would prohibit bailout beneficiaries from making campaign-related expenditures, although the restrictions would be lifted once the money is repaid.

The Senate proposal would extend existing prohibitions on contributions and expenditures by foreign nationals to include domestic corporations,

1.      If a foreign national owns 20% or more of voting shares in the corporation, which is modeled after the control test in many states, including Delaware;

2.      If a majority of the board of directors are foreign nationals;

3.      If one or more foreign nationals have the power to direct, dictate, or control the decision-making of the U.S. subsidiary; or

4.      If one or more foreign nationals have the power to direct, dictate, or control the activities with respect to federal, state or local elections

President Obama on several occasions has called for steps to roll-back the Citizens United decision.

Chamber Speaks Out

Supporters of the decision promptly criticized the proposals.

Thomas J. Donohue, president of the U.S. Chamber of Commerce, called the measure “nothing more than a brazen attempt to tilt the playing field in favor of the incumbent party in this fall's elections, silence constitutionally protected speech, and abridge First Amendment rights.” And Theodore Olson, U.S. Chamber Counsel, said “the plain intent of the Schumer and Van Hollen legislation—the purpose invoked by its sponsors—is to discourage people from exercising their constitutional right to free speech. One can understand why today's party leaders may want to silence discussions on their continued fitness for office, but the First Amendment simply does not tolerate it."

Political website Politico.com quoted various union groups as being disappointed that the measures didn’t provide more language giving shareholders a say over political expenditures.

James Hyatt, a retired reporter and editor for The Wall Street Journal, has been writing about business ethics and social responsibility issues since 2005.

Financial criminals, corporate bribers and terrorists love borders as well, hoping to exploit legal and regulatory differences among countries to avoid getting caught and prosecuted.  That’s increasingly true as business grows more global.  In one current case, for example, British lawyer Jeffrey Tesler is fighting extradition from the U.K. to the U.S. to face charges that he bribed Nigerian officials on behalf of a giant multi-billion dollar construction consortium.

"Dual Criminality" Standard

New agreements effective this month between the U.S., Europe Union and 56 European member states aim to make life more difficult for transnational criminals.   Characterized by the U.S. Department of Justice as “a milestone in cooperation” between the U.S. and Europe, the agreements make it easier for countries to extradite individuals charged with crimes and to jointly develop and share information.

One of the biggest changes under the agreements is that lists of extraditable offenses will be replaced with a “dual criminality” standard.  Until now, individuals could avoid extradition because the specific crimes they were charged with were not listed in the extradition treaty with another country.  “Dual criminality, on the other hand, typically requires only that the charged offense constitute a criminal act in both countries, regardless of the name given the offense or the listing of the offense in the applicable treaty,” notes a commentary by law firm White & Case.

The agreement also “enhances and modernizes” law enforcement techniques, according to the Department of Justice, by “allowing prompt identification of financial account information in criminal investigations; permitting the acquisition of evidence, including testimony, by means of video conferencing; and authorizing the participation of U.S. criminal investigators and prosecutors in joint investigative teams in the EU.”

Foreign Corrupt Practices Act

Negotiations on the agreements began after the September 11, 2001 terrorist attacks and will enable investigations of alleged terrorists.  However, in recent years the Department of Justice has also dramatically increased prosecutions of individuals and companies under the Foreign Corrupt Practices Act.

The U.S. government has long argued that corporate corruption on a global basis harms American national interests while also threatening the “integrity and prosperity” developing countries.   A U.S. government official told a Senate committee last week that U.S. companies are believed to have lost out on business opportunities worth about $27 billion in the past year alone, “because they refused to violate honest business practices.”

Only last week, British defense contractor BAE agreed to pay fines totaling more than $400 million to settle charges that it had made illegal payments to officials in various countries to obtain contracts.  In late 2008, industrial giant Siemens agreed to pay more than $1.6 billion in fines and penalties to settle charges brought under the Foreign Corrupt Practices Act.

Durbin’s initiative follows Google’s announcement that it had been the victim of cyber attacks aimed at gaining access to the email accounts of Chinese human rights activists. Google has said it is considering pulling out of China because of the attacks and what the company called “attempts over the past year to further limit free speech on the web.”

Only two weeks ago, U.S. Secretary of State Hilary Clinton called on American technology companies to make a “principled stand” against attempts at censorship.

Sen. Durbin, Chairman of the Judiciary Subcommittee on Human Rights and the Law, said his hearing next month will feature testimony from Google and other companies about their business practices “in internet-restricting countries,” as well as from high-ranking Obama Administration officials about the Administration’s efforts to promote internet freedom.

“I commend Google for coming to the conclusion that cooperating with the ‘Great Firewall’ of China is inconsistent with their human rights responsibilities,” Durbin said. “Google sets a strong example in standing up to the Chinese government’s continued failure to respect the fundamental human rights of free expression and privacy. I look forward to learning more about whether other American companies are willing to follow Google’s lead.”

Durbin’s letter asks each firm for details of its business in China, and what, if any, measures it will implement to ensure that its products and services do not facilitate human rights abuses by the Chinese government.

This week’s letter also follows up on a letter that Durbin sent last year, urging technology firms to join a voluntary code of conduct known as the Global Network Initiative (GNI). The code of conduct, which regulates the actions of technology firms operating in countries that restrict the internet, has been backed by Google, Microsoft, and Yahoo! and a number of leading socially responsible investment firms.

Durbin’s office said the list of companies that responded to his previous letter included Apple, AT&T, Cisco, Dell, eBay, Facebook, HP, McAfee, News Corp, Nokia, Nokia Siemens, Siemens, Skype, Sprint Nextel, Verizon, Vodafone, Websense.

According to Senator Durbin’s office, companies that did not respond to his previous letter were Acer, Juniper, Toshiba, Twitter; companies that “partially responded” to his previous letter were Fortinet, Lenovo, Motorola.