Understand the Penalties for Non Compliance to SOX

• Date: May 24, 2010
• Source: Admin

Non compliance to SOX fetches lawsuits and negative publicity for a company. Below the list of sections and associated penalties are described in detail:

SEC. 801 ‘‘Corporate and Criminal Fraud Accountability Act of 2002’’.

SEC. 802 CRIMINAL PENALTIES FOR ALTERING DOCUMENTS

(a) IN GENERAL.—Chapter 73 of title 18, United States Code,is amended by adding at the end the following:

§ 1519. Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy

as per the Act, whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

§ 1520. Destruction of corporate audit records

(a)(1) Any accountant who conducts an audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies, shall maintain all audit or review workpapers for a period of 5 years from the end of the fiscal period in which the audit or review was concluded.

(2) The Securities and Exchange Commission shall promulgate, within 180 days, after adequate notice and an opportunity for comment, such rules and regulations, as are reasonably necessary, relating to the retention of relevant records such as workpapers, documents that form the basis of an audit or review, memoranda, correspondence, communications, other documents, and records (including electronic records) which are created, sent, or received in connection with an audit or review and contain conclusions, opinions, analyses, or financial data relating to such an audit or review, which is conducted by any accountant who conducts an audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies. The Commission may, from time to time, amend or supplement the rules and regulations that it is required to promulgate under this section, after adequate notice and an opportunity for comment, in order to ensure that such rules and regulations adequately comp
ort with the purposes of this section.

‘‘(b) Whoever knowingly and willfully violates subsection (a)(1), or any rule or regulation promulgated by the Securities and Exchange Commission under subsection (a)(2), shall be fined under this title, imprisoned not more than 10 years, or both.

‘‘(c) Nothing in this section shall be deemed to diminish or relieve any person of any other duty or obligation imposed by Federal or State law or regulation to maintain, or refrain from destroying, any document.’’.


SECTION 906: CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

(a) IN GENERAL.—Chapter 63 of title 18, United States Code, is amended by inserting after section 1349, as created by this Act, the following:

§ 1350. Failure of Corporate Officers to Certify Financial Reports

(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS —Each periodic report containing financial statements filed by an issuer with the Securities Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer.

(b) CONTENT —The statement required under subsection (a) shall certify that the periodic report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

(c) CRIMINAL PENALTIES.—Whoever—

(1) certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the   statement does not comport with all the requirements set forth in this section shall be fined not more than $1,000,000 or imprisoned   not more than 10 years, or both; or

(2) willfully certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report   accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than   $5,000,000, or imprisoned not more than 20 years, or both.

However, SOX places a great responsibility on the shoulder of the CEOs and CFO and, and they are responsible to ensure that the below mentioned points are taken care of as OSX leaves no place for ignorance or irresponsibility:

1) Financial statements should accurately reflect the financial condition of the company.

2) CEOs and CFOs are personally responsible for setting up and maintaining systems that make sure that they actually know the truth about what is going on in the company.

Also, CEO and CFO Must Certify
 

• That the financial report is true and not Misleading
• That they know that it is true because they have set up effective controls
• That these controls must have been evaluated within the last 90 days
• That any possible deficiencies in the controls have been highlighted