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Sunday, 7 July, 2002, 11:27 GMT 12:27 UK
UK backs hardline approach on fraud
Patricia Hewitt
Hewitt wants the issue of share options examined
Tough penalties for company executives who carry out fraudulent activities have been backed by the UK Trade & Industry Secretary Patricia Hewitt.

She said she agreed with the hardline approach suggested by US President George W Bush who has advocated stiff fines, and in some cases, prison sentences.

Ms Hewitt also said international agreement needed to be reached on how to treat share options in company accounts.

The practice of offering huge share options to senior executives has been criticised by some experts, in the wake of recent corporate scandals.

'Disgraceful' behaviour

Following the collapse of Enron, and the discovery of accounting irregularities at WorldCom, President Bush said fraudulent executives should face stiff fines, and if they had committed criminal acts, should be sent to prison.

"I think that approach is absolutely right," Ms Hewitt told the BBC's Breakfast with Frost programme.

"What we have seen in American is a few individuals in a few companies, and one audit firm, behaving absolutely disgracefully and damaging people's savings.

"More broadly they have damaged people's confidence in business as a whole."

On Friday, Ms Hewitt said the government was considering a number of measures designed to restore confidence to the corporate and accounting sector.

She said one measure they were looking at was stripping executive directors of the power to appoint company auditors.

Another was barring large accountancy firms from providing other, lucrative services to companies they are auditing.

Action on options

Ms Hewitt also criticised the practice, common in the US, of offering large share option packages to senior executives.

"It now looks very much as those gave some real perverse incentives to, frankly, greedy people who just wanted to pump up their share prices as quickly as they could and got into bed with a few corrupt auditors as well."

She said she had asked UK regulators to look into the practice.

"There was a proposal a couple of years ago that here in Britain we should toughen up the rules for how those share options were accounted for." she said.

"I was against doing it just in the UK because we would have damaged the prospects for our own h-tech start-ups, but I think doing it internationally is absolutely the right thing so we remove one of the incentives for this kind of greed and mis-management."

See also:

04 Jul 02 | Business
04 Jul 02 | Business
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