78R7524 CLG-D
By: Marchant H.B. No. 2039
A BILL TO BE ENTITLED
AN ACT
relating to corporate ethics and integrity; providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter B, Chapter 402, Government Code, is
amended by adding Section 402.0231 to read as follows:
Sec. 402.0231. CORPORATE INTEGRITY UNIT. (a) In this
section, "corporate fraud" means a violation of state or federal
law or rules relating to fraud committed by a corporation, limited
liability company, or registered limited liability partnership or
an officer, director, or partner of those entities while acting in a
representative capacity.
(b) A corporate integrity unit is created within the office
of the attorney general to assist in the enforcement of the laws
relating to corporate fraud or other similar illegal activities.
The unit shall:
(1) assist district attorneys and county attorneys in
the investigation and prosecution of corporate fraud or other
similar illegal activities allegedly committed by corporations,
limited liability companies, and registered limited liability
partnerships;
(2) assist state agencies with investigation of
complaints and administrative enforcement actions for corporate
fraud violations, including the assessment of an administrative
penalty or other administrative sanction; and
(3) serve as a clearinghouse for information relating
to the investigation and prosecution of corporate fraud and other
similar illegal activities in this state.
(c) To the extent allowed by law, a state agency or local law
enforcement agency shall cooperate with the corporate integrity
unit by providing information requested by the unit as necessary to
carry out the purposes of this section. Information disclosed
under this subsection is confidential and not subject to disclosure
under Chapter 552.
SECTION 2. Subchapter Z, Chapter 2252, Government Code, is
amended by adding Section 2252.904 to read as follows:
Sec. 2252.904. CONTRACTS WITH COMPANIES; FINANCIAL
DISCLOSURES. (a) In this section:
(1) "Certified audit" means an audit of the company's
books, records, and accounts and the company's systems of internal
control performed by an independent certified public accountant in
accordance with generally accepted accounting principles and
generally accepted auditing standards.
(2) "Company" means a corporation, partnership,
limited partnership, registered limited liability partnership,
trust, association, joint stock company, joint venture, limited
liability company, or other form of business organization. The
term does not include a sole proprietorship or individual.
(3) "Financial irregularity" means an intentional
misstatement or omission of information relating to a financial
transaction or matter. The term includes embezzlement, fraud, and
the falsification of records to misappropriate assets.
(4) "Independent certified public accountant" means a
certified public accountant who is not affiliated with, is not an
employee, principal, or direct or indirect owner of, and is not in
any way controlled by the audited company.
(5) "State governmental entity" means:
(A) a board, commission, department, office, or
other agency in the executive branch of state government created
under the constitution or a statute of the state, including an
institution of higher education as defined by Section 61.003,
Education Code;
(B) the legislature or a legislative agency; or
(C) the Texas Supreme Court, the Texas Court of
Criminal Appeals, a court of appeals, a state judicial agency, or
the State Bar of Texas.
(b) A company that enters into a contract with a state
governmental entity shall:
(1) immediately report to the entity any financial
irregularity relating to the contract or the company's financial
position that is detrimental to the interest of the entity; and
(2) annually during the contract period submit to the
entity a certified audit of the company's operations.
(c) The auditor's opinion in an audit required by Subsection
(b)(2) must state whether the financial statements of the audited
company present fairly, in all material respects and in accordance
with generally accepted accounting principles, its financial
position and results of operations relating to the obligation,
receipt, expenditure, and use of state funds.
(d) A company that violates Subsection (b)(1) commits an
offense. An offense under this subsection is a Class A misdemeanor.
(e) A company that violates Subsection (b)(2) is liable to
the state for a civil penalty in an amount not to exceed $10,000.
The attorney general may bring suit to recover the civil penalty
imposed under this subsection.
SECTION 3. Subtitle F, Title 10, Government Code, is
amended by adding Chapter 2263 to read as follows:
CHAPTER 2263. ETHICS AND DISCLOSURE REQUIREMENTS FOR OUTSIDE
FINANCIAL ADVISORS AND SERVICE PROVIDERS
Sec. 2263.001. APPLICABILITY. (a) This chapter applies in
connection with the management or investment of any state funds
managed or invested:
(1) under the Texas Constitution or other law,
including Chapters 404 and 2256; and
(2) by or for:
(A) a public retirement system as defined by
Section 802.001 that provides service retirement, disability
retirement, or death benefits for officers or employees of the
state;
(B) an institution of higher education as defined
by Section 61.003, Education Code; or
(C) another entity that is part of state
government and that manages or invests state funds or for which
state funds are managed or invested.
(b) This chapter applies in connection with the management
or investment of state funds without regard to whether the funds are
held in the state treasury.
(c) This chapter does not apply to or in connection with a
state governmental entity that does not manage or invest state
funds and for which state funds are managed or invested only by the
comptroller.
Sec. 2263.002. DEFINITION. In this chapter, "financial
advisor or service provider" includes a financial advisor,
financial consultant, money or investment manager, or broker.
Sec. 2263.003. CONSTRUCTION WITH OTHER LAW. To the extent
of a conflict between this chapter and another law, the law that
imposes a stricter ethics or disclosure requirement controls.
Sec. 2263.004. ETHICS REQUIREMENTS FOR OUTSIDE FINANCIAL
ADVISORS OR SERVICE PROVIDERS. The governing body of a state
governmental entity by rule shall adopt standards of conduct
applicable to financial advisors or service providers who are not
employees of the state governmental entity, who provide financial
services to the state governmental entity or advise the state
governmental entity or a member of the governing body of the state
governmental entity in connection with the management or investment
of state funds, and who:
(1) may reasonably be expected to receive, directly or
indirectly, more than $10,000 in compensation from the entity
during a fiscal year; or
(2) render important investment or funds management
advice to the entity or a member of the governing body of the
entity, as determined by the governing body.
Sec. 2263.005. DISCLOSURE REQUIREMENTS FOR OUTSIDE
FINANCIAL ADVISOR OR SERVICE PROVIDER. (a) A financial advisor or
service provider described by Section 2263.004 shall disclose in
writing to the administrative head of the applicable state
governmental entity and to the state auditor:
(1) any relationship the financial advisor or service
provider has with any party to a transaction with the state
governmental entity, other than a relationship necessary to the
investment or funds management services that the financial advisor
or service provider performs for the state governmental entity, if
the relationship could reasonably be expected to diminish the
person's independence of judgment in the performance of the
person's responsibilities to the state governmental entity; and
(2) all direct or indirect pecuniary interests the
financial advisor or service provider has in any party to a
transaction with the state governmental entity, if the transaction
is connected with any financial advice or service the financial
advisor or service provider provides to the state governmental
entity or to a member of the governing body in connection with the
management or investment of state funds.
(b) The financial advisor or service provider shall
disclose a relationship described by Subsection (a) without regard
to whether the relationship is a direct, indirect, personal,
private, commercial, or business relationship.
(c) A financial advisor or service provider described by
Section 2263.004 shall file annually a statement with the
administrative head of the applicable state governmental entity and
with the state auditor. The statement must disclose each
relationship and pecuniary interest described by Subsection (a), if
any.
(d) The annual statement must be filed not later than
February 1 on a form prescribed by the governmental entity, other
than the state auditor, receiving the form. The statement must
cover the reporting period of the previous calendar year. The state
auditor shall develop and recommend a uniform form that other
governmental entities receiving the form may prescribe.
(e) The financial advisor or service provider shall
promptly file a new or amended statement with the administrative
head of the applicable state governmental entity and with the state
auditor whenever there is new information to report under
Subsection (a).
Sec. 2263.006. PUBLIC INFORMATION. Chapter 552 controls
the extent to which information contained in a statement filed
under this chapter is subject to required public disclosure or
excepted from required public disclosure.
SECTION 4. Section B, Article 1.03, Texas Miscellaneous
Corporation Laws Act (Article 1302-1.03, Vernon's Texas Civil
Statutes), is amended to read as follows:
B. Except to the extent that any provisions of this Act are
expressly made inapplicable by any provision of the Texas Business
Corporation Act, the Texas Non-Profit Corporation Act, or any
special Statute of this State pertaining to a particular type of
corporation and except as otherwise provided by Article 5.20 of
this Act, this Act shall govern (1) all domestic corporations,
including without limitation those corporations heretofore or
hereafter organized under any Statute of the State, and (2) only to
the extent expressly provided in this Act, all foreign
corporations, including without limitation those corporations
heretofore or hereafter granted a permit to do business under any
Statute of the State.
SECTION 5. Part Five, Texas Miscellaneous Corporation Laws
Act (Article 1302-5.01 et seq., Vernon's Texas Civil Statutes), is
amended by adding Article 5.20 to read as follows:
Art. 5.20. CERTIFICATION OF FALSE OR MISLEADING FINANCIAL
REPORT; CRIMINAL PENALTY. (a) In this section:
(1) "Corporate official" means the president or other
chief executive officer, the chief financial officer, or any other
officer of or person performing a similar function for a
corporation or other company that is required to file a periodic
report under Section 13(a) or 15(d), Securities Exchange Act of
1934 (15 U.S.C. Sections 78m(a), 78o(d)).
(2) "Financial report" means a balance sheet, an
income or loss statement, a cash flow statement, or any other
presentation of financial information, however denominated,
concerning a corporation or other company that is intended to
portray a significant portion of the company's financial position.
(b) A corporate official who signs a sworn statement
certifying that information contained in a financial report fairly
represents, as of the period presented in the report, the financial
condition or results of operation of the company issuing the report
commits an offense if the corporate official makes the
certification knowing that the report contains false or misleading
information that affects or may affect the finances or operations
of the issuing company, as appropriate, in any material respect.
(c) An offense under this section is a state jail felony.
SECTION 6. Each state governmental entity required to adopt
rules under Chapter 2263, Government Code, as added by this Act,
shall adopt its initial rules in time for the rules to take effect
not later than January 1, 2004.
SECTION 7. This Act takes effect September 1, 2003.