Jul 08, 2014 - 10:00am

Luca Brasi Sleeps With the Fishes. So Might Your Business.

Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness
Senior Advisor to the Senior Executive Vice President

The Godfather - Luca Brasi Sleeps with the Fishes

In the movie classic “The Godfather,” the Tattaglia family starts a war against the Corleone family by killing Don Corleone’s fanatically loyal assassin Luca Brasi. The message was delivered when Sonny Corleone opens a package and find’s Luca Brasi’s bulletproof vest with a fish inside—Luca Brasi sleeps with the fishes.

While Luca may be sleeping with the lox, the Feds are enforcing SOX (the Sarbanes-Oxley Act) and have decided that fish and other sales inventory are a tangible object needed for record keeping.

Now, why is that such a big deal?

SOX was passed in response to the Enron scandal and required businesses to set up internal controls so that investors would not be defrauded. To prevent future financial and accounting scandals Congress gave the Federal Government access to books, records, e-mails, etc. to ensure that they have access to business records when investigating potential violations of the law. To achieve this goal, Congress included in SOX a provision that states: 

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.

So while Congress envisioned a tangible object to be a computer hard-drive that holds financial records, law enforcement has now interpreted the definition so broadly as to include the sales inventory of a business, or—in the case of a small fisherman in the Gulf of Mexico—fish. 

John Yates is a commercial fisherman in the Gulf of Mexico who was cited by deputized federal agents for having caught undersized groupers. Yates had thrown the groupers back into the Gulf after receiving the citation claiming they were not undersized and that the federal agents had failed to measure them. Yates was charged with violating SOX because the authorities contended that the act of throwing back the fish was akin to destroying a tangible object.

The Chamber last week filed a brief with the Supreme Court as it takes up the Yates v. United States case in its October 2014 session. The Chamber argues that this interpretation of SOX goes well beyond congressional intent to preserve business records to combat financial and accounting fraud.

If this overly broad interpretation of SOX were to stand, a business could not move or sell inventory once federal authorities raised questions. Rather than preserve business records, a car dealer wouldn’t be able to sell cars, a baker couldn’t sell bread, or a haberdashery couldn’t sell clothes. Sounds like a quick way to snuff out the certainty businesses need to operate.

Government overreach can lead to absurdities that cause real harm. We hope the Supreme Court doesn’t allow this absurdity to stand.

Read our previous post on this case

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About the Author

About the Author

Tom Quaadman headshot
Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness
Senior Advisor to the Senior Executive Vice President

Tom Quaadman develops and executes strategic policies to implement a global corporate financial reporting system, address ongoing attempts of minority shareholder abuse of the proxy system, communicate the benefits of efficient American capital markets, and promote an innovation economy and the long-term interests of all investors.