Bill would bar insurance coverage for civil penalties

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Legislation that would prohibit officers, directors and employees from buying insurance to prevent them from personally paying compensation clawbacks or civil penalties for harmful actions they commit has been introduced in the House.

The bill, H.R. 5860, called the Executive Compensation Clawback Full Enforcement Act of 2012, would require those facing regulatory or civil penalties for financial wrongdoing to be personally liable for the penalty.

The measure, introduced by Reps. Barney Frank, D-Mass., Henry Waxman, D-Calif., and Collin C. Peterson, D-Minn., would bar such individuals from seeking to protect their personal assets from such penalties, and would also bar companies from doing so on their behalf.

It would apply to civil penalties imposed under the Wall Street Reform and Consumer Protection Act of 2010, the Sarbanes-Oxley Act, and other federal financial regulatory laws.

“The provision of the financial reform bill mandating that compensation systems for financial executives which include bonuses also make possible clawbacks is an important step forward in our efforts to avoid the terrible mistakes of the past,” Frank said in a statement. “The creation of insurance policies to insulate financial executives from clawbacks is one more effort by some in the industry to perpetuate a lack of accountability.”