1. Chapter 6 The Role of Government
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2. Learning Outcomes
Identify the five key pieces of U.S. legislation designed to discourage, if not prevent, illegal conduct within organizations
Understand the purpose and significance of the Foreign Corrupt Practices Act (FCPA)
Calculate monetary fines under the three-step process of the U.S. Federal Sentencing Guidelines for Organizations (FSGO)
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3. Learning Outcomes (continued)
Compare and contrast the relative advantages and disadvantages of the Sarbanes-Oxley Act (SOX)
Explain the key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act
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4. Key Legislations The Foreign Corrupt Practices Act (1977)
The U.S. Federal Sentencing Guidelines for Organizations (1991)
The Sarbanes-Oxley Act (2002)
The Revised Federal Sentencing Guidelines for Organizations (2004)
The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
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5. The Foreign Corrupt Practices Act (FCPA)
Legislation introduced to control bribery and other less obvious forms of payment to foreign officials and politicians by American publicly traded companies
Prior to the passing of the law, the illegality of paying bribes was punishable only through secondary sources of legislation
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6. The Foreign Corrupt Practices Act (FCPA) (continued 1)
Securities and Exchange Commission (SEC) could fine companies for failing to disclose such payments under its securities rules
Bank Secrecy Act required the full disclosure of funds that were taken out of or brought into the USA
Mail Fraud Act made use of the U.S. mail or wire communications to transact a fraudulent scheme illegal
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7. The Foreign Corrupt Practices Act (FCPA) (continued 2)
Jointly enforced by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)
Encompasses all secondary measures that were currently in use to prohibit such behavior by focusing on:
Disclosure
Prohibition
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8. Disclosure and Prohibition
Disclosure: Requirement that corporations fully disclose any and all transactions conducted with foreign officials and politicians
Prohibition: Inclusion of wording from the Bank Secrecy Act and the Mail Fraud Act to prevent the movement of funds overseas for the express purpose of conducting a fraudulent scheme
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9. The Foreign Corrupt Practices Act (FCPA) (continued 3)
Criticized for lack of real authority because of its formal recognition of facilitation payments
Facilitation payments: Payments that are acceptable (legal) provided they secure the performance of a routine governmental action
Routine governmental action (FCPA): Any regular administrative process, excluding any action taken by a foreign official in the decision to award new or continuing business
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10. Illegal versus Legal Behaviors under the FCPA
Bribes
Record-keeping and accounting provisions
Legal
Grease payments
Marketing expenses
Payments lawful under foreign laws
Political contributions
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11. The U.S. Federal Sentencing Guidelines For Organizations (FSGO), 1991
Guidelines that hold businesses liable for the criminal acts of their employees and agents
Penalties under FSGO
Monetary fines
Organizational probation
Implementation of an operational program
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12. Monetary Fines under the FGSO
A fine sentenced under FSGO is calculated through a three-step process
Determination of the base fine - The base fine will be the greatest of:
Monetary gain to the organization from the offense
Monetary loss from the offense caused by the organization, to the extent the loss was caused knowingly, intentionally, or recklessly
Amount determined by a judge based on an FSGO table
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13. Monetary Fines under the FGSO (continued 1)
Culpability score: Calculation of a degree of blame or guilt that is used as a multiplier of up to 4 times the base fine
Can be increased (or aggravated) or decreased (or mitigated) according to predetermined factors
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14. Monetary Fines under the FGSO (continued 2)
Aggravating factors of culpability score
Mitigating factors of culpability score
High-level personnel were involved in or tolerated the criminal activity
Organization willfully obstructed justice
Organization had a prior history of similar misconduct
Current offense violated a judicial order, an injunction, or a condition of probation
Organization had an effective program to prevent and detect violations of law
Organization:
Self-reported the offense to governmental authorities
Cooperated in the investigation
Accepted responsibility for the criminal conduct
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15. Monetary Fines under the FGSO (continued 3)
Determining the total fine amount - Base fine is multiplied by the culpability score
Death penalty: Fine that is set high enough to match all the organization’s assets and put the organization out of business
Warranted where the organization was operating primarily for a criminal purpose
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16. Organizational Probation
Organizations can be sentenced to probation for up to five years
Requirements for the status of probation
Reporting the business’s financial condition to the court on a periodic basis
Remaining subject to unannounced examinations of all financial records by a designated probation officer and/or court-appointed experts
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17. Organizational Probation (continued)
Reporting progress in the implementation of a compliance program
Being subject to unannounced examinations to confirm that the compliance program is in place and is working
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18. Steps for an Effective Compliance Program
Management oversight
Corporate policies
Communication of standards and procedures
Compliance with standards and procedures
Delegation of substantial discretionary authority
Consistent discipline
Response and corrective action
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19. Revised FSGO (2004) Key changes
Required companies to periodically evaluate the effectiveness of their compliance programs on the assumption of a substantial risk that any program is capable of failing
Revised guidelines required evidence of actively promoting ethical conduct rather than just complying with legal obligations
Defined accountability more clearly
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20. Sarbanes-Oxley Act (2002)
Legislative response to the corporate accounting scandals of the early 2000s that covers the financial management of businesses
Contains 11 sections related to prominent examples of corporate wrongdoing
Public Company Accounting Oversight Board: Independent oversight body for auditing companies
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21. Sarbanes-Oxley Act (2002) (continued 1)
Auditor independence
Corporate responsibility
Enhanced financial disclosures
Analyst conflicts of interest
Commission resources and authority
Studies and reports
Corporate and criminal fraud accountability
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22. Sarbanes-Oxley Act (2002) (continued 2)
White-collar crime penalty enhancements
Corporate tax returns
Corporate fraud and accountability
Does not help in creating an ethical corporate culture or hiring an effective and ethical board of directors
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23. The Dodd-Frank Wall Street Reform and Consumer Protection Act
Legislation that was promoted as the fix for the extreme mismanagement of risk in the financial sector that led to a global financial crisis in 2008–2010
Consumer Financial Protection Bureau (CFPB): Government agency within the Federal Reserve that oversees financial products and services
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24. Financial Stability Oversight Council (FSOC)
Financial Stability Oversight Council (FSOC): Established to prevent banks from failing and otherwise threatening the stability of the U.S. economy
Volcker rule - Limits the ability of banks to trade on their own accounts in any way that might threaten the financial stability of the institution
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