Chapter 6

The Role of
Government
Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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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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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 through
secondary sources of legislation
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The Foreign Corrupt Practices Act
(FCPA)
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 the use of the U.S. mail or
wire communications to transact a fraudulent
scheme illegal

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The Foreign Corrupt Practices Act
(FCPA)
Jointly enforced by the U.S. Department of
Justice (DOJ) and the Securities and Exchange
Commission (SEC)
Encompasses all the secondary measures that
were currently in use to prohibit such behavior
by focusing on:
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The Foreign Corrupt Practices Act
(FCPA)
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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The Foreign Corrupt Practices Act
(FCPA)
Criticized for lack of real authority because of its
formal recognition of facilitation payments
Facilitation payments: 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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Figure 6.1 - Illegal versus Legal
Behaviors under the FCPA
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Figure 6.1 - Illegal versus Legal
Behaviors under the FCPA
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The U.S. Federal Sentencing Guidelines
For Organizations (FSGO) 1991
Hold businesses liable for the criminal acts of
their employees and agents
Penalties under FSGO
Monetary fines
Organizational probation
Implementation of an operational program to
bring the organization into compliance with
FSGO standards
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MONETARY FINES UNDER THE FGSO
Process for calculating a fine
Determination of 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
Amount determined by a judge based on an FSGO
table
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MONETARY FINES UNDER THE FGSO
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 adjusted according to aggravating or
mitigating factors
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MONETARY FINES UNDER THE FGSO
Aggravating factors
High-level personnel 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
Mitigating factors
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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MONETARY FINES UNDER THE FGSO
Determining the total fine amount - Base score
multiplied by the culpability score
Death penalty: Fine that is set high enough to match
all the organizations assets and put the organization
out of business
Warranted where the organization was operating
primarily for a criminal purpose
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Organizational Probation
Organizations can be sentenced to probation
for up to five years
Requirements for the status of probation
Reporting the businesss financial condition to
the court on a periodic basis
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Organizational Probation
Remaining subject to unannounced
examinations of all financial records by a
designated probation officer and/or court-
appointed experts
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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Steps for a 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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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
Accountability more clearly defined
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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 relating to prominent
examples of corporate wrongdoing
Public company accounting oversight board:
Independent oversight body for auditing
companies
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Sarbanes-Oxley Act (2002)
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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Sarbanes-Oxley Act (2002)
White-collar crime penalty enhancements
Corporate tax returns
Corporate fraud and accountability
SOX does not help you create an ethical
corporate culture or hire an effective and
ethical board of directors
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Dodd-Frank Wall Street Reform and
Consumer Protection Act 2010
Legislation that was promoted as the fix for the
extreme mismanagement of risk in the financial
sector that lead to a global financial crisis in
20082010
Consumer Financial Protection Bureau (CFPB):
Oversees financial products and services
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Dodd-Frank Wall Street Reform and
Consumer Protection Act 2010
Financial Stability Oversight Council (FSOC):
Prevents 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