Transcript Slide 1

Chapter 6
The Role of
Government
McGraw-Hill/Irwin
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
"People who enjoy eating sausage
and obey the law should not
watch either being made.“
Otto von Bismarck
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The Role of Government
• The Foreign Corrupt Practices Act (1977)
• The Defense Industry Initiatives (1986)
• The U.S. Federal Sentencing Guidelines
for Organizations (1991)
• The Sarbanes-Oxley Act (2002)
• The Revised Federal Sentencing
Guidelines for Organizations (2004)
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The Foreign Corrupt Practices Act
(FCPA) 1977
Prior to the passing of this law, the illegality of
paying bribes was punishable only through
‘secondary’ sources of legislation:
• The Securities and Exchange Commission (SEC) could
fine companies for failing to disclose such payments
under their securities rules.
• The Bank Secrecy Act also required the full disclosure of
funds that were taken out of or brought into the USA.
• The Mail Fraud Act made the use of the US Mail or wire
communications to transact a fraudulent scheme illegal.
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The Foreign Corrupt Practices Act
(FCPA) 1977
• FCPA is enforced jointly by the US Department of Justice
(DOJ) and the Securities and Exchange Commission (SEC).
• The Act encompassed all the ‘secondary’ measures that were
currently in use to prohibit such behavior by focusing on two
distinct areas:
• Disclosure – the Act required corporations to fully
disclose any and all transactions conducted with foreign
officials and politicians, in line with the SEC provisions.
• Prohibition – the Act incorporated the wording of the
Bank Secrecy Act and the Mail Fraud Act to prohibit the
movement of funds overseas for the express purpose of
conducting a fraudulent scheme.
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The Defense Industry Initiatives (DII)
1986
1. Each company will have and adhere to a written code of business ethics and
conduct.
2. The company’s code establishes the high values expected of its employees and the
standards by which they must judge their own conduct and that of their
organization.
3. Each company will create a free and open atmosphere that allows and encourages
employees to report violations of its code to the company without fear of
retribution for such reporting.
4. Each company has the obligation to self-govern by monitoring compliance with
federal procurement laws and adopting procedures for voluntary disclosure of
violations of federal procurement laws and corrective actions taken.
5. Each company has the responsibility to each of the other companies in the
industry to live by standards of conduct that preserve the integrity of the defense
industry.
6. Each company must have public accountability for its commitment to these
principles.
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The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
Penalties under FSGO included:
• Monetary fines
• Organizational probation
• The implementation of an operational program
to bring the organization into compliance with
FSGO standards
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The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
MONETARY FINES
If an organization is sentenced under FSGO, the
calculation of the fine is determined through a
three-step process:
1. The determination of the ‘base fine’
2. The Culpability Score
3. The total fine amount
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Revised FSGO 2004
Formally adopted in November 2004, the revised
guidelines presented three key changes:
• Companies were required to periodically evaluate the
effectiveness of their compliance programs on the
assumption that there was a substantial risk that any
program was capable of failing.
• The revised guidelines required evidence of an active
promotion of ethical conduct rather than just compliance
with legal obligations.
• Accountability was more clearly defined in the revised
guidelines.
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Sarbanes-Oxley Act (Sox) 2002
• Public Company Accounting Oversight Board
(PCAOB).
• Auditor Independence
• Corporate Responsibility
• Enhanced Financial Disclosures
• White Collar Crime
• Corporate Tax Returns
• Corporate Fraud & Accountability
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