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CHAPTER 6 The Role of Government Chapter Summary

This chapter steps outside of the organizational framework and examines what legislation the government has put into place to enforce ethical conduct. Foreign Corrupt Practices Act attempts to send a clear message that U.S. oversea corporations are based on price and product quality. Defense Industry Initiatives has to deal with the growing public concern over procurement irregularities. The U.S. Federal Sentencing Guidelines was put into place in 1984 to hold businesses liable for the criminal acts of their employees and agents. The Sarbanes-Oxley Act has 11 titles that cover the financial management of business containing examples of corporate wrongdoing that preceded the establishment of the legislation.

Learning Objectives
After studying this chapter, the student should be able to: 1. Identify the five key pieces of U.S legislation designed to discourage, if not prevent, illegal conduct within organizations. 2. Understand the purpose and significance of the Foreign Corrupt Practices Act (FCPA). 3. Categorize the six key principles of the Defense Industry Initiatives (DII). 4. Calculate monetary fines under the three-step process of the U.S. Federal sentencing Guidelines for Organizations (FSGO). 5. Compare and contrast the relative advantages and disadvantages of the SarbanesOxley Act (SOX).

Extended Chapter Outline


Objective 1: Identify the five key pieces of U.S. legislation designed to discourage, if not prevent, illegal conduct within organizations. 1.1. The opening Frontline Focus case shows how a rental agent faces an ethical decision with her new boss. 1.1.1. The 5 key pieces of U.S. legislation designed to discourage illegal conduct within the organization. 1.1.1.1. The Foreign Corrupt Practices Act 1.1.1.2. The Defense Industry Initiatives 1.1.1.3. The U.S Federal Sentencing Guidelines for Organizations 1.1.1.4. The Sarbanes-Oxley Act 1.1.1.5. The Revised Federal Sentencing Guidelines for Organizations Objective 2: Understand the purpose and significance of the Foreign Corrupt Practices Act (FCPA).

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2.1

Foreign Corrupt Practices Act (FCPA) was a legislation introduced to control bribery and other less obvious forms of payment to foreign officials and politicians by American publicly traded companies. 2.1.1 The distinct areas the FCPA focuses on: 2.1.1.1 The focus on Disclosure which the act requires corporations to fully disclosure and all transactions conducted with foreign officials and politicians, in line with the SEC provisions. 2.1.1.2 The focus on Prohibition. The act incorporates 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. 2.1.2 Facilitation payments are payments that are acceptable (legal) provided they expedite or secure the performance of a routine government action 2.1.3 Routine government action for the FCPA is any regular administrative process or procedure, excluding action taken by a foreign official in the decision to award a new or continuing business.

Objective 3: Categorize the six key principles of the Defense Industry Initiatives (DII). 3.1 Defense Industry Initiatives (DII) is the six principles that were intended to promote sound management practices, to ensure that companies were in compliance with complex regulations, and to restore public confidence in the defense industry. 3.1.1 Each company will have and adhere to a written code of business ethics and conduct. 3.1.2 The companys code will establish the high values expected of its employees and the standards by which they must judge their own conduct and that of their organization; each company will train its employees concerning their personal responsibilities under the code. 3.1.3 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 or retribution for such reporting 3.1.4 Each company will have the obligation to self-govern by monitoring compliance with federal procurement laws and adopting procedures for voluntary disclosures of violations of federal procurement laws and corrective actions taken. 3.1.5 Each company will have the responsibility to each of the other companies in the industry to live by standards of conduct that preserve the integrity of defense industry. 3.1.6 Each company must have public accountability for its commitment to these principles.

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Objective 4: Calculate monetary fines under the three-step process of the U.S. Federal Sentencing Guidelines for Organizations (FSGO). 4.1 Federal Sentencing Guidelines for Organizations hold businesses liable for the criminal acts of their employees and agents 4.1.1. If an organization is sentenced under the FSGO, a fine is calculated through a three-step process: 4.1.1.1. Determination of the Base Fine 4.1.1.2. The Culpability Score is the calculation of a degree of blame or guilt that is used as a multiplier of up to four times the base fine. The culpability score can be adjusted according to the aggravating or mitigating factors. 4.1.1.3. Determining the Total Fine Amount. 4.1.1.3.1. Death Penalty is where the fine is set high enough to match all the organizations assets and basically put the organization out of business. This is warranted where the organization was operating primarily for a criminal purpose. 4.1.2. Organizations not only can get fines but probation as well up to 5 years 4.1.3. The FSGO prescribes seven steps for an effective compliance program: 4.1.3.1 Management oversight. 4.1.3.2. Corporate Policies 4.1.3.3 Communication of standards and procedures 4.1.3.4. Compliance with standards and procedures 4.1.3.5. Delegation of substantial discretionary authority 4.1.3.6. Consistent discipline 4.1.3.7. Response and corrective action Objective 5: Compare and Contrast the relative advantages and disadvantages of the Sarbanes-Oxley Act (SOX). 5.1 Sarbanes- Oxley Act is a legislative response to corporate accounting scandals of the early 2000s that covers the financial management of businesses. Containing 11 titles. 5.1.1 Title I: Public Company Accounting Oversight Board (PCAOB) is an independent oversight body for auditing companies. 5.1.2 Title II: Auditor independence 5.1.3 Title III: Corporate responsibility 5.1.4 Title IV: Enhanced Financial Disclosures 5.1.5 Title V: Analyst Conflicts of Interest 5.1.6 Title VI: Commission Resources and Authority 5.1.7 Title VII: Studies and Reports 5.1.8 Title VIII: Corporate and Criminal Fraud Accountability 5.1.9 Title IX: White-Collar Crime Penalty Enhancements 5.1.10 Title X: Corporate Tax Returns 5.1.11 Title XI: Corporate Fraud and Accountability

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Key Terms
Culpability Score (FSGO): The calculation of a degree of blame or guilt that is used as a multiplier of up to four times the base fine. The culpability score can be adjusted according to aggravating or mitigating factors. Death Penalty (FSGO): Where the fine is set high enough to match all the organizations and basically put the organization out of business. This is warranted where the organization was operating primarily for a criminal purpose. Defense Industry Initiatives (DII): Six principles that were intended to promote sound management practices, to ensure that companies were in compliance with complex regulations, and to restore public confidence in the defense industry. Disclosure (FCPA): The FCPA requires corporations to fully disclose any and all transactions conducted with foreign officials and politicians. Facilitation Payments (FCPA): Payments that are acceptable (legal) provided they expedite or secure the performance of a routine governmental action. Federal Sentencing Guidelines for Organizations (FSGO): Hold businesses liable for the criminal acts of the employees and agents. 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 Prohibition (FCPA): The FCPA 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. Public Company Accounting Overnight Board (PCAOB): An independent oversight body for auditing companies. Routine Governmental Action (FCPA): Any regular administrative process or procedure, excluding any action taken by a foreign official in the decision to award new or continuing business. Sarbanes-Oxley Act (SOX): A legislative response to the corporate accounting scandals of the early 200s that covers the financial management of businesses.

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