Chapter 6

The Role of Government


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"People who enjoy eating sausage and obey the law should not watch either being made.“ Otto von Bismarck


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)

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.

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.

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.

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


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


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.

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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