2. Chapter 11-Crimes & Business

3. Crimes Necessary Elements: -Actus reus (evil act) -Mens rea (evil intent)

4. White Collar Crime--Managers Beware b Whit Collar Crimes are those crimes created by business people and Congress has enacted federal sentencing guidelines in an effort to discourage both white-collar and street crime. These “mandatory” sentencing guidelines have been held to be “unconstitutional” by the US Supreme Court in the Winter of 2005 as sentencing must be done by the Judges. These guidelines are now “advisory” only in nature. b Whistle-Blowing: Is the process of workers or individuals reporting to the government that improper or illegal conduct is taking place within a corporation. A number of laws provide for protection of whistle-blowers to encourate them to “blow the whistle” Despite these laws, whistle- blowers usually pay a price for their decisions to go public. Note: the Whistleblower Protection Act of 1989 only applies to federal employees!

5. Bribery Abroad b Often business professionals must confront graft and bribery in international transactions. The US has a specific law that prevents US businesses from participating in such activity. The FCPA prevents these types of payments and is limited to US Companies and Citizens or those acting on their behalf.

6. F C P A b The Foreign Corrupt Practices Act of 1977 (FCPA) was amended in 1998 and prevents: Giving “anything of value”Giving “anything of value” To a foreign officialTo a foreign official To Gain an Improper Advantage.To Gain an Improper Advantage. Accounting standards also require close record keeping by companies and make such bribes more difficult to conceal.Accounting standards also require close record keeping by companies and make such bribes more difficult to conceal. b The FCPA is very controversial and generally not favored by US Executives as it puts American businesses at a disadvantage internationally when competing for business against other competitors (who do not have to abide by the FCPA)

7. F C P A b Controversy exists over the FCPA because it preserves the ethics of American businesses but harms their competitiveness internationally. b There are exceptions: 1) if it is legal to give the bribe under the “host” countries’ laws (very rare!) or 2) the payment is for a routine governmental activity that is meant to “speed up” a non- discretionary act. This latter exception is sometimes called the “grease payment” of “facilitating payment” exception. It is risky to use this, but it can legitimize a payment under the FCPA OECD Treaty exists But not very effective

8. FCPA b The FCPA allows for “facilitating and expediting” payments to secure business. This is an exception to the FCPA and generally applies to routine governmental decisions. (Thus not an absolute ban on payments) b Liability could exist for managers & accountants OECD Treaty Exists on Topic

9. Olympic Bribery--- Salt Lake City Representatives Were accused of offering full USA College scholarships to Olympic Site Selection Committee Members Relatives if they Would select Salt Lake City as The site for the 2002 games--- The Representatives were Charged with FCPA violations And after 2 years the case Was dismissed for lack of Evidence to convict the Representatives.

10. It is illegal for persons to trade public securities based on inside information. Inside information Is defined as information that is not accessible To the public. Once a person is determined to have “inside information” that person must (1) refrain from trading the stock (or advising others to do so) or (2) trade only after releasing the information to the public. Insider Information

11. Sarbanes-Oxley Act of 2002 Due to the very public and dramatic rise in corporate corruption, the federal law was passed to expose and root out corporate crooks. Also known as the Corporate Social Responsibility Act of 2002” and applies only to publically traded companies.

12. Congress Responds: Passage of Sarbanes-Oxley Act (7/30/02) Auditing/Accounting Provisions yNew board to oversee audits of public companies (only 40% of members from accounting) yAudit committee must consist of all independent directors yAuditor now responsible directly to audit committee, which appoints auditor and sets compensation yMost consulting forbidden for audit clients; what consulting remains requires advance written permission from audit committee Senior Executive/Officer/Director Provisions yCEO/CFO must certify accuracy of financial statements (penalties of up to $5 million plus 20 years in jail) yNo loans from companies to senior executives/directors yCEO/CFO performance-based compensation forfeited if accounting results revised because of misconduct yPersons violating antifraud provisions barred from service as public company officer/director Source: The McGraw-Hill Companies, Inc./ McAdmas

13. Sabanes-Oxley Act 2002 Increases Stat. of Limit. From 1 to 2 years Whistle Blower Protect. Fines & Judgments Non-dischargable in bankruptcy