1. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 The Role of Government McGraw-Hill

2. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-2 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-2 "People who enjoy eating sausage and obey the law should not watch either being made.“ Otto von Bismarck (1815-1898) Chancellor of Germany

3. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-3 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Key Legislation 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) 6-3

4. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-4 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. The Foreign Corrupt Practices Act (FCPA) 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. 6-4

5. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-5 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. The Foreign Corrupt Practices Act (FCPA) 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. 6-5

6. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-6 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. The Foreign Corrupt Practices Act (FCPA) 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: 6-6

7. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-7 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. The Foreign Corrupt Practices Act (FCPA) 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. 6-7

8. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-8 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. The U.S. Federal Sentencing Guidelines For Organizations (FSGO) 1991 Holds organizations liable for the criminal acts of their employees and agents Penalties under FSGO included: –Monetary fines –Organizational probation –The implementation of an operational program to bring the organization into compliance with FSGO standards 6-8

9. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-9 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 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 6-9

10. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-10 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Revised FSGO 2004 Formally adopted in November, 2004 Three key changes Companies 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 6-10

11. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-11 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Sarbanes-Oxley Act (SOX) 2002 Public Company Accounting Oversight Board (PCAOB) Auditor Independence Corporate Responsibility Enhanced Financial Disclosures Analyst Conflict of Interest Commission Resources and Authority Studies and Reports Corporate and Criminal Fraud Accountability White Collar Crime Penalty Enhancements Corporate Tax Returns Corporate Fraud & Accountability 6-11

12. Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. 6-12 Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Dodd-Frank Wall Street Reform 2010 Consumer Financial Protection Bureau (CFPB) Financial Stability Oversight Council (FSOC) The Volcker Rule 6-12