CMA Part 2 Corporate Ethical Legislation

According to the FCPA, who is responsible for compliance?

no one individual or position within a company is designated as being responsible for compliance. The company as a whole is responsible for adequate internal control.

The FCPA contains which two provisions?

Accounting and anti-bribery

What is the FCPA's accounting provision regarding internal control?

All issuers must devise and maintain a system of internal accounting control sufficient to ensure management's control, authority, and responsibility over assets, regardless of whether they have foreign operations.

What is an example of a facilitation payment?

An employee has received all the necessary paperwork from the local government to offload cargo in a foreign port. The port master, however, refuses to allow offloading unless the company pays him $500. This payment should be considered a facilitation payment, as the company was already entitled to offload its cargo, and the port master should not have required the extra payment.

Why were anti-bribery laws enacted?

Anti-bribery laws are usually enacted because Corruption is costly for companies, whether they are caught in the act (reputational damages) or the ones at a disadvantage; Bribery has become more of an attention point within national jurisdictions; Globalization requires more anti-bribery legislation; and Enforcement of anti-bribery laws has become more international.

What are the two FCPA accounting provisions?

Books/Records and Internal Control

Where does bribery usually occur?

Bribery usually occurs in an international setting. Companies therefore should be aware of these laws no matter where they are located in the world

What are some risks of facilitation payments?

Certain legal issues can arise due to facilitation payments: The lines between bribes and facilitation payments are blurred and often depend on the circumstances. Companies must define why and how a particular payment is a facilitation payment. If they cannot, they might be violating the law .The amount of the facilitation payment is not restricted. But the higher the payment, the higher the risk law enforcement sees it as a bribe. Although facilitation payments might be legal under the FCPA, if the company is doing business abroad, other jurisdictions might differ.

What are corrupt payments?

Corrupt payments are payments intended to improperly influence the recipient to act or refrain from acting with the mere goal to obtain or retain business.

Why was the FCPA enacted by Congress in 1977?

During the Watergate investigations of 1973-74, it was discovered that U.S. companies were in the practice of paying government officials, politicians, and political parties in foreign countries. The Securities and Exchange Commission (SEC) began its own investigation. Over 400 U.S. companies admitted paying out an estimated total of over $300 million from secret "slush funds." The Foreign Corrupt Practices Act (FCPA) was passed by Congress in 1977 in response to these discoveries.

What are facilitation payments?

In some countries, government officials are expected to be paid by foreign companies just to perform the duties that would be considered a routine part of their job in the U.S.

What happens if an individual is found in violation of the FCPA?

Individuals found in violation of the FCPA are subject to both fines and imprisonment. A corporation may be assessed a fine as well. Fines imposed upon individuals may not be paid directly or indirectly by an employer.

What happens if an individual is found in violation of the UKBA?

Individuals found in violation of the UKBA are subject to both fines and imprisonment. Fines can be imposed on organizations as well.

What is the FCPA Accounting Books and Records requirement?

Issuers are required to make and keep books, records, and accounts that properly reflect transactions and dispositions of assets. The responsibility of the external auditor with respect to the act is to attest to the accuracy of the financial statements.

Why can anti-bribery laws be enforced worldwide?

Most anti-bribery laws have strong extraterritorial jurisdiction, meaning that they can be enforced worldwide.

Does SOX define ethics?

No

Does the UKBA permit facilitation payments?

No

What is the FCPA's anti-bribery provision?

No concern or person subject to the FCPA's anti-bribery provisions may offer or authorize corrupt payments to any foreign official, foreign political party or official thereof, or candidate for political office in a foreign country

What 4 offenses does the UKBA recognize?

Offering, promising, or giving an advantage Requesting, agreeing to receive, or accepting an advantage Bribery of a foreign public official Failure by a commercial organization to prevent a bribe being paid to gain or retain business or a business advantage

In response to scandals such as Enron, what did the Sarbanes-Oxley Act (SOX) of 2002 do?

SOX imposed extensive new responsibilities on issuers of publicly traded securities and their auditors.

What does Sox Section 406a (Code of Ethics) require?

Section 406(a), which requires any company issuing securities . . . to disclose whether or not, and if not, the reason therefore, such issuer has adopted a code of ethics for senior financial officers, applicable to its principal financial officer and comptroller or principal accounting officer, or persons performing similar functions.

What is the most significant provision of the SOX regarding ethics?

Section 406a, Code of Ethics

Who is subject to the FCPA's anti-bribery provision?

Subject to the FCPA's anti-bribery provisions are Domestic concerns, including any person acting on a concern's behalf, whether or not doing business overseas and whether or not registered with the SEC; Issuers, both U.S. and foreign companies, including any person acting on an issuer's behalf, that have a class of securities traded at a U.S. stock exchange or are otherwise required to file reports with the SEC Any person, including both concerns and individuals other than domestic concerns or issuers, and including foreign nationals and foreign non-issuing companies acting corruptly while in the U.S.

Why is the UKBA more strict and broadly applicable?

The FCPA covers only bribery of foreign officials. But the UKBA also prohibits commercial bribery, passive bribery, and the failure to prevent bribery as a commercial organization.

Does the FCPA prohibit corrupt payments?

The FCPA prohibits a mere offer or promise of a bribe, even if it is not consummated.The act prohibits payment of anything of value; however, de minimis gifts and tokens of hospitality are acceptable. Passive bribery, i.e., receiving or accepting a bribe, is not prohibited by the FCPA. Payments are prohibited if the person making them knew or should have known that some or all of them would be used to improperly influence a governmental official

What are some ethical issues that arise from facilitation payments?

The line between facilitation payments and actual bribery is unclear. Although facilitation payments are allowed to prevent unfair competition, they might inadvertently promote it. Smaller businesses are less likely to be able to make facilitation payments than large multinationals and are therefore at a disadvantage. Legal facilitation payments may conflict with the high ethical standards of the company.

What are characteristics of facilitation payments?

The official is paid to perform a service, for example, releasing a product or providing a license, that is something the employee or company was already entitled to but did not receive without the extra payment. Receipt of the payment is considered a routine part of the job of the official. The payment is not absurdly high, although exact standards are not specified. Facilitation payments should be accounted for in the books.

What are the purposes of anti-bribery laws?

The purposes of anti-bribery and corruption laws are to Prevent illegal practices Create a level playing field in international trade Increase the quality of internal controls.

FCPA's accounting provision over internal control affects who?

This provision has a particular impact on internal and external auditors

What are the two main anti-bribery regimes worldwide?

Two of the main anti-bribery regimes worldwide are the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act (UKBA).

Who is subject to the UKBA?

U.K. companies doing business overseas. If an employee, agent, subsidiary, or service provider bribes someone overseas to obtain or retain business advantages, the company is liable under the UKBA. Foreign companies with operations in the U.K. Any company that carries on a part of its business within the U.K. is liable under the UKBA. How large this part must be is still unclear. Accordingly, companies are advised to act with caution because an agent or representative office in the U.K. probably would be sufficient.

Which is stricter and more broadly applicable, the UKBA or FCPA?

UKBA is more strict and broadly applicable. The UKBA is the anti-bribery law with the highest possible impact worldwide because it has the broadest extraterritorial jurisdiction.

Does the FCPA allow facilitation payments?

Yes. Congress was convinced that not allowing these payments would put U.S. businesses at an international disadvantage. Thus, the FCPA contains a provision that allows these so-called facilitation payments.

Under the FCPA, is commercial bribery prohibited?

commercial bribery, such as payments to foreign business owners, corporate officers, or domestic U.S. officials, are not addressed by the FCPA.

How does SOX section 406a define a code of ethics?

such standards as are reasonably necessary to promote (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the issuer; and (3) compliance with applicable governmental rules and regulations.