978-1259535437 Chapter 6 Part 2

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Chapter 06 – The Role of Government

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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): A fine that is set high enough to match all the organization’s assets—

and basically put the organization out of business. This is warranted where the organization was

operating primarily for a criminal purpose.

Disclosure (FCPA): The FCPA requirement that corporations fully disclose any and all

transactions, conducted with foreign officials and politicians.

Dodd-Frank Wall Street Reform and Consumer Protection Act: Legislation that was

promoted as a “fix” for the extreme mismanagement of risk in the financial sector that led to a

global financial crisis in 2008-2010.

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): Chapter 8 of the guidelines that

hold businesses liable for the criminal acts of the employees and agents.

Financial Stability Oversight Council (FSOC): A government agency established to prevent

banks from failing and otherwise threatening the stability of the U.S. economy.

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 inclusion of wording from the Bank Secrecy Act and the Mail

Fraud Act to prevent the movement of funds overseas for the express purpose of conducting a

fraudulent scheme.

Public Company Accounting Oversight 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.

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Sarbanes-Oxley Act (SOX): A legislative response to the corporate accounting scandals of the

early 2000s that covers the financial management of businesses.

Review Questions

NOTE: Some questions allow for a number of different answers. Below are some suggestions.

1. Which is the most effective piece of legislation for enforcing ethical business practices:

FCPA, FSGO, SOX, or Dodd-Frank? Explain your answer.

Students’ responses will vary. The FCPA is a legislation introduced to control bribery and

2. “The FCPA has too many exceptions to be an effective deterrent to unethical business

practices.” Do you agree or disagree with this statement? Explain your answer.

3. What issues prompted the revision of the Federal Sentencing Guidelines for Organizations in

2004?

Chapter 06 – The Role of Government

4. Do you think the requirement that CEOs and CFOs sign off on their company accounts will

increase investor confidence in those accounts? Why or why not?

5. Why may the Sarbanes-Oxley Act of 2002 be regarded as one of the most controversial

pieces of corporate legislation in recent history?

6. Based on the information in this chapter, can the Dodd-Frank Act of 2010 prevent “too big

to fail”? Explain your answer.

Review Exercises

1. Identify the ethical transgressions in this case.

Students’ responses will vary. Universal Industries wants to further its international

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2. Which piece of legislation would apply to each transgression?

3. What would be the penalties for each transgression?

4. If Universal could prove that it had a compliance program in place, how would that affect

the penalties?

Internet Exercises

1. Locate the website for Berlin-based Transparency International (TI).

a. What is the stated mission of TI?

TI’s mission is to stop corruption and promote transparency, accountability and

integrity at all levels and across all sectors of society. Its core values are:

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b. Explain the Corruption Perception Index.

The annual Corruption Perceptions Index (CPI), first released in 1995, is the best

c. Which are the least and most corrupt countries on the index?

d. Explain the European National Integrity Systems Project.

Because of the complexity of corruption, it is critical to dig deep to pinpoint exact

threats to integrity and to offer realistic solutions, working towards a more transparent

2. Using Internet research, review the involvement of Harvard law professor Elizabeth Warren

in the Consumer Financial Protection Bureau (CFPB).

a. What was Warren’s involvement in the government response to the collapse of the

financial markets?

Students’ responses will vary. Elizabeth Warren appeared in a variety of articles and

b. How is she connected to the CFPB?

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Education.

Bureau (CFPB). In anticipation of the agency’s formal opening, for the first year after

the bill’s signing, Warren worked on implementation of the bureau as a special

assistant to the president.

c. What were the objections to her involvement with the CFPB?

The CFPB was established by the Dodd–Frank Wall Street Reform and Consumer

d. What is Warren’s declared agenda for the CFPB?

Team Exercises

1. Protecting your people at all costs.

Your company is a major fruit processor that maintains long-term contracts with plantation

owners in Central America to guarantee supplies of high quality produce. Many of those

plantations are in politically unstable areas and your U.S.-based teams travel to those

regions at high personal risk. You have been contacted by a representative from one of the

local groups of Freedom Fighters demanding that you make a “donation” to their cause in

return for the guaranteed protection of the plantations with which you do business. The

representative makes it very clear that failure to pay the donation could put your team on

the ground at risk of being kidnapped and held for ransom. Your company is proud of its

compliance with all aspects of the FCPA and the revised FSGO legislation. Divide into two

groups and argue your case for and against paying this donation.

Chapter 06 – The Role of Government

2. Budgeting for Bribes.

You are a midlevel manager for the government of a small African nation that relies heavily

on oil revenues to run the country’s budget. The recent increase in the price of oil has

improved your country’s budget significantly and, as a result, many new infrastructure

projects are being funded with those oil dollars—roads, bridges, schools, and hospitals—

which are generating lots of construction projects and very lucrative orders for materials

and equipment. However, very little of this new wealth has made its way down to the lower

levels of your administration. Historically, your government has always budgeted for very

low salaries for government workers in recognition of the fact that their paychecks are often

supplemented by payments to expedite the processing of applications and licensing

paperwork. Your boss feels strongly that there is no need to raise the salaries of the lower-

level government workers since the increase in infrastructure contracts will bring a

corresponding increase in payments to those workers, and, as he pointed out, “companies

that want our business will be happy to make those payments.” Divide into two groups and

argue for and against the continuation of this arrangement.

Students’ responses will vary. The lower levels of administration deserve to have an increase

3. The pros and cons of SOX.

Divide into two teams. One team must defend the introduction of Sarbanes-Oxley as a

federal deterrent to corporate malfeasance. The other team must criticize the legislation as

being ineffective and an administrative burden.

Students’ responses will vary. Advocates of SOX hailed this act as “one of the most

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2. Explain how a Ponzi scheme works.

3. Does the SEC bear any responsibility in the event of the Madoff Scheme? In what way?

4. Does the fact that Madoff offered less outrageous returns (10-18 percent per year) on

investments compared to Ponzi’s promise of a 50 percent return in only 90 days make

Madoff any less unethical? Why or why not?

5. Can the investors who put their money in Madoff’s funds without any due diligence, often

on the basis of a tip from a friend or a “friend of a friend,” really be considered victims in

this case? Why or why not?

6. What should investors with Bernard Madoff have done differently here?

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6.2 – India’s Enron

1. Does Ramalinga Raju’s assertion that this fraud only “started as a marginal gap” change the

ethical question here? Would the situation be different if there was evidence that there had

been a deliberate intent to deceive investors from the beginning?

Students’ responses will vary. Some of them may say that the assertion that this fraud only

2. Why do you think Satyam’s board of directors refused to support the proposed purchase of

the construction companies?

3. Outline the similarities between the Enron scandal and Satyam Computer Services’

situation.

4. Pricewaterhouse Coopers (PWC) made a public commitment to cooperate with

investigators. Did the Satyam situation represent the same threat for PWC as Enron did for

Arthur Anderson? Why or why not?

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5. Will the response of the Securities and Exchange Board of India be enough to prevent

another scandal like Satyam? Explain.

Students’ responses will vary. The Securities and Exchange Board of India made it

6. What benefits do Tech Mahindra and Mahindra Satyam hope to achieve with the announced

merger? Explain.

1. Why would illegal marketing activities feature so frequently in the pharmaceutical industry?

At what point would they be considered endemic?

2. Why would pharmaceutical companies choose to continue such practices even when it is

made clear that they are illegal?

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Education.

method rather than checking and rechecking whether the drug actually works.

3. What should the respective boards of directors be doing here? How should they be held

accountable?

4. Critics argue that fines are too affordable. In other words, a $1 billion fine for activities that

generate several billion dollars in illegal sales simply becomes a cost of doing business.

Should fines be more punitive? How much would be enough?

5. Is the payment of a monetary fine sufficient restitution for these offences? Why or why not?

6. How could this apparently endemic problem be approached differently?

Chapter 06 – The Role of Government