Corporate Ethics & Legislation

Question 1

What is the background of the Foreign Corrupt Practices Act (FCPA)?

Answer 1

During the Watergate investigations of 1973 - 1974, it was bought to light that U.S. companies were in the practice of handing out bribes to government officials, politicians and political parties in foreign countries

The SEC began its own investigation and eventually, over 400 U.S. companies admitted paying out an estimated total of over $300MM from secret “slush funds”

The most notable firm involved was the aerospace giant Lockheed, which was found to have paid bribes in West Germany, Italy, Japan, the Netherlands and Saudi Arabia since the late 1950s to ensure purchase by those governments of the company’s fighter planes and passenger jets

The Foreign Corrupt Practices Act (FCPA) was passed by Congress in 1977 in response to these disclosures

Question 2

What two provisions does the Foreign Corrupt Practices Act of 1977 (FCPA) have?

Answer 2

The FCPA contains 2 sets of provisions:

1. Accounting
2. Anti-bribery

Question 3

What does the Accounting provision of the Foreign Corrupt Practices Act of 1977 (FCPA) entail?

Answer 3

The Accounting provision of the FCPA states that issuers are required to make and keep books, records and accounts that properly reflect transactions and dispositions of assets

All issuers must devise and maintain a system of internal accounting control sufficient to assure management’s control, authority and responsibility over assets (regardless of whether they have foreign operations). This provision has a particular impact on internal and external auditors

Question 4

What does the Anti-Bribery provision of the Foreign Corrupt Practices Act of 1977 (FCPA) entail?

Answer 4

The Anti-bribery provision of the FCPA states that no domestic concern (including any person acting on its behalf) whether or not doing business overseas and whether or not registered with the SEC 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

Note: Only payments to foreign officials and politicians are prohibited. Payments to foreign businesses owner or corporate officers are NOT addressed by the FCPA

Question 5

What is Sarbanes-Oxley Act of 2002 (SOX)?

Answer 5

The Sarbanes-Oxley Act of 2002 (SOX) imposed extensive new responsibilities on issuers of publicly traded securities and their auditors

The most significant provision of SOX regarding ethics is Section 406(a), which requires any company issuing securities to disclose whether or not it has adopted a code of ethics for senior financial officers or to explain why such a code is unnecessary