This document summarizes five key pieces of US legislation related to business ethics: 1) The Foreign Corrupt Practices Act (FCPA) of 1977 which prohibits bribery of foreign officials; 2) The Defense Industry Initiatives (DII) of 1986 which established ethics principles for defense contractors; 3) The US Federal Sentencing Guidelines for Organizations of 1991 which hold companies criminally liable and established compliance programs; 4) Revisions to the Guidelines in 2004 which strengthened compliance program requirements; and 5) The Sarbanes-Oxley Act of 2002 which addressed accounting scandals through increased financial disclosure standards and oversight.

1. Business Ethics
School of Managerial and Logistic Sciences
The German Jordanian University
(GJU)
Summer Semester 2012
MGT 316
Ahmad Abo-Obid
Mohammad Arabiyat
8th May 2011

2. Part 2. The practice of Business Ethics
Business Ethics A Real World Approach
Andrew W. Ghillyer
2nd Edition
New York, NY
ISBN 9780071100656

3. Part 2. The practice of Business Ethics
Chapter 6. The Role of Government
- The Five Key Pieces of U.S Legislation
- The purpose and significance of FCPA
- The six key principles of DII
- The three step process of the U.S FSGO
- Advantages and disadvantages of SOX
- The three key changes that made by Revised
Federal Sentencing Guidelines for Organizations

4. Part 2. The practice of Business Ethics
Chapter 6. The Role of Government
Key legislation
Since the 1970s, there have been five key attempts at behavior modification
to discourage, if not prevent, illegal conduct within organizations:
1. The Foreign Corrupt Practices Act (FCPA) (1977)
2. The Defense Industry Initiatives (DII) (1986)
3. The U.S. Federal Sentencing Guidelines for Organizations (FSGO) (1991)
4. The Revised Federal Sentencing Guidelines for Organization (FSGO) (2004)
5. The Sarbanes-Oxley Act (SOX) (2002)

5. 1-The Foreign Corrupt Practices Act (FCPA)
• FCPA is legislation introduced to control bribery and
other less obvious form of payment to foreign officials
and politicians by American publicly trade companies.
• Prior to the passing of this law, the illegality of paying bribes
was punishable only through ‘secondary’ sources of
legislation:
1. The Securities and Exchange Commission (SEC) could fine companies for
failing to disclose such payments under their securities rules.
2. The Bank Secrecy Act also required the full disclosure of funds that were
taken out of or brought into the USA.
3. The Mail Fraud Act made the use of the US Mail or wire communications
to transact a fraudulent scheme illegal

6. 1-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:
1. Disclosure the Act required corporations to fully disclose any and
all transactions conducted with foreign officials and politicians, in
line with the SEC provisions.
2. 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.

7. 1-The Foreign Corrupt Practices Act (FCPA)
• FCPA formally recognizes facilitation payments, FCPA finds these
payments acceptable (legal) provided they expedite or secure the
performance of a routine governmental action
• Routine governmental action is any regular administrative process,
excluding any action taken by foreign official in the decision to
award new or continuing business.
examples of routine governmental action include:
-Providing permit, license or other officials document to qualify a
person to do business in a foreign country.
-processing governmental papers, such as visas and work orders.

8. 2-Defense industry initiatives (DII)
• DII is six principles that “ were intended
to promote sound management practices,
to ensure that companies were in compliance with complex
regulations, and
to restore public confidence in the defense industry”

9. 3-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:
I. Monetary fines
II. Organizational probation
III. The implementation of an operational program to bring the
organization into compliance with FSGO standards

10. 3-The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
I. Monetary fines
• If an organization is sentenced under FSGO, the calculation of the
fine is determined through a three-step process:
1. Determination of the ‘Base Fine’
The base fine will normally be greatest of :
• The monetary gain to the organization from the offense.
• The monetary loss from the offense caused by the organization,
to the extent the loss was caused knowingly, intentionally, or
recklessly.
• The amount determined by a judge based upon an FSGO table.

11. 3-The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
2. Culpability Score:
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 factors
 Mitigating factors
3. The total fine amount:
The base fine multiplied by the culpability score gives the total fine
amount.
*Death Penalty: where the fine is set high enough to match all the
organization’s asset.

12. 3-The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
II. Organizational probation:
The status of probation can include the following
requirements:
– Reporting the business’s financial condition to the court on a
periodic basis.
– Remaining subject to unannounced examinations of all financial
records.
– Reporting progress in the implementation of a compliance program.
– Being subject to unannounced examination to confirm that the
compliance program is in place and is working.

13. 3-The U.S. Federal Sentencing Guidelines For
Organizations (FSGO) 1991
III. The implementation of an operational program to bring the
organization into compliance with FSGO standards.
The FSGO prescribes seven steps for an effective compliance program:
1. Management oversight.
2. Corporate policies.
3. Communication of standards and procedures.
4. Compliance with standards and procedures.
5. Delegation of substantial discretionary authority.
6. Consistent discipline.
7. Response and corrective action.

14. 4-Revised Federal Sentencing Guidelines For
Organizations (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.

15. 5-Sarbanes-Oxley Act (SOX) 2002
• SOX is a legislative response to the corporate accounting scandals of the
early 2000s that covers the financial management of businesses.
• The act contains 11 sections or titles:
– Public Company Accounting Oversight Board (PCAOB)(TitleI)
– Auditor Independence(TitleII)
– Corporate Responsibility(TitleIII)
– Enhanced Financial Disclosures(TitleIV)
– Analyst Conflict of Interest(TitleV)
– Commission Resources and Authority(TitleVI)
– Studies and Reports(TitleVII)
– Corporate and Criminal Fraud Accountability(TitleVIII)
– White-Collar Crime Penalty Enhancements(TitleIX)
– Corporate Tax Returns(TitleX)
– Corporate Fraud & Accountability(TitleXI)