Deck 6: The Role of Government

Question 1

What would be the penalties for each transgression

Answer 1

Penalty is a fine or charge which is imposed as punishment for breaking the law, command, rule or contract.
Transgressions are considered as something that has gone against the law or command. It is a process of someone who breaks the rules or laws. Every transgression or fraud will be subjected to penalty. For bribing the local leaders and officials, $2 million is imposed as penalty for violation of the law, $250,000 will be imposed as penalty and 5 years of imprisonment.
In the growing business world, many senior managers choose to bribe or corrupt the officials for retaining or sustaining the business. For bribing the senior management of financiers, $5 million is imposed as penalty for violation of the law, $25 million will be imposed as penalty and 20 years of imprisonment. These penalties are subjected based on the nature and situation of each crime.

Question 2

What was the maximum fine for a U.S. corporation under the FCPA

Answer 2

The Foreign Corrupt Practices Act (FCPA) is established in the year 1977 in United States to restrict the bribes given for officers to retain their businesses.
Bribes here include monetary and non-monetary payments which include bribing through third parties or agents. Violation of this act leads to various criminal and civil penalties imposed. For business entities and organisations, Department of Justice has set criminal penalties for violating up to $2 million
A fine of $100,00 per violation is charged for SEC. For violating the bookkeeping and records provisions, the penalties corporation will be up to $25 million. The actual fine could be added to the double of the advantage the company derived from the corruption activities performed by the organisation. Additional penalties include injunctions, assets forfeiture, profits which are disgorged and debarment or suspension from regular business activities by the government authorities and officials.

Question 3

What is the maximum fine that can be levied

Answer 3

Federal Sentencing Guidelines of Organisations provides standards in which organisations which have committed crimes are handled.
The fines and penalties that are charged on the organisations which are under FSGO involves three step process. The maximum fine that can levied on the organisations is based on the culpability score. Culpability score is a base line which will help in determine the penalties or sentence. Based on the USSG, points are added or deducted. The points are added based on USSG, if the organisation is involved in criminal activities, violation of rules and intolerant behaviour.
The maximum fine is the culpability score which is calculated four times to the base fine which is of 72.5 dollars. The grand total of the fine will amount here to $290 million. This situation will lead the organisation to pluck out from the business. Based on the criminal activities done, the culpability score is added up. If the score is high the fine will also be high as it is calculated with the base rate for determining the final amount.

Question 4

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

Question 5

What issues prompted the revision of the Federal Sentencing Guidelines for Organizations in 2004

Question 6

Which piece of legislation would apply to each transgression

Question 7

Based on the information in this chapter, can the Dodd-Frank Act of 2010 prevent "too big to fail" Explain your answer.

Question 8

What should investors with Bernard Madoff have done differently here

Question 9

In 1997, 35 countries signed the convention of the Organization for Economic Cooperation and Development (OECD) to make it a crime to bribe foreign officials. However, in the last half of 2004:
• Bristol-Myers Squibb revealed that the Securities and Exchange Commission launched an investigation into some of the company's German units for possible violations of the FCPA.
• Three former Lucent Corp. employees were alleged to have bribed Saudi Arabia's former telecommunications minister with cash and gifts worth up to $21 million.
• Halliburton Corp., under investigation by both the Department of Justice and the SEC, disclosed that it may have bribed Nigerian officials to secure favorable tax treatment for a liquefied natural gas facility.
• The SEC hit the U.S. unit of Swiss-based ABB Ltd. with a $16.4 million judgment reflecting information on bribery and accounting improprieties. The charges, which ABB settled without admitting or denying guilt, were that ABB's U.S. and foreign units paid $1.1 billion in bribes to officials in Nigeria, Angola, and Kazakhstan between 1998 and 2003. In one instance, the SEC alleged, ABB's country manager for Angola gave out $21,000 in a paper bag to five officials of the state-owned oil company.

American companies operating under increasing federal and regulatory scrutiny face real consequences from trying to do business in a global business environment in which foreign business seems to function on the basis of "gifts" at every stage of the transaction:
• During the 12 months ended April 30, 2004, according to a U.S. Commerce Department report, competition for 47 contracts worth $18 billion may have been affected by bribes that foreign firms paid to foreign officials. Because U.S. companies wouldn't participate in the tainted deals, the department estimates, at least 8 of those contracts, worth $3 billion, were lost to them.
• For Lockheed Martin Corp., a $2.4 billion merger agreement with Titan Corp. eventually fell through in 2004 after what Titan [documents] described as "allegations that improper payments were made, or items of value were provided by consultants for Titan or its subsidiaries."
Is it ethical for U.S. regulations to put U.S. companies at an apparent disadvantage to their foreign competitors Explain why or why not.

Question 10

"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.

Question 11

What is the maximum term of organizational probation

Question 12

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

Question 13

FOXES GUARDING THE HENHOUSE
The Sarbanes-Oxley Act, which the United States enacted in an atmosphere of extraordinary agitation in 2002, is one of the most influential-and controversial-pieces of corporate legislation ever to have hit a statute book. Its original aim, on the face of it, was modest: to improve the accountability of managers to shareholders, and [then] calm the raging crisis of confidence in American capitalism aroused by scandals at Enron, WorldCom, and other companies. The law's methods, however, were anything but modest, and its implications … are going to be far-reaching.
The cost of all this [new oversight] is steep. A survey by Financial Executives International, an association of top financial executives, found that companies paid an average of $2.4 million more for their audits [in 2004] than they had anticipated (and far more than the statute's designers had envisaged). … This result underlines a notable and unintended consequence of the legislation: it has provided a bonanza for accountants and auditors-a profession thought to be much at fault in the scandals that inspired the law, and which the statute sought to rein in and supervise.
Already reduced in number by consolidation and the demise of Arthur Andersen, the big accounting firms are now known more often as the Final Four than the Big Four, since any further reduction is thought unlikely.
WHO'S LOOKING OUT FOR THE LITTLE GUY
Smaller companies without access to the internal resources (or funds to pay for external resources) to comply with Sarbanes-Oxley are being particularly hard-hit by the legislation, even though the transgressions that prompted the statute in the first place came from large, publicly traded organizations. This is not to suggest that smaller firms don't face their own ethical problems-it just seems that they are expected to carry an administrative burden that is equal to that of their much larger counterparts.
NOT VERY NEIGHBORLY
Sarbanes-Oxley applies to all companies that issue securities under U.S. federal securities statutes, whether headquartered within the United States or not. Thus, in addition to U.S.-based firms, approximately 1,300 foreign firms from 59 countries fall under the law's jurisdiction.

Reactions to SOX from this quarter were swift. Some foreign companies that had previously contemplated offering securities in the U.S. market reconsidered in light of the conflicts they believe SOX created. For example, in October 2002, Porsche AG announced it would not list its shares on the New York Stock Exchange. A company press release identified the passage of SOX as the "critical factor" for this decision and singled out CEO and CFO certification of financial statements for criticism. After recounting the process Porsche uses to prepare, review, and approve its financial reports, the release concluded that "any special treatment of the Chairman of the Board of Management [i.e., Porsche's CEO] and the Director of Finance would be illogical because of the intricate network within which the decision-making process exists; it would be irreconcilable with German law."
SOX has introduced sweeping changes in the name of enforcing corporate ethics. Is it really a "fair" piece of legislation Explain your answer.

Question 14

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.

Question 15

What is the "death penalty" under FSGO

Question 16

Why do you think Satyam's board of directors refused to support the proposed purchase of the construction companies

Question 17

The Sarbanes-Oxley Act created an oversight board for all auditing firms. Look at the outline of the act on pages 115-117 for more information on the Public Company Accounting Oversight Board (PCAOB). Would the PCAOB endorse trying to dump a prospective client in this manner

Question 18

In 1997, 35 countries signed the convention of the Organization for Economic Cooperation and Development (OECD) to make it a crime to bribe foreign officials. However, in the last half of 2004:
• Bristol-Myers Squibb revealed that the Securities and Exchange Commission launched an investigation into some of the company's German units for possible violations of the FCPA.
• Three former Lucent Corp. employees were alleged to have bribed Saudi Arabia's former telecommunications minister with cash and gifts worth up to $21 million.
• Halliburton Corp., under investigation by both the Department of Justice and the SEC, disclosed that it may have bribed Nigerian officials to secure favorable tax treatment for a liquefied natural gas facility.
• The SEC hit the U.S. unit of Swiss-based ABB Ltd. with a $16.4 million judgment reflecting information on bribery and accounting improprieties. The charges, which ABB settled without admitting or denying guilt, were that ABB's U.S. and foreign units paid $1.1 billion in bribes to officials in Nigeria, Angola, and Kazakhstan between 1998 and 2003. In one instance, the SEC alleged, ABB's country manager for Angola gave out $21,000 in a paper bag to five officials of the state-owned oil company.

American companies operating under increasing federal and regulatory scrutiny face real consequences from trying to do business in a global business environment in which foreign business seems to function on the basis of "gifts" at every stage of the transaction:
• During the 12 months ended April 30, 2004, according to a U.S. Commerce Department report, competition for 47 contracts worth $18 billion may have been affected by bribes that foreign firms paid to foreign officials. Because U.S. companies wouldn't participate in the tainted deals, the department estimates, at least 8 of those contracts, worth $3 billion, were lost to them.
• For Lockheed Martin Corp., a $2.4 billion merger agreement with Titan Corp. eventually fell through in 2004 after what Titan [documents] described as "allegations that improper payments were made, or items of value were provided by consultants for Titan or its subsidiaries."
If you could prove that new jobs, new construction, and valuable tax revenue would come to the United States if the bribe were paid, would that change your position Explain your answer.

Question 19

Explain the seven steps of an effective compliance program.

Question 20

Outline the similarities between the Enron scandal and Satyam Computer Services' situation.

Question 21

L ara was beginning to realize that the Sarbanes-Oxley Act was a mixed blessing. Greater scrutiny of corporate financial reports was meant to reassure investors, and it was certainly bringing her firm plenty of business, but now she was faced with this "small favor" to her boss. On the face of it, she couldn't really understand why they just didn't tell this guy that they only worked with clients worth a dollar figure that was higher than his company's valuation and be done with it, but Bartell was so paranoid about their reputation, and he was convinced that the next big client was always just around the corner.
Lara spent a couple of hours reviewing the file. Bartell's assessment had been accurate-this was a simple audit with no real earning potential for the company. If they weren't so busy, they could probably assign a junior team-her team perhaps-and knock this out in a few days, but Bartell had bigger fish to fry.
Lara thought for a moment about asking Bartell to let her put a small team together to do this one, but then she realized that by not delivering on the small favor he had asked, she could be ruining her chances for getting assigned to some of the bigger audits down the road. So she ran the numbers, multiplied them by 4, and submitted the price quotation.
Unfortunately, the quotation was so outrageous that the small business client complained to the PCAOB, which promptly wrote a letter demanding a full explanation of Lara's company's pricing schedule.
What could Lara have done differently here

Question 22

FOXES GUARDING THE HENHOUSE
The Sarbanes-Oxley Act, which the United States enacted in an atmosphere of extraordinary agitation in 2002, is one of the most influential-and controversial-pieces of corporate legislation ever to have hit a statute book. Its original aim, on the face of it, was modest: to improve the accountability of managers to shareholders, and [then] calm the raging crisis of confidence in American capitalism aroused by scandals at Enron, WorldCom, and other companies. The law's methods, however, were anything but modest, and its implications … are going to be far-reaching.
The cost of all this [new oversight] is steep. A survey by Financial Executives International, an association of top financial executives, found that companies paid an average of $2.4 million more for their audits [in 2004] than they had anticipated (and far more than the statute's designers had envisaged). … This result underlines a notable and unintended consequence of the legislation: it has provided a bonanza for accountants and auditors-a profession thought to be much at fault in the scandals that inspired the law, and which the statute sought to rein in and supervise.
Already reduced in number by consolidation and the demise of Arthur Andersen, the big accounting firms are now known more often as the Final Four than the Big Four, since any further reduction is thought unlikely.
WHO'S LOOKING OUT FOR THE LITTLE GUY
Smaller companies without access to the internal resources (or funds to pay for external resources) to comply with Sarbanes-Oxley are being particularly hard-hit by the legislation, even though the transgressions that prompted the statute in the first place came from large, publicly traded organizations. This is not to suggest that smaller firms don't face their own ethical problems-it just seems that they are expected to carry an administrative burden that is equal to that of their much larger counterparts.
NOT VERY NEIGHBORLY
Sarbanes-Oxley applies to all companies that issue securities under U.S. federal securities statutes, whether headquartered within the United States or not. Thus, in addition to U.S.-based firms, approximately 1,300 foreign firms from 59 countries fall under the law's jurisdiction.

Reactions to SOX from this quarter were swift. Some foreign companies that had previously contemplated offering securities in the U.S. market reconsidered in light of the conflicts they believe SOX created. For example, in October 2002, Porsche AG announced it would not list its shares on the New York Stock Exchange. A company press release identified the passage of SOX as the "critical factor" for this decision and singled out CEO and CFO certification of financial statements for criticism. After recounting the process Porsche uses to prepare, review, and approve its financial reports, the release concluded that "any special treatment of the Chairman of the Board of Management [i.e., Porsche's CEO] and the Director of Finance would be illogical because of the intricate network within which the decision-making process exists; it would be irreconcilable with German law."
Does the decision to increase auditing requirements seem to be an ethical solution to the problem of questionable audits Explain your requirements.

Question 23

What are aggravating and mitigating factors

Question 24

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

Question 25

Locate the Web site for Berlin-based Transparency International (TI).
a. What is the stated mission of TI
b. Explain the Corruptions Perception Index.
c. Which are the least and most corrupt countries on the index
d. Explain the Global Corruption Barometer.

Question 26

L ara was beginning to realize that the Sarbanes-Oxley Act was a mixed blessing. Greater scrutiny of corporate financial reports was meant to reassure investors, and it was certainly bringing her firm plenty of business, but now she was faced with this "small favor" to her boss. On the face of it, she couldn't really understand why they just didn't tell this guy that they only worked with clients worth a dollar figure that was higher than his company's valuation and be done with it, but Bartell was so paranoid about their reputation, and he was convinced that the next big client was always just around the corner.
Lara spent a couple of hours reviewing the file. Bartell's assessment had been accurate-this was a simple audit with no real earning potential for the company. If they weren't so busy, they could probably assign a junior team-her team perhaps-and knock this out in a few days, but Bartell had bigger fish to fry.
Lara thought for a moment about asking Bartell to let her put a small team together to do this one, but then she realized that by not delivering on the small favor he had asked, she could be ruining her chances for getting assigned to some of the bigger audits down the road. So she ran the numbers, multiplied them by 4, and submitted the price quotation.
Unfortunately, the quotation was so outrageous that the small business client complained to the PCAOB, which promptly wrote a letter demanding a full explanation of Lara's company's pricing schedule.
What will be the consequences for Lara, Greg Bartell, and their auditing firm

Question 27

Explain the risk assessments required in the 2004 Revised FSGO.

Question 28

In December 2008, one of the largest players in India's outsourcing and information technology sectors, Satyam Computer Services, fell from grace with such force and speed that the reverberations were felt around the globe. Ironically, the name Satyam means "truth" in Sanskrit, but the company, founded by brothers Ramalinga and Ramu Raju, now has a new nickname: India's Enron.
Founded in 1987, Satyam was positioned to take full advantage of the capabilities of satellite-based broadband communications, allowing it to serve clients across the globe from its offices in Hyderabad. The rising demand for computer programmers to fix code in software programs in advance of Y2K (the year 2000 problem) fueled an aggressive growth plan for the company. It was listed on the Bombay Stock Exchange in 1991, and achieved a listing on the New York Stock Exchange in May 2001. By 2006, Satyam had about 23,000 employees and was reporting annual revenues of $1 billion. Growth continued as the company served expanding needs for outsourced services from U.S. companies looking to control and preferably reduce operating costs. By 2008, Satyam was reporting over $2 billion in revenue with 53,000 employees in 63 countries worldwide. This made the company the fourth-largest software services provider alongside such competitors as WiPro Technologies, Infosys, and HCL. It was serving almost 700 clients, including 185 Fortune 500 companies, generating more than half of its revenue from the United States. Satyam's client roster included such names as General Electric, Cisco, Ford Motor Company, Nestlé, and the U.S. government.

Prominence in the software services sector brought with it increased attention and a growing reputation. In 2007, Ramalinga Raju was the recipient of Ernst Young's Entrepreneur of the Year award. In September 2008 the company received the Golden Peacock Award for Corporate Governance from the World Council for Corporate Governance, which endorsed Satyam as a leader in ethical management practices.
Signs that there were problems at Satyam first appeared in October 2008 when it was revealed that the World Bank had banned the company from pursuing any service contracts after evidence was uncovered that Satyam employees had offered "improper benefits to bank staff" and "failed to account for all fees charged" to the World Bank. WiPro Technologies had also been banned by the World Bank in 2007 for "offering shares of its 2000 initial public offering to World Bank employees," so Satyam appeared to have some company in the arena of questionable business practices in the software solutions sector.
However, the situation escalated in December 2008 after Satyam's board voted against a proposed deal for Satyam to buy two construction companies for $1.6 billion. The Raju brothers held ownership stakes in both companies, and they were run by Ramalinga Raju's sons. Four directors resigned in response to the proposed deal, and Satyam stock was punished by investors, forcing the brothers to sell their own stock as the falling share price sparked margin calls on their investment accounts. The dire financial situation prompted Ramalinga Raju to confess in a four-and-a-half-page letter to the board of Satyam Computer Services that the company had been overstating profits for several years and that $1.6 billion in assets simply did not exist. It did not take long for investors to piece the information together that the proposed $1.6 billion purchase of the construction companies would have, conveniently, filled the $1.6 billion hole in Satyam's accounts.
In his confession, Raju attempted to address accusations of a premeditated fraud by stating: "What started as a marginal gap between actual operating profit and the one refl ected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew." He wrote, "It was like riding a tiger, not knowing how to get off without being eaten."
The analogy of being eaten by a tiger certainly seems appropriate. The scandal has had repercussions for the software services sector as a whole, casting shadows on Satyam's competitors and also on India's corporate governance framework. As with Enron's collapse, attention immediately turned to the role of the accounting company responsible for auditing Satyam's accounts and, allegedly, failing to notice that $1.6 billion in assets did not exist. For Enron it was Arthur Andersen, and the accounting firm did not survive. For Satyam it was PricewaterhouseCoopers, which had certified that Satyam had $1.1 billion in cash in its accounts, when the company really had only $78 million.
The response of Indian authorities was immediate-jail for the founders of Satyam, and the swift appointment of an interim board of more reputable businessmen as the country scrambled to restore its reputation and reassure investors and customers alike that Satyam was a regrettable exception rather than a common example of unethical business practices in the face of competitive pressures in a global market.
In January 2009, the Securities and Exchange Board of India made it mandatory for the controlling shareholders of companies to disclose when they were pledging shares as collateral to lenders-a direct response to the Satyam scandal. In April 2009, Tech Mahindra, the technology arm of Indian conglomerate Mahindra group, won an auction to buy the operations of Satyam at a price of less than one-third of the company's stock value before the confession of Ramalinga Raju. The justification for the bargain price lay in the loss of 46 customers, including Nissan, Sony, the United Nations, and State Farm Insurance, in the aftermath of the scandal. Analysts commented in response to the sale that the situation could have been much worse for Satyam were it not for the timing of the global recession. With so many other priorities to address, many customers elected to avoid the headaches of switching IT suppliers (with all the software and hardware changes that might entail) and give Satyam the opportunity to figure things out. It remains to be seen whether the extensive financial resources of Tech Mahindra and its parent company will be sufficient to allow Satyam to restore its tarnished reputation.
5. Will the response of the Securities and Exchange Board of India be enough to prevent another scandal like Satyam Explain.

Question 29

What was the primary purpose of the FCPA

Question 30

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.

Question 31

What were the three key components of the 2004 Revised FSGO

Question 32

What challenges will the new owners of Satyam be facing Explain.

Question 33

Identify the ethical transgressions in this case.

Question 34

In 1997, 35 countries signed the convention of the Organization for Economic Cooperation and Development (OECD) to make it a crime to bribe foreign officials. However, in the last half of 2004:
• Bristol-Myers Squibb revealed that the Securities and Exchange Commission launched an investigation into some of the company's German units for possible violations of the FCPA.
• Three former Lucent Corp. employees were alleged to have bribed Saudi Arabia's former telecommunications minister with cash and gifts worth up to $21 million.
• Halliburton Corp., under investigation by both the Department of Justice and the SEC, disclosed that it may have bribed Nigerian officials to secure favorable tax treatment for a liquefied natural gas facility.
• The SEC hit the U.S. unit of Swiss-based ABB Ltd. with a $16.4 million judgment reflecting information on bribery and accounting improprieties. The charges, which ABB settled without admitting or denying guilt, were that ABB's U.S. and foreign units paid $1.1 billion in bribes to officials in Nigeria, Angola, and Kazakhstan between 1998 and 2003. In one instance, the SEC alleged, ABB's country manager for Angola gave out $21,000 in a paper bag to five officials of the state-owned oil company.

American companies operating under increasing federal and regulatory scrutiny face real consequences from trying to do business in a global business environment in which foreign business seems to function on the basis of "gifts" at every stage of the transaction:
• During the 12 months ended April 30, 2004, according to a U.S. Commerce Department report, competition for 47 contracts worth $18 billion may have been affected by bribes that foreign firms paid to foreign officials. Because U.S. companies wouldn't participate in the tainted deals, the department estimates, at least 8 of those contracts, worth $3 billion, were lost to them.
• For Lockheed Martin Corp., a $2.4 billion merger agreement with Titan Corp. eventually fell through in 2004 after what Titan [documents] described as "allegations that improper payments were made, or items of value were provided by consultants for Titan or its subsidiaries."
It would seem that the playing field will never be level-someone will always be looking for a bribe, and someone will always be willing to pay it if she or he wants the business badly enough. If that's true, why bother to put legislation in place at all
Source: David M. Katz, "The Bribery Gap," CFO 21, no. 1 (January 2005), p. 59.

Question 35

Explain the role of the PCAOB.

Question 36

Identify the ethical transgressions that took place in this case.

Question 37

Which is the most effective piece of legislation for enforcing ethical business practices: FCPA, FSGO, SOX, or Dodd-Frank Explain your answer.

Question 38

FOXES GUARDING THE HENHOUSE
The Sarbanes-Oxley Act, which the United States enacted in an atmosphere of extraordinary agitation in 2002, is one of the most influential-and controversial-pieces of corporate legislation ever to have hit a statute book. Its original aim, on the face of it, was modest: to improve the accountability of managers to shareholders, and [then] calm the raging crisis of confidence in American capitalism aroused by scandals at Enron, WorldCom, and other companies. The law's methods, however, were anything but modest, and its implications … are going to be far-reaching.
The cost of all this [new oversight] is steep. A survey by Financial Executives International, an association of top financial executives, found that companies paid an average of $2.4 million more for their audits [in 2004] than they had anticipated (and far more than the statute's designers had envisaged). … This result underlines a notable and unintended consequence of the legislation: it has provided a bonanza for accountants and auditors-a profession thought to be much at fault in the scandals that inspired the law, and which the statute sought to rein in and supervise.
Already reduced in number by consolidation and the demise of Arthur Andersen, the big accounting firms are now known more often as the Final Four than the Big Four, since any further reduction is thought unlikely.
WHO'S LOOKING OUT FOR THE LITTLE GUY
Smaller companies without access to the internal resources (or funds to pay for external resources) to comply with Sarbanes-Oxley are being particularly hard-hit by the legislation, even though the transgressions that prompted the statute in the first place came from large, publicly traded organizations. This is not to suggest that smaller firms don't face their own ethical problems-it just seems that they are expected to carry an administrative burden that is equal to that of their much larger counterparts.
NOT VERY NEIGHBORLY
Sarbanes-Oxley applies to all companies that issue securities under U.S. federal securities statutes, whether headquartered within the United States or not. Thus, in addition to U.S.-based firms, approximately 1,300 foreign firms from 59 countries fall under the law's jurisdiction.

Reactions to SOX from this quarter were swift. Some foreign companies that had previously contemplated offering securities in the U.S. market reconsidered in light of the conflicts they believe SOX created. For example, in October 2002, Porsche AG announced it would not list its shares on the New York Stock Exchange. A company press release identified the passage of SOX as the "critical factor" for this decision and singled out CEO and CFO certification of financial statements for criticism. After recounting the process Porsche uses to prepare, review, and approve its financial reports, the release concluded that "any special treatment of the Chairman of the Board of Management [i.e., Porsche's CEO] and the Director of Finance would be illogical because of the intricate network within which the decision-making process exists; it would be irreconcilable with German law."
If there were more than four large accounting firms in the marketplace, would that make the decision more ethical Explain your answer.
Source: "A Price Worth Paying " The Economist , May 19, 2005.

Question 39

Which title requires CEOs and CFOs to certify quarterly and annual reports to the SEC

Question 40

When the connection between ImClone Systems and Martha Stewart was first revealed, analysts speculated that she would emerge relatively unscathed from any investigation, "forced at worst to return any profit she made from selling ImClone." Does her subsequent jail sentence imply that she was targeted as a high profile test case of insider trading Why or why not

Question 41

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.

Question 42

List four examples of routine governmental actions.

Question 43

Which title protects employees of companies who provide evidence of fraud

Question 44

Does the size of Stewart's transaction (3,928 shares for about $227,000) make her behavior any more or less ethical than that of Waksal's daughter who sold $2.5 million in ImClone shares at the same time as Stewart Explain your answer.

Question 45

In 1997, 35 countries signed the convention of the Organization for Economic Cooperation and Development (OECD) to make it a crime to bribe foreign officials. However, in the last half of 2004:
• Bristol-Myers Squibb revealed that the Securities and Exchange Commission launched an investigation into some of the company's German units for possible violations of the FCPA.
• Three former Lucent Corp. employees were alleged to have bribed Saudi Arabia's former telecommunications minister with cash and gifts worth up to $21 million.
• Halliburton Corp., under investigation by both the Department of Justice and the SEC, disclosed that it may have bribed Nigerian officials to secure favorable tax treatment for a liquefied natural gas facility.
• The SEC hit the U.S. unit of Swiss-based ABB Ltd. with a $16.4 million judgment reflecting information on bribery and accounting improprieties. The charges, which ABB settled without admitting or denying guilt, were that ABB's U.S. and foreign units paid $1.1 billion in bribes to officials in Nigeria, Angola, and Kazakhstan between 1998 and 2003. In one instance, the SEC alleged, ABB's country manager for Angola gave out $21,000 in a paper bag to five officials of the state-owned oil company.

American companies operating under increasing federal and regulatory scrutiny face real consequences from trying to do business in a global business environment in which foreign business seems to function on the basis of "gifts" at every stage of the transaction:
• During the 12 months ended April 30, 2004, according to a U.S. Commerce Department report, competition for 47 contracts worth $18 billion may have been affected by bribes that foreign firms paid to foreign officials. Because U.S. companies wouldn't participate in the tainted deals, the department estimates, at least 8 of those contracts, worth $3 billion, were lost to them.
• For Lockheed Martin Corp., a $2.4 billion merger agreement with Titan Corp. eventually fell through in 2004 after what Titan [documents] described as "allegations that improper payments were made, or items of value were provided by consultants for Titan or its subsidiaries."
If foreign companies pay bribes, does that make it OK for U.S. companies to do the same Explain why or why not.

Question 46

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

Question 47

What are the five key requirements for auditor independence

Question 48

What would prompt a highly regarded public figure such as Martha Stewart to obstruct the course of justice by failing to reveal the true nature of her sales transaction with the ImClone stock

Question 49

FOXES GUARDING THE HENHOUSE
The Sarbanes-Oxley Act, which the United States enacted in an atmosphere of extraordinary agitation in 2002, is one of the most influential-and controversial-pieces of corporate legislation ever to have hit a statute book. Its original aim, on the face of it, was modest: to improve the accountability of managers to shareholders, and [then] calm the raging crisis of confidence in American capitalism aroused by scandals at Enron, WorldCom, and other companies. The law's methods, however, were anything but modest, and its implications … are going to be far-reaching.
The cost of all this [new oversight] is steep. A survey by Financial Executives International, an association of top financial executives, found that companies paid an average of $2.4 million more for their audits [in 2004] than they had anticipated (and far more than the statute's designers had envisaged). … This result underlines a notable and unintended consequence of the legislation: it has provided a bonanza for accountants and auditors-a profession thought to be much at fault in the scandals that inspired the law, and which the statute sought to rein in and supervise.
Already reduced in number by consolidation and the demise of Arthur Andersen, the big accounting firms are now known more often as the Final Four than the Big Four, since any further reduction is thought unlikely.
WHO'S LOOKING OUT FOR THE LITTLE GUY
Smaller companies without access to the internal resources (or funds to pay for external resources) to comply with Sarbanes-Oxley are being particularly hard-hit by the legislation, even though the transgressions that prompted the statute in the first place came from large, publicly traded organizations. This is not to suggest that smaller firms don't face their own ethical problems-it just seems that they are expected to carry an administrative burden that is equal to that of their much larger counterparts.
NOT VERY NEIGHBORLY
Sarbanes-Oxley applies to all companies that issue securities under U.S. federal securities statutes, whether headquartered within the United States or not. Thus, in addition to U.S.-based firms, approximately 1,300 foreign firms from 59 countries fall under the law's jurisdiction.

Reactions to SOX from this quarter were swift. Some foreign companies that had previously contemplated offering securities in the U.S. market reconsidered in light of the conflicts they believe SOX created. For example, in October 2002, Porsche AG announced it would not list its shares on the New York Stock Exchange. A company press release identified the passage of SOX as the "critical factor" for this decision and singled out CEO and CFO certification of financial statements for criticism. After recounting the process Porsche uses to prepare, review, and approve its financial reports, the release concluded that "any special treatment of the Chairman of the Board of Management [i.e., Porsche's CEO] and the Director of Finance would be illogical because of the intricate network within which the decision-making process exists; it would be irreconcilable with German law."
Do U.S. ethical problems give us the right to demand ethical controls from international companies based outside the United States

Question 50

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

Question 51

Charles Ponzi was a working-class Italian immigrant who was eager to find success in America. Bernard Madoff was already a multimillionaire before he started his alleged scheme. Does that make one more unethical than the other Why or why not

Question 52

What do you think would have happened if Stewart had cooperated with federal investigators

Question 53

Is being too busy with other clients a justification for deliberately driving this customer away

Question 54

The key components of SOX.
Divide into groups of three or four. Distribute the 11 sections of SOX reviewed in this chapter. Each group must prepare a brief presentation outlining the relative importance of its section to the overall impact of SOX and the prohibition of unethical business practices.

Question 55

Explain how a Ponzi scheme works.

Question 56

If Martha Stewart's sale of ImClone stock really was a high-profile test case, what message do you think it sent to other high-profile investors

Question 57

What should Lara do now

Question 58

L ara was beginning to realize that the Sarbanes-Oxley Act was a mixed blessing. Greater scrutiny of corporate financial reports was meant to reassure investors, and it was certainly bringing her firm plenty of business, but now she was faced with this "small favor" to her boss. On the face of it, she couldn't really understand why they just didn't tell this guy that they only worked with clients worth a dollar figure that was higher than his company's valuation and be done with it, but Bartell was so paranoid about their reputation, and he was convinced that the next big client was always just around the corner.
Lara spent a couple of hours reviewing the file. Bartell's assessment had been accurate-this was a simple audit with no real earning potential for the company. If they weren't so busy, they could probably assign a junior team-her team perhaps-and knock this out in a few days, but Bartell had bigger fish to fry.
Lara thought for a moment about asking Bartell to let her put a small team together to do this one, but then she realized that by not delivering on the small favor he had asked, she could be ruining her chances for getting assigned to some of the bigger audits down the road. So she ran the numbers, multiplied them by 4, and submitted the price quotation.
Unfortunately, the quotation was so outrageous that the small business client complained to the PCAOB, which promptly wrote a letter demanding a full explanation of Lara's company's pricing schedule.
What do you think will happen now

Question 59

What are the three steps in calculating financial penalties under FSGO

Question 60

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

Question 61

Which two distinct areas did the FCPA focus on

Question 62

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
b. How is she connected to the CFPB
c. What were the objections to her involvement with the CFPB
d. What is Warren's declared agenda for the CFPB

Question 63

Why may Sarbanes-Oxley Act of 2002 be regarded as one of the most controversial pieces of corporate legislation in recent history

Question 64

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