Introduction
The importance of the legal environment in business is not only paramount to functioning as a watchdog for unethical, and harmful behavior by big corporations and governmental figures today, but also serves as setting the climate to reduce or deter felonious operational practices. In other words, persons in positions which gives them easy access to abuse funds, lie in accounting records, or devise fraud schemes involving illegal acts, laws help accomplish order and administer proper conduct. Everyone remembers the insalubrious case of the Enron Corporation. This case involved gross intent of malpractices in business that hurt many people, and forever marred the reputation of large corporations overall in terms of how the public views them. The scope of this essay discusses two main issues. The first part shall describe the two statutes Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley by explaining the key components of the legislation. The second part of the discourse looks at how an ethical dilemma might be faced by either an accountant, or lawyer, and attempts to describe the situation in a cogent way, and offer a recommendation as to how to address the issue in an ethical way.
Whether illicit practices occur in huge corporate environments or fraudulent practices between and among government (or public policy) officials occurs, the need to regulate ethical operations confronts the business world today. What is the Foreign Corrupt Practices Act, and how did it come to be in the first place? According to Zyla (2011) in a law journal discussing the statute, “the FCPA had its origins in the disclosures of the early 1970s,” regarding how “bribes to foreign government officials was a widespread practice among United States companies” (p. 13). In fact, according to the author of the article thus mentioned, the legislation came on the heels of the fact that literally hundreds business entities having paid over $300 million to various foreign delegates. Think along the time frame of during the days of the Nixon Administration. The FCPA set up legislation that forbade firms and companies in the United States from engaging – as individuals – from making bribery payments to foreign officials.
The FCPA legislation established the American governmental branch of the Justice Department (DOJ) to act as the authoritative arm to bring criminal charges. Zyla (2011) explains that the act also empowered the Securities and Exchange Commission (SEC) “to impose fines and injunctions against corporations and their agents who violate the law,” instilling fines up to a quarter of a million dollars, and five-year imprisonment terms as a maximum length of incarceration (p. 13). In other words, as one can plainly perceive, the Foreign Corrupt Practices Act covered both punishment inflicted on the individuals responsible for the unethical behaviors, as well as the corporations itself, in an effort to target all parties so involved. When the institution of FCPA measures happen, for example, Zyla (2011) tells that a U.S. listing in a capital market could suffer exposure to sanctions as a result of poorly controlled internal factors, such as being deemed “to have contributed to fraud in their overseas operations” (p. 13). Of course we realize today that economic globalization is here to stay, which in some form has changed the game in some ways. Nevertheless, ethics must play a central role in the conduct of businesses.
Closer to the time of the institution of the Foreign Corrupt Practices Act in the 1970s, one Harvard Business Review writer and observer, Hurd Baruch, had much to say in an article about the statute. Baruch (1979) stated that for the first nearly fifty years of their existence, “the federal securities laws did not require or prohibit specific managerial practices in the operation of business, other than a business in one of a handful of closely regulated industries,” and that the ushering in of the FCPA brought to bear a tightening regulatory environment that required (for example) the SEC to be empowered to manage corporate liabilities (“The Foreign Corrupt Practices Act,” Baruch, 1979). One interesting note, however, is in the author’s opinion, is that the FCPA as a written legal statute is “deceptively straightforward,” as Baruch (1979) explains it, with its “key provision” simply stating that every company which reports shall “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer” (“The Foreign Corrupt Practices Act,” Baruch, 1979). If you really think about it the language is simple, yet simultaneously vague.
On the one hand the statute correctly insists that the bookkeeping practices of records, accounting, and so forth be done, but it stops there. Those management figures in corporate positions could easily lie and cheat by fraudulently and unethically recording falsifications about the business enterprise, or even governmental documents in terms of various scenarios. But the point is, the Foreign Corrupt Practices Act essentially required that business practitioners make and keep records, disregarding how honest or accurately true those records should be. See the problem?
The Sarbanes-Oxley regulation has many implications. The Sarbanes-Oxley Act not only serves to impose legal restraints over large for-profit corporations and enterprises, but also affects non-profit organizations. One informative white paper report, provided by the Sans Institute (2004) addresses its overview of the statute in terms of what information security professionals ought to know. Before delving into the various standards and segregation of duties so involved, in response to the Sarbanes-Oxley statute, the report actually gives a key description of the Act in the first place. An understanding is critical. Whereas the FCPA was instituted in the 1970s, the Sarbanes-Oxley Act came on the legal and political scene much more recently, in the early 2000s. According to the report Sarbanes-Oxley emerged in 2002, to be exact, and represents a federal law thus signed with a core stated purpose to “protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the security laws, and for other purposes” (“Overview of Sarbanes-Oxley for Information Security Professional”). Its commentary also notes that the law is sweeping in nature, affecting corporate-company practices in the areas of their financial reporting habits and practices of accuracy, management of auditors’ ethics, and the straight-up responsibility of how executives conduct themselves with regard to internal controls and such.
The Sarbanes-Oxley Act, or SOX as some business and legal operation insiders like to refer to it, is considered a major piece of regulatory statutes since nearly one hundred years. Enron’s collapse as a very public “corporate giant” give the public a nightmare view of how corrupt and harmful unscrupulous business practices could be – thus, its example “led to the demise of one of the nation’s largest public accounting firms, Arthur Anderson” (“Overview of Sarbanes-Oxley for Information Security Professional,” 2004, p. 3-4). Sarbanes-Oxley also places a legal burden and responsibility for ethical conduct upon Chief Executive Officers (CEOs) obviously, clearly holds them liable to properly oversee and enforce their companies’ financial reporting documentations without fail. They must perform with accuracy and according to the SOX law must now and forever be held – with their feet to the fire, so to speak – as personally and corporately able to face criminal charges in terms of fraudulent liability.
One excellent example that describes how an ethical dilemma could arise from the standpoint of an accountant, or a lawyer, wherein either party might struggle with abiding by the statutes of the Sarbanes-Oxley Act could be as follows. Imagine you are a CEO of a brokerage trading firm, whether clients are trading Forex-type instruments or engaging in the trading and speculation of stocks. You obviously charge a fee for trading activities, and control the software or computer platform – possibly as a provisional service – for your clients. If clients and customers trust the company to provide accurate real-time data through its platform access, while they are trading, then management of the company has complete control – or at least are in the powerful position of being able to manipulate the funds as attached to the trading of their clients.
If the CEO or owner of the company is in a higher position of authority over the manager and tells him or her to manipulate the customer accounts, or simply lie and cheat then the accountant, lawyer, or manager is facing a sticky situation at that point. If the CEO or owner tells the accountant, and lawyer to fix the books and to agree that the client made a trade which he or did not make there is a problem. The CEO at this point would be making the uncomfortable decision that forces the accountant and lawyer to practice unethical behavior, which could lead to them losing their licenses to practice in their professions ever again in their lifetimes. Considering that they had trained so hard, and educationally prepared for their professions, the implications of such a dilemma would be awful.
For example, if that same CEO demanded that the managers lied on customer trades, indicating in the records that they actually lost the trade on the session in the markets, rather than won the trade, an egregious situation has occurred. One recommendation is to have full disclosure for each person working at the firm, and to have a very special clause written into the contract of each employee or independent contractor so associated with the firm. The clause should indicate that each and every employee or associate of the company has the right – both legally, and ethically – to report falsehoods in practices that occur to authorities. Also, another way to mitigate such wrongful behavior and protect clientele, is that lawyers or accountants do one of two things: (a) Never join a firm that is not a member of reputable regulatory associations in its industry, and/or (b) If fraudulent behavior is being asked or discovered, leave the company and report. These may seem drastic measures, but whistleblowers are of great value in helping all factions of society to operate fairly.
References
Baruch, H. (1979, January). The Foreign Corrupt Practices Act. Harvard Business Review, Retrieved from https://hbr.org/1979/01/the-foreign-corrupt-practices-act
Sans Institute. (2004). An overview of Sarbanes-Oxley for the Information Security Professional [Data file]. Retrieved from http://www.sans.org/reading-room/whitepapers/legal/overview-sarbanes-oxley-information-security-professional-1426
ZYLA, E.M. (2011). FOREIGN CORRUPT PRACTICES ACT: A Brief Overview. Ankara Bar Review, 4(1), 11-20.
