Corporate compliance is the methods companies use to ensure that they are in line with laws, regulations, and industry standards that impact their business. Companies will typically implement internal corporate compliance programs to prevent, detect, report on, and mitigate risks related to any illegal, unethical, or inappropriate behavior by employees.1 Here on the Pitt Law Online Blog, we’ve discussed the impacts of corporate compliance programs and how to implement them, but we have not yet examined the primary legislation that drives these initiatives.
In this blog post, we will delve into key legislation that corporate compliance programs address, including the Foreign Corrupt Practices Act (FCPA), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Sarbanes-Oxley Act.
A Brief History of Corporate Compliance
Compliance is a universal concept that, related to business, is perhaps as long-standing as organized commerce itself. In the Middle Ages, for example, guilds outlined their business standards and guidelines.2 Modern compliance programs have since developed due to the complexity of operating in a global business environment. Whereas a company could largely successfully operate under informal self-regulation in the 19th century and earlier, growing government regulations have led to the formal compliance programs we see today, which scholars note originated in the 1960s due to bid-rigging and price-fixing scandals.2
As you will see with the three acts we will cover here, most legislation is enacted in response to a scandal or crisis (with the crisis typically being caused by unethical business practices). The Foreign Corrupt Practices Act (FCPA) came after the Watergate investigation,2 the Sarbanes-Oxley (SOX) Act was enacted in response to the financial scandals of the early 2000s that involved companies like Enron Corporation and WorldCom,3 and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) came about in response to the 2007-2008 financial crisis.4
Let’s take a closer look at these three pieces of legislation.
The Foreign Corrupt Practices Act
The FCPA was enacted in 1977 and is a landmark piece of legislation to prevent bribery and corruption in international business transactions.5 This act applies to U.S. companies and individuals, as well as foreign entities listed on U.S. stock exchanges or that make debt offerings in the U.S. The FCPA has spurred the development of robust compliance programs to ensure organizations stay on the right side of the law. Companies need to establish stringent anti-corruption policies, conduct due diligence on third parties, and provide training to employees on compliance.
Public outrage and governmental pressure were major factors leading corporations to adopt reforms during this time period.2 Two main provisions that required reform and that corporate compliance professionals should hone related to the FCPA are anti-bribery and accounting.5
The anti-bribery provisions made it illegal to bribe foreign officials to obtain or retain business. In the past, paying off foreign officials to expedite business transactions was considered a typical business practice.5 The FCPA’s anti-bribery provisions explicitly prohibit using mail or any interstate communication method with corrupt intentions. Corrupt intentions include influencing a foreign official to perform an act that violates their legal duties or to gain an unfair advantage in obtaining or maintaining business. When there is an intent to influence a foreign official in this way, illegal actions include making an offer, payment, promise of payment, or authorization to pay money or provide something of value to that individual.
Accounting here refers to bookkeeping and record keeping, as well as internal controls. Internal controls are specific accounting and auditing processes that a business’ finance department must follow to maintain compliance.7 The accounting provisions operate in tandem with the anti-bribery provisions. They require impacted corporations to “(a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.”6
The Sarbanes-Oxley Act
Enacted in 2002, the Sarbanes-Oxley Act (SOX) aims to protect investors and enhance corporate governance. Because the Enron and other scandals of the early 2000s revealed that corporate executives filed misleading financial statements that were ignored or passed over by public accounting firms,8 SOX introduced requirements for CEO and CFO certifications of financial reports and established oversight boards to regulate auditors. It also mandates internal controls and audit committees.
Key Provisions of SOX
There are several provisions of this act that corporate compliance professionals need to know and respond to accordingly. The provisions include:8
- A requirement that corporate executives must certify that financial statements comply with SEC disclosure requirements, are accurate, and are not fraudulent or do not misrepresent the company
- Requirement that companies must implement internal controls to ensure the accuracy of financial statements. In addition, each report must have an internal controls report, the company’s year-end annual report must assess the effectiveness of internal controls, and an outside auditor must conduct an internal controls assessment
- Establishment of the Public Company Accounting Oversight Board (PCAOB), which is a non-profit, private sector board responsible for regulating accountants who audit public companies
- Implementation of criminal penalties for individuals who commit corporate fraud, with executives facing up to $1 million in fines and ten years of imprisonment for knowingly certifying non-compliant financial reports
Compliance professionals must ensure that their organizations have stringent checks and balances to ensure the accuracy of financial information.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act was passed in 2010 and was dubbed “Wall Street reform” by supporters.9 The act introduced significant regulatory changes to the financial industry in response to the relaxed oversight of financial institutions that led to the burst of the housing bubble and the resulting financial crisis. The legislation is intended to increase transparency, accountability, and consumer protection in the financial industry.
The act was established under President Barack Obama, parts of it were rolled back under President Donald Trump, and portions have been strengthened under President Joseph Biden. The Dodd-Frank Act remains hotly debated, with detractors arguing that this legislation hinders the competitiveness of U.S. financial firms and that it puts an extra burden on community banks and small financial institutions.4
Impacts on Corporate Compliance Programs
Despite the ongoing revisions to the Dodd-Frank Act, corporate compliance professionals still need to take this legislation into account in their compliance programs. Professionals responsible for compliance programs should be well-versed on:4
- Consumer protection provisions: These include the creation of the Consumer Financial Protection Bureau (CFPB), which is tasked with regulating and supervising consumer financial products and services. Understanding how the CFPB operates and its impact on an organization is crucial
- Whistleblower protections: The Dodd-Frank Act provides substantial protections and incentives for whistleblowers who report financial misconduct. Knowing how these provisions work helps ensure that an organization has robust internal reporting mechanisms and anti-retaliation policies in place
- Volcker Rule: This rule aims to prevent excessive risk-taking by financial institutions by prohibiting proprietary trading and restricting relationships with hedge funds and private equity funds. Compliance professionals must understand how it affects an organization’s trading and investment activities
Learn How to Address Corporate Compliance Legal Challenges With Pitt Law
Corporate compliance is a dynamic and ever-evolving field, driven by a complex web of legislation. Corporate compliance professionals will want to stay informed on key laws and regulations to adapt their companies’ compliance programs accordingly. If you already work as a corporate compliance professional or are looking to get into the space, Pitt Law’s online programs offer a great way to grow your career in this ever-changing, dynamic space in the business world.
Choose from the Online Master of Studies in Law (MSL) program with a Corporate Compliance specialization or the stand-alone Online Certificate in Corporate Compliance. No matter which program you choose, you will benefit from small class sizes and individualized attention that will set you up for success during your program and after graduation. If you decide to start with the certificate program and later want to go for the full MSL, you have options. Students who successfully complete the certificate courses with a B can be considered for the MSL degree program for 15 additional credits.
As you consider Pitt Law’s online programs, know that Pitt Law’s admissions outreach advisors are always on standby to answer your questions, clarify admissions requirements, and discuss what this degree can do for you. Schedule a call today.
- Retrieved on October 12, 2023, from investopedia.com/terms/c/compliance-program.asp
- Retrieved on October 13, 2023, from lawshelf.com/shortvideoscontentview/history-of-corporate-compliance-regulations
- Retrieved on October 13, 2023, from investopedia.com/terms/s/sarbanesoxleyact.asp
- Retrieved on October 13, 2023, from investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp
- Retrieved on October 13, 2023, from investopedia.com/terms/f/foreign-corrupt-practices-act.asp
- Retrieved on October 13, 2023, from justice.gov/criminal-fraud/foreign-corrupt-practices-act
- Retrieved on October 13, 2023, from investopedia.com/terms/i/internalcontrols.asp
- Retrieved on October 13, 2023, from findlaw.com/consumer/securities-law/what-is-the-sarbanes-oxley-act.html
- Retrieved on October 13, 2023, from financialservices.house.gov/dodd-frank/