CEA CEA Regulatory Compliance & Legal Ethics 1 — Questions and Answers
Question 1: What is the primary distinction between legal compliance and ethical conduct in a US business context?
- Legal compliance always equals ethical behavior
- Ethical conduct sets a higher standard than the law and guides behavior in situations the law does not cover (Correct answer)
- Ethics only applies when laws are unclear
- Legal compliance is voluntary; ethics is mandatory
Correct answer: Ethical conduct sets a higher standard than the law and guides behavior in situations the law does not cover
Laws establish minimum standards, while ethics often demands more — acting with integrity even when the law permits less.
Question 2: Under the Sarbanes-Oxley Act (SOX), which requirement directly supports ethical financial reporting?
- Mandatory diversity disclosures
- CEO and CFO personal certification of the accuracy of financial statements (Correct answer)
- Unlimited executive compensation
- Exemption of small companies from audit requirements
Correct answer: CEO and CFO personal certification of the accuracy of financial statements
SOX requires top executives to personally certify financial statements, creating direct accountability for honest reporting.
Question 3: What does the Foreign Corrupt Practices Act (FCPA) primarily prohibit for US companies?
- Hiring foreign nationals in leadership roles
- Paying bribes to foreign government officials to obtain or retain business (Correct answer)
- Engaging in international trade without a license
- Investing in foreign real estate
Correct answer: Paying bribes to foreign government officials to obtain or retain business
The FCPA makes it illegal for US companies and their agents to bribe foreign government officials for business advantage.
Question 4: In ethics terms, what is 'regulatory capture'?
- A government agency successfully prosecuting a corporation
- The process by which regulated industries gain undue influence over the agencies meant to oversee them (Correct answer)
- A whistleblower reporting industry misconduct to regulators
- The adoption of international compliance standards
Correct answer: The process by which regulated industries gain undue influence over the agencies meant to oversee them
Regulatory capture undermines public interest when the regulator prioritizes industry interests over the mission to protect the public.
Question 5: Which US federal law requires financial institutions to maintain ethics-based programs to detect and prevent money laundering?
- Dodd-Frank Act
- Bank Secrecy Act (BSA) (Correct answer)
- Gramm-Leach-Bliley Act
- Fair Credit Reporting Act
Correct answer: Bank Secrecy Act (BSA)
The Bank Secrecy Act mandates anti-money laundering programs, recordkeeping, and suspicious activity reporting to combat financial crimes.
Question 6: How does the Dodd-Frank Act incentivize ethical whistleblowing in the financial sector?
- By requiring all employees to report misconduct annually
- By providing financial awards and anti-retaliation protections to individuals who report securities violations to the SEC (Correct answer)
- By mandating board ethics committees in all firms
- By criminalizing silence about known violations
Correct answer: By providing financial awards and anti-retaliation protections to individuals who report securities violations to the SEC
Dodd-Frank's whistleblower program rewards individuals with 10-30% of sanctions over $1 million, while protecting them from employer retaliation.
CEA CEA Regulatory Compliance & Legal Ethics 1
What is the primary distinction between legal compliance and ethical conduct in a US business context?