CFA Legal Compliance & Ethical Standards 2 — Questions and Answers
Question 1: Under the Foreign Corrupt Practices Act (FCPA), which of the following payments to a foreign government official is explicitly permitted?
- Payments to secure a lucrative government contract
- Facilitating payments to expedite routine government actions (Correct answer)
- Payments to influence a foreign election outcome
- Payments funneled through a third-party agent to obscure the source
Correct answer: Facilitating payments to expedite routine government actions
The FCPA contains a narrow exception for facilitating payments made to expedite or secure the performance of routine, non-discretionary government actions.
Question 2: A fraud examiner discovers that a client's employee has been accepting kickbacks. Under the CFE Code of Professional Ethics, the examiner's FIRST obligation is to:
- Report the finding directly to law enforcement
- Disclose the finding to the client who engaged the examiner (Correct answer)
- Publish the finding in a public report
- Notify the employee's labor union
Correct answer: Disclose the finding to the client who engaged the examiner
CFEs owe their primary duty of disclosure to the client who retained them, and should report findings through the client's established reporting channels.
Question 3: The Sarbanes-Oxley Act Section 806 provides whistleblower protections primarily to employees of:
- All private companies with more than 50 employees
- Publicly traded companies and their contractors (Correct answer)
- Non-profit organizations receiving federal grants
- State and local government agencies
Correct answer: Publicly traded companies and their contractors
SOX Section 806 protects employees of publicly traded companies and their subsidiaries, contractors, and subcontractors who report securities fraud.
Question 4: Which legal doctrine allows prosecutors to hold a corporation criminally liable for the acts of its employees committed within the scope of employment?
- Respondeat superior (Correct answer)
- Piercing the corporate veil
- The alter ego doctrine
- Strict liability
Correct answer: Respondeat superior
Respondeat superior ('let the master answer') imposes vicarious criminal liability on a corporation for crimes committed by employees acting within their employment scope.
Question 5: An organization's code of conduct is MOST effective when it:
- Is drafted exclusively by the legal department without employee input
- Is signed once during onboarding and filed away
- Is reinforced through regular training, tone from the top, and consistent enforcement (Correct answer)
- Focuses solely on legal prohibitions rather than ethical principles
Correct answer: Is reinforced through regular training, tone from the top, and consistent enforcement
Codes of conduct are most effective when leadership models the behavior, employees receive ongoing training, and violations are consistently addressed.
Question 6: Under the Dodd-Frank Act, the SEC's whistleblower program requires that a tipster's information must:
- Be submitted anonymously with no identifying information
- Lead to a successful enforcement action exceeding $1 million in sanctions (Correct answer)
- Be corroborated by at least two additional witnesses
- Be reported internally first before going to the SEC
Correct answer: Lead to a successful enforcement action exceeding $1 million in sanctions
Dodd-Frank whistleblower awards are only available when the SEC's enforcement action results in sanctions exceeding $1 million.
Question 7: A CFE who suspects that continuing an engagement will require violating the law should:
- Complete the engagement and report the issue afterward
- Ignore the legal concern if the client insists on proceeding
- Withdraw from the engagement and consult legal counsel (Correct answer)
- Delegate the problematic portion to a non-CFE colleague
Correct answer: Withdraw from the engagement and consult legal counsel
CFEs must refuse to engage in illegal acts and should withdraw from engagements that would require them to violate the law or their professional standards.
CFA Legal Compliance & Ethical Standards 2
Under the Foreign Corrupt Practices Act (FCPA), which of the following payments to a foreign government official is explicitly permitted?