CrFA Regulatory Compliance 5 — Questions and Answers
Question 1: Under SOX Section 304, when an issuer restates due to misconduct, what must the CEO and CFO reimburse?
- Bonuses, incentive or equity-based compensation, and stock-sale profits received in the 12 months after the misstated filing (Correct answer)
- Compensation from the three years preceding the restatement, only if they personally committed fraud
- Only legal fees paid by the company
- All salary earned during their entire tenure
Correct answer: Bonuses, incentive or equity-based compensation, and stock-sale profits received in the 12 months after the misstated filing
Section 304 requires CEO and CFO reimbursement of incentive compensation and stock-sale profits for the 12-month period following the misstated filing.
Question 2: SEC Rule 10D-1, implementing Dodd-Frank Section 954, requires listed companies to recover erroneously awarded incentive compensation from executive officers over what period?
- The 12 months following the misstated filing, only upon misconduct
- One fiscal year, only for officers found negligent
- Five fiscal years, only for the CEO
- The three completed fiscal years preceding the date a restatement is required, on a no-fault basis (Correct answer)
Correct answer: The three completed fiscal years preceding the date a restatement is required, on a no-fault basis
Rule 10D-1 mandates no-fault recovery of excess incentive compensation received during the three completed fiscal years before the restatement date.
Question 3: In Delaware, the Caremark doctrine imposes which duty on corporate directors?
- A duty to guarantee the company never violates any law
- A duty to approve every material contract
- A duty of oversight to implement and monitor reporting systems for compliance risks (Correct answer)
- A duty to personally audit financial statements
Correct answer: A duty of oversight to implement and monitor reporting systems for compliance risks
Caremark holds directors liable for bad-faith failure to implement or monitor reasonable information and reporting systems.
Question 4: Under the FCPA, which state of mind satisfies the knowledge requirement for payments made through a third-party intermediary?
- Negligent failure to perform due diligence alone
- Awareness of a high probability that the payment will be passed to a foreign official, including conscious disregard (Correct answer)
- Only actual written confirmation of the bribe
- Knowledge proven only by the official's confession
Correct answer: Awareness of a high probability that the payment will be passed to a foreign official, including conscious disregard
The FCPA defines knowledge to include awareness of a high probability of the circumstance, capturing willful blindness.
Question 5: To be eligible for any DOJ cooperation credit in a corporate criminal investigation, what must a company provide?
- A complete waiver of attorney-client privilege
- Payment of the maximum statutory fine in advance
- All relevant non-privileged facts about the individuals involved in the misconduct (Correct answer)
- An admission that its CEO committed the crime
Correct answer: All relevant non-privileged facts about the individuals involved in the misconduct
DOJ policy conditions cooperation credit on disclosing all relevant non-privileged facts about individuals involved, and it does not require a privilege waiver.
Question 6: Which item is NOT one of the required components (pillars) of a BSA/AML compliance program?
- Independent testing
- A designated BSA compliance officer
- A system of internal controls
- A mandatory annual external audit by a nationally recognized accounting firm (Correct answer)
Correct answer: A mandatory annual external audit by a nationally recognized accounting firm
The pillars are internal controls, independent testing, a designated BSA officer, training, and risk-based customer due diligence, and independent testing need not be done by an outside firm.
Question 7: SOX Section 906 imposes which maximum criminal penalty on an officer who willfully certifies a periodic report knowing it does not comply with requirements?
- Fine of up to $1 million and imprisonment of up to 10 years
- Fine of up to $500,000 and imprisonment of up to 5 years
- Fine of up to $5 million and imprisonment of up to 20 years (Correct answer)
- Civil penalty only, with no imprisonment
Correct answer: Fine of up to $5 million and imprisonment of up to 20 years
Under Section 906, willful false certification carries up to $5 million in fines and 20 years imprisonment.
