You did more or less describe the department and its purpose accurately, as an emphasis on preparation for various markets around the world is how a
Square Enix representative recently described the ethics department's work:
"In the Square Enix Japan studios, the Ethics Department is actually a group within the company that evaluates game content to make sure it is aligned with the anticipated age ratings standards across the globe (CERO, ESRB, PEGI, etc)."
Still, for situations that likely fit the implication of a word like "ethics" better in the early 90s than today, "ethics department" is what they call such sections of the Japanese corporate structure. Nomura's wording in the controversial interview was 社内の倫理部署 -- "the company's internal ethics department."
Of course, had folks taken as much care with accurately translating what he said the department told his team, there would never have been an Internet Chernobyl over it. He said they simply told them to 胸部を絞める ("constrict her chest") so she wouldn't look unnatural in intense action sequencess.
Whether "unnatural" here refers to "breasts ... flopping around," as you eloquently put it, or just being oddly rigid when there should be flopping? Unclear.
The most ironic thing about all this is that they actually made her breasts bigger than they were before. She may not be more busty, but for her breasts to still appear as large as they are while tightly constricted enough to her frame to hold in place while she's doing somersault kicks and such?
Look at that distance from bust to band. She's still a C cup right there while constricted.
Those aren't knockers. They're battering rams.