The more AI agents are deployed in scenarios with possibly unexpected situations, the more they need to be flexible, adaptive, and creative in achieving the goal we have given them. Thus, a certain level of freedom to choose the best path to the goal is inherent in making AI robust and flexible enough. At the same time, however, the pervasive deployment of AI in our life, whether AI is autonomous or collaborating with humans, raises several ethical challenges. AI agents should be aware and follow appropriate ethical principles and should thus exhibit properties such as fairness or other virtues. These ethical principles should define the boundaries of AI's freedom and creativity. However, it is still a challenge to understand how to specify and reason with ethical boundaries in AI agents and how to combine them appropriately with subjective preferences and goal specifications. Some initial attempts employ either a data-driven example-based approach for both, or a symbolic rule-based approach for both. We envision a modular approach where any AI technique can be used for any of these essential ingredients in decision making or decision support systems, paired with a contextual approach to define their combination and relative weight. In a world where neither humans nor AI systems work in isolation, but are tightly interconnected, e.g., the Internet of Things, we also envision a compositional approach to building ethically bounded AI, where the ethical properties of each component can be fruitfully exploited to derive those of the overall system. In this paper we define and motivate the notion of ethically-bounded AI, we describe two concrete examples, and we outline some outstanding challenges.