Last year was noteworthy for the Securities and Exchange Commission’s whistleblower program. It included a record number of whistleblower awards; the first reported whistleblower award in a Foreign Corrupt Practices Act (FCPA) case; a record year for FCPA tips; and a first-of-its-kind action against a company that allegedly sought to contractually limit an employee’s ability to report FCPA wrongdoing to the SEC. Against the backdrop of a record year of $2.43 billion in corporate FCPA fines and penalties, these trends serve as a reminder that companies should make sure that they have processes in place to adequately respond to whistleblowers.
Record Year
Whistleblowers can be eligible for awards when they voluntarily provide “original information” that leads to a successful SEC resolution resulting in a monetary sanction above $1 million. Awards can range from 10 percent to 30 percent of total recoveries. Whistleblowers are also protected from retaliation.
Since the SEC program was created as part of the 2010 Dodd Frank Act, SEC whistleblower resolutions have led to approximately $930 million in disgorgement, interest and penalties. Approximately $149 million in awards has been paid to 41 whistleblowers, and the frequency and number of awards are increasing. In the last fiscal year, which ended Sept. 30, 2016, the SEC issued a record $57 million in awards to 13 whistleblowers.
First FCPA Whistleblower Award
In August, an Australian newspaper reported that the SEC paid $3.75 million to a whistleblower who worked for an Australian company and who provided information about alleged FCPA offenses committed in connection with the 2008 Summer Olympic Games in Beijing. Although the SEC does not publicly identify whistleblowers, assuming that the report is accurate, it appears to be the SEC’s first award to an FCPA-related whistleblower. Commenting on what appears to be this particular case, the SEC stated that the whistleblower’s tip “bolstered an ongoing investigation with additional evidence of wrongdoing that strengthened the SEC’s case” and “increased [the SEC’s] leverage during settlement negotiations with the company.”
Record Year for FCPA Tips
FCPA-related whistleblower awards will certainly continue because over the past four fiscal years, the commission received a total of 732 FCPA-related tips. Last year alone, the SEC received 238 FCPA-related tips, up from 186 the year before.
Settled Action for ‘Chilling’ an FCPA Whistleblower
The commission also resolved a first-of-its-kind case in which a company was penalized for allegedly attempting to impede an employee’s ability to report anti-corruption wrongdoing to the SEC through the use of a severance agreement. In September, Anheuser-Busch InBev (AB InBev) paid $6 million to settle charges that it violated the books and records and internal controls provisions of the FCPA and “chilled a whistleblower who reported the misconduct.” Specifically, the SEC alleged that AB InBev “entered into a separation agreement that stopped an employee from continuing to communicate voluntarily with the SEC about potential FCPA violations due to a substantial financial penalty that would be imposed for violating strict nondisclosure terms.” This action is a reminder that companies negotiating severance agreements with known and potential whistleblowers may be scrutinized by the SEC for attempting to pay for silence.
How a Company Can Protect Itself
When a whistleblower allegation is reported internally, a company should have processes in place to investigate and remediate the alleged problem. It should document the steps it takes to do so, and keep open lines of communication with the whistleblower. A company’s dual goals should be to address the allegation properly and to make sure that the whistleblower knows that his or her concerns are being taken seriously and addressed. Even if the whistleblower later chooses to inform the SEC or another regulator, a company that properly responds to such allegations when they are reported internally will be in the best position to show that it acted in good faith and to defend itself in a subsequent external investigation.
The views and opinions set forth herein are the personal views or opinions of the author; they do not necessarily reflect views or opinions of the law firm with which he is associated.
Published March 7, 2017.
