A provision of the recently-enacted federal financial reform has far-reaching consequences for companies operating internationally. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), signed into law on July 21, 2010, provides profitable new incentives for whistleblowers to report violations of federal securities law, including violations of the Foreign Corrupt Practices Act (FCPA). These incentives are so enticing, in fact, that employees may bypass internal reporting mechanisms and bring their concerns directly to Securities and Exchange Commission (SEC) investigators.
These new provisions come after harsh criticism of the SEC’s handling of the Madoff scandal and likely signal a new era of government oversight. Prior to the Dodd-Frank Act, financial awards were only available for SEC whistleblowers reporting insider trading. These awards were underused; until very recently only about $150,000 in total had been paid to SEC whistleblowers. SEC whistleblowers can now recover a minimum of ten percent and a maximum of thirty percent of any sanctions that are imposed over $1 million for a violation of law. Moreover, this percentage and the $1 million threshold are based on the SEC action and any “related” action that results from the whistleblower’s information, such as an administrative or Department of Justice (DOJ) investigation. SEC whistleblowers may now collect a percentage of this aggregated recovery, providing an even greater financial incentive for reporting. The Dodd-Frank Act also affords whistleblowers additional protections against employer retaliation.
The recently-enacted provisions apply to any violation of federal securities law, including the SEC’s jurisdiction over civil enforcement of FCPA violations. Recent FCPA enforcement activity and large FCPA settlements make this an area of particular concern for companies doing business abroad. The FCPA prohibits providing anything of value to foreign officials to obtain business, and regulates the accounting and recordkeeping practices of overseas operations of publicly-traded companies. A whistleblower reporting a violation of the FCPA to the SEC can potentially recover a percentage of sanctions for a recordkeeping violation in an SEC action and for improper payments in a DOJ investigation. Using recent FCPA settlements as a guide, FCPA whistleblowers could expect to recover millions of dollars in such a case. More alarming, recent FCPA investigations have held parent companies strictly liable for the actions of their subsidiaries. Corporate clients doing business abroad are therefore advised to immediately review and amend their FCPA compliance programs as well as assess and revise internal reporting and voluntary disclosure procedures.