FCPA Violations - Not For the Lazy Whistleblower

The Dodd-Frank Wall Street Reform and Consumer Protection Act provides protection and financial rewards for whistleblowers who report violations of the securities laws to the SEC. The whistleblower could receive 10% to 30% of the total amount of monetary penalties collected in sanctions that exceed $1,000,000. This is important information for organizations involved in international trade because the new legislation expands the coverage to include violations of the Foreign Corrupt Practices Act.

With increased enforcement actions, imposition of higher fines and the poor economy, the financial incentive could encourage more whistleblowing. From this group, there will be a few people interested in doing the right thing, some who are only in it for the money, a few disgruntled people who want to get even with former employers and finally a few people doing it for some combination of those reasons.

Let’s look at some potential awards. A recovery for the lowest penalty of $1,000,000 would result in a payment to the whistleblower of $100,000 to $300,000. Let’s look at the award based on $320 million, based on the top ten penalty amounts issued against corporate entities from 2008 to 2011. If an individual had been responsible for reporting a violation in the average penalty range, he or she might have received $32,000,000 to $96,000,000. Would a payment of $100,000 be worth becoming a whistleblower? How about $96,000,000?

This sounds like a great deal; however, the whistleblower will have to jump through a few hoops; it’s not going to be as easy as calling up the government, telling your story and picking up your check. Regardless of the so-called protections, the whistleblower should think about future job prospects. In addition to gathering the data to support the claim and making the decision to blow the whistle, the filer will need to complete a little government document known as the Tip, Complaint or Referral Form. Form TCR or SEC2850 is a 17-page document that must be completed by the whistleblower. On the positive side, only six pages require completion, but the filer should read the 11 pages of instructions first.

In addition to the standard personal information, the form requests some of the following information. Note that additional sheets may be required which increases the length of the original 17-page document.

• Explanation of the facts related to the alleged violation and why the filer believes the acts constitute a violation.
• Description of documents in the filer’s possession that support the complaint.

• Location of additional supporting documents not in the filer’s possession.

• Description of how the filer obtained the supporting information.

The one easy thing about the process is that the FCPA whistleblower can bypass the company and take their story directly to the government. There are some issues related to loyalty. Obviously, corporations believe that employees owe the company an opportunity to fix the problem before running to the government. The other side of that argument is that companies aren’t so loyal to their employees these days and the employee reporting a violation could end up on the street without any job or reward. Perhaps companies should offer their own rewards to encourage employees to report violations.   Think about it!  The plan promotes loyalty and trust between the employee and employer,  the company may receive a lesser penalty amount for self-disclosure to the government and the government doesn't have to pay any penalties to a whistleblower. Offering rewards for internal reporting and self-disclosure to the government sounds like a win-win solution for all parties, including the government.