Breaking the Silence: The Evolving Landscape of Whistleblower Empowerment and Truth-Telling
Background
As the U.S. government continues to surge resources in areas such as corporate and financial crime, sanctions, and export controls, it has similarly looked to partner with company insiders (or sometimes the company itself) by offering financial incentives to blow the whistle on corporate malfeasance. In her most recent remarks at the American Bar Association’s 39th National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco provided the initial framework for the DOJ's forthcoming whistleblower pilot program. She cited the "indispensable" whistleblower programs of the SEC, CFTC, IRS, and FinCEN in encouraging individuals to report corporate misconduct in exchange for monetary awards (i.e., money).
On its own, the SEC's whistleblower program has proven immensely successful. Since its inception in 2011, the SEC's program has awarded more than $1.9 billion to 397 individual whistleblowers and received over 82,000 whistleblower tips. In just FY 2023, the SEC awarded nearly $600 million—the SEC's highest annual total by dollar value—to 68 individual whistleblowers and received more than 18,000 tips. The number of applications for awards has also surpassed previous records.
These FY 2023 figures include tips originating from overseas, reflecting the program's extended reach. The foreign countries from which the highest number of those tips originated were Canada, the United Kingdom, Australia, Germany, and India. Historically, Australia, India, and the PRC have been among the top APAC originators of whistleblower tips
Also coming out of the Dodd-Frank Act, the CFTC's whistleblower program, which focuses on violations of the Commodity Exchange Act, has issued 41 orders granting nearly $350 million in awards (as of FY 2023) since issuing its first award in 2014. The CFTC has ordered over $3 billion in sanctions in all its whistleblower-related enforcement actions.
A Good Idea Grows
Recent developments demonstrate that a good idea grows and disseminates across agencies and legal disciplines. In its July 2023 "Tri-Seal Compliance Note: Voluntary Self-Disclosures of Potential Violations," the U.S. Departments of Commerce, Treasury, and Justice describe the voluntary self-disclosure ("VSD") policies that apply to export controls, sanctions, and other national security laws as well as each agency's recent updates to those policies. The main thrust of VSD policies is to encourage companies to proactively self-disclose misconduct that may not otherwise have come to light, the incentive being a reduction or elimination of civil and criminal penalties that would otherwise have applied. Similarly, a whistleblower program (such as the DOJ's) provides financial incentives for individuals—usually company insiders—to proactively report corporate misconduct. Such programs—now spanning the alphabet soup of federal enforcement agencies—are becoming progressively more publicized, prominent, and lucrative for those holding the right amount of knowledge.
Key Features of the DOJ's Pilot Program
Although the DOJ's pilot program currently lacks important details, DAG Monaco elucidated several key features:
Who: Any individual who helps the DOJ to discover "significant corporate or financial misconduct" may qualify to receive a portion of the resulting forfeiture.
What: Corporate or financial misconduct that violates federal law and is not already covered by another federal whistleblower program. The DOJ is "especially interested in information about" (1) criminal abuses of the U.S. financial system; (2) foreign corruption outside SEC jurisdiction; and (3) domestic corruption, particularly those involving illegal corporate payments to government officials.
When: The "first in the door" to report the misconduct and only after all victims have been compensated properly.
How: The individual must (1) voluntarily submit truthful information that the government did not previously know about; (2) not be involved in the reported criminal activity; and (3) not be subject under an "existing financial disclosure incentive" (i.e., another applicable whistleblower program).
As Main Justice continues to suss out the details of its own program, it has directed all DOJ components and U.S. Attorney's Offices ("USAOs") to create whistleblower programs for themselves. Two prominent USAOs have already begun: the Southern District of New York and the Northern District of California, which both are piloting similar programs that offer a non-prosecution agreement in exchange for an eligible individual's cooperation. In contrast with the DOJ's program, the USAO programs allow for a culpable individual whistleblower to be eligible for the discretionary non-prosecution agreement.
What Next?
As DAG Monaco pointed out, VSD and whistleblower programs are intended to "reinforce each other and create a multiplier effect, encouraging both companies and individuals to tell us what they know as soon as they know it." As a result, we may see a significant uptick in corporate disclosures taking advantage of VSD programs while trying to avoid individuals capitalizing on new whistleblower programs. Another possible and likely unintended risk is corporate inertia caused by too many programs from too many agencies promising leniency. The DOJ will have to consider this and other scenarios as it firms up its own program.
With whistleblower and VSD programs now available in most major enforcement agencies, more than ever corporations need to stay ahead of the curve by revamping existing policies and procedures, auditing existing compliance programs, and performing risk assessments of current and future business operations to help anticipate where the next issue will arise. That said, these new DOJ and VSD programs will require time to develop. Benefits will need to be clear and significant to promote a "race to the government" attitude. But while DAG Monaco emphasizes a "carrots and sticks" approach to encourage reporting, the DOJ must ensure that it does not inadvertently encourage disgruntled employees to file false or specious reports. Moreover, the DOJ should strongly consider incorporating an internal reporting requirement prior to external reporting in order to incentivize corporate investment in robust compliance programs, lest the DOJ finds itself at loggerheads with its own purposes.
Partner, Clifford Chance