Whistleblowers play a critical role in promoting transparency, accountability, and integrity across a number of international corporations. Where once the practice of whistleblowing was heavily frowned upon – primarily by corporate higher-ups across a number of covered industries – this once-negative moniker has largely shifted over the last decade. Today this exercise has become a major driving force behind the identification and subsequent mitigation of fraud and other forms of misconduct both domestically and abroad. Whistleblowing is defined as the lawful disclosure of potentially-illicit or unethical activity occurring within a private or public organization to law enforcement, financial regulators or other authorized recipients. These disclosures are generally made by an individual – most often a company employee who has firsthand knowledge of the transgressions occurring – for purposes of bringing those responsible for these improprieties to justice. Whistleblowing however has long been a perilous practice, as in years past, these informants faced tangible risks of retaliation for coming forward with information of this variety, most notably job loss and subsequent reputational damage that could precede them moving forward. These inherent risks have all but allowed a cycle of corporate wrongdoing to continue across a multitude of firms for decades. To counter, new protections have been put in place by the U.S. Labor Department and the respective governments of other major world powers in an effort to promote the sharing of pertinent information for the greater prevention of white-collar crime and other abuses of power.
Along with these new protections, varying departments and bureaus of the United States government including the Securities and Exchange Commission (SEC), Internal Revenue Service (IRS), and the Commodity Futures Trading Commission (CFTC) have developed heavily-incentivized programs offering monetary awards to those choosing to come forward with valuable information that leads to potential convictions against entire firms and/or those acting unethically within them. Whistleblower rewards are generally dependent upon a number of factors, including how detailed the information provided about the misconduct is and the ultimate total of the monetary sanctions received by the respective department fielding these complaints (i.e. whistleblower rewards for the aforementioned departments can range from 10% to 30% of the total funds collected in a case). The potential of such a reward has been enough to spur significant increases in overall reporting figures to date across these aforementioned agencies however, developments that bode well for the health of the international financial system moving forward. Recent reports have indicated that the U.S. Justice Department is now attempting to get in on the action. On August 1st, the DOJ announced regulations for a new Corporate Whistleblower Awards Pilot Program in which they will be paying rewards to whistleblowers who come forward with tips in relation to one or more of four key programmatic areas identified by the department. These subject areas include violations related directly to financial institutions, foreign corruption and extortion, domestic corruption and bribery, and healthcare fraud. The goal is to cut down on financial crime by emboldening employees and associated individuals who might ordinarily be afraid to come forward to do so. However, there are concerns that remain about whether this reward system is truly the best strategy to employ for the long-term.
The DOJ’s new bounty-style whistleblower program will be a trial run for the next three years. During this time, they will be offering financial awards of up to 30% of the first $100 million in net proceeds forfeited by a company as a result of information provided about the aforementioned areas of crime highlighted by the regulator, then up to 5% of the proceeds between $100 million and $500 million. This subsequently caps whistleblowers awards at a $50 million maximum. Further, the U.S. Attorney General will be required to approve any award of greater than $500,000 and, in all such cases, DOJ will notify Congress of the payment, as required by law.2 Reports have indicated that all information submitted to the DOJ will be reviewed by prosecutors in the DOJ’s Money Laundering And Asset Recovery Section (MLARS) as well as the DOJ’s Fraud and Public Integrity Sections. This will also be compounded by a respective FBI investigation into any relevant allegations. With the sizable forfeitures that are commonly associated with compliance mishaps amongst large corporate businesses, this could easily result in multi-million dollar rewards for whistleblowers and further propel the practice with this potential pay-day in mind. The end-goal however is for the institutions involved in this misconduct to realize that the walls are continually closing in, forcing them to clean up their act and ultimately promote improved internal reporting structures while creating a culture of self-disclosure of wrongdoing on their end. All told, the DOJ’s iteration of its whistleblower program looks to capitalize off of the success of similar efforts brought forth by their counterparts in the SEC and the IRS, each of which who have already been dishing out significant financial payouts for information that leads to fines and penalties for over a decade.
Deputy Attorney General Lisa Monaco provided the following remarks on the new corporate whistleblower program on August 1st:
“With this program we’re doubling down on a proven strategy to ferret out criminal activity that might otherwise go unreported. Law enforcement has long offered rewards to coax tipsters to report crimes — from the ‘Wanted’ posters of the Old West to the reforms in Dodd-Frank that created whistleblower programs at the SEC and the CFTC. Those agencies alone have received thousands of tips, paid out many hundreds of millions of dollars, and disgorged billions in ill-gotten gains from corporate bad actors.”1
Naturally, this new program is very popular and supported by the vast majority of individuals operating in a corporate setting, as well as their respective attorneys who also seek to profit from any developments made in this regard. What exactly is the concern if whistleblowers are happy to come forward and the U.S. government is happy to pay them? Well, to some potential whistleblowers and their legal representation, simply having a chance at the jackpot is not enough. Anonymity protection and a lack of a consensus minimum compensation percentage are key concerns amongst those choosing to heed the call. It seems the program is focused on enticing people to come forward by highlighting the potential for a big payout. The truth however is that most situations may not lead to the substantial payout that the new program boasts, this given that the Justice Department ultimately holds final discretion as to the true dollar amount to be awarded. This would once again create a situation where an employee may be exposing themselves to significant risk for only minimal reward.
“Whistleblowers take enormous risks stepping forward, particularly in reporting the kind of wrongdoing targeted by DOJ’s new program,” said Erika Kelton, a partner at whistleblower law firm Phillips & Cohen. “By limiting the amount of an award, individuals may choose to stay silent, particularly because the larger recovery may also increase the risks.”3
Another important detail is that whistleblower rewards are not calculated until after individual victims in forfeiture cases are compensated. This creates even more uncertainty for potential whistleblowers with respect to calculating what they might receive prior to coming forward. This seems rather counterproductive if the goal of the program is to make potential whistleblowers feel confident that they will be appropriately compensated for taking the risk to come forward. The Justice Department claims that they are open to input to improve the program during this three-year pilot run. During this period however they will have to assess what works and what does not and adjust accordingly if the program is to withstand the test of time.
Citations
- “Deputy Attorney General Lisa Monaco Delivers Remarks on New Corporate Whistleblower Awards Pilot Program.” Office of Public Affairs, United States Department of Justice, 1 Aug. 2024.
- Jauregui, Eddie, et al. “Justice Department Announces New Corporate Whistleblower Pilot Program: Insights.” Holland & Knight, 5 Aug. 2024.
- Sun, Mengqi. “Whistleblower Legal Sector Welcomes DOJ Pilot Program, but Concerns Remain.” The Wall Street Journal, 6 Aug. 2024.
