FCPA Client Alert
Rewards for FCPA Whistleblowers
A new law now provides big cash rewards to employees and competitors for blowing the whistle on violations of U.S. securities and commodities laws including the Foreign Corrupt Practices Act (FCPA).
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The whistleblower provision, Section 922, mandated bounties for disclosing wrongdoing by U.S. companies, but also by companies listed on a U.S. stock exchange or by U.S. residents. This gives the law exceptionally broad reach.
Given the staggering penalties the government has levied recently under the FCPA, whistleblowers can reap huge sums finding under the new law. For example, Siemens AG paid $1.6 billion in sanctions to the U.S. and German governments to settle FCPA claims. If a whistleblower had been eligible for a 30%, the whistleblower would been awarded $496 million.
The Act reflects the dramatic increase in the U.S. government's enforcement of Foreign Corrupt Practices (FCPA). In June 2010, the government announced settlements with Snamprogetti Netherlands for $365 million and Technip, S.A. for $338 million. Technip was a French construction company based in Paris, but listed on the New York Stock Exchange. The SEC alleged that Technip bribed Nigerian government officials to obtain multi-billion contracts to build liquefied natural gas plants.
More cases are on the way. The DOJ reportedly has more than 140 open FCPA investigations. In April, the SEC opened a new FCPA-dedicated unit in San Francisco to focus on Silicon Valley companies and their activities in Asia. Five companies recently announced that FCPA settlements are likely to occur in the near future, including ABB (reserve of $850 million) and Alcatel Lucent (reserve of $137.4 million). As a result of the government's increased emphasis on FCPA cases, fines and settlements increased from $627 million collected in 2009 to $1.2 billion in the first few months of 2010.
To qualify for the reward, the whistleblower must provide "original" information derived his independent knowledge or analysis; not already known to the SEC and not derived from existing investigation, audit or report. The SEC has discretion to pay the whistleblower as little as 10 % or as much as 30 % of the amount that the government recovers based on the significance of the information to the success of the action, the whistleblower's degree of assistance and the interest of the SEC in using whistleblower payments to deter problematic conduct in the future. The provision also extends the reward to "related actions" taken by other prosecuting agencies. Thus, the whistleblower may garner a bounty for money collected by the SEC and DOJ, but also from actions by other federal or state agencies and even foreign governments.
Whistleblowers can provide their information (and file their whistleblower claim) anonymously through counsel, although the whistleblower's identify must be disclosed to the SEC before any reward payment is made. The new law also shields employees from retaliation by their employer. It creates a specific private right of action for any employee who is the subject of retaliation.
The FCPA generally prohibits U.S. companies, foreign companies that trade on U.S. stock exchanges and U.S. residents directly or indirectly paying anything of value to a foreign official to obtain or retain business. However, the FCPA applies to far more than the traditional notion of "suitcases full of cash." The term "anything of value" has been broadly construed to include not only cash or cash equivalents but also gifts, business opportunities, financial benefits, lodging and entertainment, use of materials and promises of future employment. In addition, a foreign includes employees of state-owned or state-controlled entities. Moreover, the Act applies to corrupt payments through agents, consultants, distributors or joint venture partners.
The SEC has operated a bounty program for more than 20 years in connection with insider trading enforcement program, although bounties have been paid only in a handful of occasions. The Dodd-Frank Act reflects the belief that whistleblowers are a powerful but unused source of information about misconduct.
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