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Friday
Mar182016

Marshall and Filoromo: No SEC whistleblower awards yet for FCPA tips, but big incentives are there

Since the inception of the SEC Whistleblower Program, the agency has paid $57 million in awards to 26 whistleblowers. From the information released by the SEC Office of the Whistleblower, however, none of these awards was based on information about FCPA violations.

But the SEC whistleblower program is still fairly new, and foreign bribery investigations are complicated and time-consuming, usually involving alleged misconduct occurring off the books and in distant parts of the world. 

Despite these challenges, the SEC brought nine FCPA enforcement actions in 2015, including the second-largest civil penalty in an SEC settlement for FCPA offenses.

Andrew Ceresney, director of the SEC’s Division of Enforcement, has stressed that pursuing violations of the FCPA “remains a critical part of the SEC’s enforcement efforts.”

The commission is clearly receiving a significant number tips regarding FCPA violations. In fact, the latest annual report to Congress suggests that the SEC received 186 whistleblower tips about such violations in FY 2015 alone.

Given this focus, there is every reason to expect that the SEC will pay substantial awards to whistleblowers who have provided information about U.S. public companies that engage in foreign bribery.

Short of seeing an employee hand an envelope of money to a foreign official, what are some signs that point to the likelihood that a company is paying bribes?

Situations to look for include:

  • Unexplained payments or vague budget entries for foreign business units
  • Countries where governments run businesses, or where healthcare and other service providers are affiliated with the government; fictitious “consultants” in countries where a U.S. company does business, and
  • A lack of controls and training related to the FCPA.

Regulators often must rely on the totality of the evidence provided by whistleblowers, and sometimes on the company’s own internal investigations or self-disclosures.

To receive an award under the SEC whistleblower incentive program, an individual with knowledge of FCPA violations should submit a whistleblower tip with all of the information he or she has about the bribery. The more information and assistance a tipster can give the SEC, the more likely it is that a tip will lead to a successful enforcement action.

Individuals who voluntarily submit original information to the SEC that leads to a successful enforcement action may receive between 10 percent and 30 percent of any monetary sanctions if the total amount recovered in that action (and any related cases) exceeds $1 million.

Also, the extent of a whistleblower’s assistance is a significant factor in determining the amount of the award a whistleblower receives. After a tip is submitted, the DOJ -- which enforces the criminal provisions of the FCPA -- may open a parallel investigation.

A DOJ investigation can lead to related enforcement actions and greater sanctions, and, in turn, to higher rewards to a whistleblower.

The SEC is legally required to protect a whistleblower’s identity, and the incentive program allows a whistleblower to submit a tip anonymously through an attorney. 

The harm caused by bribery of foreign officials is not limited to the anti-competitive effect on other U.S. corporations vying for the same business.

Payments to foreign officials, whether high-ranking ministers or low-level employees of state-run businesses, also undermines the legitimate workings of the foreign economy, and thus impacts negatively on the interests of the countries of the payor and the payee alike.

The FCPA’s anti-bribery provisions are designed to stamp out such practices through a system of civil and criminal enforcement. The SEC whistleblower program provides an opportunity -- and a significant financial incentive -- for individuals to assist the government and the investing public in achieving those ends.

____

David J. Marshall is a founding partner with the whistleblower and employment law firm Katz, Marshall & Banks, LLP, in Washington, D.C. He's the author of his firm’s annual SEC Whistleblower Practice Guide, a comprehensive handbook for whistleblowers and their lawyers. He can be reached here.

Michael A. Filoromo, III, a partner with Katz, Marshall & Banks, represents whistleblowers in SEC investigations of FCPA-related claims. He can be reached here.