The SEC report on the fiscal year 2015 results of its whistleblower’s program established under Dodd-Frank bandied some very interesting numbers. In addition to crashing through the $100 million mark for bounties paid out for tips, the SEC reported, it “received nearly 4,000 whistleblower tips, a 30% increase over the number of tips received in Fiscal Year 2012.” This will only increase as the SEC makes greater use of this mechanism and more law firms and companies set up whistleblower practices. Yet there are not many discussions of the effect of this explosion of whistle blowing on the enforcement by the SEC and on corporations where whistleblowers tip from.
However the lack of academic study has been filled with a recent academic paper from the University of Iowa. As noted by the authors, the objective of the research was “to provide empirical evidence on the link between whistleblowers and penalties, prison sentences, and the duration of regulatory enforcement actions for financial misrepresentation.” The research focused on financial misconduct and did not specifically focus on FCPA enforcement, yet FCPA violations can result in financial misstatements. Regardless, The Man From FCPA notes their findings are very significant for the compliance practitioner. The authors found there is a link between information provided by whistleblowers and “heightened enforcement outcomes” and the authors conclude there “that whistleblowers are associated with heightened enforcement outcomes provides indirect evidence that whistleblowers can play a role in deterring financial misconduct.”
It is this final point which compliance professionals should build upon. The information in the study clearly imports that if a company has an internal whistleblower who is frustrated through either corporate inaction or outright hostility; that whistleblower is more likely to turn to regulators with the information. With appropriate internal reporting mechanisms and response, companies can use the information to stop the conduct and remediate. This is particularly true for FCPA compliance violations rather than financial misreporting issues.
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