The background: Whistleblower reports to the Securities Exchange Commission (“SEC”) have increased year on year, and corporate Foreign Corrupt Practices Act (“FCPA”) resolutions have continued to include significant financial penalties.
Development: The recent SEC award of more than $ 28 million to a whistleblower who provided information that led to settled FCPA enforcement actions, including a financial settlement of more than $ 281 million, was the 10th largest in the history of the whistleblower program. The Biden administration stressed that fighting corruption is a fundamental national security interest, and enforcement of the FCPA should be an ongoing priority of the SEC and the Department of Justice (“DOJ”).
Looking forward: Given the FCPA’s heightened risk environment, companies should consider whether their internal compliance programs are structured to promptly identify and address any advice or internal reports regarding alleged FCPA violations.
On May 19, 2021, the SEC announces award of more than $ 28 million to a whistleblower whose advice led the SEC and the DOJ to enter into a combined FCPA settlement of $ 281 million with a U.S. manufacturer of aircraft electronics systems. It’s the 10th biggest prize ever of the SEC whistleblower program and fourth known award for advice that led to a corporate resolution from the FCPA. In 2018, the manufacturer resolved all FCPA-related charges in a settlement with the SEC that included $ 143 million in restitution and interest and one deferred prosecution agreement with the DOJ which included a separate penalty of $ 138 million.
As part of the SEC’s whistleblower program, a person who provides information leading to successful enforcement action can claim an award of 10-30% of the total financial penalties collected by the SEC greater than $ 1 million. The financial incentives for whistleblowers to report conduct involving potential FCPA violations have never been higher.
In light of these incentives, the number of denunciations filed with the SEC has increased. In the SEC’s 2020 fiscal year alone, as internal whistleblower reports plummeted at many companies, SEC whistleblower claims jumped about 33% compared to the previous year. In May 2021, the SEC Enforcement Acting Director Said She Expects More SEC Whistleblower Advice in Fiscal Year 2021 due to ongoing remote work and publicity of the program by the SEC.
Part of the increase was also attributed to an increase in the number of plaintiff lawyers offering to represent whistleblowers on the basis of a success fee. Lawyers for plaintiffs actively recruit employees at companies in targeted industries and high-risk jurisdictions, often through social media, to become whistleblowers. Based on public reports, several successful SEC whistleblowers were represented by legal counsel.
Meanwhile, the Biden administration has signaled in the first six months that the FCPA will be a high enforcement priority in 2021. On June 7, 2021, the The Biden administration issued a memorandum establishing the fight corruption as a fundamental national security interest and called on federal departments and agencies to make recommendations to significantly strengthen the US government’s ability to fight corruption. Separately, DOJ and SEC senior officials noted continued interest in FCPA enforcement.
In the context of strong incentives to report potential wrongdoing to the SEC and the continued focus on enforcing the FCPA, companies should consider taking steps to minimize the risk of external whistleblowing by disposing and enforcing the FCPA. posting mechanisms for reporting allegations of inappropriate conduct internally, including the ability to report potential violations confidentially and anonymously. Then, a prompt, independent, and thorough investigation of any internal reports or indications of potential violations of the FCPA or other laws provides effective opportunities to obtain timely corrective action and to ensure that the reporter knows their concerns. are taken seriously. and addressed.
Especially, more than 80% of whistleblowers rewarded In fiscal 2020, they first raised their concerns internally to their supervisors, compliance, or other internal reporting mechanisms before reporting any information about a potential misconduct to the SEC. Even if the whistleblower later chooses to report to the SEC, DOJ, or other regulator, a company that properly investigates all allegations when they are reported internally will be in the best position to demonstrate that she took appropriate action in response and to defend herself. in any subsequent external investigation.
Three key points to remember
- Publicity of the SEC whistleblower program by the SEC and plaintiff attorneys, the impact of remote working, and the ever-increasing amount of financial penalties in reported FCPA regulations will prompt individuals to report potential FCPA violations to the public. regulators.
- The Biden administration’s emphasis on fighting corruption as a central axis of national security and the call for greater interagency and cross-border cooperation on anti-corruption issues indicate a continued focus on the application of the FCPA.
- Businesses will want to review the effectiveness of their compliance programs in dealing with and responding to internal reports or advice involving potential FCPA violations, especially when reviewing the risks and benefits of self-reporting.