Whistleblowers can now earn a bounty
The Economic Times, 5 Sept 2010 Companies should publicise their efforts within the group to foster a culture of integrity and accountability
By Arpinder Singh, Partner and National Director and Vinay Garodiya, Manager
Whistleblowers have always helped regulatory authorities or company managements in unwinding fraud and corruption cases. A historical analysis shows that most of the frauds, which came up to the fore were due to whistleblowers. However, whistle blowers have hardly been rewarded. Instead they have always faced the brunt, like the cases of National Highways Authority of India (NHAI) engineer, Satyendra Dubey and IOC sales manager Manjunath Shanmugham, who were murdered after they raised the curtain from corrupt practice in their respective work areas.
It’s now time to start recognising and rewarding the whistleblowers and also provide them protection. One such step was taken by the US on July 21, 2010, in the Dodd-Frank Act, which contains whistleblower provisions. This provision may drastically increase the enforcement litigation cases against public companies for alleged violations of securities and commodities laws and the Foreign Corrupt Practices Act (FCPA). The US, which passed FCPA in 1977, has been the most aggressive in enforcement of its anti-bribery and corruption regulations against companies and individuals. The FCPA makes it unlawful for a company, or people acting on its behalf to offer or promise to give, or authorize the giving of anything of value to foreign government officials to obtain or retain business. In addition, the FCPA contains accounting provisions that require issuers to maintain accurate internal books and records, to implement a system of internal accounting controls. FCPA violators are subject to both criminal and civil penalties.
In India, the ‘whistleblower culture’ is not strong as there is a lack of security and incentive for potential whistleblowers. However, the Union cabinet has recently approved the Public Interest Disclosure (Protection of Informers) Bill, 2009, which when enacted would grant the Central Vigilance Commission powers equivalent to a court of law to enforce and ensure protection of whistleblowers from harassment and retribution of any sort. SEBI is also considering a proposal to make it mandatory for companies to put in place a whistleblower mechanism with due emphasis on providing safeguards to prevent victimisation of the whistleblower.
These new whistleblower provisions provide for significant rewards to whistleblowers, who voluntarily provide original information to the Securities and Exchange Commission (SEC) leading to the successful prosecution for securities laws violations. Original information means information derived from “independent knowledge or analysis”, that is not known to the SEC and is “not exclusively derived from an allegation” in another action, government investigation or news report. Whistleblowers who provide original information leading to a recovery of $1 million or more are entitled to 10 to 30 percent of the total amount collected in resulting actions, including settlements by the SEC and in “related actions” by U.S. Department of Justice, State Attorneys General or certain other regulatory authorities.
This “sleeper” bounty provision threatens to have an immediate and significant impact on companies with operations outside of the United States (like India). The new law also protects employees who report wrongdoing to the SEC from retaliation, and affords an employee who has experienced such retaliation with a private right of action for reinstatement, double back pay, and attorneys’ fees. Given the large size of recent FCPA settlements, the promise of multimillion-dollar bounties will be a strong incentive for potential whistleblowers to contact the government about FCPA concerns.
The article is jointly contributed by Arpinder Singh, Partner & National Director, Fraud Investigation & Dispute services(FIDS), Ernst & Young and Vinay Garodia, Manager (FIDS)
First Published in The Economic Times print edition
