Whistleblower or qui tam statutes exist to shield employees who report their employers’ violations of civil and criminal laws. Following the global financial crisis, Congress has sought to combat corporate fraud and other crime by enhancing both the protections against retaliation and financial incentives for would-be whistleblowers to report criminal activity.
Common elements of federal whistleblower protection laws require:
- the employee to report the company’s fraud to a federal agency
- the employee’s good-faith belief that the company or its officers are committing crimes
- prohibiting the company from retaliating against the employee
- awarding monetary damages and other protections, including attorney’s fees, for those who are retaliated against
Under laws such as the Dodd-Frank Act and the False Claims Act, employees have financial incentives or “bounties” that can amount to multi-million dollar payouts to the employee for reporting credible information that leads to corporate prosecution. For example, in April 2015, the SEC announced an award of more than $1.4 million to be paid to one former compliance officer who blew the whistle against his former company.
Indeed, more and more companies can be the targets of whistleblowers seeking to take advantage of these lucrative bounty programs. Last year, in Lawson v. FMR LLC
, the United States Supreme Court held that the whistleblower provisions of the Sarbanes-Oxley Act extends not just to employees of publicly traded companies, but to employees of contractors of public companies, such as accounting firms, mutual fund investment advisers, and other privately held companies that provide service to public companies. Private companies that provide services to publicly held companies should expect a new wave of litigation following the Lawson
decision, and the case has serious implications for the potentially thousands of North Carolina businesses, large and small, that provide contracting services to public companies.
This means that more than ever, employers must prepare for better protected, better incentivized would-be whistleblowing employees by implementing comprehensive compliance programs long before any report is made. Having in place a response plan and being prepared to respond swiftly to a whistleblower’s claim will be critical when a negative corporate event is severe enough to trigger federal investigation. Management should create policies keeping in mind the following issues which regulating agencies will likely consider in evaluating whether to prosecute the corporation or negotiate a mutually amicable resolution:
- Does the company have self-policing mechanisms, including compliance procedures and proper tone with higher up management?
- Can the company timely respond to the criminal misconduct once discovered, and what is the extent to which the company vetted and ultimately reported the underlying facts and circumstances to the authorities?
- Is the company prepared to take remedial measures, including dismissing or disciplining wrongdoers, modifying and improving internal controls, and when applicable, appropriately compensating those affected?
- Is the company prepared to candidly share information to appropriate federal agencies or law enforcement once recognized internally, or is there a culture of covering up?
After familiarizing itself with obligations and potential liabilities under whistleblower protections, management should identify ways to create a corporate culture where employees feel there will be a sufficient and credible response to their internal reporting so that no investigation by the government should be necessary. This requires training employees on regulations specific to the industry, identifying a clear chain of command for anonymous internal reporting, and clear prohibitions on retaliating against internal reporting. To avoid government prosecution, it is critical for management to demonstrate its support for robust internal compliance programs.
Patrick Mincey is a trial lawyer in Wilmington, where he founded the Criminal Defense Group at Cranfill Sumner & Hartzog LLP. His criminal practice ranges from representing individuals and corporate clients who are targets, subjects or witnesses in federal and state white collar proceedings to “blue collar” defendants charged with murder, drug conspiracies and assaults. To contact Patrick Mincey, call (910) 777-6017 or email him at [email protected].