Whistleblowers are the single most effective source of information in detecting corporate fraud. According to a 2007 study by PricewaterhouseCoopers focused on economic crime: “While professional auditors were only able to detect 19% of the frauds on private corporations, whistleblowers exposed 43%. Executives surveyed estimated that the whistleblowers saved their shareholders billions of dollars.”
Over the past two decades, a series of financial crises and corruption cases have led the U.S. Congress to pass a series of laws aimed at protecting private sector whistleblowers and incentivizing them to come forward. These laws recognize that internal controls alone are insufficient, and they have significantly increased the regulation of corporations and the financial industry. Employees working at public and private companies now have some of the best whistleblower protections afforded to any employees.
Under most of these laws, whistleblowers are now able to come forward with information confidentially and are covered by anti-retaliation provisions. Whistleblowers are also eligible to receive a percentage of government recoveries from successful prosecutions under modern reward laws like the Dodd-Frank Act.
These protections and rewards apply even the whistleblowers have a confidentiality agreement. A May 2020 decision in the case of Erhaft v. Bofi Holdings concludes that employer confidentiality agreements do not supersede federal whistleblower rights. The decision also held that whistleblowers can take company documents to disclose fraud to the government in certain cases.
Additionally, all modern private sector whistleblower laws include provisions that allow the whistleblowers to go to federal court. These statutes recognize that the adversarial nature of these types of cases are a perfect match for the types of procedural rights afforded in federal court.
What laws apply to corporate whistleblowers?
While there are multiple whistleblower laws like the False Claims Act and IRS Whistleblower Law that can apply to corporate whistleblowers, the single most important corporate whistleblower legislation is the Dodd-Frank Act.
The Dodd-Frank Act was enacted after the 2008 financial crisis to improve accountability and transparency in the American banking and financial system. It established two of the most successful whistleblower programs at the U.S. Securities and Exchange Commission (SEC) Whistleblower Program and the Commodity Futures Trading Commission (CFTC), as well as made important amendments to the Foreign Corrupt Practices Act.
Securities, commodities, and foreign bribery whistleblowers are now covered under enhanced provisions aimed at protecting their confidentiality and permitted to anonymously file reward complains. Whistleblowers outside of the United States are also now entitled to a financial reward.
Since this law was enacted, the SEC and CFTC have awarded hundreds of millions (US$) to whistleblowers who exposed fraud in securities and commodities trading and helped produced monetary sanctions in the hundreds of millions (US$) for the benefit of shareholders and economic fairness.
Under the SEC and CFTC whistleblower programs, eligible whistleblowers can receive awards between 10% to 30% of the monetary sanctions collected from successful enforcement actions and prosecutions. The programs also provide confidentiality protections for whistleblowers and prohibits retaliation by employers against employees who provide the SEC or CFTC with information regarding violations of financial laws and regulations.
Dodd-Frank built upon the 2002 Sarbanes-Oxley Act (SOX), a piece of corporate reform legislation passed following major scandals exposed by whistleblowers like Enron & WorldCom. SOX intended to protect investors from corporate accounting fraud by strengthening the accuracy and reliability of financial disclosures and offered the first protections for corporate whistleblowers. However, SOX’s whistleblower provisions were originally weaker than other successful laws.
Dodd-Frank amended SOX to increase the complaint filing period with the Department of Labor (DOL), to clarify the right to a jury trial, to bar the use of arbitration agreements, and to expand remedies for violations of whistleblower protections. Dodd-Frank also expanded SOX to cover more employees, including those of “nationally recognized statistical rating organization[s].”