The Lawyer Africa Elite 2014 features an in-depth look at 46 leading independent firms’ strategies in 15 key sub-Saharan jurisdictions, as well as the views of in-house counsel from some of Africa’s largest companies... Read more
This year, The Lawyer’s annual ranking of the largest UK law firms by turnover is available as an interactive, digital benchmarking tool. For the first time this will allow you to manipulate each data set against the metrics of your choice.
Million-dollar rewards for whistleblowers could see them approach the authorities before their companies
The Securities and Exchange Commission’s (SEC) whistleblowing bounty scheme has made its first payment. While the sum awarded was not enormous, it shows the power of this new weapon.
Whistleblowing that uncovers fraud and corruption is a valuable detection tool. The US Internal Revenue Service has for some time rewarded those who whistleblow on tax evasion. Recently, a $104m (£65m) award was paid to Bradley Birkenfeld, a former banker at UBS. Birkenfeld’s information led to UBS paying a $780m fine.
Last year the SEC implemented the whistleblower bounty provisions of the Dodd-Frank Act and adopted further measures for using employees in its programme for combatting fraud and corruption. The act built in a bounty scheme for those who alert the SEC to securities law infractions. They are entitled to claim a bounty for providing information leading to successful enforcement action and fines over $1m. The award can be as much as 30 per cent of the fine levied.
The SEC made its first payment on 21 August, when it awarded a whistleblower $50,000 - 30 per cent of the total amount the SEC had collected so far. (The identity of the whistleblower is unknown as the act protects anonymity.) The SEC said any rise in fines for the company would result in further whistleblower payments. It also revealed that since the start of the bounty programme it has been receiving around eight tips a day.
These measures present challenges for international companies. Bounty payments surely create a disincentive for the whistleblower to approach the company first. This means that a company may find out about a problem only after the authorities have started investigating. Reputational damage may, by then, be done, with the potential for criminal penalties and civil action.
This does not affect US companies only. Companies based in the UK and connected to the US can be caught. The SEC’s Foreign Corrupt Practices Act (FCPA) jurisdiction can extend beyond traditional boundaries of territory and nationality through only a minimal connection with the US, such as correspondent bank accounts, wire transfers and sending or receiving emails in the US. There are also no territorial limitations on bounty hunters.
The SEC and the Department of Justice recently charged London-based medical device company Smith & Nephew with violations of the FCPA arising out of payments by its US and German subsidiaries to public doctors in Greece. The company and its US subsidiary agreed to pay more than $22m to settle civil and criminal charges. If there had been a whistleblower in the case, 30 per cent of the fines levied would have resulted in a bounty payment of as much as $7m.
The existence of bounty payments reinforces the need for robust compliance programmes to detect problems early, but it also raises the question of how far we have to go to detect crime. Should a criminal justice tool create new millionaires?
Nicholas Storrs, an associate at Sullivan & Cromwell, assisted with this article