Featured Expert Contributor, White Collar Crime and Corporate Compliance
Gregory A. Brower is Chief Global Compliance Officer for Wynn Resorts. He also serves on WLF’s Legal Policy Advisory Board and is a former U.S. Attorney.
As first reported by the Wall Street Journal last month, the SEC recently made a $279 million payment to a whistleblower related to the government’s 2019 FCPA settlement with Swedish telecom giant Ericsson. In a press release announcing the record payment, the Director of the SEC’s Division of Enforcement confirmed that the award is “the highest in our program’s history” and suggested that “there is a significant incentive for whistleblowers to come forward with accurate information about potential securities law violations.” This record payout is likely to incentivize other whistleblowers and should serve to refocus and reinforce compliance efforts within all companies, foreign and domestic, that are subject to the FCPA.
The SEC Whistleblower Program
The SEC Whistleblower Program allows persons who report violations of the federal securities laws, including the FCPA, to potentially collect between 10 and 30% of any funds collected by the government in connection to their whistleblowing. Indeed, whistleblowers can even receive awards based on recoveries by other enforcement agencies by way of a parallel criminal prosecution or even a deferred prosecution agreement or non-prosecution agreement. The only requirements for eligibility for such an award are that the whistleblower voluntarily provide original information about a violation that has occurred, is ongoing, or is about to occur, and that the information lead to a successful enforcement action resulting in a monetary penalty exceeding $1 million. Recent payouts confirm that whistleblowers may even base their submissions on public information if the whistleblower uses the information in a way that shows important insights about a possible violation that are not apparent on the face of the public information. Moreover, past awards confirm that a whistleblower need not be an employee, vendor, or have any connection to the subject company and need not even be a U.S. citizen or resident.
The Ericsson Case
Back in 2019, Ericsson resolved a joint SEC/DOJ investigation into alleged violations of the FCPA with a guilty plea by an Ericsson subsidiary, a DPA between Ericsson and DOJ, and the payment of a $1.2 billion penalty. (More recently, DOJ announced that Ericsson itself agreed to plead guilty and pay another $206 million because of breaching the 2019 DPA.) Three different claimants submitted whistleblower-award applications related to the 2019 resolution although only one of these applications was successful. According to the heavily redacted SEC order, the successful claimant voluntarily provided original information and substantial assistance, including written submissions, communications, and interviews, which was deemed significant despite occurring after the investigation had already been opened and relating to only part of the conduct ultimately charged. While the exact percentage of the penalty that was awarded to the successful claimant is unknown because of redactions in the order, even a discounted rate can obviously lead to a nine-figure payout with a billion-dollar-plus penalty.
What this Means
Many experts believe that this new record award, which follows several large awards since 2018, will serve as an incentive to would-be whistleblowers and will lead to a dramatic increase in tips on alleged FCPA violations. And, as the Ericsson case shows, the FCPA’s jurisdictional reach is very broad. In fact, most of the companies on the current top-ten FCPA settlement amount list are foreign-based but were nevertheless subject to the FCPA because of their status as an “issuer” under the statute, meaning the company is listed on a U.S. stock exchange. For example, nearly 300 Chinese companies are listed on a U.S. exchange, making them potentially subject to FCPA enforcement . Of course, even if the number of whistleblower tips does increase, the vast majority never turn into an actual enforcement actions. In 2022, the SEC brought only 462 cases out of more than 12,000 tips.
All things considered, this likely trend should concern companies with potential FCPA exposure. The reality, though, is that compliant companies have little to worry about even if investigated. But when the financial incentive is clearly so significant, would-be whistleblowers will inevitably try to find a way to come up with increasingly clever and novel ways to develop evidence of wrongdoing by others. The SEC would say that this is exactly what it intended and that it is perfectly capable of weeding out the get-rich-quick schemes from the legitimate tips. Nevertheless, as the compliance scrutiny on all companies grows, so does the risk of costly investigations, if not actual exposure, thus demanding even more vigilance on the part of corporate leaders and boards to ensure that their company’s compliance policies and practices are able to withstand the scrutiny.