The U.S. Securities Whistleblower program has released its Fiscal Year (FY) 2015 annual report on the state of the Dodd-Frank program. The number of tips increased roughly 10% over last year as the program reached a total of $54 million in payments to 22 whistleblowers. The SEC also had more than 120 whistleblowers file claims for rewards, which the report called a “significant increase” from prior years.
2015 will most likely go down in history as the year that the SEC took steps to protect whistleblowers from retaliation and the right to communicate with the Commission. The SEC took its first enforcement action based off Rule 21F-17(a), which prohibits efforts to restrict whistleblowing such as confidentiality agreements. It also offered the maximum reward, 30% of the monetary sanction, to the individual who was the subject of retaliation in the SEC’s first enforcement action to protect a whistleblower against retaliation pursuant to its authority in the Dodd-Frank regulations. Furthermore, the Commission submitted amicus briefs in several cases concerning whether an individual must file a Form TCR in order to come within the whistleblower retaliation protections created by the Dodd-Frank Act.
During FY2015, the SEC awarded the third largest reward to a whistleblower under the Dodd-Frank program. It also issued one reward to a former compliance officer of a company who waited 120 days prior to reporting the company’s wrongdoing and inaction. The other award to a compliance professional was issued under the substantial harm exception, by which the officer did not need to wait 120 prior to becoming eligible for an award to report the misconduct.
The SEC also released more general information concerning the 22 recipients that have received awards in 16 covered actions during the program’s history.
- One-half of the successful recipients provided information that led to the opening of an investigation, while the other half provided information that significantly contributed to an existing investigation.
- Just over half of the individuals were neither a current or former employee.
- Approximately 20% submitted their tip anonymously through an attorney although some revealed their identity to the SEC during the course of the investigation.
- Four of the cases had two or more whistleblowers jointly submit information.
- There have been several cases involving the financial services industry (broker-dealers or financial advisers) and a number of Ponzi schemes.
One of the More Interesting Areas is International Whistleblowing
Fewer individuals living abroad submitted tips in FY 2015, according to the geographic data collected to the SEC via the Form TCRs submitted to the program. Approximately 10% of the individuals that submitted tips over the last year were living abroad, a slight decrease from the 11.51% that were living internationally in FY 2014. In absolute numbers, the number of foreign whistleblowers decreased from 448 in FY2014 to 421 in FY2015.
Top 5 Countries for Tips in FY 2015:
1. United Kingdom – 72
2. Canada – 49
3. China – 43
4. India – 33
5. Australia – 29
The top 5 countries in FY 2014:
1. United Kingdom – 70
2. India – 69
3. Canada – 58
4. China – 32
5. Australia – 29
United Kingdom maintained its lead again this year in the number of tips from the rest of the world. The U.K. has been tops on this leaderboard since the SEC’s first full year of data. The only movement on the list this year was India, which fell from #2 to #4 as the number of tips declined by more than 50%.
On the Increase
Ireland saw a surge from 4 tips in FY 2014 to 20 tips in FY 2015. Mexico and Brazil both doubled there whistleblower tips compared to the year before. Brazil has been at the center of corruption scandals that make the country ripe for whistleblowers with information about FCPA violations to report.
On the Decrease
We already mentioned India, which had significantly less tips over the past year. Canada, which may soon have its own financial incentives as part of a securities whistleblower program created by the Ontario Securities Commission, also saw a small decrease in the number of its tips.
The number of tips from Russia has been falling since FY 2013, when it was the country with the 4th highest number of tips. It fell again this year from 10 in FY 2014 to 6 in FY 2015.
Germany also fell from 13 in FY 2014 to 8 in FY 2015. Germany had three consecutive years of increasing tips prior to its fall this year.
The other country that is noteworthy here is Japan, even though it actually increased this year. Japan’s whistleblowing has been notoriously low, failing to register a single tip last year and only three this year. In the four years of the program, only a handful of tips have been submitted from this country.
What could explain the fall in the number of international tips?
In light of the press coverage that the SEC program received after awarding the largest whistleblower reward, more than $30 million, right at the start of the fiscal year to an individual located outside of the U.S., we were expecting that the number of people submitting tips overseas would increase. Instead, it declined. Why?
One reason could be that international whistleblowers became concerned about retaliation in light of the publicity surrounding the decision in Liu v. Siemens AG (2nd Circuit). In Liu, the Second Circuit held that the doctrine of extraterritoriality applied to the Dodd-Frank whistleblower protection law. As a result, the anti-retaliation protections do not apply in cases where there is not a sufficient U.S. connection. Without retaliation protections, more than a handful of whistleblowers could have decided that they were not going to
Another possibility is that in light of the court decision, more individuals chose to withhold data concerning their country of origin. The SEC whistleblower program allows individuals to submit anonymously through an attorney and these individuals would not be included in the geographic country counts published as part of the annual report. This past year, 822 individuals (roughly 20% of the total submitting), did not supply any geographical category or applied anonymously through counsel.
FCPA Whistleblower Tips Increase for Third Straight Year
One aspect of the data released that might shed light on the number of international tips was the number of violations of the Foreign Corrupt Practices Act reported to the program. If the number of international tips declined, one would expect that this would be reflected by a decline in the number of FCPA tips. We would expect that this is the area most likely to be reported by an individual located overseas and working with companies traded on the U.S. stock market.
Instead, the number of FCPA tips increased for its third straight year, growing roughly 16% over FY2014. There were 186 tips in FY2015 versus 159 the previous year. The growth in these tips kept pace with the increase in overall tips, which was roughly 10%.
Here is the link to the complete SEC whistleblower report for the past year.