Financial Reforms' Effect on Whistleblowers

 

The whistleblowers of the US had cause to rejoice when the Frank-Dodd financial reforms were announced. The reform granted numerous rights to whistleblowers, broadened the range of actionable companies, and made the whole process much more lucrative. In short, whistleblowing just got better. 

The reform was designed in response to the current recession. Many financial experts blame the recession on a convoluted financial system, flaccid regulations, and, in certain cases, the complete lack of regulation enforcement. The Act instated tighter regulations and new agencies to enforce regulations. On top of that, the whistleblower statutes are a veritable call to arms. For far too long, private individuals with knowledge of fraud were helpless. Company hierarchies prevented the information from getting to the correct ears. The kinds of entities that were able to be charged were limited. Once in court, the case could easily get caught in the vague language of the law, making it nearly impossible to prove guilt. Now the flood gates have opened, and of the estimated $40 billion dollars a year that are lost to fraud, perhaps at least a small percentage can be recovered. 

The government is equally feeling pressure from this reform. If they don’t act fast, then a percentage of potential damages paid will be lost to a whistleblower. While this fact puts the heat on the government to act fast, it also is relevant to potential whistleblowers. The quicker a whistleblower reports, the more likely it is that they will get the reward.

While the whistleblowing provision concerns all fraud, it is likely to have an exaggerated impact on anti-bribery cases in connection with the U.S. Foreign Corrupt Practices Act (FCPA). These cases have been increasing recently and the rewards are substantial.

Since the incentive for whistleblowers to come forward is so greatly increased, this opens up the question of whether companies will begin to self-report or not. A large company that can quiet a scandal easily has never before needed to fear the whistleblower, as it was rare to find individuals willing to risk their livelihoods in exchange for a paltry reward. Now, however, since more people will likely attempt to blow the whistle, companies might turn to reporting their own fraud to the government. The Securities and Exchange Commission (SEC), with its increased work load and attentiveness to detail, may also catch it first. In what has been dubbed a “cooperative regime,” the prospect of the SEC and corporations working together has been suggested, with the SEC establishing a warning system.

Some people have found issue with the reforms and their possible effect on the financial landscape. With hefty rewards offered through FCPA cases, potential whistleblowers will be searching for every excuse to litigate. Even though a company might have a stellar track record for reporting, but have no viable defense against allegations of this kind. Large companies often prefer to settle outside of court, since the sum will usually not even make a dent in the company’s budget. The companies depend on the prosecutors to solely try cases that are worthwhile. The argument is that the whistleblowers could possibly bring forward multitudes of ridiculous cases, but they would be pushed through due to certain companies policies to automatically settle a case. 

All in all the reforms are positive for whistleblowers and the government alike. With the increased incentive for whistleblowers, companies are encouraged to comply with all regulations to avoid costly lawsuits. The government is aided by private individuals holding information that the government has no other way of gathering. The whistleblowers are rewarded more for putting themselves in a possibly harmful and emotionally stressful position.