6 minute read
How Your Company Should Anticipate and Respond to Whistleblower Claims
By JUSTIN LUGAR
Whether you prefer the original 1959 Barrett Strong version, the 1963 Beatles’ rendition, or the more eclectic 1979 new wave take by the Flying Lizards, Berry Gordy and Janie Bradford’s “Money (That’s What I Want)” continues to ring true in 2024 in the world of whistleblowing. That’s why it’s critical for companies to know how to respond to whistleblower claims.
Although whistleblowers may be motivated by such factors as their conscience and a sense of duty, there are billions of reasons it makes financial sense for a potential whistleblower to put their job or reputation on the line. Both the United States and the United Kingdom are compensating whistleblowers in increasing numbers— a trend set to continue in the foreseeable future in other countries as well.
Knowing where and in what context information can be monetized is an essential first step for legal departments. Once legal departments understand the challenges posed by whistleblowers, they must develop a comprehensive strategy involving clear reporting protocols, robust record-keeping policies, and an executable response plan. Let’s examine the key whistleblower programs in the US, followed by anticipated changes in the UK, and finally we’ll look at a threestep process to help build a sound response plan for whistleblower investigations.
Whistleblowing Under The False Claims Act
Since 1986, the Department of Justice (DOJ) has awarded whistleblowers nearly $9 billion under the False Claims Act (FCA) in awards for outing fraud, waste, and abuse. During the same period, the United States recovered over $75 billion in damages and penalties. Unsurprisingly, whistleblowers are filing cases under the FCA in record numbers and companies should expect an increase in investigations in the near term.
Whistleblowing To The SEC
The trends for the Securities and Exchange Commission’s (SEC) whistleblower program are similar: 2023 marked a 50 percent increase in the number of tips and the largest single fiscal year of fraud tips in SEC history. Whistleblowers filed 18,000 tips and the SEC paid its largest award yet to a single whistleblower ($279 million). Since 2011, the program has received 60,000 tips, collected over $6 billion in fines, and paid whistleblowers just under $2 billion in awards.
Whistleblowers Under The CFTC
Since its first award in 2014, the Commodity Futures Trading Commission (CFTC) has recovered over $3 billion and paid out roughly $365 million to whistleblowers for tips regarding fraud in futures, options or swaps, and other violations of CFTC regulations. Like the SEC program, the CFTC received a record number of tips in 2023 amounting to an increase of 50% over 2020 and 2021.
IRS Whistleblowers
Under the IRS’s whistleblower program, the number of tips has remained steady over the past five years, averaging between 4,000 and 5,000 tips per fiscal year. In the most recent reported statistics from 2022, the IRS paid whistleblowers 132 awards totaling $37.8 million.
Importantly, we are only beginning to see the impact of the Inflation Reduction Act (IRA)’s injection of $80 billion into the IRS’s budge t , much of which is targeted at investigating tax fraud for the wealthiest. Indeed, on July 11, 2024, the IRS announced it had already recouped over $1 billion in back taxes as direct result of the IRA’s funding.
Momentum At Home And Abroad
The trends are clear: the United States is receiving record numbers of whistleblower tips and is paying record amounts to whistleblowers across all programs. Indeed, even the Department of Justice is getting in on the whistleblower game: in March 2024, Deputy Attorney General Lisa Monaco announced a new program to compensate whistleblowers who share “significant corporate or financial misconduct.” Across all industries, then, the key questions is not if, but when will a company face a civil, criminal, regulatory, or administrative investigation.
Not far behind, the UK is on the cusp of compensating whistleblowers for inside information. The recent public statements of UK Serious Fraud Office (SFO) in February 2024 capture a marked shift in thinking about whistleblowing, with SFO Director Nick Ephgrave noting that “[s]ince 2012, over 700 UK whistleblowers have engaged US law enforcement” in part because US laws compensate whistleblowers for valuable information. Ephgrave’s conclusion was clear: “I think we should pay whistleblowers.” Meanwhile, the Labour party’s landslide election win on July 4 suggests we’ll see an even stronger push for new whistleblower reward schemes
Put simply, there is growing momentum in the UK (which will likely influence the EU) to pass legislation to provide monetary incentives to whistleblowers. It is only a matter of time before incentive schemes similar to the FCA, SEC, DOJ and CFTC programs will generate thousands of new investigations internationally.
Take Action Now
There are three key steps in-house legal departments should undertake in short order to provide layers of protection from unjustified (and justified) whistleblower complaints.
1. In-house counsel must establish and consistently reinforce clear reporting protocols expected of company employees. Employees should be provided with multiple, different channels for reporting, including hotlines, anonymous reporting, and options to report outside the direct line of supervision. Companies should consider imposing written policies mandating employees report concerns internally through one of these reporting channels (think post-9/11 New York City subway posters: “If you see something, say something” ad campaigns).
2. Companies must create and maintain clear records and document everything. If a company finds itself subject to investigation, having a contemporaneous record documenting compliance efforts, interviews with employees, internal inquiries about the factual basis for a complaint, and any remedial measures undertaken can have a profound impact on the direction of a government investigation.
3. Develop a written response plan for addressing whistleblower allegations. Create a checklist and decision tree for employees. Key actions include:
■ Take immediate action to document the specific allegations
■ Assess the credibility and severity of the allegations.
■ Assign responsibility for investigating early and take efforts to ensure the investigating parties are objective and impartial.
■ Bring in outside counsel as early as possible to advise on reporting obligations/options, to assess risk, to protect privilege and integrity of the investigation, etc.
■ Take (and document) action to insulate the potential whistleblower from possible retaliation. Seek outside legal advice on specific employment actions.
■ Communicate early and often with key stakeholders in management, and communicate clearly and often with the putative whistleblower—clear communication and a perception that the company is taking allegations seriously is the single best first line of defense.
Identifying the areas where your company may be vulnerable to whistleblower allegations and developing a robust plan to respond to whistleblower claims are essential steps to promoting a corporate culture of compliance. Proactive companies that develop a real response plan prior to facing the inevitable government inquiry virtually always fare better, save time and money, and avoid lengthy disruptions to the business.
