For more than two decades, U.S. law enforcement authorities have sought to encourage companies to establish corporate compliance programs to detect and prevent illegal conduct by corporate personnel, and to self-report potential violations they identify. The Securities and Exchange Commission has been in the forefront of these efforts, offering companies the prospect of reduced sanctions in connection with self-identified and self-reported violations.
The new Dodd-Frank whistleblower provisions threaten to undercut these longstanding initiatives by offering substantial payments to persons who are the first to report previously unknown information about possible corporate misconduct to the SEC.
These bounties create powerful incentives for employees to bypass corporate compliance programs altogether and to report their concerns directly to the SEC—leaving in-house counsel less likely to learn of these issues or identify potential legal violations before the SEC does. Since self-reporting credit is ordinarily given only for information previously unknown to the authorities, companies are less likely to be able to obtain such credit.
