Whistling in Chorus: The Potential Impact of the Rise of Parallel Prosecutions on Whistleblower Regimes

A few months ago, Chinese officials announced a number of new incentives for whistleblowers to come forward to disclose corporate wrongdoing: pledging to develop protection plans for whistleblowers when necessary to “prevent and end acts of retaliation” and increasing the rewards whistleblowers could potentially receive to approximately $33,000 for “actionable information” (with even greater sums available for “significant contributions of information”).  While these policies are fascinating in their own right, they also feed into a larger discussion that has been taking place both on this blog and in other forums, regarding what impact, if any, an increased commitment to anticorruption norms by demand-side countries may have upon the current anticorruption regime. A number of authors have already discussed this phenomenon both in broad strokes and specifically within the context of China’s increased enforcement of anticorruption laws (though some have suggested China’s recent, high-profile corruption prosecutions, including a $490 million fine of GlaxoSmithKline, may serve as a cover for protectionist policies).  One area that may warrant further consideration, however, is the likely impact that the rise of demand-side prosecutions and the resulting potential for parallel enforcement by demand-side and supply-side countries may have upon these states’ whistleblowing regimes.

While the ways in which the increased prevalence of demand-side corruption prosecutions will impact the interactions between supply- and demand-side countries’ anticorruption regimes remains unclear, this phenomenon seems likely to result in one of two possible outcomes with respect to states’ attitudes towards whistleblowers. First, countries may perceive some benefit to ensuring that they are the only–or, at the very least, the first–government to receive a whistleblower’s report.  Second, states may alter their whistleblowing policies to reflect the fact that whistleblowers can potentially report to, and be rewarded by, both demand- and supply-side countries.  While the impact of these different scenarios on the ways in which whistleblowing protections and incentives will develop over time may be quite different, both appear disadvantageous to states’ anticorruption efforts, to the whistleblowers themselves, or both.

As was argued in Jordan’s recent post, there is good reason to believe that, if a corporation is subject to prosecution for the same conduct by both demand- and supply-side states, the “second-mover” should reduce the penalty it imposes upon the defendant so as not to subject a corporation to excessive punishment. The logical consequence of this policy, however, is that it provides states with a financial incentive to ensure that they are the first and potentially the only state to receive information regarding a corporation’s wrongdoing.  In this scenario, states may be tempted to embrace policies intended to induce whistleblowers to approach them with allegations of corruption. For example:

  • States may be willing to increase the rewards that a whistleblower could receive relative to others’ offers.
  • States may make whistleblower rewards or bounties contingent upon a guarantee that a whistleblower will provide his or her report only to the country in question (similar to the current requirement that a whistleblower provide “original” information in order to be eligible for a bounty under the Dodd-Frank Act).
  • Demand-side countries may place greater emphasis upon their ability to protect a whistleblower’s from employment retaliation. This inducement could be particularly powerful in light of a recent Second Circuit decision finding that the Dodd-Frank Act’s anti-retaliation protections (though not its bounty provisions) lack extraterritorial effect.

At first blush, such policies may seem to provide additional incentives for individual whistleblowers to come forward, while also encouraging states to adopt more robust whistleblower protection regimes. Yet such measures are antithetical to the spirit of cooperation that would, in an ideal world, exist with respect to anticorruption efforts that touch upon the interests of more than one state. Moreover, these provisions could encourage an increase in false or misleading reports from those hoping to take advantage of heightened incentives for uncovering corruption. Attempts to limit whistleblowers’ ability to report their concerns to more than one state may be similarly problematic as such restrictions could preclude countries that are better-positioned to prosecute a particular instance of corruption from receiving the information they require.

Alternatively, the rise of parallel prosecutions by demand and supply-side countries could result in a situation in which states, aware of the fact that whistleblowers will likely have the opportunity to report to (and be rewarded by) more than one country’s anticorruption regime, may reduce the incentives provided to whistleblowers.  There are a number of potentially negative consequences which could flow from this decision:

  • First, the increased logistical difficulties of reporting corruption to more than one organization (and the attendant risk to whistleblowers of having their identities revealed, thereby exposing them to potential retaliation) when coupled with the decreased awards offered by individual states, could deter some whistleblowers from coming forward altogether.
  • Second, states may fail to appropriately calibrate the degree to which their bounty/incentive systems should be reduced in order to account for the possibility that whistleblowers will be rewarded by both demand- and supply-side states. Different countries are likely to be willing (or able) to provide different incentives to whistleblowers (compare, for example, China’s offer of $33,000 for actionable information with the $100,000 minimum reward for a whistleblower who qualifies to receive a “bounty” per the Dodd-Frank Act). As such, states attempting to uniformly reduce their own bounty systems may potentially provide fewer incentives to whistleblowers than those currently available, which may also discourage whistleblowers from reporting wrongdoing.
  • Third, it is by no means certain that, even with increased demand-side enforcement, states will be equally interested in pursuing every instance of corruption. Thus whistleblowers may well find themselves receiving, once again, diminished rewards for reporting wrongdoing if either a supply or demand state is unwilling to pursue a case against the alleged perpetrator.

Thus, while it may be difficult to predict if the rise of demand-side prosecutions will result in increased incentives for states to induce whistleblowers to report exclusively to them or a decrease in the rewards offered by individual states, it seems likely that both scenarios may well prove to be either to whistleblowers’ or the global anticorruption regime’s detriment. This prediction only serves to further underscore the importance of ensuring that anticorruption experts continue to seriously consider how best to adapt to the increased prevalence of demand-side prosecutions and to continue to work to promote cooperation between supply and demand-side investigations and enforcement.

6 thoughts on “Whistling in Chorus: The Potential Impact of the Rise of Parallel Prosecutions on Whistleblower Regimes

  1. Very interesting, Lauren. Partly in light of Jordan’s analysis of “second-in-line” prosecutions, I find the first scenario – strengthening whistleblower protections and incentives – more likely. The second alternative – determining a reduction in incentives – seems to depend on too many unknowns and moving parts. As far as ratcheting up incentives goes, it seems especially problematic that certain (mostly supply-side) countries are better equipped to offer more lucrative rewards. In terms of resources, many demand-side countries simply can’t compete. That said, you make a great point about demand-side countries’ ability to provide protection against retaliation.

    I wonder, though, if incentivizing disclosure in a particular jurisdiction might actually foster some degree of state-to-state cooperation. Say that, down the line, the Chinese whistleblower program has proven successful. If I am an American prosecutor and I know that Chinese authorities are more likely to have information about certain suspected misconduct, I’ll have to go to them for the information rather than relying on a whistleblower. I suppose the Americans might not even know about the case absent the whistleblower’s tip and a request for information is less efficient and probably less likely to bear fruit than that tip. Also, this isn’t the best example given that there are many non-legal barriers to U.S.-China cooperation. But, as devil’s advocate, I can imagine a situation in which, given limitations on original sources, prosecutors and investigators must turn to their foreign counterparts for information.

    • I’m inclined to agree with Liz that the first scenario seems more likely–and that scenario doesn’t concern me nearly as much as the second would. Is, say, China really at the point where it’s favorable enough to potential whistleblowers? I wouldn’t guess it’s near enough to overincentivization for that to be a (top) concern yet.

      In terms of the second scenario and theoretically increased logistical difficulties: if a potential whistleblower feared his/her identity being revealed, s/he would need to report to more than one organization, right?

      I didn’t know about the “original information” requirement in the Dodd-Frank Act. This is a bit tangential, but do you know how it’s verified that the information is original? Whistleblowing is definitely not my area of expertise, but if it’s possible for you to keep your identity secret, and if it’s possible that other jurisdictions could currently be investigating secretly based on previously provided information, it seems like there’s already at least theoretically some possibility for the double-dipping that you believe states would be concerned about (unless you don’t receive the bounty until X amount of time has passed, or something similar).

      • Thanks for your comment, Katie. As Liz alluded to, while I agree that it doesn’t seem that China is (yet) willing to match the financial incentives provided to potential whistleblowers by the Dodd-Frank Act, I think there’s still a non-trivial chance that they could be perceived as a viable alternative to reporting to other supply-side countries if not now then at least in the short-term. For example, as mentioned briefly in my post, China (and other demand-side countries) are better positioned to provide whistleblowers protection from retaliation. Moreover, there is a chance that some whistleblowers may actually be better compensated by China’s current whistleblower regime in light of the fact that the Dodd-Frank Act’s “bounty provision” is only triggered if the information they provide results in monetary sanctions greater than $1 million.

        I can’t speak specifically to how “original information” is verified. However, the Dodd-Frank Act defines original information as information that is “not know to the Commission from any other source” and “is not exclusively derived from an allegation made in a judicial or administrative report….or from the news media, unless the whistleblower is a source of the information” (See https://www.sec.gov/about/offices/owb/dodd-frank-sec-922.pdf at §21F (a)(3)). Essentially, my reading of this requirement is that whistleblowers must have come by their information independently and the authorities can’t have heard of it before. I think you’re right that the current system may well permit “double dipping” i.e. whistleblowers potentially receiving rewards from more than one prosecuting country. However, I think that this may be a relatively recently phenomenon, in large part due to the relatively recent advent of demand-side prosecution.

    • Thanks for this comment, Liz. I agree with your assessment that there’s a higher likelihood that countries will attempt to induce whistleblowers to provide them with information either exclusively or, at the very least, first, at least in the short term. I also think your theory that this phenomenon could result in increased cooperation amongst states is a good one. I’m not quite sure how frequently states would avail themselves of this option (it would presumably depend in part on if they could glean sufficient information from prosecutions/convictions to conduct their own investigation without approaching the other country as well as on whether or not whistleblowing regimes developed to preclude whistleblowers from approaching other states altogether or simply encouraged them to approach one country first). However, I think this could certainly be a potentially beneficial outcome of the rise of demand-side prosecutions.

  2. Like Katie, your post got me thinking about the difference between exclusive and original. I see the standard of original information as a natural barrier to states bidding down on whistleblower benefits (the second scenario): it either encourages anti-corruption authorities to share information (so a whistleblower would not be able to report to more than one organization) or, if authorities are unwilling/unable to share information, it incentivizes whistleblowers to report in multiple jurisdictions and affords attendant protections and compensation. Exclusive information, however, is a horse of a different color as it doesn’t seem to be actually a question of ensuring a country is able to be first-mover. The idea behind the first- v. second-mover problem is that states will worry that if they are second-movers they won’t be able to impose as stiff a penalty as they would need to take the first judgement into account. But in imposing penalties states take (at a minimum) two things into account: 1) the specific financial harm done to their government and 2) the punishment/degree of deterrence they want to impose upon the company. I would think that regardless of how thoroughly the first-moving jurisdiction has punished a company, assuming the company still has assets, very few states would be willing to accept less than full restitution. The deterrence penalty is what states would lose out on as second-movers. The need for exclusive jurisdiction as a means of collecting the deterrence penalty is worrisome because it implies a country uses this tool to either a) line coffers or b) to shield a domestic company from prosecution abroad.

    • Thanks for this comment, Melanie. I think you’ve raised an interesting point about the degree to which a “second-mover’s” analysis of the appropriate size of the damages to be imposed on a corrupt actor should be influenced by the fines already imposed on that actor. However, I wanted to push back just a little on the notion that second-movers are likely only to lose the ability to impose a “deterrence penalty” on a particular actor as I’m not sure that in all circumstances it will be possible to draw such a fine distinction between on the one hand the “financial harm” or injury caused by a company’s corrupt actions and on the other the degree to which additional punitive/deterrence damages should be assessed. Specifically, I’m not sure that it’s always possible to quantify the “cost” of these corrupt acts (for example bribing physicians and hospital administrators, as in the GSK case). If we presume that, at least in some cases, the fines imposed on corrupt actors are a more holistic assessment of both the wrongdoing that has occurred and the level of penalty necessary to deter these action in the future then it’s possible that second-movers would not solely be foregoing the ‘deterrence penalty.’ That being said, I’m not sure this observation, if correct, does much to allay the concerns you’ve expressed about this phenomenon and I agree that the desire to obtain exclusive jurisdiction (and implicit desire to line a country’s coffers rather than simply combat corruption) is worrying.

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