Tag Archives: Dodd Frank Act

Should Culpable Whistleblowers Be Eligible for Rewards?

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John Doe is a whistleblower who provided critical information to the U.S. Securities and Exchange Commission (SEC) regarding an international bribery scheme, assisting the agency in bringing a successful enforcement action. Doe timely filed an application for reward under a provision of federal law that directs the SEC to pay an award to whistleblowers who voluntarily provide original information to the agency, contingent on such information leading to a successful SEC enforcement action with monetary sanctions exceeding $1 million. Yet, in Doe’s case, the SEC denied his application for a reward—and the courts upheld this denial—because Doe himself had already pleaded guilty to bribery charges related to the same scheme he helped expose. Under the relevant statute, the SEC is barred from paying an award to any whistleblower who is convicted of a criminal violation “related to the [enforcement] action for which the whistleblower otherwise could receive an award.” In other words, if a whistleblower provides the SEC with information on a particular corruption scheme but is convicted of a crime related to that same scheme, as in Doe’s case, they are ineligible for reward.

What about whistleblowers who are culpable in the unlawful scheme they help expose, but who have not been criminally convicted in connection with that scheme? The SEC has explicitly declined to institute a rule barring culpable but non-convicted whistleblowers from receiving an award. Therefore, participants in an unlawful scheme, including a bribery scheme, may still receive an award if they blow the whistle on the offense, so long as they are not convicted for their role. The SEC’s position has been criticized as both unfair and potentially harmful. During the agency’s rulemaking process, several commenters, including a group of senior corporate executives and the American Bar Association, advocated for a more stringent rule in order to avoid incentivizing violations of securities laws. Recently, a Bloomberg Law article branded the program as “enrich[ing] fraudsters,” reflecting the continuing sentiment that no culpable whistleblower should be eligible for reward.

These criticisms are misplaced. While it is undoubtedly important to ensure that whistleblowers cannot profit from their own wrongdoing, it would be unwise to implement a more stringent standard than the one set out in the SEC’s current rule.

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When and Why Do Whistleblower Reward Programs Succeed?

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It is often difficult to expose and unravel corruption schemes without the cooperation of insiders. Yet would-be whistleblowers are frequently deterred from making disclosures due to the personal and professional risks of doing so. One increasingly popular way that countries are addressing this problem is through whistleblower reward programs. While such programs vary widely in their specifics, most operate under the same basic framework, offering a whistleblower who discloses material nonpublic information that leads to an enforcement action a monetary reward—typically, a percentage of the fines imposed on the liable parties—as an inducement to come forward.

In the United States, which pioneered this mechanism, whistleblower reward programs have seen broad success. Between 1986 and 2020, whistleblower cases under the False Claims Act (FCA) brought in $46.5 billion in penalties, with whistleblowers receiving $7.8 billion in rewards. And this is only under the FCA—other U.S. whistleblower reward programs have also led to the recovery of significant additional sums. For example, under the whistleblower program created by the Dodd-Frank Act, which was created in 2011, whistleblower tips have contributed to at least $2 billion in financial remedies for violations of the securities laws, with over $720 million awarded to whistleblowers. The success of whistleblower reward programs in the United States has inspired similar programs in several other countries, including South Korea, Canada, Nigeria, Ghana, Hungary, and Kenya. But not all of these programs have been similarly successful. For example, in Ghana, the first country in Africa to introduce a whistleblower reward program, no rewards are known to have been issued—in fact, few have made use of the Ghanaian Whistleblower Act’s provisions at all.

What factors help explain when a whistleblower reward program will work as intended? There is no easy or simple answer—the issue is complex, and the effect of any given program depends in part on details of the program’s design, including the prerequisites for receiving a reward and the scope of the program, as well as the country’s culture around whistleblowing. That said, two factors stand out as key indicators of whether a whistleblower reward program will succeed in encouraging substantial numbers of whistleblowers to come forward:

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Guest Post: An Anticorruption Agenda for the Biden Administration

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Today’s guest post is from Lucinda A. Low and Shruti Shah, respectively Acting Chair and President of the Coalition for Integrity, a U.S. based non-governmental organization focused on fighting corruption. The opinions expressed here are those of the authors, and should not be attributed to the organization..  

The United States has a long history, across administrations of both parties, of showing leadership internationally in the fight against corruption. The passage and enforcement of the Foreign Corrupt Practices Act (FCPA) has served as an example for other countries to adopt their own transnational anti-bribery laws. Additionally, the United States has championed international anti-bribery efforts in multilateral organizations and worked to build coalitions to root out all types of corruption. For the last several years, however, U.S. has faltered. In order to reestablish the U.S. as a global leader against corruption, and to get its own house in order, the Biden Administration and the new Congress should embrace an ambitious agenda that includes the following elements: Continue reading →

Rewarding Whistleblowing to Fight Kleptocracy

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Last February, Massachusetts Congressman Stephen Lynch introduced the Kleptocracy Asset Recovery Rewards Act (KARRA), which seeks to improve detection of stolen assets housed in American financial institutions by paying whistleblowers for reports that lead to the identification and seizure of these assets. The logic of paying rewards to whistleblowers is straightforward, and nicely summarized in the draft KARRA itself:

The individuals who come forward to expose foreign governmental corruption and klep­toc­ra­cy often do so at great risk to their own safety and that of their immediate family members and face retaliation from persons who exercise foreign political or governmental power. Monetary rewards and the potential award of asylum can provide a necessary incentive to expose such corruption and provide a financial means to provide for their well-being and avoid retribution.

Paying whistleblowers for information is a sound economic idea.  But in light of the cogent explanation for these rewards, the original draft of the KARRA legislation doesn’t go nearly far enough. Indeed, this original proposal provides much weaker incentives and protections for whistleblowers than several other existing US whistleblower rewards programs. It is unlikely that this bill has a real chance of being enacted in the current Congress, but if its introduction this year is a harbinger of a more sustained effort to enact legislation of this kind—and I hope it is—then I also hope that the next time around KARRA supporters will introduce a more ambitious bill, one that provides much higher potential rewards, fewer limitations on which whistleblowers are eligible for rewards, and more robust anti-retaliation protections.

There are many ways to design a whistleblowing program, as demonstrated by the spectrum of existing programs that use whistleblowing to tackle fraud in other domains. We can examine the effectiveness of the proposed legislation through comparison to existing whistleblowing programs:

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The U.S. Is Making a Mistake by Withdrawing from the EITI

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Last month, the Trump Administration announced that the United States would be withdrawing from the Extractive Industries Transparency Initiative (EITI). The decision was not wholly unexpected, especially since the Department of the Interior announced last spring that it would no longer host regular talks among a group of U.S. stakeholders that included representatives from the industry as well as activists and government representatives — one of the requirements of membership in the EITI. Nonetheless, the U.S. decision to withdraw from the EITI is a significant setback to the fight against corruption and misgovernance in the resource sector.

To understand the likely impact of the U.S withdrawal from the EITI, it’s useful first to review what the EITI is—both its mechanics and its objectives. Continue reading →

Guest Post: The U.S. Retreat from Extractive Industry Transparency–What Next?

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Zorka Milin, Senior Legal Advisor at Global Witness, contributes today’s guest post:

The US Department of the Interior recently took steps to halt its work on implementing a global transparency initiative for the resource sector, known as the Extractive Industries Transparency Initiative (EITI). This announcement came on the heels of the Congressional action repealing a related rule, adopted by the SEC pursuant to Section 1504 of the Dodd-Frank Act, that required oil, gas and mining companies to publish their payments to governments. The two issues are related but distinct. First, 1504 rule required US-listed companies to report payments they make to governments around the world. In contrast, the Extractive Industries Transparency Initiative (EITI) applies in those countries whose governments choose to join the initiative (including the US) and requires payments to be disclosed both by the recipient government as well as by all extractives companies that operate in that country. These differences in scope make the two transparency measures necessary complements to each other. EITI produces valuable information from governments about the payments they receive for their natural resources, whereas mandatory legal rules like 1504 are necessary to ensure meaningful and broad reporting from companies, including in those resource-rich countries such as Equatorial Guinea and Angola that are not part of EITI but are in desperate need of more transparency. Indeed, the US EITI experience shows that even in those countries that do commit to implementing EITI, EITI alone might not be enough to compel all companies to report, if it is not backed by domestic legislation.

Officials at Interior appear to be retreating from their ill-advised decision to effectively withdraw from EITI, but these mixed signals, especially when viewed together with the Congressional action, send a troubling message about the US government’s changing stance on anticorruption, and set back a long history of US leadership on these issues. Nonetheless, while these recent US developments are a setback from a US anticorruption perspective, the rest of the world is powering ahead with this much needed transparency. Continue reading →

Guest Post: Rolling Back Anticorruption

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Laurence Cockcroft, a founding board member of, and current advisor to, Transparency International, contributes today’s guest post:

The global campaign against corruption has become a cornerstone of Western foreign and development policy for the last 25 years. This campaign built on a number of earlier measures, most notably the 1977 enactment of the US Foreign Corrupt Practices Act (FCPA), which criminalized foreign bribery by companies under US jurisdiction, but the campaign really accelerated beginning in the late 1990s. For example, while European countries had resisted adopting legislation similar to the FCPA for 20 years, this changed with the adoption of the OECD Anti-Bribery Convention in 1997, which was followed a few years later by the 2002 UN Convention Against Corruption. International financial institutions like the World Bank have become more aggressive about debarment of contractors found to have behaved corruptly, and we have also seen the proliferation of corporate-level ethical codes, promoted by organizations like the World Economic Forum and UN Global Compact, designed to prevent corrupt behavior.

More recent initiatives have pushed for greater corporate transparency. For example, in the United States, the Dodd-Frank Act ended the aggregation of corporate income across countries; an EU Directive promulgated shortly afterwards imposed similar requirements. More recently, an initiative to disclose the true beneficial owners of corporations and other legal entities, pushed by former British Prime Minister David Cameron, has already taken legislative form in the United Kingdom; beneficial ownership transparency is also the subject of an EU Directive, and was being promoted by the Obama administration. And although the so-called “offshore centers” have yet to embrace similar transparency of beneficial ownership, regulatory systems in these centers have been significantly improved. There have also been a number of important sector-level initiatives, particularly in the resources sector. These include the Extractive Industries Transparency Initiative (EITI)—which requires participating governments of mineral and energy exporting countries, as well as companies in the extractive sector, to commit to a process of revenue transparency—as well as national-level laws, such as Section 1504 of the Dodd-Frank Act, which impose so-called “publish what you pay” obligations on extractive firms.

Even more encouragingly, this gradually improving regulatory environment has been accompanied by growing public opposition to corruption, as reflected in large-scale demonstrations around the world. Crowds on the streets, for example, have recently supported the proposed prosecutions of the current and past Presidents of Brazil, and opposed weakening of anticorruption laws in Romania.

But in spite of public opinion, the forces opposed to anticorruption initiatives have never gone away. The arrival of President Trump has let many of them loose both inside and outside the United States: Continue reading →

After the Repeal of the U.S. Publish-What-You-Pay Rule, What Happens Next?

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As most readers of this blog are likely aware, despite the valiant lobbying efforts of a broad and bipartisan swath of the anticorruption community (as well as a last-minute plug from GAB), the United States House and Senate recently passed a joint resolution, pursuant to a statute called the Congressional Review Act (CRA), to repeal the “Publish What You Pay” (PWYP) rules for the extractive sector (oil, gas, mining) that the Securities & Exchange Commission (SEC) had promulgated pursuant to a statutory mandate contained in Section 1504 of the 2010 Dodd-Frank Act. Once President Trump signs the CRA joint resolution disapproving the PWYP rule, it is wiped off the books. Professor Bonnie Palifka’s post last week explained some of the reasons why PWYP rules are so important to fighting corruption in the extractive sector, and why this repeal is the first sign that the new administration, and the Republican-controlled Congress, threaten to undermine U.S. anticorruption efforts and leadership. (For another very good analysis along similar lines, see here.) What I want to do in this post is to consider a somewhat more specific question: What are the implications of the CRA repeal of the SEC rule for the implementation of the Dodd-Frank Act’s PWYP mandate going forward?

This turns out to be a tricky legal question, involving some unexplored and untested issues concerning the relationship between the Dodd-Frank Act, the implementing regulations, and the CRA. Let me start with a quick summary of the key legal provisions, keeping this as non-technical as possible: Continue reading →

Why the Repeal of the U.S. Publish-What-You-Pay Rule Is a Major Setback for Combating Corruption in the Extractive Sector

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Bonnie J. Palifka, Assistant Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM) contributes today’s guest post:

Last Friday, following the U.S. House of Representatives, the Senate voted to repeal a Securities and Exchange Commission (SEC) regulation that required oil, gas, and minerals companies to make public (on interactive websites) their payments to foreign governments, including taxes, royalties, and “other” payments. The rule was mandated by Section 1504 of the 2010 Dodd-Frank Act, but had only been finalized last year. President Trump’s expected signature of the congressional resolution repealing the rule will represent a major blow to anticorruption efforts, and a demonstration of just how little corruption matters to his administration and to Congressional Republicans.

The extractive industry had lobbied against this rule, arguing that having to report such payments is costly to firms and puts them at an international disadvantage. Some commentators have supported their efforts, arguing, for example, that the Section 1504 rules are unnecessary because the Foreign Corrupt Practices Act (FCPA) already prohibits firms under SEC jurisdiction—including extractive industry firms—from paying bribes abroad. This argument misses the mark: The extractive sector poses especially acute and distinctive corruption risks, which the FCPA alone is unlikely to remedy if not accompanied by greater transparency. Continue reading →

The Impending Repeal of the U.S. “Publish What You Pay” Rules for Extractive Industries

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As many readers of this blog are likely aware, the U.S. Congress is poised to invoke a statute called the “Congressional Review Act” to override the rules that the Securities and Exchange Commission promulgated last year to implement a provision of the Dodd-Frank Act (Section 1504) that required companies in the extractive industries (oil, gas, and mining) to publicly disclose the amounts that they pay to foreign governments in connection with projects abroad. (A timeline of the legislation and its implementing regs is here.)

The vote is scheduled for this coming Monday. Like many in the anticorruption community, I think eliminating the Publish What You Pay (PWYP) regs would be a bad idea. Alas, I don’t have time to write up a substantive discussion of the issue before the Monday vote. Fortunately, there are already a fair number of discussions of the issue elsewhere; for example, Jodi Vitori of Global Witness, who previously served as an intelligence officer in the Air Force, has a succinct explanation of why eliminating these PWYP rules would be bad for U.S. national security here.

While I usually don’t use this blog to engage in direct activism/advocacy, in this case I wanted to reach out to those GAB readers who are based in the U.S., particularly those whose representatives are Republicans, and encourage you to call your House Representative and Senator to express your opposition to the invalidation of the rules implementing Section 1504. (If you’re not sure who your House Representative is, you can find that here, and you can find a list of contact information here. Senate contact information is here.)