Understanding Regulatory Whistleblower Incentive Programs

Author: Marta Moakley, XpertHR Legal Editor

Increasingly, federal agencies have instituted rewards programs aimed at curbing fraud and abuse of public funds, decreasing waste and limiting illegal activity in the workplace. As a result, a multimillion dollar bounty may be awaiting an employee, vendor or consultant, who discloses illegal, unsafe or fraudulent employer practices to a federal agency.

Specifically, the IRS recently announced that it will pay a former employee of Swiss banking giant UBS AG a record-setting $104 million for providing information assisting in a tax fraud case. The former employee's information allowed the IRS to secure approximately $780 million in fines, penalties and costs.

In addition, the Securities and Exchange Commission (SEC) instituted a whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) which stipulates that employees who voluntarily provide information to the SEC that results in a recovery of $1 million or more may receive a bounty of 15 to 30 percent of the amount recovered. In August 2012, the SEC issued the first award under its whistleblower program.

The Commodity Futures Trading Commission (CFTC) has a similar program to the SEC's, also created under Dodd-Frank. And, there exists some regulatory overlap between the Dodd-Frank programs and the Financial Industry Regulatory Authority's (FINRA) Office of the Whistleblower.

Whistleblowers may also recover portions of court awards by bringing lawsuits under the False Claims Act.

As a result of these burgeoning programs, employees have enticing incentives to blow the whistle on employers' legal violations and unsafe practices. Because of the potentially huge bounties, an employee may choose to forego an internal corporate process for reporting legal violations (internal whistleblowing) in favor of filing a complaint with a federal agency (external whistleblowing). In organizations with poorly organized internal compliance programs, an employee may rightly fear retaliation if confidentiality protections are not in place.

In light of this trend, employers should take the following steps in order to encourage employees to participate in internal whistleblowing: