Under the Foreign Corrupt Practices Act (FCPA) and the Dodd-Frank Act, the Securities and Exchange Commission (SEC) awards whistleblowers who present high quality, original information regarding illegal bribes made by companies to public officials or accounting fraud related to these bribes.
Each violation of the bribery provisions may subject the company to a fine of up to $2 million. Each violation of the accounting provisions may subject the company to a fine of up to $25 million. Companies may also be subject to civil penalties, forfeiture, and disgorgement of profits generated from the crimes. Individuals may be subject to a fine up to $250,000. A whistleblower may be awarded anywhere from 10% to 30% of these monetary sanctions collected as a result of the reported information. To receive an award, the total amount of monetary sanctions must exceed $1 million.
The Bribery Provisions
The bribery provisions apply to payments, offers, or promises made to:
- Influence the acts and decisions of a foreign official in his official capacity;
- Induce a foreign official to violate his lawful duty;
- Secure an improper advantage; or
- Induce a foreign official to unduly influence a foreign government.
The payment must be made in order to help obtain or retain business, or direct business to someone. Often, the payments are made to obtain or retain government contracts. The payments must be made corruptly, with the intent to induce the recipient to misuse his official position.
The bribery provisions apply to issuers, domestic concerns, and foreign parties under US territorial jurisdiction. An issuer is a company listed on a national securities exchange in the US or a company that trades its stock in the over-the-counter market in the US who files reports with the SEC. To see if a company is an issuer, go to the SEC’s website.
A domestic concern is any US company or individual that is not an issuer. The law also applies to parties acting on behalf of a domestic concern. Finally, the law applies to certain foreign persons or entities that are not issuers or domestic concerns.
Ordinarily, issuers and domestic concerns must use US mail or other means of interstate commerce for the bribery provisions to apply. Examples include telephone calls, texting, email, or sending mail to or from the United States. Even transfers to or from a US bank satisfies this condition. A foreign party who is not an issuer or domestic concern need not use the mail or a means of interstate commerce for the FCPA to apply as long as the action furthering the bribe was taken within the jurisdiction of the United States. Further, since 1998, the FCPA has applied to US companies and citizens, regardless of whether they use a means of interstate commerce, on account of their nationality. This “alternative jurisdiction” applies even when the actions occurred entirely outside of the United States.
The Accounting Provisions
The FCPA requires issuers to keep accounting records which report “in reasonable detail” the transactions and dispositions of the issuer’s assets. This requirement helps to prevent issuers from mischaracterizing bribes on their financial statements to hide them. Examples of mischaracterizations include commissions or royalties, consulting fees, travel and entertainment expenses, and write-offs, among others. When the interstate commerce requirement is not met under the bribery provisions, the accounting provisions can nonetheless impose liability on a company.
The FCPA also requires internal controls over financial reporting processes to provide reasonable assurance that:
- Transactions are executed subject to management’s authorization;
- Transactions are recorded in such a way as to permit preparation of financial statements and to maintain accountability for assets;
- Access to assets is subject to management’s authorization; and
- Asset records are periodically reconciled to existing assets, and action is taken to address any discrepancies.
The accounting provisions apply to issuers but, unlike the bribery provisions, not to private companies. The requirement extends not only to the issuers but also to any consolidated subsidiaries and affiliates. Companies and individuals may also be responsible for aiding and abetting or causing an issuer’s violation of accounting provisions.
How to Apply
The SEC recommends that whistleblowers submit FCPA tips through the online portal called the TCR System. Alternatively, a hard copy of the Form TCR may be used. Whistleblowers can submit information anonymously, but an attorney must make the submission on behalf of the anonymous whistleblower for the whistleblower to be eligible for an award. Even when the whistleblower does not want to report anonymously, the SEC protects the whistleblower’s identity to the full extent of the law.
Protection from Retaliation
Would-be whistleblowers may seek to avoid reporting violations to the SEC out of fear of their employers’ retaliation. Congress has provided substantial protection for whistleblowers against employer retaliation. Employers who are retaliated against may be eligible for reinstatement, back pay, and other compensation. The obstruction of justice statute further prohibits retaliation against whistleblowers. Whistleblowers also have a private right of action against retaliating employers.