Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions

Abstract

In testimony to the House of Representatives Subcomittee on Capital Markets and Government Sponsored Enterprises, the author addresses potential unintended impacts of the Dodd-Frank Whistleblower Provisions on corporate compliance programs. The bill assumes that all companies operate at the lowest levels of ethical behavior and provides incentives to bypass existing compliance programs when there are effective incentive structures within existing Sentencing Guidelines which should be supported. There should be a presumption that whistleblowers report internally first unless there is no viable, credible internal option. Then the SEC informs the company unless there is legitimate reason not to do so. Those with a fiduciary duty to report should be excluded from the bounty provisions of the bill and should be required to report upward internally before reporting externally. Culpable individuals should be excluded from eligibility to receive a bounty for reporting their own conduct. Lastly, the legislation needs to be clarified to ensure that while no adverse action can be taken against an employee for making a good-faith report, the Act should not preclude an employer from legitimate non-retaliatory employment actions.

Keywords: Dodd-Frank, whistleblower, corporate compliance, fiduciary, ethics, retaliation, Sentencing Guidelines, SEC, internal investigation, corporate culture

JEL Classification: G28, G38, K14, K20, K22, K23, K40, K42, M14