Whistleblower Disclosures: An Empirical Risk Assessment

Abstract

This paper studies the disproportionate rates of retaliation faced by corporate whistleblowers who report internally compared to those who report through external government channels. The authors study reporting behavior involved in Sarbanes-Oxley Act (“SOX”) and Dodd-Frank Act whistleblower retaliation cases over an 8-year period, finding that internal whistleblowers constitute over 90% of retaliation cases. The authors contextualize the high rates of retaliation faced by internal whistleblowers under both SOX and Dodd-Frank. By demonstrating the disproportionate rates of retaliation faced by internal whistleblowers as compared with whistleblowers who report directly to federal law enforcement agencies, the authors present a compelling argument that corporate culture remains hostile to employees who raise concerns to their managers or internal compliance programs. These findings support Congress’ recent proposals to amend laws like the Dodd-Frank Act to include robust protection against retaliation for whistleblowers who report misconduct internally. They also fully support the regulations published by the U.S. Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) that explicitly do not require whistleblowers to make internal reports prior to qualifying for a reward under the Dodd-Frank. Finally, the empirical data validates the decision made by Congress to permit anonymous and confidential reporting under the Dodd-Frank, the Bank Secrecy Act, and anti-money laundering whistleblower laws.

Because most retaliation cases are predicated on an internal report to a manager or compliance, employees, legislators, and compliance professionals need to determine how to mitigate these adverse actions. The high rates of retaliation facing internal whistleblowers also constitutes a wake-up call concerning the weaknesses in existing in-house corporate whistleblower programs.

Keywords: Whistleblower, Whistleblowing, Retaliation, Internal Compliance, Dodd-Frank Act