Revisiting The Arguments Against Whistleblower Award Laws: It's Time for a Change

Abstract

On July 21, 2010, the U.S. Congress passed the Dodd-Frank Wall Street and Consumer Protection Act.  This law included a comprehensive whistleblower law that permitted individuals to file anonymous or confidential claims with the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission and obtain a monetary award if the individual’s information resulted in a sanction against a fraudster of over $1 million. 

Shortly after the law was passed various public and private entities debated its utility.  The most high-profile review was initiated by the Bank of England Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which conducted a review of Dodd-Frank’s whistleblowing law in 2013-14.  Their report, published in July 2014, strongly criticized Dodd-Frank and the concept of whistleblower awards, laying out a number of arguments as to why awards are ineffective and would not bolster enforcement efforts around corporate crime. This report has been heavily cited in the UK and elsewhere as evidence that whistleblower award laws do not work and should not be implemented.

However, at the time of the report, there was scant empirical evidence as to the impact of awards under Dodd-Frank. Now a decade later, a body of evidence has emerged around the effectiveness of the Dodd-Frank Act.  This paper outlines this data, as well as data concerning other similar whistleblower award laws that were used as the model for Dodd-Frank.  The new data disproves the seven of the major arguments the FCA and PRA made against whistleblower awards in 2014. In doing so, the paper supports efforts across the globe to implement whistleblower award laws modeled on the Dodd-Frank Act.

Lastly, the paper outlines the key elements of Dodd-Frank, including confidential reporting, mandatory awards based on a percentage of the actual sanctions obtained from a fraudster,  and the absence of a cap on award sizes, all of which are at the foundation of the success of Dodd-Frank.  Other award laws, which do not share these features, have not worked.  Specifically, prior to the passage of Dodd-Frank the SEC had a reward law that was not mandatory.  That law was highly criticized by the SEC Inspector General, and was repealed in its entirety when Dodd-Frank was passed.

Keywords: Whistleblower, Whistleblower Awards, Dodd-Frank Act, SEC Whistleblower Program, CFTC Whistleblower Program, Whistleblower Reward