If you saw misconduct at your workplace, what would you do? Maybe you could “blow the whistle” internally by raising the issue to your manager or by reporting it to your company’s compliance office. But what if such conduct was so prevalent that nobody cared about your alert? Would you think about reporting the issue to a regulator?
Recent data shows that, in the financial industry in the U.S. and the U.K., an increasing number of people are informing regulators of potential illegal activities. Moreover, whistleblowing tips seem to have emerged as an effective source for regulators to detect misconduct.
In the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new whistleblowing program. The Act established a separate office in the U.S. Securities and Exchange Commission (SEC) to administer the program. In addition, the Act introduced monetary awards to whistleblowers whose information leads to successful enforcement by the SEC. Since the implementation of this new program, the number of whistleblowing tips to the SEC has been on a steady rise. The SEC received alerts from 3,001 whistleblowers in fiscal year 2012 and 3,238 in fiscal year 2013.
In the U.K., whistle blowing reportedly increased even more significantly than in the U.S., up 35% in 2013. It is further reported that more than five thousand whistleblowers contacted the Financial Conduct Authority (FCA) between November 2012 and October 2013, up from slightly under four thousand between November 2011 and October 2012.
In addition, the FCA recently reported that actionable information among whistleblowing tips increased by 65% in 2013. Another dataset shows that the number of cases opened by the FCA and other authorities based on whistleblowers’ information surged from 148 in the third quarter of 2012 to 254 in the third quarter of 2013. The FCA regards whistleblowing as an important information source that provides the regulator with “a direct insight into practices that are taking place in firms.”
The upward trend of whistleblowing will likely continue. In the U.S., the SEC awarded $14 million to a whistleblower in October 2013, by far the largest monetary award since the start of the new whistleblowing program under the Dodd-Frank Act. Further, the SEC granted monetary awards to a total of four whistleblowers in fiscal year 2013, compared to just one in 2012. The total of annual monetary awards reached $14.8 million in fiscal year 2013, compared to $45,739 in 2012. The 2012 award was the SEC’s first monetary award given to a whistleblower under the new whistleblowing program.
Furthermore, the former SEC Co-Chief of Enforcement reportedly predicted that pending cases will result in millions of additional dollars of monetary awards to whistleblowers. More frequent and larger payouts will presumably encourage more employees to report issues to the SEC.
In addition, the U.S. Supreme Court recently ruled that whistleblower protections in the U.S. Sarbanes-Oxley Act apply to private contractors and subcontractors of public companies and mutual funds. In the case Lawson v. FMR LLC, two former employees of a privately held investment adviser, which was a contractor of publicly registered mutual funds, sought legal protections for whistleblowers. The decision will likely encourage employees of certain private companies to blow the whistle.
Across the Atlantic in the U.K., the FCA has increased resources to deal with whistleblowing, and it has committed to enhancing the whistleblowing handling process. The FCA also intends to encourage whistleblowing from under-presented sectors, according to its most recent strategic plan.
Further, although monetary awards are currently not available to whistleblowers in the U.K., the FCA is reportedly considering implementation of monetary rewards. If introduced, such monetary awards should encourage still more employees to bring concerns to the regulator.
The trend toward increasing whistleblowing will also likely expand throughout the European Union (EU). The European Commission reportedly adopted an EU-wide whistleblowing hotline in the investment fund industry in February 2014. In the new EU scheme, whistleblowers can raise an issue to the European Securities and Markets Authority (ESMA) if they think their national authority has failed to respond to a concern about a violation of financial rules. ESMA plans to release more details about the scheme by this summer.
Penn Program on Regulation
University of Pennsylvania Law School
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Information for authors
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Professor Peter M. Shane came to Ohio State in 2003 from Carnegie Mellon University’s H. John Heinz III School of Public Policy and Management. He is an internationally recognized scholar in administrative law, with a specialty in separation of powers law and has co-authored leading casebooks on each subject. He has served on the faculty at the University of Iowa College of Law and was dean at the University of Pittsburgh School of Law. In addition to his outstanding law teaching and scholarship, Professor Shane has received a National Science Foundation grant for interdisciplinary study related to cyberspace and democracy.
Matthew D. Adler
Matthew Adler is the Richard A. Horvitz Professor of Law and Professor of Economics, Philosophy and Public Policy at Duke Law School. He previously taught at the University of Pennsylvania Law School and was affiliated with the Penn Program on Regulation. He is the author of Well-Being and Fair Distribution: Beyond Cost-Benefit Analysis (2012)
Robert A. Katzmann
Judge Robert A. Katzmann is a the Chief Judge of the U.S. Court of Appeals for the Second Circuit. At the time of his appointment, he was the Walsh Professor of Government, Professor of Law, and Professor of Public Policy at Georgetown University, as well as a Fellow of the Governmental Studies Program of the Brookings Institution.
David M. Driesen
David M. Driesen is a University Professor at the Syracuse University College of Law and a member scholar of the Center for Progressive Reform, where he regularly blogs about environmental and climate issues. He is the author of The Economic Dynamics of Law (2012).
John F. Cooney
John F. Cooney is a partner at Venable, a Washington, D.C.-based law firm. He previously served as an Assistant to the Solicitor General in the Department of Justice, Deputy General Counsel for Litigation and Regulatory Affairs in the Office of Management and Budget (OMB), and counsel for OMB's Office of Information and Regulatory Affairs.
Lisa Heinzerling is Professor of Law at the Georgetown University Law Center and a member scholar of the Center for Progressive Reform. She was Senior Climate Policy Counsel to the EPA from January to July 2009, and Associate Administrator of the EPA Office of Policy from July 2009 to December 2010. Professor Heinzerling also served as a member of President Obama’s EPA transition team.
Gillian E. Metzger
Gillian E. Metzger is the Stanley H. Fuld Professor of Law and Vice Dean at Columbia Law School. She writes and teaches in the areas of administrative and constitutional law, with a specialization in federalism. Professor Metzger previously served as a law clerk to Justice Ruth Bader Ginsburg of the U.S. Supreme Court.
Mickey Edwards served as a member of Congress for sixteen years, and then taught for another sixteen years at Harvard University's John F. Kennedy School of Government and at Princeton's Woodrow Wilson School of Public and International Affairs. He is a Vice President of The Aspen Institute, where he directs the Aspen Institute-Rodel Fellowships in Public Leadership.
Ronald M. Levin
Ronald M. Levin, the William R. Orthwein Distinguished Professor of Law, specializes in administrative law and related public law issues. He has testified before Congress on regulatory reform issues and has published numerous articles and book chapters on administrative law topics, including judicial review, rulemaking, and legislative reform of the regulatory process. Professor Levin has been active in the ABA Section of Administrative Law and Regulatory Practice for more than three decades and served as its Chair in 2000-01. He also served as the ABA’s advisor to the drafting committee to revise the Model State Administrative Procedure Act.
Susan Dudley directs the George Washington University Regulatory Studies Center and is a Research Professor in the Trachtenberg School of Public Policy & Public Administration. She served from 2007-2009 as the Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget.
Anita L. Allen
Anita L. Allen serves as the Vice Provost for Faculty for the University of Pennsylvania. Professor Allen is also the Henry R. Silverman Professor of Law and Professor of Philosophy at the University of Pennsylvania. In 2010, she was appointed by President Obama to the Presidential Commission for the Study of Bioethical Issues.
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