The Dodd-Frank Act and FCPA Whistleblowers

The federal government uses the Foreign Corrupt Practices Act (FCPA) as a means to prosecute and punish those individuals who violate securities laws or bribe foreign officials. For instance, when someone bribes a foreign government to expand business abroad, falsifies financial records or disregards internal control guidelines under securities laws, they can be prosecuted under the FCPA.

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was officially enacted, it signaled a change in the way authorities approached FCPA fraud. Thanks to the Dodd-Frank Act, private citizens are now able to present first-hand knowledge of FCPA fraud to the Securities and Exchange Commission (SEC) and, if successful, are eligible to receive a whistleblower reward. With fraud enforcement on the rise, FCPA whistleblowers, represented by an experienced qui tam attorney, now have the strongest incentives and retaliation provisions to date, encouraging more citizens to come forward with vital information of fraudulent activity.

What is the FCPA?

Enacted in 1977, the FCPA was drafted to amend the Securities Exchange Act of 1934. It was meant to punish those people who bribed foreign officials to gain a business advantage or entice the foreign official to neglect certain legal obligations. The FCPA also requires that some publicly-traded companies keep and maintain accurate financial records and books, in addition to having an adequate system of internal controls. In 1998, the FCPA was amended to include conduct that occurred outside of the United States. It also focused on the corruption of foreign individuals and corporations while in the United States. There are two categories of FCPA violations: accounting violations and anti-bribery violations.

FCPA Accounting Violations

FCPA accounting violations apply only to publicly traded companies who are required to keep accurate and up-to-date records, in addition to maintaining adequate internal controls. A company’s books and financial records must show a true reflection of the transactions and assets of the business. In addition, internal controls must be in place to assure these financial transactions are accurately recorded and financial statements properly prepared.

FCPA Anti-Bribery Violations

FCPA anti-bribery violations apply to all persons or entities that fall under SEC guidelines. The FCPA makes it very clear that the federal government does not condone nor tolerate bribery. It goes on to say that bribery is not a normal “cost of doing business” abroad, nor is it an acceptable way to gain an edge on competitors in foreign markets.

In certain cases, both forms of FCPA violations can relate to one another. These cases usually occur when a company pays a bribe to a foreign official, fraudulently records the bribery payment in their own financial records. For instance, companies may claim a bribery payment was actually some sort of commission payment.

FCPA Whistleblowers

Under the Dodd-Frank Whistleblower Program, citizens with knowledge of FCPA violations can come forward and submit tips to the SEC. After consulting with a qui tam whistleblower attorney, relators can file an official complaint. If whistleblowers provide information of FCPA fraud to the SEC and, as a result of that information, the Commission recovers at least $1 million, he or she is eligible to receive between 10 and 30 percent of that recovery. The amount of an SEC whistleblower’s award is determined by the significance of the information that was provided, the assistance provided during the investigation period, the government’s interest in enforcing the fraud allegations and the extent of the whistleblower’s participation in the company’s internal compliance system.

The Dodd-Frank whistleblower provisions protect citizens from workplace retaliation after providing information to the SEC, helping the SEC with an investigation or making any disclosure that is required by law. Even if whistleblowers provide information does not lead to an SEC action, as long as the whistleblower had a reasonable belief there was an actionable securities fraud violation, he or she is still covered by the Dodd-Frank whistleblower anti-retaliation provisions.

FCPS bribery and accounting violations create volatile market conditions domestically and abroad. Entities that take part in FCPA violations seem to ignore the risks involved with their fraudulent activity, focusing only on paying illegal bribes to get ahead or hiding the fraud from investors. The FCPA was enacted with these fact in mind and the SEC’s Whistleblower Program is one of the most valuable tools to further its purpose. As the number of FCPA enforcements continue to grow, with encouragement from the SEC, the chances are that most cases will originate from the valuable tips of whistleblowers.

 

By | 2018-06-14T11:12:42+00:00 July 3rd, 2013|SEC Fraud|