The last several months of 2020 marked a new highwater mark for enforcement and reform of whistleblower protection laws. Not only were there record-breaking whistleblower awards in 2020, but Congress ended the year by passing bipartisan legislation that created and strengthened whistleblower protections related to money laundering, criminal antitrust law, the pipeline industry, and Department of Defense contractors. While there remains important work to be done by the new administration and Congress to strengthen whistleblower and anti-retaliation laws, particularly in light of massive new (and anticipated) government spending to combat the effects of the coronavirus pandemic, by objective measures 2021 appears to be off to a strong start.
Returns Increase from Existing Whistleblower Enforcement Provisions.
The November 16, 2020 release of the Securities and Exchange Commission’s Office of the Whistleblower’s fiscal year 2020 report revealed that FY2020 marked the highest number of SEC whistleblower rewards since the Dodd-Frank Act established the program in 2010. The SEC program provides that whistleblowers who report securities law violations to the SEC that lead to a recovery of over $1 million in sanctions are entitled to an award of between 10% and 30% of the money collected. Since its inception in 2010, the program has led to over $2.7 billion in monetary sanctions including $1.5 billion in disgorgement to wronged investors. Since it issued its first award to a whistleblower in 2012, the SEC has paid $562 million to 106 whistleblowers as of the end of FY2020.
In FY2020, the SEC received over 6,900 whistleblower tips, the most of any fiscal year, and issued $175 million in whistleblower awards to 39 individuals, constituting a whopping 31% of all award dollars issued over the program’s ten-year history. Accelerating this massive spike was the largest award in the program’s history issued in October 2020 (after the end of the fiscal year): $114 million to a whistleblower who repeatedly made internal reports and faced personal and professional hardships before alerting the SEC and another agency. This award eclipsed the program’s second highest award of $50 million, which was issued just a few months earlier in June, and highlights the importance of strong enforcement through the SEC program. While details of the violations exposed by whistleblowers are not generally disclosed due to confidentiality concerns, the SEC noted that in one especially successful case, two whistleblowers who submitted a joint tip were awarded nearly $30 million in September 2020 after their filing resulted in tens of millions of dollars being returned to harmed retail investors.
These considerable results from the SEC’s program were complemented by growth in another program created by Dodd-Frank, the Commodity Futures Trading Commission’s (CFTC) Whistleblower Reward Program, which in 2020 experienced its third consecutive yearly increase in monetary relief. At $1.3 billion in ordered relief, 2020 was the fourth highest year total in the program’s history. In FY2020, the CFTC awarded $20 million to whistleblowers and had a 126% increase in tips and complaints over the previous year. Perhaps as a consequence of this growth, 30-40% of CFTC’s ongoing investigations now have a whistleblower component.
The SEC Adopts New Amendments to its Whistleblower Award Program Regulations.
In November 2020, the SEC adopted new rules modifying its whistleblower program, with somewhat mixed results for whistleblowers. These new rules streamlined the processing of award applications, seeking to fix inefficiencies that had strained resources and been an impediment to enforcement. The new amendments, however, also granted the SEC with discretionary powers to cap awards to whistleblowers, authorizing it to consider the entire award amount when determining what percentage to award to a whistleblower. This could, in practice, limit awards to whistleblowers whose tips lead to very large sanctions. For awards of $5 million or less (which historically applies to 75% of awards), the new rules state that the SEC will pay the statutory maximum of 30%. For awards above $5 million, however, the SEC will consider the amount of the sanction in determining the total award, though it is still bound by the statutory minimum of 10% of money collected. The SEC stated in a press release that a whistleblower entitled to an award over $5 million can expect to get an award in the top third of the 10-30% range, if there are no negative factors present.
Congress Passes New and Amended Whistleblower Laws.
Perhaps the most consequential whistleblower law developments to come out of 2020 concerned passage of the Anti-Money Laundering Act of 2020 (AMLA), amending the longstanding Bank Secrecy Act, which requires financial institutions to track and report suspicious activity related to money laundering, tax evasion, or terrorism financing. Among other provisions, the new AMLA provisions contain a new major incentive for whistleblowers, emulating the SEC’s whistleblower reward program but with even stronger anti-retaliation protections. Similar to the SEC bounty program, whistleblowers who report money laundering to the Treasury Department are now eligible for awards of up to 30% of the sanctions collected by the Treasury when those sanctions exceed $1 million. This amounts to a big change from previously anemic incentives for reporters of money laundering: previously under the Bank Secrecy Act, awards were capped at $150,000 or less and were at the Treasury’s discretion.[1] AMLA also forgoes some of the shortcomings of the SEC’s program. Whereas Dodd-Frank only prohibits retaliation against whistleblowers who report externally to the SEC, AMLA protects whistleblowers who report internally as well. Moreover, AMLA protects whistleblowers whose tips are based on information obtained from audits, a source of information carved out of the SEC program.
Congress also passed the Criminal Antitrust Anti-Retaliation Act, which supplements protections for whistleblowers who report violations of criminal antitrust laws. The statute protects individuals from retaliation if they provide information to their employer or the federal government or participate in a proceeding involving violations of antitrust laws, such as price-fixing, wage-fixing, bid-rigging, and the like. These employees are now protected against any employment actions that would deter a reasonable employee from engaging in whistleblowing or other protected activities. If an employer retaliates against an individual in violation of the Criminal Antitrust Anti-Retaliation Act, the individual may file a complaint with the Department of Labor within 180 days of the alleged violation, and the statute authorizes both administrative relief and a private cause of action in federal court. The Department of Labor is well-suited to enforce this new anti-retaliation statute, as it already administers 23 other whistleblower protection laws for various industries. Congress grafted onto this statute the administrative processes of AIR21 (a statute protecting employees of the aviation industry) that includes a more favorable standard of proof, the opportunity for preliminary reinstatement, and other pro-employee remedies.
Congress included two additional wins for whistleblowers in the omnibus defense bill signed into law on December 20, 2020. Section 883 amended the Defense Contractor Whistleblower Protection Act to prohibit companies who contract with the Defense Department from forcing their employees to sign confidentiality agreements that would restrict them from lawfully reporting waste, fraud, or abuse. Section 116 greatly broadened the scope of protections for whistleblowers in the pipeline industry: it clarifies that employers may not waive whistleblower anti-retaliation protections through any employment agreement or conditions, permits employees to remove retaliation claims filed with the Department of Labor to federal court, and broadens coverage to include former employees, thereby prohibiting post-employment retaliation.
Next Steps
There is still important work to be done. Despite its strengths, AMLA’s robust anti-retaliation protections do not apply to employees of credit unions and FDIC-insured institutions, who must rely on other laws that are less whistleblower friendly – these laws require external whistleblowing, have weaker remedies, and impose a higher burden of proof on employees.[2] As well, AMLA requires the Treasury to implement the whistleblower program, and it is important that the Treasury follow the lessons from the SEC program. The high awards issued by the SEC program reasonably reflect he great personal and professional risk associated with whistleblowers coming forward, and the Treasury should therefore guarantee high minimum awards and grant the 30% maximum to whistleblowers in situations without negative indicators. It should also take steps to advertise its program to make sure that covered employees are well aware of AMLA’s protections and incentives. To assure whistleblowers feel safe in coming forward, the Treasury must ensure confidentiality in its program, ban gag clauses in employment agreements and take steps to aggressively enforce these protections. The Treasury should also take steps to assure the prompt rejection of meritless award applications so that it does not fall prey to the same resource drain that the SEC encountered before it amended its rules.
The start of the Biden administration also creates significant momentum to strengthen whistleblower protections in a bipartisan manner.For example,Congress did not to include a whistleblower provision in the CARES Act, the robust statute meant to begin tackling the ill effects of the COVID-19 pandemic, despite the proposal of one by now-Vice President Kamala Harris. Although the False Claims Act and its qui tam enforcement mechanism may provide an avenue for whistleblowers and anti-retaliation protection, more specific protections for such massive and novel spending programs are necessary. Additionally, Congress should consider strengthening anti-retaliation protections for those who report threats to public health, a type of protected activity that is not covered by the current patchwork of state and federal whistleblower protection laws. These measures are essential to ensuring that government funds are spent to benefit the public and that employees are protected when speaking out about their concerns in light of the current public health crisis. While we wait to see how the new administration will tackle the tough challenges ahead, we are hopeful that the recent successes in whistleblower programs mark a trend toward more robust employee protections.
Correia & Puth represents whistleblowers who wish to report waste fraud and abuse, and also individuals who have been retaliated against for engaging in legally protected activity. If you have a complaint or have experienced retaliation, please contact us today.
[1] See 31 U.S.C. § 5323(a).
[2] See 12 U.S.C. § 1831j; 12 U.S.C. §§ 1790b, 1790c.
