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Jul 22

FinReg bill could lead to more bribery cases

Posted by Stephen Taub in whistleblowerforeign corrupt practices actfinancial reform billFCPAcompliance

Stephen Taub

Warning to Corporate America: Brace for a surge in bribery accusations.

The whistleblower provisions of the financial regulation bill signed by President Obama on Wednesday could lead to an increase in enforcement of the Foreign Corrupt Practices Act (FCPA), says law firm Morrison & Foerster.

As Ron Fink noted earlier, the new financial reform bill has four provisions strengthening whistleblower rights, including financial incentives and legal protection against retaliation.

Although the new provisions apply to all violations of the securities laws, they are likely to have particularly significant impact on enforcement of the FCPA, an area in which criminal and civil penalties and enforcement activity have increased sharply in recent years, the law firm asserts in a Client Alert.

Under the new FinReg bill, the whistleblower's information must be "original," meaning that it must be derived from the whistleblower's independent knowledge or analysis, must not be known to the SEC from any other source and must not be exclusively derived from judicial, administrative, or government reports, hearings, audits, or investigations, or from the news media, the law firm explains. A whistleblower would be entitled to an award based on not only the SEC action but also any "related" judicial or administrative action.

Whistleblowers could receive between 10 percent and 30 percent of the collected monetary sanctions, potentially a huge sum of money.

Morrison & Foerster acknowledges that the whistleblower provisions apply to any of the securities laws under which the SEC can bring enforcement actions. However, it believes it will likely have an immediate and outsized impact on FCPA enforcement.

 Why? Just follow the money.

 "Given the large size of recent FCPA settlements and enforcement actions, the ability to aggregate the recoveries from ‘related judicial and administrative actions' when determining the whistleblower's award, and the government's continued focus on and increased resources devoted to FCPA enforcement, the Dodd-Frank whistleblower provisions are likely to result in even more FCPA investigations and enforcement actions," the law firm told clients.

It compares potential FCPA cases to the "staggering recoveries" against health care companies and government contractors under the False Claims Act, a federal statute addressing fraud against the government that includes similar whistleblower provisions. The Act led to more whistleblowers alleging violations in the hopes of receiving a windfall, a proliferation of plaintiffs' lawyers to assist them, and increased enforcement of that statute, the law firm insists.

"The Dodd-Frank whistleblower provisions are likely to have a similar impact on FCPA enforcement," it adds.

As Willie Sutton allegedly said: That's where the money is.

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