New Rules Hurt Compliance, Firm Says

An international law firm thinks the SEC’s proposed whistleblower rules could hurt corporate compliance efforts and waste taxpayer money.

A paper recently issued by Fulbright & Jaworski’s FCPA and International Anti-Corruption group says companies will likely be spending more money on defensive internal investigations instead of proactive compliance as a result of the new whistleblower program in the months and years to come.

As evidence of that, the paper notes the SEC has already received about one tip a day regarding potential FCPA violations. And one problem is that those whistleblowers aren’t required to report in house before going to the SEC. So, the Fulbright lawyers say, corporations will be in response mode more often, instead of working through their own compliance programs.

On top of that, the paper says, companies had been investing heavily in “sophisticated internal compliance programs and anonymous reporting mechanisms that were largely effective, albeit imperfect, at preventing and detecting potential violations of policy and/or law.” But with the new rules and the proliferation of whistleblower complaints, companies will be forced to redirect their compliance resources to handling complaints, instead of beefing up and maintaining compliance programs.

“Given the anticipated deluge of whistleblower complaints,” the paper says, “the new whistleblower program could have the unintended consequence of delaying detection and remediation of improper and illegal corporate behavior, while at the same time unnecessarily costing shareholders and taxpayers money for fruitless inquiries and investigations.”

But the Fulbright lawyers don’t think anyone should throw in the towel on corporate compliance. 

“Companies need to remember that effective compliance programs remain important for a number of reasons,” Richard C. Smith, head of Fulbright’s FCPA and International Anti-Corruption group, told us. “For example, they can have a real impact under the Organizational Sentencing Guidelines and the new U.K. Bribery Act.”

The paper from Fulbright & Jaworski, “SEC Proposes New Rules to Incentivize Whistleblower Reports and Prevent Unintended Consequences for Corporations,” can be downloaded here.