At Large: Are FCPA whistleblower tips important to the SEC? Maybe not

When the SEC launched its whistleblower reward program in 2011, many predicted a flood of FCPA complaints. That didn’t happen. From FY2012 through FY2020, the SEC logged over 40,000 tips overall, but just 1,667 FCPA tips, or an average of 185 a year. That means FCPA tips make up only 4.1 percent of all SEC whistleblower tips. Why so few?

FCPA tips are hard to support. The SEC isn’t looking for mere allegations of wrongdoing. It wants evidence. It’s easy to say a company winning work from foreign governments must be paying bribes; it’s hard to prove it. What’s needed are records of money moving from a source tied to the company and ending up at a destination tied to a foreign official. Not many corporate insiders have such deep access. That lack of access could limit both the number of potential FCPA whistleblowers, and which FCPA tips the SEC logs.

FCPA cases take a long, long time. Whistleblowers aren’t paid until their “high-quality, original information” results in an enforcement action with sanctions (imposed by the SEC or other agencies) exceeding $1 million. Awards can range from 10 percent to 30 percent of the money collected in a case. FCPA enforcement actions typically have an unusually long runway — often three years or more from the start of an investigation, and sometimes five years or more. That’s practically forever for a tipster, who could be unemployed. Is the long wait for paydirt deterring potential FCPA whistleblowers and their lawyers? Maybe. When whistleblowers tip the SEC to an ongoing fraud victimizing shareholders or the public, SEC lawyers seek emergency court orders to shut down the scam. Whistleblowers in those cases see dramatic movement toward their award. That doesn’t happen in the slow-motion world of FCPA cases.

The SEC brings relatively few FCPA enforcement actions. In FY2020, the SEC enforcement division said FCPA cases constituted just two percent of all enforcement actions. People who see the world through an FCPA window may think FCPA enforcement is always active. That impression is heightened by the size of today’s FCPA enforcement actions — five recent actions were worth $1 billion or more. But to anyone outside the FCPA orbit, the numbers look different. From 2012 through today, the SEC has brought 97 corporate FCPA enforcement actions, or an average of 10.7 per year. For comparison, the SEC typically brings between 400 and 500 corporate and individual enforcement actions a year. About 90 percent concern securities offerings, investment advisory issues, accounting and auditing problems, broker-dealer practices, and insider trading.

How many FCPA whistleblowers has the SEC rewarded? We don’t know. By law, the SEC has to protect their identity. It doesn’t publish whistleblowers’ names, who they work for, where they live, their job titles, and anything else that could unmask them. And when the SEC pays a whistleblower reward, it doesn’t tell us what company is involved. So, outside the SEC itself, no one knows how many FCPA whistleblowers have struck gold. But let’s assume all 97 SEC FCPA corporate enforcement actions since 2012 resulted from whistleblower tips. That’s beyond unlikely. But if all of them did, it would mean around 5.8 percent of the 1,667 FCPA whistleblower tips since 2012 led to a whistleblower award. More likely, far fewer FCPA whistleblowers received awards. Overall, since its first award in 2012 to the end of FY2020, the SEC paid 106 individual whistleblowers. That means through FY2020, 40,200 tips led to 106 people being rewarded, or 0.26 percent. That’s one award for every 400 or so tips. If FCPA tips and awards fall within the average, then the SEC has paid four FCPA whistleblowers since 2012. That number offers little encouragement for potential FCPA whistleblowers and their lawyers.

Compliance programs are working. By 2011, when the whistleblower reward program started, most issuers (companies with securities registered with the SEC) were already aware of their FCPA risks. Many were hiring compliance personnel and creating compliance programs. The shock in late 2008 of Siemens’ $800 million FCPA enforcement action, followed by mega-resolutions over the next two years involving KBR, BAE Systems, Snamprogetti / ENI, Technip, Daimler, and Alcatel-Lucent, convinced most issuers, especially the big ones, to take FCPA compliance seriously. That’s how it’s been ever since. According to the SEC, between 2011 and 2020, whistleblower tips overall grew 130 percent, but FCPA tips grew only 80 percent. What does the lag in reported FCPA problems mean? There could be many reasons. But to me, it means compliance programs are working.

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Here’s some raw data for FCPA whistleblower tips the SEC logged from FY2012 through FY2020:

2020 – 208 FCPA tips (8 SEC corporate FCPA enforcement actions)

2019 – 200 FCPA tips (13 SEC corporate FCPA enforcement actions)

2018 – 202 FCPA tips (14 SEC corporate FCPA enforcement actions)

2017 – 210 FCPA tips (7 SEC corporate FCPA enforcement actions)

2016 – 238 FCPA tips (24 SEC corporate FCPA enforcement actions)

2015 – 186 FCPA tips (7 SEC corporate FCPA enforcement actions)

2014 – 159 FCPA tips (7 SEC corporate FCPA enforcement actions)

2013 – 149 FCPA tips (8 SEC corporate FCPA enforcement actions)

2012 – 115 FCPA tips (9 SEC corporate FCPA enforcement actions)

Totals: 1,667 FCPA tips (97 SEC corporate FCPA enforcement actions)