Guidelines stress whistleblower protection
New 2010 Amendments to the Federal Sentencing Guidelines and Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") make clear that prosecutors and regulators expect to see an effective compliance program that protects whistleblowers, including risk managers, says Reid Bowman, JD, general counsel with ELT Inc., a San Francisco company that provides compliance and ethics training.
Under the rules, organizations must implement internal reporting, reviewing, and training activities that demonstrate a true commitment to compliance and a "living" compliance program with support from and responsibility by senior leaders, Bowman says. This trend is only going to accelerate in the future, he cautions.
"There has been and will be a continued emphasis and reliance on whistle blowing creating a real need for managers and workers to understand the importance of reporting, and the legal protections afforded whistleblowers," he says.
The U.S. Sentencing Commission approved amendments, which were effective Nov. 1, 2010, to its Sentencing Guidelines, clarifying what actions will result in more lenient sentencing. Bowman says the amendments specify that the organization must take these actions once it has been made aware of criminal conduct:
The organization should respond appropriately to the criminal conduct. The Amendments provide that the "organization should take reasonable steps, as warranted under the circumstances, to remedy the harm resulting from the criminal conduct. These steps may include, where appropriate, providing restitution to identifiable victims, as well as other forms of remediation. Other reasonable steps to respond appropriately to the criminal conduct may include self-reporting and cooperation with authorities."
The organization should act appropriately to prevent further similar criminal conduct, including "assessing the compliance and ethics program and making modifications necessary to ensure the program is effective." The Amendments provide that "steps taken should be consistent with subsections (b)(5) and (c) and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications."
The Amendments also address the kinds of reporting structures organizations must adopt. They provide:
The Chief Compliance Officer (CCO) should report to the board or appropriate subcommittee of the board, such as compliance or audit.
Organizations are also encouraged to have a hotline and other mechanisms to detect any compliance and ethics violations internally.
Bowman says that in this environment, it is increasingly difficult for organizations to simply "go through the motions" of implementing compliance and training programs in order to qualify for the critical legal benefits under the Federal Sentencing Guidelines.
"Increasingly, the Federal Sentencing Guidelines and skeptical judges require organizations to demonstrate that they have adopted thoughtful training programs that identify and target learner needs and which are periodically reassessed and refined with the support and accountability of senior leaders," he says.
The recently enacted Dodd-Frank Act also includes a new whistleblower program which provides substantial cash rewards for whistleblowers who voluntarily provide information to the Securities and Exchange Commission (SEC) leading to the successful prosecution of securities law violations. Whistleblowers who report securities violations, including violations of the Foreign Corrupt Practices Act (FCPA) that result in monetary sanctions greater than $1 million, may receive between 10% and 30% of the total recovery, Bowman says.
The whistleblower provision also provides anti-retaliation protections, which permit civil causes of action for wrongful termination, suspension, harassment, or other discrimination because of the whistleblower's reporting to the SEC.
If successful, an anti-retaliation claim can result in reinstatement of seniority, two times the amount of back pay otherwise owed with interest, and compensation for litigation costs, expert witness fees, and reasonable attorneys' fees, Bowman says.
The Dodd-Frank act also amends the Sarbanes-Oxley and the False Claims Act to provide broader protection for whistleblowers.
"The Dodd-Frank Act makes it more important than ever to train your managers and employees on the role of reporting and the importance of retaliation protections," Bowman says. "Retaliation is a particularly important subject, because most managers either do not understand the concept at all, or do not fully understand the many kinds of conduct which may give rise to a retaliation claim."