Wednesday, October 20, 2010

Will Dodd-Frank's Whistleblower Provisions Be Exported?

Meet Markus Funk (here). He is a former DOJ attorney and now a partner at Perkins Coie.

He recently wrote a piece (here) that caught my eye.

It's about Dodd-Frank's whistleblower provisions.

You might ask, what isn't these days!

Funk's piece however is a bit different because it uses Dodd-Frank's whistleblower provisions to ask the question - will signatory nations of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (here) incorporate similar provisions into their domestic law to demonstrate commitment to combating bribery?

Interesting question - and more on this below.

First a quick summary of Funk's piece.

In it, Funk states that "the passage of [Dodd-Frank] signals a significant acceleration of the U.S. government's already intensified Foreign Corrupt Practices Act enforcement efforts." He states that by "unveiling" Dodd-Frank's whistleblower provisions "to the world" "the United States heralds a new phase in its increasingly global anti-bribery enforcement efforts."

Funk then writes, "as U.S.-led political pressures to enhance national anti-bribery efforts continue to grow, the Dodd-Frank Act's novel enforcement mechanisms have the potential to attract international imitators." He further states: "with mounting global pressure (not the least of which originates from the United States) on signatory states to comply with the Anti-Bribery Convention's requirements, currently under-performing countries will likely be looking for efficient and effective ways to demonstrate their earnest intent to live up to their commitments." "Given this backdrop," Funk writes, "the Dodd-Frank's Act's new whistleblower provisions may well stand out as an ideal template for others (who are not culturally or otherwise averse to such rewards) to emulate."

As noted in a prior post (here) Dodd-Frank's whistleblower provisions are buried deep in the 2,000+ pages of the Dodd-Frank Act. The provisions apply to all securities law violations. It is an open question whether anyone in Congress had the FCPA on their mind when voting for Dodd-Frank, including its whistleblower provisions.

Yet, perhaps because the FCPA bar is such an active group of writers, Dodd-Frank's whistleblower provisions have come to be reported in some circles as the FCPA whistleblower provisions. After all, the FCPA is indeed part of the Securities and Exchange Act of 1934 so the generic whistleblower provisions are indeed FCPA relevant.

In any event, I wondered why Funk wrote that "the passage of [Dodd-Frank] signals a significant acceleration of the U.S. government's already intensified Foreign Corrupt Practices Act enforcement efforts" and why he wrote that Dodd-Frank's generic whistleblower provisions "symbolize the government's accelerating fight against foreign corruption."

So I went to the source and posed Funk the following question.

"Why do you believe that a generic securities law provision in a 2,000+ page financial regulatory reform bill is going to prompt other countries to adopt bribery/corruption specific whistleblower provisions?"

Below is Funk's response, posted with his express permission.

*****

'My answer to your question comes in parts.

Let me start out with an observation directed towards your question's basic premise. I do not see why the raw page-count of the Dodd-Frank Act should have any meaningful bearing on whether its whistle blower provisions are (1) generally known and understood, or (2) likely to generate domestic success or foreign imitators.

Pundits, the media, and legal observers have certainly succeeded in swiftly digging through the bill's 2,000+ pages of text and zeroing in on the tip-generating provisions we are talking about. Their very public analysis, moreover, strips away from the whistleblower bounty provisions any obscurity they may at one point have enjoyed (and, as the widespread attention to the Act signals, most observers do not categorize the novel provisions as unexceptionally "generic").

Evidence of the recently-enacted whistleblower provisions' emergent renown is, indeed, plentiful. Do a simple Google search for "Dodd-Frank" and "whistleblower," and watch the thousands of hits come pouring in. Most foreign-based white collar websites, whether run by governments or lawyers, moreover, contain extensive and nuanced analysis of the Act's whistleblower provisions. Hardly the reception accorded to an enactment that got lost in the shuffle.

And the whistleblower provisions' renown is not the only thing that has confounded critics' expectations; within a few short months, the Act has begun to yield actual real-world results. As recently reported by the Wall Street Journal, the new whistleblower incentives have generated an average of one tip a day (though the quality of the tips, and the country of origin of the tipsters, is admittedly still unknown).

These newly-generated/motivated tipsters, as well as the steady drumbeat of domestic and international corporate clients expressing concern about, and wanting more information on, this particular aspect of the Dodd-Frank Act, at a minimum place significant doubt on the position that the Act's whistleblower provisions are so deeply buried within the rest of the Act that their effectiveness is nil because nobody knows about them.

Having addressed your foundational criticism of the Dodd-Frank whistleblower provisions, we can now move on to a companion challenge facing our ramped-up transnational anti-bribery efforts (and, for that matter, facing transnational law enforcement efforts generally).

Skeptics of global anti-bribery efforts now point to the much-cited International Bar Association's recent survey of 642 legal professionals in 95 jurisdictions for proof that even lawyers don't know about the world's leading anti-bribery conventions and instruments. The IBA survey revealed that roughly half of the world's lawyers have never heard of the FCPA. Some 70 percent of those questioned, moreover, knew nothing about the U.K. Bribery Act, and 40 percent are entirely unfamiliar with the Organization for Economic Cooperation and Development ("OECD") and United Nations anti-corruption conventions. Four in 10 respondents in developed countries such as Denmark, Germany, Canada, and Japan likewise knew of none of these anti-bribery instruments; the result was bumped up to 7 in 10 for New Zealand and Hong Kong lawyers.

Observers hold these results up as conclusive, damning proof that few in the world's legal community know, or much care, about these internationally celebrated/hyped anti-bribery enactments.

It would be pointless for me to argue against the existence of an unfortunate, long-standing dissonance between international diplomatic proclamations, on the one hand, and tangible results on the ground, on the other. Indeed, I have personally experienced this frustrating phenomenon while working in post-conflict countries for the U.S. State Department, and have also written a book on the International Criminal Court which takes aim at the international community's "much talk, little action" habit.

But, in the present context, I remain unmoved by the IBA's headline-grabbing findings. For one, these survey results smack of a high-minded variant of Jay Leno's "Jaywalking," in which Leno probes the proverbial "man on the street's" basic knowledge of topics such as history, politics, and world affairs. The hapless respondents are inevitably revealed to be, or at least portrayed as being, ignorant dolts.

Similarly, the IBA's survey results stand for little more than the rather unremarkable proposition that the "average" attorney (the survey omits any indication of specialization or areas of the survey-takers' expertise) is not particularly well-versed on the topic of international anti-bribery instruments. Wish it weren't so, but does it really matter?

Surveys of similar type could undoubtedly be constructed to reveal lawyers worldwide as wholly unfamiliar with wide swaths of accumulated substantive legal knowledge (anyone interested in taking a pop quiz surveying the examinee's understanding of patent, human rights, or regulatory law?).

Are the IBA survey takers' low scores to be read as meaning that global anti-bribery efforts are under-appreciated by lawyers to such an extent that they are rendered irrelevant? Hardly. What actually matters, of course, is whether the key decision-makers active in the anti-bribery fight know about these provisions. They clearly do.

But even if these survey results are meaningful, the "so what?" question remains: do the low scores represent (1) a call to action, or (2) a call to throw in the towel? Even assuming purely for the purpose of argument that throwing in the towel is the more sensible course, this clearly is not what the U.S. Government has in mind. Quite to the contrary.

In one public pronouncement after another, high-ranking Department of Justice, State Department, and Administration officials reaffirm the U.S. Government's commitment to remain fully engaged in – and, indeed, to significantly ramp up – the global fight against public corruption.

During his May 31, 2010, address to the Organization for Economic Cooperation and Development (OECD) in Paris, for example, Attorney General Eric Holder publicly announced the U.S. Government's continued support for the Anti-Bribery Convention: "As Attorney General, I have made combating [global] corruption one of the highest priorities of the Department of Justice." Holder additionally announced the Government’s intent to strengthen global anti-bribery efforts through enhanced transnational collaboration and the sharing of "best practices." Not coincidentally, in the month following the Attorney General's speech, the U.S. House passed the Dodd-Frank Act’s conference report of the bill.

Whether through high-minded moral leadership, innovative new initiatives, or more pedestrian, self-interested incentives connected with financial-based trade, aid, and protection, the U.S. has a way of ensuring that its message is heard – heard loud and clear, actually – and acted on. And there is no need to even walk down the increasingly lonely road of American exceptionalism to make this point. Realpolitik will suffice.

Few would dispute that, despite some recent setbacks, the U.S. Government continues on as the dominant force in world affairs. When the U.S. takes action, foreign governments and global businesses take notice.

Well-publicized, enormous fines/disgorgements of corporate wrongdoers collected not only in the U.S., but increasingly also abroad, only further raise awareness, underscoring that the "old way" of doing business is coming to an abrupt end. Even on the enforcement side, good news for corporate criminals is hard to come by.

The proliferation of Mutual Legal Assistance Treaties (MLATs) between the U.S. and other countries, moreover, make extradition and public trial a reality. As USDOJ Criminal Division Assistant Attorney General Lanny Breuer put it during a May 2010 speech: “We are actively working with our foreign counterparts in various areas to ensure that country borders won’t limit our ability to fight fraud . . . . As recently as February, new U.S.- E.U. agreements on mutual legal assistance and extradition went into effect. These agreements offer significant new tools that will streamline cross-border investigations and allow for even greater cooperation with our counterparts abroad.”

The world is clearly growing uncomfortably smaller for corporate criminals. Viewed from this perspective, we are currently experiencing a race to the top, not a race to the bottom.

Available international numbers in fact lend support for the argument that mounting U.S. diplomatic pressure aimed at increasing global anti-corruption efforts is, to some extent at least, achieving its desired result. Transparency International (TI) recently released its "July Progress Report 2010: Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials." TI notes that, between 2009 and 2010, the number of signatory countries actively enforcing the Anti-Bribery Convention increased from four to seven (those countries representing some 30 percent of world exports). Furthermore, since the mid-2000s, the number of moderately enforcing countries doubled from 8 to 16.

Although these statistics demonstrate that most signatory countries still have considerable room for improvement towards living up to their anti-bribery commitments, the recent uptick in enforcement signals that domestic and international pressures have not gone unnoticed. The Dodd-Frank Act's novel way of incentivizing individuals with knowledge to step forth and blow the whistle is readily-understood, and provides a simple way to increase OECD Anti-Bribery Convention compliance. Considering that the U.S. Government is giving every available signal that these pressures will, if anything, only increase, it is reasonable to expect global anti-corruption initiatives and cooperation to trend in the same direction.

To the extent that the innovative Dodd-Frank whistleblower bounty provisions continue to generate substantive tips, and that foreign whistleblowers are appropriately protected, there is no reason to think that other countries will not imitate the provisions in the same way as other effective U.S.-born legal provisions have found new second homes throughout the world."

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