Whistleblowers in Antitrust Enforcement: Has the Time Come?
By The promotion of whistleblowing has become an important element of regulatory enforcement in several contexts, most recently in securities-law enforcement. But apart from the amnesty/leniency framework, antitrust authorities have been less enthusiastic about incorporating whistleblowers into their enforcement efforts. On August 27, 2015, the ABA sponsored a panel discussion titled Whistleblowing in Antitrust: Prospects and Pitfalls, in which four panelists considered the role that whistleblowing should play in antitrust enforcement. The panel also discussed how best to incorporate internal whistleblowing measures in corporate-compliance programs. Mark Katz, a partner at Davies Ward Phillips & Vineberg LLP, moderated the panel. Panelists included Peter Dent, the national head of Deloitte’s Forensic Services practice; Brian Fields, the Chief Ethics and Compliance Officer at Structure Tone, a multinational construction-services provider; Petra Linsmeier, a partner at Gleiss Lutz; and Gordon Schnell, a partner at Constantine Cannon LLP.
The discussion ranged over four topics. The panel set the table with a comparative overview of whistleblowing in the U.S., Canada, and Europe. Panelists next discussed the current state of whistleblowing and antitrust enforcement in the U.S. and Europe. The panel then focused on lessons for in-house counsel in considering how whistleblowers fit into a corporate organization. The webinar concluded with a debate on the relative merits of providing financial rewards to whistleblowers.
I. Overview of Whistleblower Protections in the U.S., Canada, and Europe
The webinar kicked off with a comparative overview of whistleblower protections in the U.S., Canada, and Europe. While no international standard exists, a relative consensus exists on the components of a broad framework. These points of agreement include a clear scope and definition of whistleblower protections, such as safe disclosure procedures and protection from reprisals; adequate relief and remedies; a comprehensive legislative framework; and effective enforcement and corrective action. Peter Dent added that a gold-standard regime for protecting whistleblowers would include other key elements, such as removing the burden from the whistleblower to prove that retaliation occurred, and placing it instead on the employer to show it did not retaliate against a whistleblower; establishing a single authority to receive whistleblower complaints; providing monetary rewards to whistleblowers; and making transparent the results of actions undertaken to protect whistleblowers.
With respect to whistleblowing in the United States, Gordon Schnell identified four developments that have resulted in what he maintains has created “the golden age of the whistleblower.” First, more whistleblowers are coming forward to address unlawful conduct. In the False Claims Act (FCA) arena, less than three decades ago only about thirty whistleblower cases were filed; in 2014, by contrast, there were roughly 700 whistleblower cases filed. As well, the United States Securities and Exchange Commission (SEC)—whose whistleblower program was created by the Dodd-Frank Act just five years ago—reported receiving 3,600 tips from would-be whistleblowers in 2014.
Second, Congress and state legislatures have expanded whistleblower rights and protections. The FCA, a Civil War-era law, was amended in 1986, 2009, and again in 2010, each time removing judicially erected barriers to enforcement to make it easier for whistleblowers to bring cases. And Dodd-Frank, as noted, created the SEC’s whistleblower program in 2010. What’s more, executive agencies are recognizing the force-multiplier effect of whistleblowers on their own enforcement agendas. The SEC says its whistleblower-award program—which SEC Chair Mary Jo White recently called it a “game changer”—is among the agency’s most effective tools to combat securities-law violations. Even DOJ—which has long relied on whistleblowers but typically has been muted in its recognition of their role—is now more animated in acknowledging whistleblowers’ contributions.
The third development that has cemented the role of whistleblowers in regulatory enforcement is greater judicial recognition of their importance. In the last few months alone, the Supreme Court and several appellate courts have decided cases that have expanded the rights of whistleblowers. See, e.g., Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter; United States ex rel. Hartpence v. Kinetic Concepts, Inc.; United States ex rel. Escobar v. Universal Health Services; United States v. Triple Canopy, Inc. The judiciary is following the legislative and executive tide to make it easier for whistleblowers to bring cases and right corporate wrongs.
Finally, positive media attention has helped whistleblowers gain public acceptance. Not long ago, news coverage cast whistleblowers as snitches, sneaks, and tattletales; today, press accounts tend to take a more balanced view. In sum, according to Schnell, the three branches of government, in concert with the press, have created a climate that embraces, protects, and rewards whistleblowers.
The picture, however, is very different in Canada or Europe. By Peter Dent’s reckoning, Canada has woefully inadequate protections for whistleblowers in both the private and public sectors. For example, Criminal Code § 425.1 makes it a criminal offense to retaliate against whistleblowers, yet Dent could not recall the last time anyone was prosecuted for violating it. In a similar vein, the Office of the Public Sector Integrity Commissioner—created to administer the whistleblower protections in the Public Servants Disclosure Protection Act of 2007—received zero complaints for the first three years of its existence. Since then, the Office received 140 complaints, of which it referred only six to an investigatory tribunal. And that tribunal found that none of the complaints merited disciplinary action.
With respect to Europe, Petra Linsmeier observed that the absence of harmonized rules for all E.U. member states results in a “fractured landscape” for whistleblower protections. The United Kingdom, Luxembourg, Romania, and Slovenia are the most advanced. Germany and sixteen other E.U. member states have some legal protections but they are largely insufficient to properly promote and protect whistleblowers. And seven E.U. states offer no protections at all. Bribery and corruption scandals dogging global corporations have ushered in a new wave of corporate-compliance programs for reporting violations, particularly in countries with less protective legal regimes. But unpredictable outcomes deter insiders from stepping forward. As well, the public image of whistleblowing is far from positive, creating an inhospitable environment for would-be whistleblowers to step into the klieg lights.
II. The Current State of Whistleblowing and Antitrust Enforcement in the U.S. and Europe
Schnell described what he sees as a bright future for whistleblowing in the enforcement of antitrust laws in the United States. This largely comes from the growing recognition that using the False Claims Act may be the most cost-effective way for companies to go after competitors engaging in anticompetitive conduct. As evidence, Schnell pointed to several recent FCA cases that companies brought against competitors. In one case, an ambulance company filed an FCA case against a competitor that provided services to a hospital at below-market rates in order to capture referrals of the hospital’s more lucrative patients. In another, a highway-guardrail company sued a competitor that made cost-saving changes to its guardrail design without proper approvals, resulting in a defective product that could spear through vehicles. The ambulance case settled for $11.5 million in May 2015. In the guardrail case, a federal judge handed down a $663 million judgment against the manufacturer, though that judgment is currently on appeal.
According to Schnell, a company’s calculus in deciding whether to bring a whistleblower action against a competitor is clear. Three options are available. One is to sue the competitor directly for violating antitrust laws, which is expensive and difficult. Another is to report the conduct to regulatory authorities, which is cost-effective but will not necessarily yield results. And the third is to file a whistleblower case that gets at the conduct, forces the government to investigate the claims, and makes it possible to share in the government’s recovery. In more and more cases, companies are seeing the whistleblower option as the best option to remedy anticompetitive conduct.
There is legislative activity in the U.S. that may further fuel this emergence of whistleblowers in the antitrust-enforcement scheme. While antitrust regulation is one of the last areas in which whistleblowers have not been brought into the enforcement regime statutorily, the Criminal Antitrust Anti-Retaliation Act of 2015, currently pending in Congress, may change that. The bill, which the Senate passed unanimously in July, would prohibit an employer from retaliating against an employee who reports on or provides information about an actual or suspected criminal antitrust violation. The bill was written in response to a July 2011 report from the Government Accountability Office that recommended amendments to the corporate-leniency program to bring whistleblowers into the antitrust enforcement mix. See http://www.gao.gov/assets/330/321794.pdf.
While hopeful that the bill would become law, Schnell pointed out several limitations that may hamper its effectiveness. The most critical problem is that the legislation does not offer financial rewards to whistleblowers. In this, it parts ways with the FCA and Dodd-Frank’s whistleblowers programs, both of which incentivize reporting of corporate wrongdoing by rewarding whistleblowers with up to 30 percent of any government recovery. More, the legislation only protects individuals who report criminal violations of Section 1 of the Sherman Act. It thus leaves out a whole range of anticompetitive conduct that may not rise to the level of criminal activity. Further, a six-month statute of limitations gives whistleblowers a short time to benefit from the law’s protections. Finally, the bill has no private right of action that allows a whistleblower—like the FCA does—to pursue legal action against the alleged wrongdoer if the government decides not to pursue the matter. Even if its effectiveness is limited, however, Schnell concluded the proposed legislation is a good start and may pave the way for stronger and more comprehensive antitrust whistleblower legislation in the future.
The environment for antitrust whistleblowers in Europe is decidedly different. While internal complaints within a company about antitrust violations are fairly common, antitrust whistleblowing to government authorities is less typical. The German Federal Cartel Office does not offer financial rewards to whistleblowers, but it did recently establish an anonymous whistleblower hotline. And while U.K. antitrust regulators may pay whistleblowers up to £100,000, in practice it is very difficult to secure even these relatively paltry monetary rewards.
III. Lessons for In-House Counsel
The panel then turned to what corporate in-house counsel needs to know about whistleblowers. In his role as in-house counsel at Structure Tone, a multinational construction-services provider, Brian Fields laid out a utilitarian view of whistleblowing. Starting with the premise that a whistleblower’s interests and a company’s are often aligned, Fields argued that companies should develop strong internal programs that encourage and protect whistleblowers as a matter of corporate self-preservation.
As far as short-term benefits go, such programs allow in-house counsel to learn of potentially problematic practices before the government does, and put a plan in place to fix them before a regulator comes calling. On the flip side, shutting down reporting avenues does nothing to stop allegedly problematic conduct. The long-term benefits are apparent as well. Robust whistleblower programs breed an atmosphere of compliance in a firm. Since the reach of a corporation’s compliance department is almost always limited, relying solely on compliance personnel to turn over every stone doesn’t work. Neither does a culture of fear: compliance tied to a likelihood of getting caught is a good way to get caught. Instead, employees should envision compliance as growing out of a sense of duty, honor, and love of company.
Internal whistleblower programs also provide external benefits. For one, regulators like to see them. Prosecutors may consider the scope of such a program a mitigating factor in exercising their discretion. Indeed, the role of compliance programs is baked into the Federal Sentencing Guidelines, which explicitly take into consideration the depth of such a program in meting out punishment for criminal wrongdoing. They may also provide a business advantage: insofar as companies want to do business with other compliant companies, corporate-whistleblower programs can help differentiate a company from its competitors.
The hardest part of establishing a successful program, Fields conceded, is getting global buy-in from stakeholders throughout an organization. The key is not just to convince top executives to appreciate and embrace it. In-house counsel also needs to reach the lower-level personnel would-be whistleblowers interact with everyday; namely, their co-workers and immediate supervisors. Absent a mechanism that gets ground-level constituencies to see its value, nearly any whistleblower program is bound to languish.
In-house counsel has to help the organization understand who whistleblowers are and what motivates them. The challenge is that misconceptions abound in this arena. Whistleblowers are not disgruntled employees looking for revenge. To the contrary, they are typically engaged, high-performing employees who often hold supervisory responsibilities. Whistleblowers report internally to their immediate supervisors or up the chain of command, and generally do not want to report to the government. Somewhat paradoxically, whistleblowers are moved to act out of loyalty to the company. For most, remedying misconduct is a primary motivator, and the possibility of a whistleblower award is a secondary consideration.
But whistleblowers run into the arms of regulators when companies rebuff their complaints or fail to take them seriously. Whistleblowers may also be motivated to go outside the company when they fear retaliation. Because whistleblowers need to feel that their concerns will be addressed properly, a transparent communication process is critical.
While other panelists agreed with how Fields described how companies should approach whistleblowers, they did not share his optimism that companies actually do so in practice. Dent, for instance, took the view that seeing whistleblowers as white knights is completely contrary to human nature. He pointed to an academic study, Nobody Likes A Rat, which concluded that the peer group that most benefited from a whistleblower’s conduct also most forcefully ostracized the whistleblower. Any corporate program design needs to be built around this harsh reality. Whistleblowers must be protected from reprisal precisely because they are often vilified within an organization and their peer group.
Schnell, too, pointed out that many corporations have cultures of fear that condone retaliation and, in doing so, drive whistleblowers away from internal reporting. Nearly all of his whistleblower clients, for instance, went to regulators only after reporting internally first and then suffering retaliation.
IV. Should Whistleblowers Be Paid?
The webinar concluded with a debate on the relative merits of providing financial rewards to whistleblowers; fireworks are typically saved for the end of the show, and this discussion was no exception. Fields expressed deep discomfort with paying whistleblowers, comparing the practice to prosecutors paying witnesses to testify in criminal cases. The prospect of a bounty creates credibility concerns for whistleblowers and mars legitimate claims with proof problems. Moreover, Fields spotted a philosophical inconsistency between bounty payments and the Federal Sentencing Guidelines, which contemplate reduced punishments for corporations that have muscular compliance programs, and thus give corporations strong incentives to police themselves. Incentivizing whistleblowers to report outside of those internal channels undermines the Guidelines’ push to make companies create the programs in the first place.
Other panelists saw things differently. For Dent, given that there is a scant history of companies treating whistleblowers well, remuneration is an essential safety net for the terrible outcomes that befall whistleblowers, irrespective of anti-retaliation protections. And Schnell highlighted the empirical failure of whistleblower regimes that don’t offer financial remuneration: in the antitrust sphere, for example, leniency and amnesty programs have had limited success in reducing cartel activity.
Even more critical is the success of whistleblower regimes that pay tipsters for their information and cooperation. The False Claims Act was on the books since the Lincoln Administration but didn’t start to recover significant dollars for the government until after 1986, when Congress made it easier for whistleblowers to bring suits and get monetary rewards. Twenty-four years later, Congress passed Dodd-Frank to bulk up the Sarbanes-Oxley Act of 2002, which included anti-retaliation protections for corporate whistleblowers but did not provide for monetary rewards. Today, the SEC is the first to say that the rewards program motivates whistleblowers to help the SEC uncover violations it couldn’t uncover before. At bottom, financial rewards are critical to any program that must coax whistleblowers to put their careers and livelihoods at risk.
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The ABA’s August 27, 2015 program explored the wisdom of promoting whistleblowing as an element of antitrust enforcement. Panelists expressed broad agreement about the centrality of protecting antitrust whistleblowers from retaliation. But their most spirited disagreements focused on the issue that most vexes policymakers in this area: should the government compensate individuals who help it do its work?
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