I am a bit obsessed with trying to gain support for a criminal cartel whistleblower statute. Toward that end, I often comment on the wildly successful SEC fraud whistleblower statute and why I think a cartel whistleblower statute would have equally positive results.
A May 24, 2019 Wall Street Journal column by Mengqi Sun and Kristin Broughton (here) reported that:
A former orthopedic surgeon in Brazil received an award of more than $4.5 million for raising concerns to the Securities and Exchange Commission about an alleged kickback scheme operated by a subsidiary of a medical device maker, according to lawyers for the whistleblower.
Under SEC rules, whistleblowers are entitled to between 10% and 30% of monetary penalties when their tips result in a successful enforcement action and when the monetary penalties are more than $1 million.
The whistleblower receiving the award Friday received about 15% of the amounts collected by the SEC and the Justice Department.
Another news report added this:
A whistleblower sent a tip to the SEC within 120 days of reporting internally, which sparked the company to self-report. This is the “first time a claimant is being awarded under this provision of the whistleblower rules,” according to the agency.
Friday’s award is the latest in a series of massive whistleblower awards, and not just from the SEC. During one week in March, whistleblowers in unrelated cases received $86 million in awards, including $1.87 million for the former general counsel of the Houston Housing Authority. A press release from the SEC Friday claims the agency has awarded “$381 million to 62 individuals since issuing its first award in 2012.”
Do you think there might be any potential whistleblowers overseas that know about international cartels and might be tempted for a monetary reward to risk their career to report the activity? Cartels, particularly large international cartels, have so many participants, including lower level employees who have minor culpability, that the chance of a whistleblower coming forward is real. Even if the odds are low, they is not zero. Worrying about a potential whistleblower can destabilize a cartel, expose cartels, or better yet, stop cartels from forming.
Another point is illuminated by this SEC whistleblower case: A whistleblower statute will complement, not undercut, the Corporate Leniency Program—especially type A leniency. There are no public statistics but anecdotally attorneys suggest that some companies that discover cartel issues are not coming forward with Type A leniency because the costs of cooperation and civil damage suits outweigh the benefits of sitting back and hoping the cartel is never discovered. The discussion in the corporate board room about what to do with a discovered cartel problem will be quite different if the company has to worry about an individual whistleblower having incentives to report the wrongdoing. Currently, a company may (and some allegedly have) bet that another cartel member won’t go in for Type A leniency because that company faces the same enormous collateral consequences of exposing the cartel. An individual whistleblower, of course, faces enormous blowback from being a whistleblower, but a possible financial reward may overcome these disincentives. In terms of destabilizing cartels and promoting Type A leniency, the wildcard of a possible individual whistleblower certainly moves the cost/benefit analysis of seeking Type A leniency towards self-disclosure.
Thanks for reading.
 One contributing factor to the apparent decline in leniency applications may be a dramatic reduction in “hot documents” that cartel members—particularly foreign members –are creating. After a decade of being put in jail in the United States and hunted down with Red Notices and border watches, it is likely that cartel members have gotten the message that they (and their records) are not beyond the reach of the US antitrust laws. Hopefully, this has resulted in a reduction in the formation of cartels. It most assuredly has led to a decrease in the amount of explicit cartel emails/documents/travel records that are created. The lack of “hot documents” must also factor into a companies’ decision about whether to seek Type A leniency. The fewer hot documents are being created, the greater the need for individuals to come forward.