by Stephen Kohn
Preventing Ocean Pollution: The Act to Prevent Pollution from Ships/MARPOL
The Act to Prevent Pollution from Ships (APPS) permits whistleblowers from any country in the world to report ocean pollution committed on the high seas and obtain a financial reward. This whistleblower provision has proven, over time, to be the key to the successful prosecution of ship owners who dump oil and other waste into the oceans in violation of the International Convention for Prevention of Pollution from Ships, as modified by the protocol of 1978, better known simply as the MARPOL Protocol. The APPS law has enabled the United States to use whistleblower information as the basis for successfully prosecuting ships registered outside the United States, including those whose flagship nation is Turkey, Jordan, Portugal, South Korea, Denmark, Liberia, Germany, Cyprus, Greece, Panama, Italy, Japan, Bahamas, Malta, Egypt, Bermuda, Singapore, China, Spain, Norway, New Zealand, Sweden, and the Philippines, among others.
How the law works, and how whistleblowers from outside the United States can qualify for rewards, is spelled out in Rule 9.
Motor Vehicle Safety
As set forth in detail in Rule 10, in December 2015 the U.S. Congress passed a reward law covering motor vehicle safety. This law should have transnational application, as numerous automobiles and their parts (such as airbags) are manufactured outside the United States. Whistleblowers from countries such as Korea, Japan, Mexico, and Germany who report safety concerns in accordance with this law should fully qualify for rewards.
The Role of Non-Government Organizations or “Analysts”
Internationally there are numerous NGOs, often nonprofit groups, dedicated to working on issues for which U.S. whistleblower laws apply, such as anticorruption or wildlife protection. The U.S. whistleblower reward laws are ingeniously structured to permit or encourage these international NGOs to act as a bridge between whistleblowers who may not speak English or have access to information about reward laws and don’t have the ability to effectively blow the whistle under the U.S. laws. For example, in 2016 the nonprofit Natural Resources Defense Council qualified as a relator under the False Claims Act and shared in a $920,000 reward in an environmental clean-up case.
The Lacey Act, the premier wildlife trafficking law, contains a specific definition of who is eligible for a reward. The law uses the term “person” as the class of people who qualify for monetary rewards. This definition may cause some to think that you have to be an actual “person” to be a whistleblower. Although individuals are covered under the law, the Lacey Act also classes corporations and partnerships as “persons”: “The term ‘person’ includes any individual, partnership, association, corporation, trust. . . .” Obviously it makes no difference if the corporation is a for-profit news outlet or a not-for-profit wildlife advocacy organization.
Consequently, there is no legal impediment to an NGO filing a reward claim under the Lacey Act.
The Foreign Corrupt Practices Act’s definition of “whistleblower” follows this pattern, but requires that claims be filed by an individual, not a corporation. When the U.S. Congress enacted the Dodd-Frank Act (which included the FCPA coverage), Congress understood that a whistleblower often did not meet the traditional definition of an “insider.” Consequently, Congress defined the term “whistleblower” to include both “individuals” (i.e., the classic whistle-blower) and “analysts.”
The analyst concept was a radical departure from the historical understanding of who is a whistleblower. Under the “analyst” provision, persons without any firsthand knowledge of potential violations can qualify as whistleblowers if they can evaluate information (public or nonpublic) and present an “independent analysis” documenting the criminal activity. If the information from this analysis is used to trigger or assist in a prosecution, the analyst is a covered whistleblower. Although it may be hard to understand how an analyst can obtain access to unique information necessary to quality for a reward, as explained below, persons who work for NGOs have access to witnesses or potential whistleblowers who do not speak English or may not understand how they can file a claim in the United States. The NGO, which is active on-the-ground in a foreign country, can act as the intermediary, collecting information, doing translations, and communicating with attorneys in the United States concerning how to file an effective reward case. The NGO, acting through one of its employees/representatives, can serve as the “analyst,” explaining the importance of the various witness statements or other materials obtained from witnesses and sources outside the United States.
The SEC’s definition of the type of “independent analysis” necessary to justify a reward to an analyst (such as an employee of an anticorruption NGO) is as follows:
Independent analysis means your own analysis, whether done alone or in combination with others. Analysis means your examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public.
The analyst brings together evidence from other sources (including public sources) and presents the U.S. government with an analysis of facts that can demonstrate a violation of law. For example, there would be no legal reason an analyst working for an African-based NGO could not work with various confidential sources and “analyze” that source information. Thereafter, the analyst could create a report incorporating the source information and file a reward claim under U.S. law.
The use of NGOs as intermediaries for “insiders,” or “sources on the ground,” to facilitate the transmittal of high-quality information about bribes, corruption, or illegal wildlife trafficking can assist in the protection of whistle-blowers. The traditional whistleblower can work with attorneys or respected NGOs in raising concerns but remain one step removed from the actual process of blowing the whistle.
Immigration Law: Political Asylum
Whistleblowers have been granted political asylum in the United States. This is in recognition that citizens outside the United States who report fraud and corruption within their own countries can face life-threatening retaliation. The process for obtaining asylum is dictated by U.S. immigration law. Court rulings interpreting these laws recognize some whistleblowers as a protected class.
The landmark case concerned Dionesio Grava, who worked for the Philippine government’s Bureau of Customs where he witnessed corrupt supervisors profiting from smuggling schemes. He blew the whistle. At first he was falsely accused of work-related misconduct but was completely “cleared” after a review. He was then transferred to an “outlying post” in an attempt to shut him up. That did not work. In defiance of his direct supervisor’s wishes, he filed charges and testified against a customs official in a corruption case. Unfortunately for Mr. Grava, the official had “family ties to the Philippine Congress and the National Bureau of Investigations.” The retaliation got dark and personal. His pet dog was poisoned, his car tires were slashed, and he received direct death threats. Fearing for his life, Mr. Grava fled his homeland and entered the United States. Upon arrival, he applied for political asylum.
The U.S. immigration authorities (the Immigration and Naturalization Service, or INS) initially ruled that he must be deported. The INS refused to recognize whistleblowers as a group that could qualify for political asylum. This logic was not sustained. In a landmark ruling from the U.S. Court of Appeals for the Ninth Circuit, the INS decision was reversed. The Court noted that Grava’s “tormentors” were not “mere criminals or guerrilla forces,” but rather they were “instruments of the government itself.”
Not every whistleblower can obtain asylum. Courts have ruled that whistleblowing against government corruption can constitute protected speech under immigration laws: “[W]here the whistle blows against corrupt government officials, it may constitute political activity sufficient to form the basis of persecution. . . . Thus official retaliation against those who expose and prosecute governmental corruption may, in appropriate circumstances, amount to persecution on account of political opinio
n.”
Whistleblowers seeking asylum must contact immigration attorneys, as the process for obtaining asylum is completely distinct from the process of applying for rewards or filing cases under the Foreign Corrupt Practices Act. Furthermore, because being granted asylum as a whistleblower is unusual, and the rules governing these decisions are controlled by the courts, whistleblowers seeking political asylum in the United States are strongly urged to obtain counsel with expertise in immigration.
International Efforts
Numerous other countries have enacted whistleblower legislation, mostly prohibiting domestic retaliation. These laws are almost universally weak, and fail to meet the standards endorsed by Transparency International. On January 26, 2017 the European Commission, the executive arm of the European Union, published a formal “Inception, Impact Assessment” on the state of whistle-blowing in Europe. The Commission expressed “strong concerns about the lack of effective whistleblower protection across the different Member States,” and recognized that the “lack of adequate whistleblower protection may discourage the disclosure of wrongdoing and illegal activities,” with “negative effects on compliance with rules on procurement, state aid, implementation of structural funds, environmental protection, and competition and investment.”
The European Commission’s Assessment concluded that “whistleblower protection would contribute to preventing and tackling corruption, enhancing corporate social responsibility and legal compliance, ensuring healthier competition and greater investor confidence in the internal market,” and endorsed efforts to ensure “effective whistleblower protection across the European Union.”
The United Kingdom’s Public Interest Disclosure Act of 1998 was long considered one of the best whistleblower protection laws outside of the United States. In 2016 the international NGO Blueprint for Free Speech and the Thomson Reuters Foundation published Protecting Whistleblowers in the UK: A New Blueprint. The report reviewed each element of the Public Interest Disclosure Act and evaluated it relative to international best practices. The highly critical report explained that the average whistleblower received only about £17,000 equivalent to approximately $21,000 in compensation, hardly enough to encourage people to blow the whistle, let alone lose their job, damage their career, and harm their reputation. The report is available at https://blueprintforfreespeech.net/wp-content/uploads/2016/05/Report-Protecting-Whistleblowers-In-The-UK.pdf. The report provides twenty recommendations to fix the U.K. law and is also a blueprint for other nations to follow when drafting whistleblower legislation.
Despite weaknesses, some international whistleblowers have used their nation’s laws to obtain reinstatement and other relief, including high profile cases in Ireland, Serbia, Bosnia, and Herzegovina. Before trusting that any law will prove effective, the protections afforded employees under the law must be carefully reviewed. Does it provide adequate due process rights? What compensation is available? What agency will investigate the whistleblower’s claims or provide protection to the whistleblower? Can you obtain an attorney to help? Is there an anticorruption NGO available to help and provide support?
Canadian Whistleblower Laws
Canada has gone the farthest in establishing reward-based procedures that have potential transnational application for whistleblowers. One of the Canadian administrative procedures permits rewards for whistleblowers who report major violations of international tax laws. The second was established by the Ontario Securities Office and is modeled closely on the U.S. Dodd-Frank Act’s securities whistleblower reward law.
Canadian Tax Whistleblower Law
Canada started to modernize its whistleblower laws by adopting a limited rewards program for whistleblowers who report illegal and undeclared offshore bank accounts held by Canadian citizens. Established by the Canada Revenue Agency in January 2014, the Offshore Tax Informant Program permits the government to provide financial awards “to individuals who provide sufficient, specific and credible details related to major international tax non‐compliance which lead to the assessment and collection of more than $100,000 (CAD) of additional federal tax (excluding penalties and interest).” The awards offered are significantly lower than those in the United States, with a range between 5 and 15 percent (compared to the award range in the United States between 15 and 30 percent). Rewards are only paid on the amount of federal taxes paid based on international violations. If the back tax payment is less than $100,000 (CAD), no reward is paid. The reward is not based on criminal fines and penalties, and it appears that rewards are not paid on interest collected.
According to the Canada Revenue Agency, the law permits rewards for information about the following international violations:
• Undeclared Canadian taxable income that has been transferred outside Canada
• Undeclared foreign taxable income
• Undeclared foreign property
• Offshore transactions and undeclared trusts held offshore
The Revenue Agency’s Offshore Compliance Division manages the program, accepts tips, screens the cases, and has responsibility for paying rewards. Paying rewards is completely discretionary, and the Revenue Agency “will determine whether a payment will be made under the contract and what that amount will be.” There is no judicial review if the Authority denies a reward or fails to pay a proper amount.
The administrative procedures approved by the Canada Tax Agency are weak and need to be significantly strengthened. After two years the Agency had only entered into approximately twelve contracts with whistleblowers, and no rewards had been paid. The website for the program is www.cra-arc.gc.ca/gncy/cmplnc/otip-pdife/menu-eng.html.
CANADIAN SECURITIES WHISTLEBLOWER LAW
The Ontario Securities Commission (OSC) has also taken the first step to institute a Dodd-Frank–style whistleblower reward law for securities fraud. The program contains many of the features of the U.S. securities whistleblower reward law, but it has three serious drawbacks: It has a low cap on the maximum amount of rewards, no judicial review, and the Commission has complete discretion whether or not to pay a reward.
The program’s rules are detailed and many are modeled, almost word for word, on the SEC’s reward program. This includes rules on how compliance officials can obtain a reward, the criteria used by the Ontario Securities Commission to determine eligibility, and specific procedures for applying for a reward. Anyone providing information to the OSC should carefully review OSC Policy 15-601 (Whistleblower Program) before providing any information to the Commission. The rules are available at www.osc.gov.on.ca/documents/en/Securities-Category1/20160714_15-601_policy-whistleblower-program.pdf.
The Commission is actively publicizing its new reward program, encouraging whistleblowers to risk their careers and provide information. Their page starts with the following promotion: “Do you have inside knowledge of, or suspect, a possible violation of Ontario securities law that could harm investors? We want to hear from you.” Their website goes on to describe the program:
A whistleblower can be an individual, or a group of individuals acting jointly, who voluntarily provide high quality information that contains timely, specific and credible facts regarding potential misconduct. Whistleblowers who report information that leads to an OSC administrative proceeding resulting in monetary sanctions and/or voluntary payments of $1 million or more may be eligible for a financial award of up to $5 million. We will make all reasonable efforts to protect the identity of whistleblowers. Under the Ontario Securities Act, the OSC may take enforcement action against employers who take reprisals against whistleblowers. Whistleblowers can choose to report anonymously if they are represented by a lawyer.
The $5 million payment cap may seem reasonable, but it will discourage high-level informants and act as a disincentive for whistleblowers. In the United States, although most rewards are less than $5 million, the prospect of obtaining a large award motivates whistleblowers afraid of retaliation. Also, whistleblowers who have high-placed jobs and large inc
omes are in the best position to know about the massive frauds that can rock markets or cause a company and its investors to suffer large losses. These executives or directors will not be effectively incentivized by such a cap.
In addition to the cap, the percentage range permitted under the law is lower than any of the U.S. programs. The Ontario program’s reward range is between 5 and 15 percent, whereas the minimum payment for securities violations under U.S. law is 10 percent, with a maximum payment of 30 percent.
Another problem with the Canadian law is that whistleblowers have no guarantee that they will ever be paid, or that the OSC will honor any of the requirements set forth in its policy. The Commission explicitly cut off the rights of a whistleblower to challenge either a denial of reward or the amount of a reward. OSC Policy 15-601 is clear: “The Commission’s determination whether or not to grant a whistleblower award and any amount awarded to a whistleblower are not subject to appeal. No private right of action is conferred on a whistleblower to seek a whistleblower award.”
The OSC’s whistleblower program website is located at www.osc.gov.on.ca/en/whistleblower.htm.
CONCLUSION
Both the OSC’s and the Canada Revenue Agency’s reward programs are steps forward for international whistleblowers. Other countries have also implemented weak reward programs, offering low amounts of compensation for whistleblowers, and vesting the government with the discretion to deny rewards. These laws fail to acknowledge the tremendous risks whistleblowers take and the catastrophic impact being a whistleblower can have on one’s job, career, and quality of life. Without realistic incentives and due process guarantees capable of both encouraging employees to step forward and fully compensating them (especially those who hold high-level and well-compensated positions), these programs will not achieve their goals, and may completely fail. If a government is serious about using a rewards program to fight corruption, the program must have the following features: