The US Dodd-Frank-Act was signed into federal law in 2010 and, according to wikipedia, it
brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.Wikipedia: Dodd–Frank Wall Street Reform and Consumer Protection Act (ret. 5.9.2012).
The Dodd-Frank-Act also introduced a »whistleblower bounty programme« (under Title IX, subtitle B). It means whistleblowers can get paid for releasing information, and today FCPA-Blog reports that the first one just took home a prize of US $ 50.000.
It is startling that in a sense we are now trying to bribe people so they blow the whistle on corruption. The moral implications are interesting: not only will people get paid to abide by the law, but, after all, an employee (or agent) owes a certain amount of loyalty to the employer (or principal). There are corruption theories that define corruption exactly as not honouring that loyalty in order to achieve personal gain. But the economical implications are at least as intriguing: loyalty suddenly becomes a scarce commodity and it would not at all surprise me to see prices going up and going up fast. Apparently, a reward substantially helps people discover their loyalty to law (and their community):
since the SEC’s whistleblower program started in August 2011, the agency said it has received about eight tips a day. Using a conservative count, that means at least 1,600 whistleblower complaints have been filed.Richard L. Cassin (5.9.2012): Six Lessons from the SEC’s First Whistleblower Reward. FCPA-Blog.
I don’t see why an even higher reward would not let them discover that in the end, their loyalty lies elsewhere altogether. Thus, it will be perfectly rational behaviour for companies to try to buy their agent’s loyalty back and have them shut up.
Now we have created a loyalty market, but acting on markets is what companies do all the time and should do best. When I look at the Wal-Mart bribery case, I doubt the community can keep up with the price development for long, at least when it comes to the important cases. Publicly available figures for Wal Mart de Mexico speak for themselves:
|Bribes paid in Mexico:||US $||24.000.000|
|Potential damage if fined under FCPA:||US $||6.500.000.000|
|Profit in Q2/2012||US $||650.000.000|
|Profits made since paying bribes in 2005:||US $||12.000.000.000|
The interesting players in the corruption game obviously have a lot to gain, much more to lose, and a vault filled with spare cash. I doubt that the reward programme was a smart move in the long run – both ethically and economically, but we’ll see.
[update 5. September 2012, 19.30 h]:
Wall Street Journal reports on a study on retaliation against whistleblowers:
More than one in five employees who reported misconduct they observed to their employers perceived retaliation for doing so, according to a new study.
The study found 22% of American workers who reported misconduct to their employers in 2011 said they experienced retaliation, up from 15% in 2009.C. M. Matthews (5.9.2012): Whistleblower Retaliation on the Rise, Study Finds. WSJ Corruption Currents.
With the (growing) stick well established, I’m excited about who is going to be the first carrot-company.
[update 2, 18 September 2012, 9.30 h] Bradley Birkenfeld, an ex-UBS-banker, saw the 50.000 and raised to US $ 104 million:
The Internal Revenue Service acknowledged on Tuesday that information he had provided was so helpful that he would receive a $104 million whistle-blower award for revealing the secrets of the Swiss banking system. ;David Kocieniewski (11.9.2012): Whistle-Blower Awarded $104 Million by I.R.S. The New York Times.