I. INTRODUCTION
A financial institution “whistleblower protection program” should be considered for inclusion within any institution’s “Code of Conduct” and/or “Code of Ethics” policies. The purpose of a “whistleblower protection program” is to set forth both policy and procedures that an employee may utilize to notify appropriate personnel, including the institution’s board of directors, without fear of retaliation. Notifications or reporting would include cases of alleged fraud, improprieties, violations of the Code of Conduct/Code of Ethics, other suspected illegal activities or unethical activities by other personnel within the institution.
II. SARBANES-OXLEY ACT OF 2002 PROVISIONS
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) addressed a number of responsibilities and obligations for companies in general as well as for publicly traded companies. Section 806 of Sarbanes-Oxley provides that no officer, employee, contractor, subcontractor or agent of a publicly traded company may take any adverse employment action, or, in any other manner, discriminate against an employee for engaging in any of the following two categories of protected conduct:
Particularly, financial institution boards, officers and other employees should be aware of the following provision found in Sarbanes-Oxley:
In General.—Chapter 73 of Title 18, United States Code, is amended by inserting after section 1514 the following: “SEC. 1514A. Civil action to protect against retaliation in fraud cases (a) Whistleblower Protection for Employees of Publicly Traded Companies.—No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee…”
While this provision does not apply to non-publicly traded companies, in the context of an institution’s code of conduct or code of ethics, a “whistleblower protection program” provision may be recommended by bank auditors, accountants, legal counsel or other professionals. Financial institution examiners may also recommend that institutions have written policy and procedures, as well as training, to ensure that such personnel have a method to communicate – without fear of reprisal – illegal, improper or unethical acts to the board of directors.
In fact, § 107 of Sarbanes-Oxley provides that anyone retaliating against a whistleblower who gives information in any federal investigation shall be found guilty of a felony and be subject to fines or imprisonment for up to a 10 years (See, 18 U.S.C. 1513). This provision applies to non-publicly traded and publicly traded companies alike. Since the criminal whistleblower statute applies to all entities—public, private and nonprofit – a “hotline,” post office box or other similar type of anonymous reporting mechanism is not required (for non-publicly traded institutions); however, the ability to document whistleblower notification and response mechanisms may be advised (and a “hotline” or similar mechanism is considered “best practices”).
Neither Congress nor financial regulators have given much assistance of what constitutes appropriate notification mechanisms. In fact, the SEC has warned against “one-size-fits-all” programs. Some firms have “outsourced” compliance with third party vendors whereas others have opted to use internal staff with assistance from legal counsel. The latter method preserves attorney-client privileges whereas the former method risks losing such protections. Financial institutions should be aware that an institution’s audit program or committee may use internal resources and legal counsel to receive and process whistleblower reports and remain in compliance with Sarbanes-Oxley.
Finally, § 806 of Sarbanes-Oxley gives these remedies to an employee who wins a whistleblower claim: reinstatement to the same seniority status that the employee would have had but for the adverse employment action; back pay; interest; all compensatory damages to make the employee whole; and litigation costs (including reasonable attorneys’ fees and costs and expert witness fees).
III. CONCLUSION
Should a financial institution ever find itself charged with a violation that may result in criminal penalties, the fact that the institution has an effective reporting or notification mechanism established, is viewed positively under federal sentencing guidelines. Inclusion of an effective “whistleblower protection program” within the Code of Conduct or Code of Ethics should be considered an “essential provision” and should be looked on with favor by an institution’s board, officers, employees and other stakeholders.
While an institution may opt to use its own internal resources to implement a “whistleblower protection program,” there are also several third party vendors available that provide solutions to implement such programs and program mechanisms.