US and UK whistleblowing

programmes: implications
for US and UK financial
institutions and other
companies
Resource type: Practice note
Status: Maintained
Jurisdiction: USA, United Kingdom

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An overview of the rules governing the operation of the Office of the Whistleblower at the US Securities
and Exchange Commission (SEC) and its whistleblowing programme established under the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Among other things, the note also
considers other US and UK whistleblowing arrangements (including those of the FCA, the PRA, the
Serious Fraud Office (SFO) and the Serious Organised Crime Agency (SOCA)), as well as overlapping
US and UK legal and regulatory reporting obligations, and employment and labour law obligations.
In addition, it explains the practical implications of the whistleblowing programmes for US and UK
financial institutions and other companies.

Aaron Stephens, Partner, Berwin Leighton Paisner LLP, and William Devaney, Partner, Venable LLP

CONTENTS

n Background to this note Funding

n Legal architecture of SEC whistleblowing programme Internal

whistleblowing policies and procedures:
Original information “adequate procedures” under the Bribery Act 2010
Provided voluntarily n Overlap with other UK and US legal and regulatory
reporting obligations
Overlap
 with internal whistleblowing policies
and procedures UK: obligation to co-operate with the FCA and PRA
Additional requirements UK:obligation to submit suspicious transaction reports
to FCA
Examples
 of scenarios where awards are likely to be,
or not to be, paid UK:obligation to report suspicions of money laundering to
the Serious Organised Crime Agency (SOCA)
n US statistics
US: regulatory reporting obligations
n Comparison to other US whistleblowing regimes
Overlap
n  with UK and US employment/labour law
US False Claims Act
UK: Employment Rights Act 1996
IRS informant awards
US: private right of action for retaliation; state and local
Other US whistleblowing regimes
statutory and common law claims; tort claims
n Comparison to UK whistleblowing options
n C
onclusion: practical implications for firms and
FCA other companies
PRA Financial services firms
Serious Fraud Office (SFO) Other corporates
Possible reform of UK whistleblowing arrangements

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US and UK whistleblowing programmes

BACKGROUND TO THIS NOTE

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) included provisions amending the Securities
Exchange Act of 1934 (Exchange Act) to introduce financial incentives and related protections for individuals who “blow the whistle”
on individuals or firms who violate US federal securities laws. This note provides an overview of the rules governing the operation of
the Office of the Whistleblower at the US Securities and Exchange Commission (SEC) and its whistleblower programme. The financial
incentives that are now available to whistleblowers will have a significant impact on UK and multinational companies and financial
institutions operating in the City of London, and will likely fuel the already significant trend of cross-border regulatory and white collar
crime investigations. At the end of the note we provide a summary of practical implications and the steps that firms should consider
taking to mitigate the risk of a whistleblower bypassing internal procedures to take their concerns directly to the regulatory or criminal
authorities, or both (see Conclusion: practical implications for firms and other companies).

The Office of the Whistleblower was established in August 2011 and paid out its first reward in August 2012. There are other whistleblowing
regimes in the US that provide financial incentives (in the guise of qui tam actions and the programme operated by the Internal Revenue
Service (IRS), for example). In addition, UK authorities such as the FCA and the PRA (which took over the majority of the FSA’s functions
on 1 April 2013) and the Serious Fraud Office (SFO) also encourage whistleblowers, albeit without offering financial incentives (but this
may change in the near future, as discussed in Comparison to UK whistleblowing options below).

LEGAL ARCHITECTURE OF SEC WHISTLEBLOWING PROGRAMME

Section 922 of the Dodd-Frank Act amended the Exchange Act to insert new section 21F regarding “Securities Whistleblowing Incentives
and Protection”. In summary, section 21F directs the SEC to make monetary awards to any eligible individual (or any two or more
individuals acting jointly) who voluntarily provide “original” information to the SEC that leads to a successful enforcement action in which
monetary sanctions of over US$1 million (approximately £630,500) are imposed. The awards range from 10% to 30% of the monetary
sanctions actually collected. Accordingly, if the SEC imposed sanctions of US$10 million at the conclusion of a given enforcement
action, but only collected US$5 million from the sanctioned firm, then the amount of any award to a whistleblower would be between
US$500,000 and US$1.5 million (10% and 30% of US$5 million, respectively).

The SEC may also pay an award based on amounts collected in related actions brought by certain bodies, where the related actions
are based on the same original information that the whistleblower voluntarily provided to the SEC and which led to the SEC imposing
monetary sanctions in excess of US$1 million. The relevant bodies are:

n The Attorney General of the United States.

n A
n appropriate regulatory authority (for example, the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision).

n A
 self-regulatory organisation (for example, any national securities exchange, registered securities association, registered clearing
agency or the Municipal Securities Rulemaking Board).

n A state attorney general in a criminal case.

Section 924 of the Dodd-Frank Act required the SEC to establish a separate office within the SEC to administer and enforce the
provisions of section 21F and the whistleblower programme. The Office of the Whistleblower began operating in August 2011 and it
paid the first award under the programme in August 2012. This award of US$50,000 was paid to a whistleblower that helped the SEC
stop a multi-million dollar investment fraud, and amounted to 30% of the monetary sanctions actually collected by the SEC at that
time (US$150,000). (An additional payment of US$500 was paid to the whistleblower in September 2012, and further amounts will be
payable to this individual as and when the SEC makes additional collections.)

Detailed rules implementing the whistleblower programme are set out in the Code of Federal Regulations (CFR) (at 17 CFR Part 240,
sections 21F-1 to 21F-17). These rules describe the programme and explain the procedures that a whistleblower must follow to be
eligible for an award.

There are various limitations and conditions that apply to an individual’s eligibility for an award, the most important being:

n The requirements that information provided by the whistleblower must be “original” and must be provided “voluntarily”.

n T
he requirement that information provided by the whistleblower must lead to successful enforcement action by the SEC where
monetary sanctions are imposed in excess of US$1 million.

n The ineligibility of various classes of individuals, including individuals who:

n 
are (or were at the time they acquired the original information they are providing to the SEC) a member, officer or employee of the
SEC (or a spouse, parent, child or sibling of a member or employee of the SEC, or reside in the same household as a member
or employee of the SEC), the Department of Justice (DOJ), an appropriate regulatory agency, a self-regulatory organisation, the
Public Company Accounting Oversight Board or any law enforcement organisation;

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 n 
are (or were at the time they acquired the original information they are providing to the SEC) a member, officer or employee of the
SEC (or a spouse, parent, child or sibling of a member or employee of the SEC, or reside in the same household as a member
or employee of the SEC), the Department of Justice (DOJ), an appropriate regulatory agency, a self-regulatory organisation, the
Public Company Accounting Oversight Board or any law enforcement organisation;

n are convicted of a criminal violation related to the SEC enforcement action in question or any other related action;

n 
obtained the original information that they are providing to the SEC from an audit of the company’s financial statements (or
acquired the information from a person who obtained it from an audit of the company’s financial statements, unless the
information is not excluded from that person’s use, or they are providing the SEC with information about possible violations
involving that person), and making a whistleblower submission would be contrary to the requirements of section 10A of the
Exchange Act (which details the required steps when an auditor becomes aware of illegal conduct);

n 
knowingly and wilfully make any false, fictitious or fraudulent statements or representations (or use any false writing or document
knowing it is false) with intent to mislead or hinder the SEC or another authority, in the context of making the whistleblowing
submission or in other dealings with the SEC or another authority in connection with a related action.

SEC Office of the Whistleblower contact details

n Webpage: http://www.sec.gov/whistleblower.

n Telephone number: 001 (202) 551 4790.

n Fax number: 001 (703) 813 9322.

n E-mail (via tips, complaints and referrals (TCR) portal): https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml.

n Address: SEC Office of the Whistleblower, 100 F Street NE, Mail Stop 5971, Washington, DC 20549.

n Form TCR: http://www.sec.gov/about/forms/formtcr.pdf.

ORIGINAL INFORMATION
Information provided to the SEC by a whistleblower will be considered original only if it meets all of the following conditions:

n It is derived from the individual’s “independent knowledge” or “independent analysis”.

n I
t is not already known to the SEC from any other source (unless the individual is also the original source of the information).

n I
t is not exclusively derived from an allegation made in a judicial or administrative hearing, in a government report, hearing, audit or
investigation, or from the news media (unless the individual is also the original source of the information).

n I
t was provided to the SEC for the first time after 21 July 2010 (the date on which the Dodd-Frank Act was enacted).

Independent knowledge means factual information in the whistleblower’s possession that is not derived from publicly available sources.
Independent analysis means the whistleblower’s own analysis, whether done alone or in combination with others. However, there are
additional rules that define the scope of independent knowledge and independent analysis. The rules have the effect of excluding
additional classes of individuals from being eligible for an award, including lawyers, investigators, public accountants and employees
in compliance or internal audit (subject to certain exceptions – see box, Exceptions applicable to lawyers, investigators, public
accountants and employees in compliance or internal audit below). The rules also exclude officers, directors, trustees or partners
of any entity who are informed (by another person) of an allegation of misconduct regarding that entity, or learn the information in
connection with the entity’s own processes for identifying, reporting and addressing possible violations of law.

In addition, the rules exclude from eligibility any person who obtained the information from any of the excluded categories of individuals
referred to above, unless the information is not excluded from that individual’s use in the circumstances (because an exception applies),
or the person who obtained the information from the excluded individual is providing the SEC with information about possible violations
involving that excluded individual.

Further, if information is obtained by a whistleblower by means or in a manner that is determined by a US court to violate applicable
federal or state criminal law (for example, by illegal phone or e-mail hacking), then this would also render the individual ineligible to
receive any award.

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US and UK whistleblowing programmes

Exceptions applicable to lawyers, investigators, public accountants and employees in compliance or internal audit

As outlined above, certain classes of individuals are generally ineligible to receive awards under the Dodd-Frank Act’s whistleblower
programme. These classes of individuals include, but are not limited to, lawyers, investigators, public accountants, compliance and
internal audit employees, and officers, directors, trustees or partners. Their ineligibility may be overcome, however, in the presence
of certain factors, which are explored in greater detail below.

Lawyers. As set forth above, for the purpose of the rules lawyers are not deemed to possess independent knowledge and independent
analysis. Therefore, they typically are ineligible to receive a whistleblower award. Additionally, lawyers who appear and practice before
the SEC on behalf of an issuer (that is, a company whose shares are traded on a US exchange) are generally prohibited from making
disclosures to the SEC without the issuer’s consent, due to state attorney conduct rules, and as a matter of federal securities law.
However, a lawyer representing an issuer may nevertheless disclose confidential information, and be eligible to receive a whistleblower
award, if disclosure would be necessary to either:

n P
revent the issuer from committing a material violation of federal securities law that is likely to cause substantial injury to the
financial interest or property of the issuer or investors.

n P
revent the issuer, in an SEC investigation or administrative proceeding, from committing perjury; inciting perjury; or committing
any act proscribed in 18 United States Code (U.S.C.) § 1001 (covering false statements to the US government), which is likely
to perpetrate a fraud on the SEC.

n R
ectify the consequences of a material violation of federal securities law by the issuer that caused, or may cause, substantial injury
to the financial interest or property of the issuer or investors in the furtherance of which the lawyer’s services were used.

The other requirements for receiving an award, for example, original information, still must be present.

Investigators, public accountants and employees in compliance or internal audit. Investigators, public accountants, and compliance
and internal audit employees (as with lawyers) generally do not have independent knowledge or analysis of a potential violation and
therefore are ineligible to receive an award. Nevertheless, these classes of individuals may be eligible to receive an award if either:

n T
hey have a reasonable basis to believe that disclosure of the information to the SEC is necessary to prevent the relevant entity
from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors.

n T
hey have a reasonable basis to believe that the relevant entity is engaging in conduct that will impede an investigation of
the misconduct.

n At least 120 days have elapsed, either:

n s
ince they provided the information to the relevant entity’s audit committee, chief legal officer, chief compliance officer (or their
equivalents), or their supervisor; or

n since they received the information, if they received it under circumstances indicating that the entity’s audit committee, chief
legal officer, chief compliance officer (or their equivalents), or their supervisor, was already aware of the information.

The exceptions listed directly above also apply to officers, directors, trustees or partners of any entity who are informed (by another
person) of an allegation of misconduct regarding that entity, or learn the information in connection with the entity’s own processes
for identifying, reporting and addressing possible violations of law.

PROVIDED VOLUNTARILY
To satisfy this requirement, a whistleblower must provide the information before any request, inquiry or demand that relates to the
subject matter of the whistleblower’s submission is directed to them or to anyone representing them (for example, a lawyer), either:

n By the SEC.

n I
n connection with an investigation, inspection or examination by the Public Company Accounting Oversight Board, or any
self-regulatory organisation.

n I
n connection with an investigation by Congress, any other authority of the federal government, or a state Attorney General or
securities regulatory authority.

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OVERLAP WITH INTERNAL WHISTLEBLOWING POLICIES AND PROCEDURES
Somewhat controversially, there is no requirement that a whistleblower must first report the misconduct via his employer’s internal
compliance or whistleblowing procedures, or both, or otherwise exhaust internal options, before making a submission to the SEC.
However, the rules do provide some incentives to employees to make internal reports of misconduct before, or at the same time, as they
make a submission to the SEC. Credit is given to the employee for any information that is provided to the SEC by the employer. In other
words, employees who report misconduct via internal compliance procedures will still be eligible to receive a monetary award from the
SEC where the employer brings this information (or the results of an internal investigation sparked by the employee’s internal report)
to the attention of the SEC and this leads to a successful enforcement action. Moreover, after 120 days, if the employee reports the
misconduct to the SEC (because the employer has not taken appropriate action), or if another employee reports the same misconduct to
the SEC within the 120-day period, the employee may still collect an award, since the 120-day period “looks back” to the date the first
employee reported the misconduct internally.

ADDITIONAL REQUIREMENTS
It is unlikely that a whistleblower will be able to simply provide information to the SEC, and then sit back and wait for their big payday.
There are detailed procedures that must be followed to ensure that information is provided to the SEC in the form and manner it requires.
Moreover, in addition to the paperwork, the SEC may also require a whistleblower to:

n P
rovide explanations and other assistance to enable the staff of the SEC to evaluate and use the information submitted.

n P
rovide all additional information in the whistleblower’s possession that is related to the subject matter of the submission in a
complete and truthful manner, through follow-up meetings or in other forms that the SEC staff may agree to.

n P
rovide testimony or other evidence acceptable to the staff of the SEC relating to why the whistleblower is eligible, or otherwise
satisfies any of the conditions, for an award.

n E
nter into a confidentiality agreement in a form acceptable to the SEC, covering any non-public information that the SEC provides to
the whistleblower, and including a provision that a violation of the confidentiality agreement may lead to ineligibility to receive an award.

EXAMPLES OF SCENARIOS WHERE AWARDS ARE LIKELY TO BE, OR NOT TO BE, PAID

Example 1

A trader at a global investment bank had information – acquired in the course of his usual duties at the bank – which suggested that
a team of colleagues were systematically mis-marking their trading accounts or engaging in market abuse or otherwise violating US
federal securities law (and that the firm had inadequate systems and controls in this regard). If the trader provided this information
to the SEC in compliance with the requirements of the whistleblower programme, and this led to a successful enforcement action
against the individuals, or the firm, or both, where monetary sanctions in excess of US$1 million were imposed, then it is likely that the
trader would be eligible to receive between 10% and 30% of the amounts collected by the SEC. Under these circumstances, all of the
requirements for the trader to be considered for an award have been met, insofar as the trader:

n
voluntarily provided to the SEC;

n o
riginal information about potential securities law violations;

n R
ectify the consequences of a material violation of federal securities law by the issuer that caused, or may cause, substantial
injury to the financial interest or property of the issuer or investors in the furtherance of which the lawyer’s services were used.

n i
n which the SEC obtained monetary sanctions totalling more than US$1 million.

Example 2

A member of a bank’s senior management was informed that a Vice President in the Equity Derivatives business had paid bribes
to officials representing a sovereign wealth fund (to induce those officials to enter into certain arrangements with the bank using
assets of the sovereign wealth fund), in violation of the Foreign Corrupt Practices Act 1977 (FCPA). Unless the member of the
bank’s senior management qualified for one of the exceptions set out in box, Exceptions applicable to lawyers, investigators,
public accountants and employees in compliance or internal audit above, she likely would not be eligible to receive any award
from the SEC even if she provided this information to the SEC and it led to a successful enforcement action against the individual,
or the bank, or both. This is because certain people, such as officers, directors, trustees or partners of an issuer, generally are
not eligible to receive whistleblower awards. The same result would be reached if, for example, the secretary of the member of
senior management found out about the allegation (by reading her bosses’ e-mails), provided the information to the SEC, and that
information led to a successful enforcement action.

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US and UK whistleblowing programmes

Example 3

The Head of the Money Markets desk at a large wholesale bank is interviewed by the bank’s lawyers in the context of an internal
investigation into alleged market abuse and, during the interview, learns information suggesting that the bank has violated US
securities law. He likely would not be eligible to receive any award from the SEC even if he provided this information to the SEC and
a later enforcement action was successful against the bank. This is because the SEC would likely decide that the information was
not original in that it did not come from his independent knowledge or independent analysis as further delineated by 17 CFR Part
240, Rule 21F-4(b)(4)(vi) (for example, because he would have obtained the information from a person who is ineligible to receive
an award under the programme, such as the company’s lawyer carrying out the internal investigation or a member of compliance
or internal audit).

Example 4

A junior accountant involved in an internal financial audit at a global pharmaceutical company discovered information showing
that company personnel were systematically, improperly recording their independent sales representatives’ commissions in the
company’s books and records, and that the company’s internal audit controls were generally inadequate to detect or prevent such
conduct, in violation of the FCPA’s books and records provisions. If that junior accountant reported her discovery to her immediate
supervisor, but later determined that disclosure to the SEC was necessary to prevent the company from engaging in conduct
that would cause substantial injury to the company and its investors; or that the company was impeding an investigation of the
misconduct; or if 120 days had elapsed since the junior accountant reported her discovery internally; then the junior accountant
may still report to the SEC. She would be eligible to receive between 10% and 30% of the penalties received (assuming, of course,
that all of the other requirements to receive an award were met, that is, a successful SEC enforcement action resulting in the
collection by the SEC of more than US$1 million in monetary sanctions). While the junior accountant is part of a class of persons
who, generally, are ineligible to receive awards, she became eligible because:

n S
he believed disclosure would prevent substantial injury to the financial interest or property of the company or its investors.

n S
he believed that the entity was engaging in conduct that would impede an investigation.

n A
t least 120 days had elapsed since she reported the information to her supervisors.

The junior accountant would still be eligible for an award even if one of her colleagues voluntarily disclosed the same violation to the
SEC before the 120-day period elapsed. That is because the 120-day period looks back to the date the junior accountant reported
her discovery to her supervisor.

US STATISTICS
During fiscal year 2012 (October 2011 to September 2012), the Office of the Whistleblower received 3,001 tips, complaints and
referrals. This information originated from all 50 US states and 49 different foreign countries. 74 tips, complaints or referrals originated
from the UK; thus, 2.4% of the total amount and a whopping 23% of those from outside the US originated from the UK. It is logical
to assume that the vast majority of these originated from the City of London. A significant number of tips, complaints or referrals also
originated from Canada, India, China and Australia.

The Office of the Whistleblower breaks submissions down into categories. In its report published in November 2012 the Office indicated
that the most common categories are:

n Corporate Disclosure and Financials (18.20%).

n Offering Fraud (15.50%).

n Manipulation (15.20%).

The other categories are:

n Insider Trading.

n Trading and Pricing.

n FCPA.

n Unregistered Offerings.

n Market Event.

n Municipal Securities and Public Pension.

n Other.

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Approximately 4% of the 3,001 tips (roughly 120) received through the Dodd-Frank Whistleblower programme during its first year were
FCPA-related. This number comes close to the approximately 140 to 150 active FCPA investigations the DOJ and the SEC have typically
had in recent years. As such, these whistleblower tips should significantly increase the inventory of active FCPA investigations (which
could easily have a knock-on effect with regard to investigations under the Bribery Act 2010 in the UK). Additionally, given the high
dollar value of FCPA penalties, often in the tens of millions of dollars or higher, one can expect the FCPA to be an increasingly fertile
ground for Dodd-Frank whistleblowing. Indeed, given the potentially lucrative awards, there are already US lawyers trolling for potential
FCPA whistleblowers to engage as clients.

For an overview of the FCPA, see Practice note, The Foreign Corrupt Practices Act: Overview.

COMPARISON TO OTHER US WHISTLEBLOWING REGIMES

The Dodd-Frank Act whistleblowing provision is but one of many whistleblowing platforms in the US. Two of the most common of the
other whistleblowing regimes are the US False Claims Act (31 U.S.C. §§ 3729–3733), which provides for civil actions commonly referred
to as “qui tam” actions, and the US Internal Revenue Service’s (IRS) “informant awards”.

US FALSE CLAIMS ACT

The US False Claims Act, which was enacted in 1863 to combat military procurement fraud during the US Civil War, allows private
individuals not affiliated with the US government (known as relators) to file qui tam actions against federal contractors who have
submitted false or fraudulent bills or invoices (referred to as claims) to the US government. If specified conditions are met, relators under
the US False Claims Act stand to receive a percentage of any recovered damages.

The procedure under the US False Claims Act is somewhat complicated. First, a relator files a civil complaint under seal in federal court,
alleging, with specific and detailed facts, that a false or fraudulent claim was knowingly submitted to the government. Of course, if such
a claim has been made, it is potentially a federal crime. As such, copies of the complaint are sent to the DOJ for review and to conduct
either a civil or criminal investigation, as appropriate. At the same time, the relator must provide the DOJ with substantially all of the
evidence they have about the allegations set forth in the complaint. After an investigation, the DOJ decides whether or not it wants to
intervene in the lawsuit. If it does, the DOJ participates as plaintiff and takes over the lawsuit filed by the relator. The DOJ may additionally
bring criminal charges. However, less than one quarter of filed actions result in the DOJ’s intervention. If the DOJ does not intervene, the
relator may choose to prosecute the case without its involvement, or the DOJ may move to dismiss the civil lawsuit if it believes there is
no case, or if the case conflicts with significant statutory or policy interests of the US.

Relators who prevail in civil lawsuits where the DOJ intervenes are eligible to receive a relator’s award of between 15% and 25%.
Relators who prevail in civil lawsuits where the DOJ chooses not to intervene receive a greater recovery (up to 30%). However, there is a
corresponding decreased likelihood of success, as it is thought that the DOJ will intervene in only “winning cases”.

DOJ contact details

n Website: http://www.justice.gov/.

n Telephone number: 001 (202) 514 2000.

n Email: [email protected].

n Address: U.S. Department of Justice, 950 Pennsylvania Avenue, NW Washington, DC 20530-0001.

IRS INFORMANT AWARDS

The IRS Whistleblower Office pays monetary awards, known as informant awards, to private parties who provide specific and credible
information to the IRS, if the information results in the collection of taxes, penalties, interest or other amounts from a non-compliant
taxpayer (either an individual or a corporation). In general, awards of between 15% and 30% of the amount collected are available to
private parties where both:

n The taxes, penalties, interest, and other amounts exceed US$2 million.

n In the case of an individual, the individual’s gross income exceeds US$200,000.

However, lesser awards are still available to private parties where the cases do not meet these threshold qualifications.

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US and UK whistleblowing programmes

IRS whistleblowing contact details

n Webpage: http://www.irs.gov/uac/Whistleblower-Informant-Award.

n Address: Internal Revenue Service, Whistleblower Office, SE:WO, 1111 Constitution Avenue, NW, Washington, DC 20224.

n IRS Form 211: http://www.irs.gov/pub/irs-pdf/f211.pdf.

OTHER US WHISTLEBLOWING REGIMES

Additionally, all or almost all US federal and state governmental entities have mechanisms for reporting fraud and abuse, some of which
provide awards for whistleblowers. These range from New York state’s False Claim Act, which provides whistleblower awards similar to
awards offered under the US False Claims Act; to the New York State Office of the Attorney General’s “General”, “Immigration Fraud”,
“Healthcare” and “Medicaid Fraud” hotlines; to the US Environmental Protection Agency’s “Fraud, Waste, and Abuse Hotline”; to the
Montgomery County, Pennsylvania, Controller’s Office’s “Fraud & Abuse Tipline”.

COMPARISON TO UK WHISTLEBLOWING OPTIONS

FCA

FCA whistleblowing requirements

As set out in Chapter 18 of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) of the FCA Handbook,
the FCA encourages firms to consider adopting appropriate internal procedures that will encourage staff to blow the whistle internally
about matters that are relevant to the functions of the FCA. SYSC 18.2.2 provides guidance on the types of internal procedures that may
be appropriate for larger firms as well as smaller firms.

FCA whistleblowing hotline

In 2002, the FSA established a dedicated whistleblowing hotline which, in recent times, has rapidly grown in popularity. The hotline
saw a 189% increase in calls in the year to June 2012 relative to three years previously. The FCA’s current guidance (which carried
over from the FSA era on 1 April 2013) urges employees to first report any concerns they have to their own firms, pursuant to the firm’s
own whistleblowing policy, before making any report to the FCA. In addition, there is no current policy of paying financial rewards to
whistleblowers who provide information that leads to successful enforcement actions. Rather, with regard to incentives the FCA points
to the employment protections for internal whistleblowing contained in the Employment Rights Act 1996 (ERA) (as amended by the
Public Interest Disclosure Act 1998 (PIDA)). See further Overlap with UK and US employment/labour law below.

FCA whistleblowing contact details

n Webpage: http://www.fca.org.uk/site-info/contact/whistleblowing.

n Telephone number: +44 (0)20 7066 9200.

n E-mail: [email protected]

n Address: Intelligence Department (Ref PIDA), The Financial Conduct Authority, 25 The North Colonnade, Canary Wharf,
London E14 5HS.

Future FCA developments

Financial incentives for whistleblowers may be introduced in the UK in the future. In the aftermath of the investigations into manipulation
of the London Interbank Offered Rate (LIBOR), ministers on the Treasury Select Committee have called for the FCA to consider the
merits of introducing an incentive programme similar to the SEC’s Office of the Whistleblower. The FCA is expected to produce a note for
the Parliamentary Commission on Banking Standards on how it might go about incentivising whistleblowers in the future, presumably
including via the payment of monetary rewards.

In addition, by way of a discussion paper on transparency published in March 2013 (DP13/1), the FCA is consulting on ways that it can
be more open and transparent about how information received from whistleblowers is dealt with. For example, the FCA is considering
whether to provide a written response to the whistleblower to let them know whether any official action is being taken in response to the
report, and provide a general overview of next steps the regulator will be taking. Consideration is also being given to providing regular
status updates to the whistleblower, and the compilation and publication of aggregate statistics on whistleblowing (for example, the

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number of whistleblowing incidents; types of cases; and an overview of the types of action taken in response). The FCA believes that
more transparency and information in this regard will serve to assure whistleblowers and others that the regulator takes seriously the
information it receives in this manner, and that it forms an important part of its intelligence-gathering toolkit. This in turn, it is hoped, will
encourage more whistleblowers to come forward.

PRA
The PRA is responsible for prudential-related whistleblowing.

PRA whistleblowing contact details

n Webpage: http://www.bankofengland.co.uk/pra/Pages/default.aspx.

n Telephone number: +44 (0)20 3461 8703.

n E-mail: [email protected].

n Address: Prudential Regulation Authority CSS (W/B), 20 Moorgate, London EC2R 6DA.

SERIOUS FRAUD OFFICE (SFO)

The SFO is tasked with both investigation and prosecution of the most serious and complex frauds occurring in, or affecting, England,
Wales and Northern Ireland. In November 2011, it established a confidential whistleblowing hotline called SFO Confidential. The SFO
has stated that the hotline is aimed at people who:

“want to tell us about serious or complex fraud or corruption on the understanding that we will not disclose their identity
inappropriately”.

The SFO undertakes not to disclose the identity of a whistleblower except on a “need to know” basis or if a court orders it to. In either
case the SFO says it will consult with the whistleblower before making any disclosure.

According to press reports, the SFO Confidential hotline receives more than 100 calls per month but it is not known whether any of these
calls have resulted in any significant investigatory activity by the SFO. As with the FCA and PRA services, the SFO does not pay monetary
rewards to whistleblowers who provide information leading to successful prosecutions or settlements.

SFO whistleblowing contact details

n Webpage: http://www.sfo.gov.uk/fraud/sfo-confidential---giving-us-information-in-confidence.aspx.

n E-mail: [email protected].

n Address: SFO Confidential, Serious Fraud Office, 2-4 Cockspur Street, London SW1Y 5BS.

n Online reporting form: https://report.sfo.gov.uk/sfo-confidential---provide-information-in-confidence.aspx.

POSSIBLE REFORM OF UK WHISTLEBLOWING ARRANGEMENTS

In the UK, the Whistleblowing Commission has been set up to examine the effectiveness of the current arrangements for workplace
whistleblowing, and to make recommendations for change. On 27 March 2013, the Commission launched a public consultation to
gather evidence on the following:

n Attitudes to whistleblowing from individuals, organisations and the wider society.

n Law and policy: whether it is adequate and effective.

n Whether regulators should be doing more.

n Rewards: whether whistleblowing should be incentivised.

n Whether tribunals are protecting whistleblowers and the wider society.

Responses to the consultation could be sent until 21 June 2013. The Commission intends to publish a paper summarising responses
to the consultation by the end of 2013.

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US and UK whistleblowing programmes

FUNDING
It is interesting to note that the SEC’s Office of the Whistleblower has dedicated funding of approximately US$453 million (£287 million). To
be clear, this amount funds the Office of the Whistleblower alone, with the SEC’s overall enforcement function having significant additional
funding. This is to be contrasted to the funding position of the SFO as a whole, which is reported to be £32 million (US$50 million) for the
current fiscal year. It has been reported that the SFO will benefit from so-called “blockbuster funding” by HM Treasury for investigations that
are forecast to cost more than £1.5 million. However, the war chest that the US authorities have dedicated to incentivising whistleblowers is
rather impressive when viewed against the annual funding of the entire investigation and prosecution operations of the SFO.

Indeed, the funding of the Office of the Whistleblower even compares favourably with the Annual Funding Requirement (AFR) of the
FCA. According to FCA figures, the AFR for 2013/14 is £432 million (US$669 million). Thus, the SEC’s Office of the Whistleblower has
funding that is equal to around half of that of the annual funding of the entire FCA. Of course, the Office of the Whistleblower is not
expected to spend US$453 million over the course of any given year and much of its funding will be rolled over annually. However, the
amount of financial fire-power given to the Office of the Whistleblower is nonetheless impressive.

INTERNAL WHISTLEBLOWING POLICIES AND PROCEDURES: “ADEQUATE PROCEDURES” UNDER THE BRIBERY
ACT 2010
While there is no legal requirement under English law for a company to set up and administer an internal whistleblowing policy or
procedure, it should be recalled that having such a facility may have an impact on a company’s ability to demonstrate “adequate
procedures” for the purposes of section 7(2) of the Bribery Act 2010. If a company can demonstrate adequate procedures (that is, a
good anti-bribery compliance programme), then this is a complete defence to any charge that the company committed the corporate
offence of “failure to prevent bribery”.

For more information on the Bribery Act 2010, see Practice note, Bribery Act 2010: compliance and enforcement issues for financial
institutions.

OVERLAP WITH OTHER UK AND US LEGAL AND REGULATORY REPORTING OBLIGATIONS

UK: OBLIGATION TO CO-OPERATE WITH THE FCA AND PRA

All directors, officers or employees of firms authorised in the UK under the Financial Services and Markets Act 2000 (FSMA) who
have approved person status have a stand-alone, regulatory obligation under the FCA’s Statements of Principle and Code of Practice
for Approved Persons (APER) or both the FCA’s APER and the PRA’s APER if the firm is dual-regulated. In particular, APER Statement
of Principle 4:

“to deal with the FCA, the PRA and other regulators in an open and co-operative way and disclose appropriately any information
of which the FCA or the PRA would reasonably expect notice”.

Any failure to comply with this obligation could result in disciplinary action being taken against the approved persons. Firms themselves
have an equivalent obligation under Principle 11 of the FCA’s Principles for Businesses (PRIN), or under both the FCA’s Principle 11
and the PRA’s Principle 11 if the firm is a dual-regulated firm.

FCA general contact details

n Webpage: http://fshandbook.info/FS/contactUs.jsp.

n Telephone number: +44 (0)845 606 9966.

n E-mail: [email protected].

n Address: The Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

PRA general contact details

n Webpage: http://www.bankofengland.co.uk/pra/Pages/contactpra/Default.aspx..

n Telephone number: +44 (0)20 3461 7000.

n E-mail: [email protected].

n Address: The Prudential Regulation Authority, 20 Moorgate, London, EC2R 6DA.

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UK: OBLIGATION TO SUBMIT SUSPICIOUS TRANSACTION REPORTS TO FCA
In addition, any FSMA-authorised firm that execute trades with or for clients in a qualifying investment admitted to trading on a prescribed
market has an obligation (as set out at Chapter 15.10 of the FCA’s Supervision manual (SUP)) to make suspicious transaction reports
(STRs) to the FCA. Generally speaking, the trigger for the making of an STR is where the firm has:

“reasonable grounds for suspecting that [a] transaction might constitute market abuse”.

Where it has such reasonable grounds, the firm must make an STR without delay. Investment firms and credit institutions are subject to
enhanced requirements, both in terms of the types of trades they have to report (for example, not only qualifying investments admitted
to trading on a prescribed market) and how they have to go about considering whether they have reasonable grounds for suspicion.

For more information on the STR reporting regime, see Practice note, Market abuse: suspicious transaction reporting.

FCA STR contact details

n Webpage: http://www.fca.org.uk/firms/markets/market-abuse/suspicious-transaction-reporting.

n E-mail: [email protected].

n A
ddress: The Market Conduct Team, The Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

n STR form: http://www.fca.org.uk/your-fca/documents/suspicious-transaction-reporting-form.

UK: OBLIGATION TO REPORT SUSPICIONS OF MONEY LAUNDERING TO THE SERIOUS ORGANISED CRIME
AGENCY (SOCA)
It should also be remembered that UK financial institutions and other companies have legal or regulatory obligations to report knowledge
or suspicion of money laundering (known as suspicious activity reports (SARs)) to SOCA (the UK financial intelligence unit (FIU)) under
relevant provisions of the Proceeds of Crime Act 2002 (POCA). Later in 2013, SOCA is being abolished and SARs will need be made
instead to the new National Crime Agency (NCA).

For more information on the SAR reporting regime and POCA, see Practice note, A guide to reporting obligations under the Proceeds
of Crime Act 2002.

SOCA SAR contact details

n Webpage: http://www.soca.gov.uk/about-soca/the-uk-financial-intelligence-unit/how-to-report.

n Telephone number: +44 (0)370 496 7622 or 0207 238 8282

n
Fax number: +44 (0)207 238 8286.

n E-mail (via SAR online): https://www.ukciu.gov.uk/(nexupc55c0tlno45qylnwi45)/saronline.aspx.

n Address: UKFIU, PO Box 8000, London SE11 5EN.

n SAR form: http://www.soca.gov.uk/about-soca/the-uk-financial-intelligence-unit/frequently-asked-questions-faqs.

US: REGULATORY REPORTING OBLIGATIONS

Companies may also be subject to US regulatory reporting requirements if they discover known or suspected violations of law, or other
suspicious activities, within their organisation. For example, the SEC imposes reporting requirements on issuers to file a Form 8-K if a
“material event” occurs that could impact shareholders, which could arise from a whistleblower complaint or another investigation of
potential wrongdoing. Additionally, financial services institutions, especially banks, and investment and brokerage firms, must report,
among other things, violations of law and threats to their safety and soundness to the Office of the Comptroller of the Currency (OCC),
the Federal Deposit Insurance Company (FDIC), and the US Treasury Department, among others. Moreover, the US Financial Crimes
Enforcement Network (FinCEN), a division of the US Treasury Department, requires entities subject to the US Banking Secrecy Act
(BSA) to file suspicious activity reports (also known as SARs, as in the UK) to report violations of law and other suspicious activities.
Failure to do so can subject regulated institutions and their employees to severe civil and criminal penalties, including any combination
of fines, imprisonment, and administrative sanctions.

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US and UK whistleblowing programmes

As a practical matter, however, many companies elect to self-disclose even if there is no reporting obligation, to maintain good
relationships with regulators. In doing so, they may take advantage of the tangible benefits associated with voluntarily co-operating in
civil and criminal investigation (such as reduced fines and penalties).

Finally, US self-regulatory organisations, like the Financial Industry Regulatory Authority (FINRA), have their own reporting requirements.
FINRA member firms, which include almost all brokerage firms, are required to report quarterly statistical and summary information
regarding written customer complaints, as well as “specified events”, (for example, findings by a regulatory body, certain criminal
actions, civil complaints and arbitration claims). Member firms that fail to comply are subject to disciplinary sanctions, up to and
including fines, censure, suspension, and permanent expulsion of an individual or any member firm.

For more information on the US reporting requirements, see Practice note, US Securities Laws: Overview.

OVERLAP WITH UK AND US EMPLOYMENT/LABOUR LAW

UK: EMPLOYMENT RIGHTS ACT 1996

In the UK, employees who qualify as whistleblowers are entitled to statutory protection. The tests for determining whether an employee
qualifies are set out in the ERA (as amended by PIDA). Where an employee makes a disclosure that is both “qualifying” and “protected”
in accordance with those tests, then the employee has the right not to be either:

n Dismissed, where the principal reason for the dismissal is that he made a protected disclosure.

n Subject to a detriment on the grounds that he made a protected disclosure.

There are six categories of wrongdoing covered by the legislation that may be the subject of a protected disclosure:

n Criminal offences.

n Breach of a legal obligation.

n Miscarriage of justice.

n Danger to health and safety.

n Damage to the environment.

n Deliberate concealment of information about the above listed categories of wrongdoing.

The UK government is introducing an additional requirement that the disclosure must be made “in the public interest”. This is not currently
a requirement, which means that a whistleblower can make a disclosure of wrongdoing in relation to, for example, an alleged breach of
their own personal employment contract. However, this change has been introduced as part of the UK government’s employment law
reforms under the Enterprise and Regulatory Reform Act 2013 (see section 17), and is due to come into effect at the end of June 2013.

For more information on the UK statutory regime, see Practice note, Whistleblowing: a quick guide.

US: PRIVATE RIGHT OF ACTION FOR RETALIATION; STATE AND LOCAL STATUTORY AND COMMON LAW CLAIMS;
TORT CLAIMS
In the US, private rights of action for retaliation are primarily statutory. Prior to the enactment of the Dodd-Frank Act, the US Sarbanes-
Oxley Act (SOX) provided a limited private right of action for employees who were allegedly retaliated against by their employers for
making disclosures required or protected under SOX. In 2010, the Dodd-Frank Act amended and expanded whistleblowers’ rights and
remedies under SOX in several important ways. Among other things, the Dodd-Frank Act added provisions that:

n Extended the statute of limitations for filing a complaint with the US Department of Labor from 90 to 180 days.

n Prohibited waiver of any rights or remedies provided for whistleblowing under SOX.

n Invalidated certain pre-dispute arbitration agreements between employees and employers.

Additionally, under Dodd-Frank’s anti-retaliation provision, employers may not retaliate against employees who either:

n P
rovide information to the SEC or the US Commodities Futures Trading Commission (CFTC) pursuant to the whistleblower provisions.

n Initiate, testify, or assist in an investigation or judicial or administrative action based on or related to such information.

n M
ake disclosures that are required or protected under SOX or any law, rule, or regulation subject to SEC regulation. (SOX had only
protected employees who made disclosures required or protected under that statute.)

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Employers who retaliate against such employees may be sued in federal court, and the employee is not required to exhaust their
administrative remedies before filing suit. The employee is also guaranteed the right to a jury trial. In successful cases, the employee
may be awarded all or any of the following:

n Reinstatement.

n Double back pay under the SEC regime, or single back pay under the CFTC regime.

n Their litigation costs, expert witness fees, and attorney’s fees.

There are also US state and local statutory and common law remedies for retaliation, and each US state, municipality and locality has different
rules regarding whether, and under what circumstances, an employee can recover from their employer for retaliation for whistleblowing.
Plaintiffs also introduce novel theories of recovery all the time; some US states recognise tort claims by employees against their employers
that are couched in theories of retaliation. Accordingly, it is important to consider state, municipal and local statutes and ordinances as well.

CONCLUSION: PRACTICAL IMPLICATIONS FOR FIRMS AND OTHER COMPANIES

FINANCIAL SERVICES FIRMS

There is no question that Dodd-Frank’s whistleblowing regime will indelibly change the enforcement landscape for US regulated firms
in the financial services sector. This is especially true now that former federal criminal prosecutor Mary Jo White has been confirmed
in the position of Chairperson of the SEC. Ms White is renowned as an aggressive prosecutor, and the Dodd-Frank Act whistleblower
provisions should provide the SEC with a wealth of new raw material to work with. Increasing investigations and enforcement actions by
the SEC will almost certainly be coming down the pike.

Moreover, it should be assumed that a significant number of tips and reports will continue to be provided to the SEC by individuals
working in the City of London, and that the SEC will share with UK authorities information (derived from the SEC programme) that will
fuel more UK and cross-border investigations and enforcement activity.

Firms should therefore take steps to ensure that their internal whistleblowing procedures are working properly, and that employees
understand how the procedures work and have confidence in the way that reports are handled. Where such confidence is lacking, there
is an increased risk that employees will simply bypass internal procedures and take any concerns directly to the regulators, particularly
in the light of the financial rewards available in the US. In addition, if firms do not handle whistleblowing reports properly, there is a risk
that individuals who would not normally be eligible for a financial reward from the regulator (such as exempted individuals in legal or
accounting roles), will become eligible and will make a report. If there is a problem at a firm, it is obviously in the firm’s interest to find
out about the problem as soon as possible and before its regulator, so that the firm can be on the front foot in addressing the matter
and managing its relationship(s) with the regulator(s).

Given the continued trend for cross-border regulatory and white collar crime investigations, it also makes sense to operate a co-ordinated,
global whistleblowing programme to the extent that this is possible (in the light of, for example, data protection and privacy laws). It may
not always be obvious which laws, if any, are implicated by any wrongdoing reported by a whistleblower. In addition, a particular set of
facts may cause issues to arise under the legal and regulatory regimes of multiple jurisdictions. If there are silos in the organisation that
prevent reports that are made, for example, in the London office from being considered by the legal or compliance function in New York,
then there is a risk that a potential contravention of the US securities laws will not be identified. The SEC’s Whistleblowing programme only
makes awards in circumstances where reports provide information about violations of US securities laws. As a result, it is important that
any possible violations of US law are identified in a timely fashion so that the risk of an employee approaching the SEC can be managed.

OTHER CORPORATES
In addition to firms in the regulated sector, any corporate that has shares listed on a US stock exchange (including non-US companies
with listed American Depositary Receipt programmes) is at risk of having an employee or other individual blow the whistle to the SEC in
exchange for a financial reward. And corporates in all sectors are obviously vulnerable to whistleblowers providing information to relevant
authorities in any jurisdiction, whether or not financial incentives are offered to them. For UK companies, the greatest risk area in this
regard is likely in the area of bribery and corruption. Reports to the SEC regarding violations of the FCPA may result in a company becoming
the subject of a joint US and UK bribery investigation (if the company is subject to both the FCPA and the Bribery Act 2010), or in the
alternative the SEC could simply pass the report to UK authorities for investigation. (The SEC and the DOJ share enforcement authority with
regard to the FCPA. The SEC is responsible for civil enforcement involving issuers and the DOJ is responsible for criminal enforcement.)

Accordingly, corporates outside of the regulated sector should also take the steps referred to in Financial services firms above to ensure
that their internal whistleblowing procedures are working properly, and they do not give employees a reason to make reports direct to
the authorities.

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