Compliance officers, corporate secretaries and audit committee members are taking notice of the potential threat to corporate integrity programs from the U.S. Securities and Exchange Commission’s new whistleblower bounty program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The essential problem is that corporate compliance and related programs designed to help companies meet integrity objectives are dependent on maintaining robust internal reporting systems, but the new bounty program encourages employees to bypass internal reporting in favor of seeking reward by going directly to the government with evidence of possible wrongdoing.

So-called whistleblowers are often the first and best source of information about internal corporate misdeeds. They provide information through internal reporting mechanisms, which have become a cornerstone of the business world’s efforts to rigorously self-police business activity. Corporations undertake such efforts for both internal control reasons and to meet the demands of government enforcement agencies and shareholders, but the new SEC whistleblower bounty program has the potential to severely undercut compliance efforts. Nonetheless, it’s not too late for the SEC and the business community, through the rule-making process and adoption of agency policies implementing the program, to mitigate the worst potential consequences and instead promote corporate-integrity objectives while maintaining the objectives of the program. Such steps will also assist the SEC’s enforcement efforts by allowing the agency to continue to benefit from rigorous self-policing by, and cooperation from, companies.

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