China Again Ranks as a Top Source of Whistleblower Tips in 2020
China was the third largest source of foreign whistleblower tips in this year's Annual Report to Congress by the SEC's Office of the Whistleblower (OWB). Topped only by Canada and the United Kingdom, the People's Republic of China was the source of 67 whistleblower tips submitted in the 2020 fiscal year (FY), the highest number of reports ever from the country. While the absolute number of tips received from China in FY 2020 was high, China's ranking relative to other countries remained consistent with prior years. Since FY 2011, when the SEC first published its Annual Report to Congress on the Dodd-Frank Whistleblower Program, China has consistently ranked among the top four foreign sources of whistleblower tips, generating a total of 377 tips to date.
The OWB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which directed the SEC to make monetary awards to eligible individuals who provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions above $1 million. Dodd-Frank also established mechanisms for confidential reporting and protections for whistleblowers, and directed the SEC to establish a separate office to administer the whistleblower program. The OWB reports annually to Congress, as required by Dodd-Frank Section 924(d) and Section 21F(g)(5) of the Exchange Act. The OWB accepts tips regarding violations of the securities laws, including the Foreign Corrupt Practices Act (FCPA).
China and the United Kingdom are the only two countries to rank in the top four foreign sources of whistleblower tips every year since the inception of the program, with Canada also frequently ranking highly as a source of tips. China's consistently high ranking is somewhat surprising given its geographic distance from the US and potential language barriers. But the relatively high number of whistleblower tips likely reflects in part China's status as the world's second largest economy and fastest growing trillion-dollar economy. The 67 tips received in FY 2020 represent a significant increase from the 32 China-sourced tips received in FY 2019. This increase may reflect heightened tensions in the US-China relationship and the correspondingly heightened media scrutiny on both sides of the relationship. This increase may also reflect the influence of the DOJ's China Initiative, a program launched in 2018 to prioritize China-related enforcement actions, including trade secret theft, economic espionage, and FCPA matters.
In a potentially related development, China remains a hotspot for FCPA enforcement actions, most recently with the August 2020 settlement by Herbalife. Although the OWB does not analyze the types of tips received from each jurisdiction, the total number of tips alleging violations of the FCPA in FY 2020 remained relatively steady, with 208 FCPA tips received from all sources, slightly up from previous years. The OWB report reflects the importance of robust compliance systems for companies operating in China and elsewhere. Notably, the DOJ's most recent guidance on the Evaluation of Corporate Compliance Programs specifically recommends that companies proactively test the effectiveness of their systems for allowing employees to report compliance issues anonymously or confidentially.
For questions about the FCPA, responding to whistleblower complaints, or broader anti-corruption compliance issues, please reach out to the authors or any of their colleagues in Arnold & Porter's Anti-Corruption, Compliance, or White Collar Defense & Investigations practice groups.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.