On May 17, 2016, the Securities and Exchange Commission (SEC) announced that it would award between $5 million and $6 million, the third-highest award ever, to a whistleblower who provided information detailing securities violations committed by the whistleblower’s former employer. Under the so-called “bounty” provision of the Dodd-Frank Act, the SEC is authorized to award between 10% and 30% of monetary sanctions collected to a whistleblower who provides original information which leads to the collection of $1 million or more in sanctions. The SEC noted that “employees are often best positioned to witness wrongdoing” and that it would have been “nearly impossible” for it to have detected the violations without the information provided by the whistleblower.

Since the inception of the whistleblower program in 2011, the SEC has awarded more than $67 million to 29 whistleblowers. In FY 2015 alone, the SEC’s Office of the Whistleblower received 3923 whistleblower tips, an increase of 30% over the last three years.

While the prospect of a huge bounty provides employees with a tremendous incentive to report violations directly to the SEC, employers can mitigate the risk of external reporting by implementing an effective compliance program which creates a culture of compliance that encourages and rewards internal reporting. The U.S. Federal Sentencing Guidelines for Organizations specify that, for a compliance program to be deemed effective, companies must exercise due diligence to prevent and deter criminal conduct, and must promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. The program “shall be reasonably designed, implemented, and enforced so that the program is generally effective in detecting and preventing criminal conduct”

The key is to develop a functional, pro-active compliance program that gives employees confidence that their reports will be taken seriously and that they will not suffer retaliation for speaking out. This takes time, effort, and continual reinforcement, but it is a wise investment.