EC's Final Whistleblower Rules Provide Important Incentives For Effective Corporate Compliance Programs

On May 25, 2011, the Securities and Exchange Commission adopted final rules implementing the whistleblower provisions of the Dodd-Frank Act, Section 21F of the Securities Exchange Act of 1934. Under Dodd-Frank, the SEC is required to award a whistleblower between 10 percent and 30 percent of any recovery in a successful enforcement action based on the whistleblower's allegations, where the action results in a recovery of monetary sanctions exceeding $1 million. Dodd-Frank also contains enhanced provisions protecting whistleblowers from retaliation, and the final rules make it a violation to prohibit or impede external reporting by whistleblowers.

Much of the comment and controversy around the rules centered on the impact of incentivizing whistleblowers to contact the SEC without first relying on corporate compliance programs that include effective whistleblowing processes. Although the final rules permit whistleblowers to bypass internal processes, the rules and