Australia: Whistleblower bounties a novel financial reform

On 21 July 2010, President Obama signed into United States law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act is a response to the global financial crisis and contains extensive reforms to the US financial services industry.

One of the remarkable changes introduced by these reforms is the whistleblower provisions which grant monetary rewards to individuals who report illegal conduct to the Securities Exchange Commission. The provisions took effect on 12 August 2011.

Australian entities dealing with US public companies, including investment banks, advisers and service suppliers, as well as US subsidiaries operating in Australia, should be aware of these provisions as they give employees important rights to report illegal conduct directly to the SEC and thereby bypass internal reporting and compliance mechanisms.

Whistleblowers play an important role in the detection of corporate and financial services misconduct. Whistleblowers frequently have access to information about illegal conduct which may otherwise remain undetected. It is well established that occupational misconduct is more likely to be detected by tip than by any other means. In the wake of the Sarbanes-Oxley Act of 2002 and the whistleblower provisions in the Corporations Act 2001 (Cth), companies sought to harness the ability of whistleblowers to detect and report misconduct to improve their internal controls.

In Australia, the Corporations Act protects whistleblowers who are employees, officers and contractors from recriminations. However according to Treasury in its 2009 Improving Protections for Corporate Whistleblowers: Options Paper these provisions have rarely been used. The provisions rely on the moral conscience of individuals to report improper conduct. Potential whistleblowers are not given any financial reward or incentive to encourage reporting.

The US has taken a different approach. Section 922 of the Dodd-Frank Act provides that the SEC shall pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to successful enforcement of a violation of US federal 'securities laws' yielding monetary sanctions over $1 million. The award to the whistleblower must be between 10-30% of the total monetary sanctions collected in the SEC's action or any related action such as a criminal prosecution. US federal securities law covers breaches of the Securities Act (1933), the Securities Exchange Act (1934), the Sarbanes-Oxley Act (2002) and the Investment Company Act (1940).

The Dodd-Frank Act prohibits retaliation by employers against whistleblowers. It also provides them with a private cause of action if they are discharged or discriminated against by their employers. This extends to obtaining double back-pay reparations.

This reward or bounty is quite an incentive. They would have yielded whistleblowers a small fortune if they applied to recent SEC prosecutions. For instance, whistleblowers would have been entitled to between $55- $165 million from the recent $550 million SEC settlement with Goldman Sachs concerning its misleading investor claims. A whistleblower may also receive bountiful amounts in a Foreign Corrupt Practices Act cases as it forms part of the securities laws. Consider the award that could have applied in the US Department of Justice and SEC's settlement of charges against Halliburton Company and its former engineering and construction unit, Kellogg, Brown & Root Inc, for $579 million or the German company Siemens AG for $800 million.

The Dodds-Frank whistleblower provisions may impact Australian entities dealing with US public companies, including investment banks, advisers and other service suppliers, and US subsidiaries operating in Australia. Employees of these entities may obtain information during the course of their employment which may reveal a breach of US federal securities laws. This would entitle them to report such conduct to the SEC directly and be eligible for the monetary award. The rules do not impose a requirement that whistleblowers report through internal compliance processes as a prerequisite to eligibility for an award.

For these reasons, public companies and directors in the US have raised concerns that internal compliance mechanisms will be undermined as employees race to be the first to blow the whistle to the SEC. The concern is that their internal compliance procedures may be side-lined by whistleblowers eager to secure a bounty.

The SEC rules attempt to deal with this by allowing an employee who reports wrongdoing internally first and, within 120 days reports the wrongdoing to the SEC, to maintain their place in the queue for providing original information and receive the benefit of all the information that the corporation obtains as part of its internal investigation.

Nevertheless due to the perverse nature of the incentive, the problem remains. Bounties get larger the greater the sanctions visited upon the company. A whistleblower may consider that higher awards are more likely if the whistleblower promptly stakes their claim with the SEC but does not assist the corporation to take remedial steps to stop or limit the harm caused.

Whistleblowers are an important aspect of the detection and prevention of corporate and financial services misconduct but the Dodd-Frank bounties may increase litigation and sanctions without preventing corporate fraud. As the SEC's Chief of the Office of the Whistleblower has observed:

the [SEC] rules leave it to the employee to decide whether to report internally first – or to contact the SEC -- and those companies that best ensure that their employees view internal reporting as a viable and credible option to address possible securities law violations are more likely to have the wrongdoing reported internally first.

Corporations need to consider a range of measures to improve the operation of internal reporting mechanisms and make internal reporting more attractive to employees. These measure include providing confidential and anonymous mechanisms for reporting potential misconduct, educating employees about the available methods of submitting complaints internally and rewarding whistleblowers for providing the company with information that enables it to identify and address misconduct.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.