Record Payout to Foreign Whistleblower a Warning to Global Businesses

U.S. regulators will pay a record $30 million bounty to an anonymous whistleblower outside the United States, underlining the growing reach of the country’s watchdogs and creating a headache for global firms in fast-growing emerging markets.

The award is one of only a handful of payments made to a person outside the United States, but reflects the increasing lure for tipsters beyond the country’s borders, especially in business hotspots such as China.

Whistleblower reports can be hugely damaging to global firms operating in increasingly important overseas markets where navigating the regulatory environment can sometimes be tough.

GlaxoSmithKline Plc, recently fined $489 million by Chinese authorities for bribery, is still under investigation by U.S. and British watchdogs. The British drugmaker’s woes in China have involved a number of whistleblowers, sources close to the probes and documents show.

Whistleblowers can collect a bounty through the Dodd-Frank program, which offers between 10 percent and 30 percent of any money the agency collects if new information leads to the recovery of investor money over $1 million.

There were 404 whistleblower reports to the U.S. Securities and Exchange Commission (SEC) from outside the United States last year, up from just 32 in 2011. This was led by Canada, the United Kingdom and China.

It was not clear where the latest recipient was based.

The steep incentives have also helped swell an industry in countries like China to assist whistleblower to make their reports to U.S. watchdogs, lawyers said. Some Chinese lawyers promise claimants to “uphold justice and win a huge bounty too.”

“(This trend) is potentially very troubling for companies who are trying to understand the risks that they are facing and trying to resolve the problems before they get out of control,” former U.S. Department of Justice litigator Nat Edmonds told Reuters in Shanghai earlier this year.

The SEC said on Monday that the whistleblower provided crucial information that helped investigators uncover a “difficult to detect” ongoing fraud.

“This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement,” SEC Enforcement Director Andrew Ceresney said.

The SEC won new powers in the 2010 Dodd-Frank Wall Street reform law to entice whistleblowers with monetary awards. Prior to the new law, the SEC was only able to reward people for helping on insider-trading cases.

By law, the SEC is not allowed to reveal the identity of whistleblowers, and so as a result, it does not disclose which case a whistleblower helped to crack.

Settlements with the SEC large enough to justify a $30 million-plus award are fairly uncommon.

Phillips & Cohen LLP, a law firm that represented the whistleblower, declined to provide details about the case but said its client will receive at least $30 million and possibly as much as $35 million.

“I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions,” the whistleblower said, in a press release issued by the law firm.

Monday’s announcement is the fourth time the SEC has agreed to award a whistleblower living abroad – a fact that the agency said demonstrates the “international breadth” of the program.

Since the inception of the program in fiscal year 2012, the SEC has awarded more than a dozen whistleblowers. Monday’s $30 million-plus award is more than double the previous record of $14 million, awarded to a whistleblower in 2013.

(Reporting by Sarah N. Lynch in WASHINGTON and Adam Jourdan in SHANGHAI; Editing by Steve Orlofsky and Ryan Woo)