SEC directs specific communication to employees regarding whistleblowing

Global Investigations Insights Series

Global Investigations Insights


In many investigations, whether internal or in response to government inquiries, employers may take action to terminate employees.  A recent US Securities and Exchange Commission (SEC) resolution in the context of the US Foreign Corrupt Practices Act (FCPA) suggests employers should exercise significant care in ensuring that former employees will not be prohibited from communicating with regulators or enforcement authorities.  While the SEC has previously emphasized the need to protect whistleblowers, this most recent resolution goes a step further in directing  employers to specifically advise employees that they are not prohibited from reporting misconduct to the SEC.  The SEC’s heightened emphasis on this point will likely impact how companies address these issues in employee severance agreements in particular.

On September 28, 2016, Anheuser-Busch InBev SA/NV (AB InBev) entered into an administrative resolution with the SEC through a cease-and-desist order in which the company agreed to pay $6 million to settle allegations that a wholly-owned subsidiary in India violated two separate provisions of the FCPA (the books and records, and internal controls provisions) through its usage of a third-party sales promoter to make improper payments to Indian government officials in order to increase sales and to increase brewery hours in certain regions.

The order also resolved allegations that AB InBev violated the “Whistleblower Incentives and Protections” provision contained within the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) based on a separation agreement that its India-based subsidiary entered into with a former employee in December 2012.  That employee had previously reported allegations of misconduct to personnel at the India-based subsidiary in 2010 and 2011, and had also voluntarily cooperated and shared information with the SEC regarding the potential FCPA violations in India up until the execution of the separation agreement.  The separation agreement contained confidentiality restrictions but did not provide a carve-out exception for communications with government regulators.  The agreement also contained a liquidated damages clause of $250,000 for any violation of the separation agreement’s provisions.  The SEC alleged that because of this potential liability, the employee stopped voluntarily cooperating with the SEC and did not re-engage with the agency until he was subpoenaed for testimony and documents.  The administrative order entered required the company to include in its severance agreements specific carve-out language which advised employees that they were not barred from reporting conduct to enforcement authorities. In addition, the company was required to make a proactive communication to some former employees to reiterate that message.

This resolution highlights a continued focus by the SEC on companies ensuring an environment in which whistleblowers are protected and not prevented from external reporting of misconduct.  The whistleblower program, which may allow individuals who report violations of law across a wide range of activities in the financial markets to obtain a financial reward in recoveries obtained by the SEC, has generated a significant increase in whistleblower reports since its promulgation in 2010.  This has in turn exposed companies to greater scrutiny and potential liability for compliance violations.  In light of this, companies should consider reviewing their employment agreements to ensure that they include appropriate provisions to protect employees communicating with regulators.