Even an army of regulators may not wield the power of a single employee willing to drop a dime.

With the rationale that investigators need the helping hand of internal informants, the Dodd-Frank Act beefed up anti-retaliation protections for whistleblowers and sweetened the deal with a bounty of between 10 and 30 percent for information that results in penalties that exceed $1 million.

It wasn't a popular plan for many corporations and their executives. Critics protested that the reward program would dangerously undercut existing compliance programs by providing incentives for whistleblowers to circumvent internal reporting procedures to bring complaints directly to federal regulators. And beyond those concerns, executives are still unclear on many of the details of the program that, still in its infancy, will continue to be refined.

During a panel discussion at the Compliance Week 2012 conference in Washington D.C. last week, Jane Norberg, deputy chief of the Securities and Exchange Commission's Office of the Whistleblower, and Vincente Martinez, director of the Whistleblower Office for the Commodity Futures Trading Commission, tackled some of the most common questions about the new whistleblower initiatives.

How successful have initiatives been thus far?

The SEC's Norberg said her agency receives an average of seven tips a day, most related to corporate disclosure and market manipulation.

“We've been impressed with the quality of the tips we have seen,” she said. “I already deem our program a success because I see the tips coming in and how good they are.”

Despite concerns to the contrary, Norberg said the “vast majority” of whistleblowers have also reported their concerns internally.

“It is very important to communicate with employees to let them know you are there, you take this seriously, and you are going to protect them from any retaliation if they come to you first,” she said.

“One thing that needs to be kept in mind is that the whistleblower programs are meant to serve the facilitation of law enforcement,” said Martinez. “I would hope that somebody [in the midst of an] MF Global situation, or Madoff-magnitude Ponzi scheme, wouldn't split hairs about whether compliance is the right way to go or if being a whistleblower is the right way to go. We are talking about protecting markets here, and the whistleblower program is an incentive program to help facilitate that goal.”

Norberg said she hopes there will be greater momentum once the SEC starts sending out the whistleblower rewards. “The first award cannot come soon enough for us,” she said.  “We recognize that people will look at that to determine whether the program is a success.”

What happens when a company decides to self-report an internally reported infraction if a whistleblower has already gone to regulators?

“That's exactly what we want, and what they should do,” Norberg said. “Do what you should always do.”

“You should put in a robust compliance program, put out communications to your employees that this is a compliant corporation, and please come to us if you find out something is not right,” she said. “You need to do a thorough investigation and if you find wrongdoing you need to stop it, remediate, and self-report.”

Norberg reminded the audience that even before the Dodd-Frank Act, “employees have come to the SEC without the potential of getting money at the end.”

“It is not as if self-reporting has the effect of pulling the rug out from under the whistleblower in terms of his or her eligibility,” Martinez said.

“The policy makes it clear that a whistleblower's decision to go straight to the government is a decision that has no impact one way or the other on that person's eligibility,” he added. “On the flipside, if it is active conduct that interferes, hampers, or frustrates the internal compliance function, those are things that would be looked at as factors that decrease the award.”

Can compliance staff act as whistleblowers?

Tipsters emerging from a company compliance department can file with regulators “in order to secure the anti-retaliation protections of the Dodd-Frank Act, whether or not that person down the road is going to be eligible for an award,” Martinez said. Being able to claim a bounty is a trickier prospect because “compliance officers are responsible for maintaining a proper tone at the top and are supposed to be responsible.”

There are, however, unique situations that can set the stage for a claim, said the officials. If the company has not reported a violation within 120 days (the time limit for a whistleblower claim) those in a control function or in the officer's suite could come forward to the government and become eligible for an award for reporting the information.

“We've been impressed with the quality of the tips we have seen. I already deem our program a success because I see the tips coming in and how good they are.”

—Jane Norberg,

Deputy Chief, Office of the Whistleblower,

Securities and Exchange Commission

There are also specific situations that allow for a more immediate option for going direct to government and becoming eligible for an award.

“Basically [they are eligible] if they see conduct that reasonably appears to be intended to impede an investigation, such as running the shredders all of the sudden, destroying computer files, or firing the employees who are knowledgeable about the circumstances regarding the allegations,” Martinez said. They could also be eligible if they report conduct or practices that have the potential for immediate, substantial financial injury, he added.

Compliance officers may also become eligible for a reward if they produce evidence that not all relevant information or documents were provided to regulators, law enforcement officials, or Congress during an inquiry or investigation.

Is there a requirement for the compliance function of a corporation to discuss with, or educate employees on, the new whistleblower protections and incentives?

“When whistleblowers come to compliance programs and have questions about this, some careful thought has to be given to what is said to that person,” Martinez said. Companies may, understandably, not want to prod employees toward going to regulators when a matter first comes to their attention “so the company can have time to size up an investigation and determine how to best position itself for self-reporting cooperation credit.”

“That being said, I think it's a very dicey, mine-filled area when employees ask an interested corporation what their interpretations of the anti-retaliation provisions are,” he said.

If a whistleblower works outside of the United States, do anti-retaliatory protections extend to them?

“We get tips from all over the world,” Norberg said. “If we are talking about a U.S. company, I think the answer is easier; if we are talking about a foreign company, it really depends on the courts in that country and whether the person filed a claim here. There are a lot of things that go into it. Certainly, the statute looks at whistleblowers the same way across the board. It doesn't distinguish between whether you are sitting in a foreign country, rather than sitting here in the United States.”

“One thing that needs to be kept in mind is that the whistleblower programs are meant to serve the facilitation of law enforcement,” said Vincente Martinez, director of the Whistleblower Office for the Commodity Futures Trading Commission. The SEC's Office of the Whistleblower Deputy Chief Jane Norberg sits to his right.

Martinez said these cases, as far as the CFTC is concerned, would require the sort of extra-territorial analysis that one would do for violations of the Commodity Exchange Act. A key consideration would be, “whether or not the action was directed at U.S. investors, or had some impact here.”

How do regulators view, and work with, outside counsel? Can they ensure that a whistleblower always remains anonymous?

Norberg said the SEC frequently works one-on-one with counsel retained by whistleblowers in order to preserve their anonymity as long as possible. Even those who are not anonymous often find that a legal specialist can help streamline the effort and perhaps help make the case for a larger bounty.

“Represented parties do tend to have a little more professionalism in their package, because the attorney has typically read the rule with some thoroughness and phrased the answers accordingly,” Martinez said.

He warned however, that “we will eventually need to know who you are,” especially when a reward check is cut and cashed.

“The reason they don't come forward is that they are afraid,” Martinez said. “They are afraid of retaliation. They fear for their livelihoods and staying relevant in the industry. Many do want to stay anonymous all the way up until the end. In order to get an award, however, you have to tell us who you are and prove you are that person. We at the agency will not reveal that person's name, however.”

Even at trial, when a whistleblower is called as a witness, it will not be revealed that they were the tipster, he added.

What about attorney-client privilege? Do accountants have similar protections when it comes to confidential information?

“There is a specific exclusion for information that is obtained if it is subject to attorney-client privilege,” Martinez said. “It is the only evidentiary privilege that is recognized as an exclusion to independent information. So, to the extent that people would argue that there is an accountant-client confidentiality privilege, it is not recognized by the whistleblower statute as something that would prevent their eligibility to come forward for an award.”

Many companies retain external auditors, and “obviously, there needs to be some kind of confidentiality in that relationship in order for things to be candid enough to actually work,” he added. “But there is no block on the whistleblower program that recognizes that as a privilege.”