By Henry Engler
NEW YORK, July 21 (Reuters) - BNP Paribas SA's $9billion settlement with U.S. authorities, aided by internalwhistleblowers, has spurred calls for federal banking regulatorsto protect and reward individuals who report wrongdoing bybanks.
The U.S. Securities and Exchange Commission has scored bigenforcement successes and delivered millions of dollars inawards to whistleblowers under a program from the 2010Dodd-Frank overhaul of Wall Street. The Commodity FuturesTrading Commission, as well as the SEC, will providewhistleblowers with a share of fines collected.
"We have a (whistleblower) law that covers tax fraud andfraud against the government (and) commodities and securitiesviolations, but we don't have similar laws for bankingregulators," said Jordan Thomas, head of the whistleblowerrepresentation practice at law firm Labaton Sucharow and anarchitect of the SEC's program. "To me, that is a significantgap."
Whistleblowers played a prominent part in the case of Frenchbank BNP Paribas, which on June 30 pleaded guilty to twocriminal charges and agreed to pay nearly $9 billion to settlecharges that it violated U.S. sanctions.
Thomas said he regularly received calls from people who wantto report violations of banking law. "I have to tell them thereis not an avenue for them to report and receive a monetaryreward," he said.
The New York Department of Financial Services, which hasjurisdiction on Wall Street, has pushed for state legislation toexpand whistleblower protections to banks and insurancecompanies.
The bill would allow whistleblowers to share in finesresulting from information about violations of insurance,banking or financial services law. It would also protectwhistleblowers from retaliation by their employers.
INDUSTRY OPPOSITION
National banking representatives have opposed suchwhistleblower programs.
Asked about its position on expanded whistleblowerprotections, the American Bankers Association pointed to a 2010regulatory filing opposing the SEC's proposed program. It hadwarned the program would encourage individuals to "avoid eventhe most highly effective internal (reporting) policies in orderto preserve and protect the possibility, no matter how remote,of receiving large cash awards."
Eight whistleblowers have received awards ranging from thelow six-figures to as high as $14 million through the SEC'sprogram since it began in late 2011. The CFTC, meanwhile, issuedits first award, of $240,000, in May.
Incentives for reporting wrongdoing should be part of anynew banking reforms, advocates said. "Because we have had anenforcement approach to compliance, and not an incentiveapproach, we haven't put enough effort in looking at rewardinggood behavior and this kind of reporting," said Jennifer Arlen,co-director of the Program on Corporate Compliance andEnforcement at New York University Law school.
There is no sign that Congress or federal banking regulatorsare devising plans for a new whistleblower program.
The New York State proposal, introduced last year at thedepartment's request, was not acted on in this year's session. Aspokesman for Republican bill sponsor James Seward said it couldcome up in 2015. Department of Financial Services SuperintendentBenjamin Lawsky's office did not respond to questions about it.
The proposal noted that "sanctions against employers whoretaliate against whistleblowers are currently quite limited inNew York."
A Federal Reserve spokesman said there had been no specificpublic discussion by any board members of a whistleblowingprogram, and he declined to speculate on any future plans.
BNP, BARCLAYS AND WHISTLEBLOWERS
In the BNP Paribas case, the U.S. Justice Departmentincluded evidence that internal staff had alerted seniormanagement in vain about efforts to conceal transactions withSudan, Cuba and Iran, all in violation of U.S. sanctions.
In addition, a lawsuit brought last month by the New YorkAttorney General's office against Barclays Plc overalleged improprieties in its "dark pool" trading businessdepicted a workplace that discouraged reporting concerns.
The complaint against Barclays cited the firing of a bankdirector who refused to alter an analysis that could havealerted customers who were allegedly being misled about theirtrades.
Barclays has hired outside lawyers to help it investigatethe allegations and has until July 25 to decide whether tocontest them. (Reporting by Henry Engler of the Compliance Complete serviceof Thomson Reuters Accelus; Editing by Randall Mikkelsen andLisa Von Ahn)
Barclays (BARC)