Article Summary

Banks and bankers are entrusted with exceptionally private information. As such, they are subject to myriad laws and regulations. Bankers and other bank employees should become familiar with the regulations they are subject to—not just for compliance—but also to learn their protections. They are protected by the Sarbanes-Oxley Act the Dodd-Frank Act and other industry protections. Protections are a first step. The second step includes the rewards programs available to banking employees. Available rewards programs like the SEC Whistleblower Program and FIAFEA are an avenue for whistleblowers.

This article by TELG principal Adam Augustine Carter and TELG managing principal R. Scott Oswald was published by Westlaw Journal White-Collar Crime on May 1, 2015.

Originally published in:

When Banks Don’t Do the Right Thing: Employee Options

Banks can voice platitudes regarding their obligations and stack paper upon paper that they are complying with laws and regulations, but bankers in the trenches know that protocols in practice are different from protocols in handbooks. So what can people on the frontlines do when they learn the bank they work for is not complying with the myriad laws and regulations governing it?

The employee has two fundamental options:

Keep mum or disclose. The calculus for bankers in deciding whether to disclose is complicated by the fear of retaliation. To assuage that fear, Congress has enacted two types of palliatives: anti-retaliation protections and rewards programs.

Banks are entrusted with exceptionally private information, and they have to do more than pay lip service to compliance. And because of the changed landscape    for compliance, bankers no longer have a choice other than to stand up. If they keep mum, they become part of the problem and put themselves in danger of complicity.

The Sarbanes-Oxley Act and Dodd-Frank Act mean that bankers cannot look the other way. The good news for bankers is that they are protected and, in some cases, rewarded for their disclosures. Statutes protecting bankers include

Sarbanes-Oxley Act protections and depository institution employee protections. Beyond protections, bankers can also benefit from information they learn about certain legal and regulatory violations.  For example, rewards are available to individuals who disclose fraud on a depository institution insured by the Federal Deposit Insurance Corp. Whistleblower protections and rewards are the key     to safeguarding the trust individuals place in their banks and bankers.


Section 806 of SOX

Congress made the right move when it enacted the Sarbanes-Oxley Act in July 2002. SOX created a framework of safeguards to guard against future Enron and WorldCom scandals.  Section 806  of  SOX  took  an important step by protecting employees, consultants and contractors of publicly traded companies who provide information regarding conduct that they “reasonably believe” violates securities laws and certain fraud   statutes. These   include specific statutory provisions relating to mail fraud (18 U.S.C. § 1341), wire fraud (18 U.S.C. § 1343) and securities fraud (18 U.S.C. § 1348).

At 18 U.S.C. § 1514A, the legislation also protects from retaliation any individual who provides information about company conduct that violates “any rule or regulation of the Securities and Exchange Commission, or any provision of federal law relating to fraud against shareholders.”

It is not hard to imagine scenarios where this law can protect bank employees. If a bank employee discloses securities, mail, wire or bank fraud, there is a good chance that the disclosure is covered under SOX because of the statute’s exceptionally broad application.  The regulations apply to hundreds of publicly traded banks, hundreds of subsidiaries and thousands of agents (such as officers, employees, contractors and subcontractors).

If a bank employee complains of security violations or mail, wire or bank fraud — and the disclosures contribute to the employing bank’s decision to terminate the   employee that employee rightly has a strong basis for a SOX whistleblower retaliation suit.

Employees should not have to worry about retaliation when they disclose fraud or misdeeds.

Dodd-Frank Sections 922 and 1057

But SOX was not enough. President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law July 21, 2010. Among the bill’s wide- ranging topics are two chief sections that can shield bank employees from retaliation: Section 922 (regarding disclosures of securities law violations) and Section 1057 (regarding disclosures related to consumer financial products or services).

Section   922   shares   many   features with Section 806 of SOX.  Employers including banks — invite liability for discharging, demoting, and suspending, threatening, harassing or otherwise discriminating against whistleblowers who disclose securities violations or violations of other laws enforced by the SEC.

Section   1057   of   Dodd-Frank,   codified at

5 U.S.C. § 5567, creates another private right of action for employees in the financial services industry who suffer retaliation for disclosing  information  about  fraudulent   or unlawful conduct related to the offering or provision of a consumer financial product or service.

The scope of coverage is quite broad. The section applies to organizations that extend credit, or service or broker loans; provide real estate settlement services or perform property appraisals; provide financial advisory services to consumers relating to proprietary financial products, including credit counseling; or collect, analyze, maintain,    or    provide    consumer   report information or other account information in connection with any decision regarding the offering or provision of a consumer financial product or service.

Depository institution employee protections

Pursuant to 12 U.S.C.  §  1831j,  employees of depository institutions are protected against discharge and other types of discrimination   for   disclosing    violations  of law or regulation as well as gross mismanagement,   gross   waste   of    funds, abuse     of     authority     or     a  substantial and specific danger to public health or safety by an employing depository institution or its directors, officers or employees. The same protections apply to employees of federal banking agencies, federal home loan banks, Federal Reserve banks and their agents.


The Financial Institutions Anti-Fraud Enforcement Act

Although most banks probably do not want their employees to know about it, the federal government has established a program to incentivize individuals to disclose information related to various frauds on federally insured  institutions  through  the   Financial Institutions Anti-Fraud Enforcement Act of 1990, 12 U.S.C. § 4201.

In brief, any person may file a declaration with the U.S. attorney general regarding actions for civil penalties affecting a depository institution insured by the FDIC.   If the action is prosecuted and results in a settlement or judgment, the person who disclosed the violations is entitled to a percentage award. The program includes both frauds against banks and, in some cases, by banks against the FDIC.

Section 922 of Dodd-Frank

In addition to establishing employee protections, the Dodd-Frank Act established a whistleblower office at the SEC.  The office receives tips and uses its discretion   to prosecute violations of laws under its jurisdiction. Should a whistleblower’s tip result in a settlement or judgment, the whistleblower is entitled to a percentage award. In general, the SEC has focused its prosecution on frauds against shareholders.

Congress has taken the right steps to protect and reward bankers for their disclosures. It recognizes the contributions of whistleblowers. While more can be done, Congress’ actions thus far have been welcome.