Dodd-Frank and Whistle-blowing to the SEC

I just read an interesting post in the NY Times about how the new Dodd-Frank financial regulations bill will provide an incentive for whistle-blowers to give information about various frauds to the SEC. Apparently, deep in the bowels of the 2,500 page Dodd-Frank bill that overhauls our financial regulatory system is a provision that requires the SEC to award whistle-blowers 10-30% of monetary sanctions collected by the SEC that exceed $1 million.

 The NY Times post also said that while the amount of the award must range from 10-30% of the sanctions, the exact amount awarded is up to the discretion of the SEC. Also, the whistle-blower must meet certain conditions in order to collect under Dodd-Frank.  Here is what the post said about the requirements:

International Audit Quality

Among those charged in the Stanford fraud is a former chief of Antigua's financial regulatory commission. From USA Today:

Leroy King allegedly was paid more than $100,000 in bribes in exchange for his positive reports on Stanford's Antigua banking operation before it collapsed earlier this year, according to a federal indictment unsealed in Houston Friday.

Even though the U.S. Justice Department is stepping up FCPA enforcement, bribery seems to be becoming even more prevalent overseas. With businesses embracing a more global focus, audit firms must have the network and resources to service global clients. However, I imagine that audit firms face major challenges in ensuring audit quality overseas, especially in less-developed nations.

In many less-developed nations, audit firms face the prospect of hiring employees who have been raised in a culture that views bribery as acceptable. Also, accounting education may be of lower quality and audit standards may be less stringent in such countries. Further, because salaries are lower in less-developed nations, firm employees are more likely to be enticed by a bribe from a client.

Leroy King's alleged price, $100,000 in bribes, seems like a very small price to pay to keep a $7 billion fraud running. With huge incentives and a high likelihood of rationalization for international employees to accept bribes from clients, I hope that audit firms have been able to establish effective controls to ensure audit quality overseas. Perhaps the scarcity of cases where auditors have been accused of accepting bribes is indirect evidence that audit firms are able to prevent such behavior.

Want job security? Fight fraud for a living...

The WSJ reported that the U.S. Justice Department is hot on the trail of U.S. companies that are bribing foreign officials in violation of the Foreign Corrupt Practices Act. According to the journal, the law

is worded broadly enough that it's spawning an army of consultants, some of whom once prosecuted bribery cases for the Justice Department, who offer to interpret the gray areas.

"When you have a law that can result in criminal sanctions and jail time and that you can violate without actually realizing you're violating it, that's terrifying," said Alexandra Wrage, president of Trace International Inc., a Washington-based nonprofit specializing in antibribery compliance.

The FCPA consulting business is a huge growth area for the Big Four accounting firms and other forensic accounting practices and is an example of two forces that are leading to a need for more people who know how to detect corruption in business. One force is the trend in society and business of lower standards of ethical behavior. The other trend is the effort to counteract the first trend by increasing government regulation.

I personally don't see either trend reversing any time soon. As such, if you're looking for a promising career, this is an area to consider.