On February 25, 2016, Congressman Elijah E. Cummings (D-MD) and Senator Tammy Baldwin (D-WI) introduced the Whistleblower Augmented Reward and Nonretaliation Act of 2016 (or WARN Act of 2016) (pdf). The bill proposes expanded protections for individuals who blow the whistle on financial fraud and securities violations and, if enacted, could have significant implications for financial services employees and employers alike. Specifically, the WARN Act of 2016 aims to strengthen the protections and incentives available to financial crimes whistleblowers by amending the Financial Institutions Anti-Fraud Enforcement Act (“FIAFEA”), Federal Deposit Insurance Act (“FDIA”), Securities and Exchange Act (“SEA”), Commodity Exchange Act (“CEA”), and Sarbanes-Oxley Act (“SOX”).

Under the FIAFEA and FDIA, for example, individuals who report banking fraud can receive awards based on the amount of money recovered as a result of the information they provide. Currently, however, there are monetary caps on these incentive awards. The WARN Act of 2016 would eliminate those caps and permit FIAFEA and FDIA whistleblowers to receive 10 to 30 percent of the total amounts recovered—essentially amending these statutes to include whistleblower “bounty” programs mirroring those under the SEA and CEA created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).

The WARN Act of 2016 would expand the scope of employee activities protected by the FDIA’s existing anti-whistleblower retaliation provision. It would also add a whistleblower anti-retaliation provision to the FIAFEA entitling covered employees who suffer adverse personnel action for assisting with the prosecution of certain violations (e.g., mail fraud, wire fraud, or bank fraud) to recover full reinstatement, double back pay damages with interest, and litigation costs and attorneys’ fees in a civil lawsuit. The revised FIAFEA would further require the Attorney General to issue regulations compelling covered employers to educate, train, and notify employees, including by posting information on their website homepages, about employee rights and remedies under the statute.

The Act also bolsters the whistleblower anti-retaliation provisions created by the Dodd-Frank amendments to the SEA, CEA, and SOX. For example, the SEA and CEA define the term “whistleblower” to include only those who report suspected violations externally to the SEC or CFTC. Employers have relied on this to argue that the anti-retaliation protections of these statutes do not apply to employees who only report violations internally, and there is currently a circuit court split on the issue. The WARN Act of 2016 would resolve the dispute by eliminating the narrow definitions of “whistleblower” under these statutes, apparently establishing once and for all that employees who only report alleged violations internally, but not to the SEC or CFTC, are covered.

In addition, the proposed legislation would expand the scope of activities protected, and adverse personnel actions prohibited, by the SEA, CEA, and SOX anti-whistleblower retaliation provisions; amend the remedies available under the SEA and CEA  anti- retaliation provisions to include compensatory damages and punitive damages of up to $250,000, and those available under the SOX anti-retaliation provision to include double back pay and punitive damages of up to $250,000; and broaden the prohibitions against waiver of any whistleblower rights or remedies under the SEA and CEA (including waivers often contained in standard confidentiality and settlement agreements).

The bill has been referred to the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs for review, and whether it will garner any meaningful support remains to be seen. If it passes, employers will need to provide proper training on the revised regulations, ensure they have comprehensive programs in place for internal reporting and investigation of alleged financial and securities violations and employee retaliation claims, and revisit their confidentiality agreements, settlement agreements, and similar documents to ensure compliance with the Act’s enhanced prohibitions against the waiver of whistleblower rights.