Insurers Targeted in Proposed N.Y. Corporate Whistleblower Protection Law

February 26, 2015

Employees who report illegal activity in insurance, banking and financial services would be protected and compensated for their trouble under new legislation proposed by New York State Attorney General Eric Schneiderman.

The new bill comes as the issue is getting greater scrutiny on a national level. The Securities and Exchange Commission is looking into whether companies are taking steps to silence corporate whistleblowers, The Wall Street Journal reported on Feb. 25.

Dubbed the Financial Frauds Whistleblower Act, Schneiderman’s bill would ensure that whistleblowers in New York who voluntarily disclose fraud in their industry receive financial compensation, assuming those tips lead to more than $1 million in penalties or settlement action.

As well, a whistleblower’s information would remain confidential, and the bill would make employer retaliation illegal. Whistleblower rewards would come from money recovered (fines, etc.) from individuals found guilty of wrongdoing. The New York State Attorney General’s office pitches the payment mechanism as a way to boost its ability to spot fraud and recover stolen money without adding taxpayer costs.

Why is this necessary? Scheneiderman’s office argues in its announcement that incentives and protections for individuals who report financial fraud will help it to better detect the fraud, and also keep damage caused by ongoing frauds to a minimum.

New York State law doesn’t allow for industry insiders to receive payments if they come forward and reveal financial fraud at their places of work. But state law allows incentives and protections for whistleblowers who report taxpayer-funded state expenditures, according to the announcement.

The SEC, meanwhile, is seeking nondisclosure agreements, employment contracts and other documents from a number of companies in an effort to identify possible anti-whistleblower violations, sources told The Wall Street Journal. SEC officials are looking into the issue because some agreements apparently contain measures including bans that prevent employees from telling the government about illegal behavior at their company or other possible securities-law violations, according to the story.

As the story noted, the 2010 Dodd-Frank financial reform bill created the SEC whistleblower program, and agency officials have tried to increase the number of cases they handle in this area.

Source: New York State Attorney General’s Office

This article first appeared on CarrierManagement.com, the website for the P/C insurance C-suite.

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