According to a survey conducted by PricewaterhouseCoopers in 2007, 43% of fraud detected in American corporations was due to whistleblowers, whereas professional auditors constituted only 19%. With the government providing more incentives to employees for blowing the whistle on their employers questionably illegal activities, corporate executives are becoming unsure about whom they can trust. A corporations team of lawyers used to be the only department that could be relied on for safeguarding company secrets due to strict ethical rules of attorney-client privilege. But nowadays due to the enactment of new legislation, even attorneys are cashing in on the whistleblowing trend.
The concept of attorney-client privilege dates back to centuries and its application varies by state law. However, as a general proposition attorney client privilege refers to a communication that is made confidentially for the purpose of rendering legal advice between an attorney and a client. More importantly, communications that fall under attorney client privilege are confidential and do not have to be revealed to anyone unless they fall under certain exceptions such as: to prevent client perjury or to prevent a serious crime from being committed and the disclosure is necessary. In Upjohn vs. The United States, the Supreme Court found that the purpose of the attorney-client privilege rule is to encourage full and frank communication between attorneys and their clients. The case further explored the notion that when the client is a corporation, applying the concept of attorney client privilege can become more complicated. The Supreme Court explained that this was because a corporation is an artificial creature of the law and not an individual. Thus, more scrutiny is required to determine who is the client and what types of communication are protected by the privilege in a corporate setting. Nonetheless, with the emergence of new federal laws and regulations, attorneys are becoming more inclined to divulge company secrets.
In 2003, The Securities Exchange Committee (SEC) added rules to the Sarbanes-Oxley Act (Act) broadening the scope of when an attorney may disclose confidential information. The rule allows an attorney, without the consent of his/her client, to reveal confidential information related to legal representation when the attorney believes it is necessary to: prevent a material violation to the Act; prevent the company from committing an illegal act; and to rectify the consequences of a material violation in which the attorneys services was used. The SEC also made it clear that any conflicting state law would be preempted by this new federal rule.
In 2010, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act offers a monetary award to a whistleblower who voluntarily provides information to the Commission that eventually leads them to file a judicial or administrative action resulting in monetary sanctions exceeding $1,000,000. The whistleblower is entitled to anywhere between 10% and 30% of the total amount of monetary sanctions that has been collected by the Commission. Additionally, the Dodd-Frank Act allows a whistleblower to anonymously make a claim for the monetary award. Last year, The New York Lawyers Association issued an ethics opinion that lawyers should not be allowed to claim a bounty because it may cloud their professional judgment. However with such high monetary incentives provided by federal regulations, it is no surprise that we may see an increase in lawyer whistleblowers.
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