The new regulatory landscape presented by the passage of the Dodd-Frank Act encourages employee whistle blowing, by offering financial incentives. However, lawfirms are stating that financial companies can limit this potential liability by enhancing internal controls for legal and regulatory compliance. In an email sent today, Washington law firm K&L Gates said companies can reduce the risk of an employee contacting the Securities and Exchange Commission about possible criminal activity by encouraging internal reporting. Mike Missal, who leads the K Street firm’s policy and regulatory division, and Matt Morley, a partner with K&L Gates, said the new federal law has created “enormous financial incentives” for employees to go to cops or regulators first. And this may prove costly and problematic for companies. Whether an employee goes to the SEC or reports alleged improper conduct to a superior “may depend, to a large extent, on whether the company has a well-accepted and credible internal process for handling such complaints.” The K&L Gates lawyers said companies need to strengthen compliance programs relating to federal securities law to “make it much less likely that employees will violate the law in the first place – which is the best way to stay clear of a law enforcement proceeding.” But the Wall Street Reform and Consumer Protection Act, which is commonly known as Dodd-Frank, mandates the SEC pay whistle blowers for information that leads to successful enforcement action. Payments could reach seven figures since the SEC often resolves issues with payments of tens or hundreds of millions of dollars and whistle blowers may be entitled to 10% to 30% of fines over $1 million. David Lynn, a partner with Morrison Foerster, said the monetary incentives set forth in Dodd-Frank may change the whistle-blower dynamic considerably, as it could encourage more people to come forth. Lynn pointed to the recent Goldman Sachs settlement with the SEC as one example of how a whistle blower could receive an enormous payout. In mid-July, Goldman Sachs agreed to pay $550 million to settle securities fraud charges. The SEC is already reporting a dramatic increase in the number of whistleblowers providing information to law enforcement authorities, according to K&L Gates. Write to Jason Philyaw.