UK: Whistleblowing

In the previous edition of Corporate Focus we reported that the Bribery Act 2010 (the Bribery Act) came into force on 1 July 2011 and we considered procedures that commercial organisations could put into place in order to prevent bribery. In this article we consider: (1) key issues that a commercial organisation operating across a number of jurisdictions should be aware of in relation to the implementation of a whistleblowing policy as part of its anti-bribery policy; and (2) frameworks that are in place to encourage whistleblowers to come forward.

What is whistleblowing?

Whistleblowing is when an individual in a commercial organisation reports on wrongdoing in his or her organisation. Certain statutory protections are afforded to whistleblowers which protect them from losing their jobs and/or being victimised.

The Bribery Act 2010

According to section 7 of the Bribery Act it is an offence for a commercial organisation to fail to prevent bribery on its behalf by a person associated with it. A commercial organisation prosecuted under section 7 can, according to section 7(2) of the Bribery Act, raise the defence of having adequate procedures in place to prevent bribery.

What will be adequate depends on the commercial organisation itself. Guidance from the Ministry of Justice (the MOJ) explains that such procedures must be proportional, considering the nature and the scale of the business undertaken by the commercial organisation and should further be clear, practical, accessible, effectively implemented and enforced. Typically, such procedures will comprise of anti-bribery policies and staff codes of conduct dealing with, amongst other things, whistleblowing. No policies or procedures however are capable of detecting and preventing all bribery.

Whistleblowing Policies

Whilst in the UK it is for a commercial organisation itself to decide on whether a whistleblowing policy is required, in some jurisdictions such as the USA, public companies are required to have whistleblowing procedures in place.

Commercial organisations operating across a number of jurisdictions often implement a single whistleblowing policy however the usefulness and implementation of such policies may prove problematic in certain jurisdictions. In particular:

  • Commercial organisations being prosecuted for a violation of the US Foreign Corrupt Practices Act 1977 (the FCPA) will not be able to use adequate procedures as a defence. They will however be able to use such policies as evidence of the organisation's good faith which prosecutors in the US may take into account when deciding what action to take against the commercial organisation; and
  • Commercial organisations which have established whistleblowing hotlines as part of their whistleblowing policies in order to comply with their obligations under the US Sarbanes-Oxley Act of 2002 need to be aware that such hotlines may conflict with EU data protection and privacy laws.

In the EU, in order for any data by which a person can be identified to be legitimately processed it must have been collected fairly and lawfully. According to the EU Data Protection Directive (Directive 95/46/EC) processing of such data must be necessary for compliance with a legal obligation and/or must be necessary for the purposes of legitimate interests pursued by the commercial organisation collecting the data. In general, the EU does not recognise the need to comply with the Sarbanes-Oxley Act as amounting to a legal obligation but the need to prevent financial irregularity could be considered to be a legitimate interest. Accordingly, if a commercial organisation should adopt a whistleblowing hotline, the approach taken in the EU is that adequate data protection safeguards ought to be built into the whistleblowing policy including, amongst other things, to:

  • encourage confidential named reporting rather than anonymous reporting;
  • ensure the safeguarding of information collected;
  • ensure that information collected in the EU is retained within the EU;
  • ensure that information is not retained for any longer than is necessary; and
  • ensure that any employee who is the subject of a whistleblower's allegations is given the right to answer the allegations.

Whistleblowing policies that are intended to apply across a number of jurisdictions should take into account the requirements of the jurisdictions in which a commercial organisation operates. Commercial organisations should seek specific local legal advice on compliance with local laws and regulatory requirements.

Encouraging whistleblowers to come forward

Incentives for whistleblowers in the US may lead to an increase in whistleblowing which in turn may lead to more companies self-reporting in order to try to avoid more severe consequences that may result from not having done so.

There are no provisions in the Bribery Act regarding incentives or rewards for whistleblowers. If however a whistleblower is involved in bribery himself but agrees to assist the Serious Fraud Office (the SFO) with its investigation the whistleblower may be granted immunity from prosecution or if the whistleblower is convicted of an offence, assisting the SFO with other investigations may make the whistleblower eligible for a reduced sentence. Recently however the UK courts have emphasised that sentencing is a matter for the courts and the SFO can only recommend a sentencing range.

In the US the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd Frank Act) incentivises whistleblowing in relation to securities law violations by offering whistleblowers a share of the funds recovered by the state and also providing them with a cause of action against their employers if they are the subject of victimisation.

It is thought that the potentially serious consequences that would follow a discovery of bribery if it was not self-reported together with increasing levels of cooperation between the US and UK authorities may lead to an increase in self-reporting in the UK by commercial organisations and particularly those that are subject to the jurisdiction of both UK and US bribery laws to avoid the danger of a whistleblower reporting wrongdoing in the US and subsequently being investigated by the authorities in the UK.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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