Prosecuting authorities on both sides of the Atlantic are becoming bolder in their approaches to the incentivisation and protection of whistleblowers in relation to corporate criminality and misconduct. Last month, the United States Department of Justice ("DOJ") launched a pilot scheme under which whistleblowers will receive financial compensation for information about corporate misconduct. Earlier this year, Sir Nick Ephgrave stated in no uncertain terms that the Serious Fraud Office "should pay whistleblowers".
These developments are unsurprising – there are serious reputational and financial consequences for whistleblowers who report misconduct, and a failure to safeguard a whistleblower's identity amounts to a grave breach of trust. Only last week, the gravity of the risks undertaken by whistleblowers were thrown into sharp relief after the chair of the Financial Conduct Authority ("FCA") Ashly Alder faced calls to resign due to his failure to adhere to the FCA's own whistleblowing policy. Alder was criticised for revealing the identity of two whistleblowers to other staff members. The whistleblowers had provided information to the FCA regarding what they alleged to be the FCA's "opaque hiring practices", but Alder disclosed identifying information in internal communications. After an internal investigation, Alder was found to have violated the FCA's policy on internal whistleblowing, albeit intending to ensure that "appropriate action was taken in respect of all the matters the complainants were raising". Although Alder was cleared of wrongdoing, one of the whistleblowers stated that they were left "angry, stunned and speechless" when they saw that their information had been leaked.
The DOJ's affirmative decision to financially incentivise whistleblowers in relation to corporate criminal prosecutions has given rise to some important questions: will the SFO, FCA and other prosecuting authorities follow the DOJ's lead? Are payments the only means of incentivising whistleblowers? Do financial incentives undermine the quality of any evidence or information provided by a whistleblower?
Speaking truth to power: an established tradition
The concept of whistleblowing can be dated back to ancient Greece. "Parrhesia" (literally "to speak everything") encompasses a speaker's willingness to speak the truth while risking danger to themselves. Foucault argued that a key element of parrhesia is "the courage to speak the truth in spite of some danger" compounded by a sense of duty to tell the truth. A few centuries later, the Romans developed a system of professional whistleblowers known as "delatores" who provided information to the principate in exchange for financial reward. After the Lex Pedia, which retroactively criminalized Caesar's assassins, it became common for Roman criminal statutes to offer a portion of the defendant's property as a reward for a successful prosecution.
This evolved into qui tam legislation in early medieval England. In 695, King Wihtred of Kent issued the following declaration: "If a freeman works during the forbidden time [i.e., the Sabbath], he shall forfeit his healsfang (sum a person would pay to avoid the pillory), and the man who informs against him shall have half the fine, and [the profits arising] from the labour". Under this legislation, ordinary people were incentivised to inform on their neighbours in exchange for a percentage of the fines and of any profit made by the unfortunate informer.
"Truth is its own reward" - Plato
Despite an established history of offering financial compensation to whistleblowers, prosecuting authorities in the UK have, until recently been cautious about paying whistleblowers for information in relation to allegations of corporate criminality. Indeed, in 2018 Sir David Green, then Director of the SFO, refused to seek permission to compensate whistleblowers, arguing that "moral responsibility alone should motivate witnesses" and that paying whistleblowers "just isn't British". Fast-forward six years and the SFO's position appears to have changed. Earlier this year, Sir Nicholas Ephgrave stated that the SFO (and by implication, other prosecuting bodies) "should pay whistleblowers". Rather than following Sir David's lead and considering the moral questions surrounding financial incentives for whistleblowers, Sir Nicholas relied on the success enjoyed by US prosecuting agencies in both criminal and civil lawsuits as a result of information provided by whistleblowers to justify his position.
It may be that their different professional experiences prior to leading the SFO are behind their different approaches, but even before Sir Nicholas took the helm at the SFO, there were signs that other UK prosecuting agencies were leaning towards offering greater compensation to informants. Like the SFO, the FCA previously considered financial incentives for whistleblowers but in 2014 considered that such incentives ran the risk of encouraging malicious reporting and that juries may question the reliability of whistleblower evidence where witnesses stood to gain financially. The FCA concluded that "rewarding whistleblowers for performing what is arguably their regulatory duty would be difficult to reconcile with the requirements [to] deal with their regulators in an open and cooperative way". However, in 2023, the FCA announced it was reviewing its position on financial incentivization and would consult with the SFO before reaching a decision.
If the SFO were to offer financial incentives to whistleblowers, it would join the comparatively smaller (at least by US standards) incentivisation schemes which already exist in England and Wales. For example, the Competition and Markets Authority ("CMA") can award whistleblowers with up to £250,000 for their role in reporting illegal cartel activity. HM Revenue & Customs ("HMRC") has adopted a reward programme that enables it to hand out discretionary amounts to individuals who report tax fraud, which was extended to include whistleblowers who report COVID-19-related tax frauds. It appears that these incentivization schemes have already started to yield results – in 2022-2023 the SFO received only 250 whistleblower reports, whereas the FCA received 1,086. However, whether these reports led to a similar number of prosecutions remains to be seen.
Dollar, dollar bills, y'all
On 1 August 2024, the DOJ launched a Corporate Whistleblower Awards Pilot Program. Under the scheme, a whistleblower who provides the DOJ's Criminal Division with "original and truthful information about corporate misconduct that results in a successful forfeiture may be eligible for an award". The information must relate to one of the following areas: (1) certain crimes involving financial institutions, from traditional banks to cryptocurrency businesses; (2) foreign corruption involving misconduct by companies; (3) domestic corruption involving misconduct by companies; or (4) health care fraud schemes involving private insurance plans. The DOJ has stated that it will accept tips of previously unknown evidence of misconduct not already covered by other agency whistleblowing policies. If the information leads to criminal or civil asset forfeitures of at least $1 million, the whistleblower may receive up to 30% of the first $100 million in net proceeds and up to 5% of additional recoveries between $100 million and $500 million.
For now, this remains a pilot scheme, and it is common sense that the DOJ will analyse the quality of the information received under the scheme over the next three years to determine whether the compensation offered can be said to have garnered more successful prosecutions. However, it is evident that on both sides of the Atlantic, prosecution authorities appear to have accepted that whistleblowers undertake significant financial risks for which they expect to be compensated.
"Who steals my purse steals trash... But he that filches from me my good name robs me of that which not enriches him and makes me poor indeed." – Othello
Although the US whistleblower compensation legislation is frequently touted as the key to encouraging whistle-blowers to report wrongdoing, this does not stand up to scrutiny. For example, in 2023 the SEC received 18,000 tips in 2023 but only offered financial rewards to 68 individuals, which indicates that US whistleblowers make their reports irrespective of the prospect of receiving financial compensation. This can possibly be explained by the fact that US whistleblowers are afforded significant protection under the Dodd-Frank Act, which prohibits retaliation against a corporate employee for reporting fraud or misconduct – a protection which is not mirrored in PIDA.
The current position in England and Wales is that whistleblowers are offered limited protection and little to no compensation for the risks they undertake. The principal "whistleblower" legislation, the Public Interest Disclosure Act 1998 ("PIDA"), focuses on protecting whistleblowers from reputational and professional harm by enabling them to bring a claim before an employment tribunal if a whistleblower is subjected to dismissal or other detrimental treatment as a result of their disclosure. However, the protection offered by PIDA is arguably extremely limited. PIDA sets a high threshold for obtaining compensation, whereunder claimants are required to demonstrate a link between the disclosure and the detriment suffered – only 4% of claims brought before employment tribunals under PIDA were successful. The Serious Organised Crime and Police Act 2005 ("SOCPA 2005") permits whistleblowers who are implicated in the commission of an offence to be considered for sentencing discount, or in some circumstances immunity from prosecution, if they have assisted the investigation and successful prosecution of others. However, not only are such discounts and deals by no means guaranteed, but this does not address the risks anticipated by law-abiding whistleblowers. It also does not address the reputational risks associated with whistleblowing.
Final thoughts
It is possibly too early in the current government's tenure to determine its position on incentivizing whistleblowers. The previous UK government was conducting a review into the effectiveness of the whistleblowing framework and had introduced a Whistleblowing Bill to Parliament. The Bill was abandoned after the July general election was announced. Before the election, David Lammy MP stated that a Labour government would "launch a new whistleblower reward scheme to incentivise and encourage sources to step forward" which would build "on the success of such policies in the United States". Although whistleblowing legislation did not feature in the Labour manifesto or the King's Speech, so we should not expect any imminent reform, it is worth noting that Mr Lammy specifically used the words "whistleblower reward scheme", suggesting that any new schemes would be focused on incentivisation rather than compensation.
While there is clearly an appetite for reforming the current whistleblowing framework, offering financial "rewards" to whistleblowers not only diminishes the strength of any evidence they may give, should the information lead to a criminal prosecution, but has the potential to reduce whistleblowers to bounty hunters. It is important that any incentive is framed as compensation, rather than a reward, and that incentives other than cash are considered. Legislators seeking to encourage whistleblowers to come forward must consider that whistleblowers who wish to report genuine wrongdoing are unlikely to be solely motivated by financial gain but are likely to want to protect their professional and personal reputations.
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