Part II: Reward programs for whistleblowers are in nations' best interests and serve as a form of anti-retaliation insurance for whistleblowers.
As explored in Part I of this series, whistleblower laws around the world are nonexistent or largely inadequate and focus primarily on post-retaliation remedies, which often cannot truly make a whistleblower whole and often raise the specter of prolonged and costly litigation against a very powerful and well-financed employer. This in turn has a chilling effect on the willingness of employees to report fraud and take advantage of anti-retaliation laws.
To overcome these barriers to whistleblowing, following the overwhelming success of the U.S. Securities & Exchange Commission's whistleblower reward program, nations creating new whistleblower laws should begin by implementing an award provision for successful whistleblower tips (as recently implemented by Lithuania). An effective provision might read:
If the whistleblower's original information is the proximate cause of the government's ability to collect a fine, fee or penalty from a guilty party, the whistleblower is rewarded through a payment of between 15-30% of the monies actually collected by the government.
The percentage awarded should be based on the quality of the whistleblower's information and the level of that individual's assistance to law enforcement, not on retaliation suffered.
Such a reward structure is the best procedure for serving the public interest: it incentivizes the reporting of actual violations that can be proven because employees are motivated to report quality information by the prospect of rewards. Indeed, because rewards are predicated on successful enforcement actions and the level of assistance a whistleblower provides, there is little to no incentive for "fake whistleblowers" to report frivolous or unsupported allegations. Additionally, because many whistleblowers also make internal disclosures to prevent or address misconduct before alerting the authorities, rewards provide the best protection against the retaliation these employees often suffer even with anonymity provisions: monetary compensation. Indeed, a study out of the Stockholm Institute of Transition Economics (SITE) entitled Myths and Numbers on Whistleblower Rewards found that:
Even the most extensive legal protection laws are still unable to prevent retaliation against whistleblowers, and whistleblower protection in many European countries is inadequate with respect to at least some dimensions of protection. In the light of this, financial incentives for whistleblowers could, or even should, be thought of as a means of partially compensating truthful whistleblowers for the many forms of retaliation from which they cannot be protected, rather than as a monetary premium for reporting corporate misbehavior.
Essentially, such a system permits employees to file their claims confidentially and focus the government's efforts on accountability and high-quality investigations.
Furthermore, this system has been proven to work and to be mutually beneficial to both the nations with such provisions and the whistleblowers themselves. The Swedish study just cited began by stating that that the benefits outweigh the costs of reward programs and that:
In the case of whistleblower rewards, however, the debate has systematically disregarded available empirical evidence and has put emphasis on claims and potential drawbacks that the US experience has shown that a competently designed program can overcome.
This is particularly true for EU nations which by and large already have stable rule of law and the capacity to implement more sophisticated whistleblower programs.
From the U.S. perspective, the SEC whistleblower program recently reported to the U.S. Congress that since 2011, due to meritorious whistleblower tips, the SEC has ordered wrongdoers to pay over $2 billion in sanctions, with around $500,000 million to be returned to victims of fraud. And according to the U.S. Department of Justice, the False Claims Act alone has helped the U.S. government collect more than $62 billion in settlements and fines since 1986. As stated by U.S. Assistant Attorney General Stuart Delery in 2014: "[Whistleblower reward laws are] the most powerful tool the American people have to protect the government from fraud." This sentiment was echoed by the Director of the SEC's Office of the Whistleblower in June of 2020: "Whistleblowers have proven to be a critical tool in the enforcement arsenal to combat fraud and protect investors."
Therefore, it is clear that in order for nations considering implementing new whistleblower laws to truly obtain public benefits from said laws (including governmental recuperation), reward provisions and direct confidential reporting mechanisms are necessary. Any other legislation would amount to nothing more than a symbolic gesture to whistleblowers. Indeed, many whistleblowers currently choose to report to U.S. regulators rather than law enforcement in their own nations due to the strong confidentiality provisions and reward laws in the United States.
Any state considering creating a reward-based whistleblower law should consider the following to ensure that their whistleblower reward program will be successful and beneficial to both the public and whistleblowers:
- Avoid a "one-size-fits-all" approach. Specific laws should be designed around the specific crimes that are being reported. For example, in the United States there are separate reward laws covering tax, securities, procurement, and bribery crimes. Each has its own reporting requirements. Canada and South Korea follow a similar approach, where the reward laws specifically target certain crimes.
- Structure the program to have the maximum deterrent effect on future crimes. Successful reward programs have a strong track record not only on facilitating the detection and prosecution of ongoing crimes, but of deterring future misconduct.
- Ensure that whistleblowers can obtain ample rewards with no monetary cap. Reward programs that have no cap on an award amount incentivize high-ranking officials to report major crimes, and plays a critical role in deterring future crimes. Rewards are generally set at between 10-30% of any monies collected as a result of the whistleblower disclosures.
- Do not limit the scope of anti-corruption laws to criminal offenses. Civil and administrative penalties should be a central component of the anti-corruption laws for which rewards are attached.
- Create specialized Whistleblower Offices to ensure that the confidentiality of the whistleblower is protected, that cases are referred to the appropriate agencies, and that rewards are paid.
- Permit judicial review if a reward is not paid as required under law.
- Review the existing laws under which whistleblowers can submit tips to ensure that the fines and penalties available under these laws are significant enough to deter criminal or civil violations as well as to provide for ample rewards for whistleblowers.
A properly crafted reward law will prove, over time, to be the most effective mechanism to detect corruption, deter violations, and protect whistleblowers.
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.