Whistleblowing: the need for change

Neil Swift at Peters & Peters Solicitors LLP argues that retaining the status quo around corporate whistleblowing is not an option

 

UK law enforcement often looks enviously at the tools available to their US counterparts to investigate, regulate and deter financial crime and misconduct.

 

Deferred prosecution agreements have become the mainstay of the Serious Fraud Office (SFO)’s enforcement activity, whilst calls to make it easier to hold companies criminally to account (as the US can) increase by the day, with statutory reform to the identification principle and expansion of failure to prevent very firmly on the agenda.

 

However, there remains a notable mechanism that UK regulators and legislators are reluctant to embrace: whistleblower awards.  

 

The US model 

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, whistleblowers can be awarded up to 30% of any penalty imposed following successful enforcement action resulting from the information provided. 

 

The figures speak for themselves. Cumulatively, the SEC has awarded more than $1.3 billion to whistleblowers whose information and cooperation enabled it to bring successful enforcement action, resulting in penalties of more than $6.3 billion against errant firms.   

 

Whistleblower award schemes have been keeping in step with law enforcement priorities.  At the end of 2022 the US Anti-Money Laundering Act of 2020 was amended to provide an incentive for those with information about violations of US sanctions to come forward to US law enforcement.  Those who provide information which is acted upon can earn a bounty of 10% to 30% of any penalty over $1million.  The entitlement applies equally to non-US citizens.    

 

How does the UK compare?

While the FCA set out steps in May 2023 to improve whistleblower confidence, the actions discussed  largely relate to the capture and use of whistleblower information. This dedication to improvement bodes well for the future use of whistleblower information, but does not directly address the specific problem.

 

What we need is to motivate whistleblowers with the prospect of tangible reward, like they do across the pond, to truly tackle white-collar crime. 

 

We do have two relatively (in US terms) meagre rewards programmes, but each is aimed at a specific type of conduct, and only of indirect relevance to financial services. One is operated by HM Revenue and Customs (HMRC) and the other by the Competition and Markets Authority (CMA).

 

On any view, we’re steadfastly behind the curve. As it stands, would-be whistleblowers have some employment protection. If they satisfy the relevant criteria for making a ‘protected disclosure’ under the Public Interest Disclosure Act 1998, they have a right not to be treated unfairly by their employer, with an uncapped claim in the employment tribunal if the employer breaches that duty – which would include dismissing them directly or constructively for blowing the whistle. 

 

Previous review

Notwithstanding the potential value of whistleblower reports, the FCA remains stubbornly resistant to offering substantial financial awards. The last review, conducted by the FCA and PRA in 2014, identified a number of drawbacks - moral and otherwise - to remunerating whistleblowers, concluding that the process would be “unlikely to increase the number or quality of the disclosures we receive”. 

 

This can be picked apart. The number of potential beneficiaries of any reward scheme is dependent on the number of investigations and regulatory outcomes. The suggestion that there would only be a small number could reflect the fact that the FCA’s regulatory model is to use its limited resources to take enforcement action sparingly.

 

But this ignores the US experience where whistleblowers allow them to do more with less.  Furthermore, suggestion that there is insufficient evidence of the benefits does not stand up considering the US experience: several US-based academic studies suggest otherwise.

 

Although legislative reform to enhance whistleblower protection is currently under consideration by Parliament, it contains no provision for financial rewards, and as a private member’s bill does not form part of the Government’s legislative agenda.

 

Time for change

Recognising that whistleblowing can be a difficult thing to do is a good first step. For those who could face the end of their careers by blowing the whistle on serious misconduct, the possibility of safeguarding their and their families’ futures are likely to be a significant factor in their decision-making. 

 

We also need to refine how we approach whistleblowers who are involved in the illegal conduct. They have no automatic protection against regulatory action or criminal proceedings, if implicated. Ultimately, every situation turns on its own facts, but a greater preparedness to follow the US lead by doing deals with lesser participants, in exchange for intelligence and evidence, would be welcomed.  

 

This is an area where we should follow the US more closely. There is more evidence that it works than convincing reasons it doesn’t. Retaining the status quo is not an option.

 

Whistleblowers can be extremely effective in drawing attention to wrongdoing and ensuring the protection of consumers, but we must recognise that it often comes at a substantial personal cost. The incentive of adequate financial recompense is not too much to ask.  

 

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Neil Swift is a Partner at Peters & Peters Solicitors LLP 

 

Main image courtesy of istockPhoto.com