There is a longstanding recognition that whistleblowers have a valuable role to play in the uncovering of wrongdoing, in both the public and private sectors.
Could we do more to protect and incentivise them?
The House of Lords has recently considered the provisions of the protection for whistleblowing bill – a product of the All-Party Parliamentary Group on Whistleblowing, introduced as a private member’s bill by Baroness Susan Kramer.
It is designed to enhance the protections available to those who speak out, not only against their employer, but their clients, suppliers, contractors and others.
The bigger problem is that all too often whistleblowers find their future prospects severely limited.Whistleblowers are, in the words of Kramer, the “canaries in the mine”. They give early and valuable alerts of wrongdoing and are one of the most effective means of uncovering misconduct.
But the protections currently available to whistleblowers are limited and as it stands provide little or no recompense for the impact of doing the right thing on the whistleblower’s career.
Existing law
Under the Public Interest Disclosure Act 1998, whistleblowers are protected from retaliation by their employer, but enforcing that right comes at considerable cost, and with no guarantee of success. Very few claims in the employment tribunal under PIDA are successful.
In the short and medium term, there are personal burdens that come with co-operation and assisting investigators.Arguably the bigger problem is that all too often whistleblowers find their future prospects severely limited, particularly those who work in financial services. Faced with the possibility of never working again in their chosen field, it is time to think again about incentivising whistleblowers.
The US model
During the debate in the House of Lords, Lord John Sharkey noted the very different approach taken in the US, where whistleblowers form an integral part of their system of regulation.
As well as protection from retaliatory action, a common feature of the various US whistleblower statutes are their reward schemes.
These recognise that particularly for those in very well remunerated jobs in financial services, speaking out has potentially far-reaching consequences: in the short and medium term, there are personal burdens that come with co-operation and assisting investigators, while in the longer term many promising careers have becomes suddenly far less so.
Recognise the personal cost on those who do the right thing, and do something about it. The Dodd-Frank Act brought in a scheme whereby those who provide new information that proves key in bringing enforcement action against errant financial institutions are entitled to a reward of up to 30 per cent of any financial penalty subsequently imposed.
Given the scale of US financial penalties, the amounts can be eye-watering. In January 2023 alone the US Securities and Exchange Commission awarded more than $50mn (£41.5mn) to whistleblowers in respect of three enforcement cases.
But in the eyes of US regulators, the benefits are worth it.
The SEC describes the assistance they get from whistleblowers as “among the most powerful weapons in the law enforcement arsenal” helping to “identify possible fraud and other violations much earlier than might otherwise be possible” so as to “minimise the harm to investors, better preserve the integrity of the US’s capital markets, and more swiftly hold accountable those responsible for unlawful conduct”.
Given the US experience, it must be time to look again at the transformative effect of rewards on enforcement.Indeed, the scope of reward schemes continues to expand in step with law enforcement priorities. On December 29 2022, the Anti-Money Laundering Whistleblower Improvement Act was signed into law to reward those who report violations of US sanctions – that most topical of subjects.
Rewards are between 10 per cent and 30 per cent of any penalty, reports can be made anonymously and confidentially, and – like the Dodd-Frank Act – can be paid to whistleblowers regardless of where in the world they are based.
UK shortcomings
As it stands, the bill does not contain any reward mechanism. During the debate, Sharkey said “it does not, of course, contain a proposal for a reward mechanism, but it would allow the office of the whistleblower to create an appropriate regime if parliament so directed”. So far, parliament has shown no such inclination.
In July 2014, the Prudential Regulation Authority and Financial Conduct Authority produced a note on financial incentives for whistleblowers for the Treasury Committee. They came down strongly against their use.
Although the FCA has recently taken steps to enhance its capabilities to receive and act on whistleblower reports, there has been no change of position on incentives.
But given the US experience since that note, it must be time to look again at the transformative effect of rewards on enforcement, recognise the personal cost on those who do the right thing, and do something about it.
Neil Swift is a partner at Peters & Peters
(Photo via Dreamstime)
