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The US approach of offering large sums of money for information has proven highly effective. Should the UK follow suit? By Greg Glynn and Jorge Lopes of Forensic Risk Alliance.
Last May, the UK’s All-Party Parliamentary Groups (APPGs) on Anti-Corruption and Responsible Tax, and on Fair Business Banking, published an ‘Economic Crime Manifesto’, urging the government to take decisive action in part two of its Economic Crime and Corporate Transparency Bill.
Some of the APPG recommendations take inspiration from the US model, where reward-based whistleblower programmes have been in place for many years.
In particular, the Manifesto proposed the enactment of a Whistleblowing Bill, which would establish an Office for Whistleblowers to provide protection and proper compensation for those who speak out against or uncover economic crimes and other wrongdoing.
With its recent Economic Crime and Corporate Transparency Bill introduced to parliament, the UK government unfortunately passed on this worthwhile opportunity to address the APPG recommendations which, carefully crafted, could have helped to strike a balance between tackling the scourge of economic crime while protecting whistleblowers from retaliation.
Providing ‘proper’ financial reward to informants is controversial, and while some countries, notably the US, have embraced it, others have shied away.
How are other countries tackling whistleblowing?
In the EU, member states were required to transpose the EU’s Whistleblowing Directive into national legislation by December 17, 2021. The Directive’s minimum standards require that individuals are protected against retaliation should they blow the whistle on breaches of EU law.
The EU framework is similar to the existing UK regime in that it seeks to protect whistleblowers from retaliation and does not seek to reward those who make disclosures in the public interest.
In the US, whistleblower programmes have rewarded those who provide valuable information with very significant sums of money.
Two years ago, the Securities and Exchange Commission (SEC) issued a $114m reward to an individual. The Internal Revenue Service has also rewarded significant sums, including $104m awarded in 2012 to former UBS banker Bradley Birkenfeld, who exposed overseas tax evasion.
A closer look at the UK and American models
The number of whistleblowing tips made to the SEC between 2020 and 2021 amounted to 12,210, a staggering 77% increase on the previous figure. In comparison, the UK’s FCA, which does not operate a reward-based system, received 1046 whistleblower reports between 2020 and 2021, 54 fewer reports than in the previous period.
The benefits of financial compensation have long been a cause for debate, with UK authorities showing scepticism towards the US model in the past, questioning its cost-effectiveness and expressing concerns that a rewards-based model can lead to a large backlog of claims and a potential headache for regulators.
Even if only a small number of whistleblowers end up being compensated, the increasing use of these programmes in the US – including by those based in the UK – emphasises how a potential large reward may attract more whistleblowers.
The UK is not entirely averse to reward-based programmes. The HMRC paid £430,000 in rewards for information that helped tackle tax avoidance and evasion, a 63% increase from the previous tax year. This increase might indicate that rewards do encourage people to blow the whistle as opposed to relying solely on protection against retaliation.
The US government continues to apply a similar formula in other matters, including targeted actions involving the assets of Russian oligarchs. Last March, the US Treasury unveiled the Kleptocracy Asset Recovery Rewards Program, which can reward eligible individuals with up to $5m for providing information leading to the recovery of “stolen assets” linked to foreign government corruption.
The UK government has also been vocal about its position in relation to Russia’s invasion of Ukraine and has even resorted to sanctions. However, the US government went a step further in adding even more weapons to its arsenal by including yet another whistleblower programme.
What next for the UK?
London’s position as a global financial centre calls for a regime that meets the challenges of economic crime both today and in the future.
Protection against retaliation for whistleblowers, who can suffer huge career and personal consequences even where they are protected, is non-negotiable. But we believe the UK authorities should consider financially rewarding them too.
Proceeds from such fines could also go a long way in tackling the underlying funding issues of the UK’s enforcement agencies, not to mention providing investment for vital infrastructure such as hospitals, schools, and roads. Furthermore, rewarding those who act in the public interest, leading to successful enforcement actions, can be a strong nudge in prompting more to come forward.
The UK is in a prime position to create a reward-based system, but the current upgraded Economic Crime Bill lost an opportunity to capitalise on this system. Rewarding whistleblowers may be controversial, but it is a price the UK should be willing to pay to strengthen its defences against white-collar crime.
Greg Glynn is a principal and Jorge Lopes is a manager at forensic accounting and consultancy firm Forensic Risk Alliance.
