2 December 2013
5 min read
Paying whistleblowers is under consideration. Aziz Rahman outlines why even talk of such an idea should make businesses think long and hard about the way they function.
There is now the possibility that people who blow the whistle on economic crime will be paid for their information. The Home Office has said it is looking at the possibility of following the United States, which rewards people for alerting the authorities to business crime.
Under the US’ “bounty” system – created by the False Claims Act - whistleblowers are paid a proportion of the penalties that are imposed on companies as a result of their information. It is this idea of “incentivising” whistleblowers that the UK authorities see as one way of encouraging people to let them know about wrongdoing. This was announced in documents that detailed the opening for business of the new National Crime Agency.
Unlike the UK, the United States has been using bounties to boost the effectiveness of law enforcement for many years. After the financial meltdown, the US passed the Dodd-Frank Act, which makes it possible for a whistleblower to receive up to 30% of the amount the Securities and Exchange Commission recovers as a result of the tip off. Some whistleblowers have received millions of dollars in this way.
So if it works in the UK, why not bring it to the UK? After all, business crime is often extremely hard to detect – and then proving it can be even more difficult. A financial inducement to someone “on the inside’’ to blow the whistle could often be the authorities’ only way to secure convictions. This would, in theory, prove a godsend to bodies such as the Serious Fraud Office (SFO). And yet the SFO’s Director David Green, at this stage, seems a little wary of paying whistleblowers – even though his organisation’s conviction rate could be the main beneficiary of such a policy. The Director has said that he sees such a process as giving defence lawyers a way of attacking the credibility of prosecution witnesses.
At this stage, anyone who has an interest or involvement in business crime and its prevention needs to ask two questions:
Is payment for whistleblowers likely to arrive in the UK?
And, if so, what does it mean for businesses here?
As regards the first question, nothing is definite as far as paying whistleblowers is concerned. But a glimpse at the way UK business crime policies have mirrored those of the United States would indicate that the idea of incentivising whistleblowers looks very likely. After all, the US’ Foreign Corrupt Practices Act was followed in the UK by the Bribery Act. Next year will see the introduction in the UK of deferred prosecution agreements (DPA’s); an idea borrowed wholesale from law enforcement on the other side of the Atlantic. Cooperation between nations and their law enforcement agencies is at an all-time high, due largely to the increasingly global nature of business crime and the technological advances that have made communications between such agencies so much simpler. The UK, therefore, has a track record of adopting US business crime initiatives. When you add to this the fact that the UK is actively looking for further clampdowns on business crime, many gamblers out there would be more than happy to bet that incentivising whistleblowers in the UK will be a reality in the near future.
So what will that mean for business in the UK? Putting it briefly, it makes it even more important that companies are aware of every aspect of the way they conduct their business. As things stand, the whistleblower has more protection under UK law than ever before. Legislation in recent years has increasingly placed the onus on companies to make sure their house is in order - and whistleblowing is now seen as part of that process. As a recent example, an amendment to the Enterprise and Regulatory Reform Act a few months ago made employers “vicariously liable’’ for the actions of workers who subject a colleague to any kind of detriment because they have blown the whistle. Workers can also be personally liable if they subject a colleague to a detriment because they blew the whistle.
The law in the UK is attempting to create a climate where the reporting of business wrongdoing is as easy as possible. It seems to be working: before its demise, the Financial Services Authority (FSAS) reported a 231% increase in calls to its whistleblowing helpline between 2008 and 2012. Introducing a scheme that includes payments for whistleblowers based on the amounts their information recovers can only boost the UK’s whistleblowing rate.
At the moment, we cannot be certain that such a system will come into effect. But the fact that it is being considered by the authorities should, at the very least, serve as a reminder to employers of the need to make sure their activities are above board and that they have an appropriate whistleblowing policy in place.
Making sure a company is operating in a way that complies with all relevant law requires a thorough examination of its operations. Ideally this would be done by an expert in legal compliance – someone who can map out the risks and devise and introduce procedures to design such risks out of the company’s operations. Ensuring that a company has an appropriate process for staff, trading partners or others to report concerns will at least give a company a chance to address any wrongdoing in house before the authorities become aware of it. If whistleblowers in the UK do end up being entitled to a share of the money recovered thanks to them highlighting wrongdoing, it may become less likely they report matters in house. After all, why report it to you superiors when going to a law enforcement organisation with the same information could land you a large reward?
The answer for any company looking to avoid coming under the eye of the authorities, therefore, is compliance. If whistleblowers are being given more legal protection – and may eventually even be paid for their information – what else can a company do but take all possible measures to remove the potential for wrongdoing?
As we write this, the Serious Fraud Office (SFO) wants to see more companies self-reporting. From next year, as we have mentioned, companies could become the subject of a DPA, which involves a criminal prosecution being deferred on the condition that the company eliminates the wrongdoing. These could prove to be valuable options for a company under investigation that wants to discover the scale of the illegal behaviour and eradicate it. But to gain the benefits of the procedures – less risk of prosecution, a chance to put things right, advice on how to stay on the right side of the law –companies have to be the ones declaring the wrongdoing. This means that being as compliant as possible and having in place the right whistleblowing policy is more crucial than ever. At least that way, the potential for wrongdoing has been reduced and, should it still happen, the possibility of it being flagged up to management is increased.
The sooner the companies realise this, the better. It will always be better for a company to be alerted to wrongdoing under its roof from one of its own – so much better than realising it when the authorities come knocking. After all, there is no one in a better position to see what is wrong and how it can be fixed than someone “on the inside’’.
A company’s adherence to compliance and a well thought-out whistleblowing facility can promote openness, integrity and principled conduct. Both approaches can only function well if senior company figures are involved with - and have faith in - them.
Payment for whistleblowing is not yet a reality in the UK. But the mere talk of it should help companies bear in mind the high price to be paid if they do not make sure there is little that whistleblowers can report – whether they are paid or not.
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