Mr Ephgrave’s first public speech as Director in February 2024 provided some insight into what we might expect during his tenure, including two potentially controversial (albeit, not new) ideas.
Mr Ephgrave referred to the time it takes on average for an SFO case to conclude – five or six years. He went on to say how much quicker these cases could be if the SFO was privy to ‘smoking gun’ evidence, ie incontrovertible evidence that leads to a successful prosecution. To get this information, Mr Ephgrave wants: (i) incentivisation for whistleblowers, and (ii) more cooperating witnesses.
We looked at cooperating witnesses before – Lisa Osofsky was also keen on them. This blog concentrates on rewarding whistleblowers.
Whistleblowing is not an easy choice
Why do some whistleblowers need to be incentivised? It isn’t always as simple as ‘doing the right thing’, even where the moral obligation seems obvious.
Put yourself in the whistleblower’s shoes: there are significant financial and reputational risks for whistleblowers who report wrongdoing. Whistleblowers often lose their jobs, suffer ramifications throughout their careers and, in the most serious cases, reporting wrongdoing can be career-ending.
Whistleblowers need to think carefully and strategically about the benefit of reporting. They will likely want costly legal advice before they make a disclosure, and throughout what can be a lengthy process (Nick Ephgrave said so himself). Financially rewarding whistleblowers provides a strong incentive, and effectively an insurance policy for some. Mr Ephgrave noted that 700 UK nationals had blown the whistle to the US authorities since 2012.
UK has two limited regimes for incentivising whistleblowers
There are currently only two limited regimes in the UK which provide incentives or financial rewards for whistleblowers. The Competition and Markets Authority (CMA) offers a reward scheme for whistleblowers who report illegal cartel activity and HMRC offers discretionary incentives for whistleblowers who report tax fraud. However, there are no other provisions that offer whistleblowers incentives more broadly for reporting wrongdoing.
Whilst not a whistleblower ‘reward’, whistleblowers are also incentivised, to an extent, to blow the whistle on misconduct, in order to benefit from the statutory protections they receive under UK employment law.
More whistleblower reward regimes in the US
By contrast, in the US, there are four main whistleblower reward programmes, the most notable of which is the Dodd-Frank Act. This provides mandatory incentives for whistleblowers who are the first to report securities law violations to the Securities and Exchange Commission (SEC). These whistleblowers can potentially receive between 10-30% of the funds, collected by the government, remaining after victims are compensated. However, there are two caveats: (i) the funds collected must exceed USD1 million; and (ii) the information provided must result in the collection of these funds. These large high-profile rewards therefore only apply to a very limited pool of individuals who initially report wrongdoing.
The US has its own protections for whistleblowers who can benefit from protection under anti-retaliation laws and may use their whistleblower status to report conduct that is not particularly serious, in order to benefit from these protections.
On 7 March 2024, the US Department of Justice (DOJ) announced a new programme to incentivize whistleblowers who are not covered by the existing programmes. The DOJ emphasised that while the program will be open to those reporting information concerning any violation of federal law that is not already covered by a whistleblowing program, the DOJ is hoping to attract whistleblowers concerning criminal abuses in the financial system, foreign corruption cases outside the jurisdiction of the SEC, including FCPA violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act, and domestic bribery. The reward will be paid from funds remaining after all victims have been properly compensated. For more information, please see our article.
The downsides of rewarding whistleblowers
Rewarding whistleblowers has become a part of the cultural norm in the US. However, in the UK, public perception of paying witnesses for providing a public service, and for essentially ‘doing the right thing’ may not sit as comfortably, particularly for jurors considering these cases. Cross-examination from defence counsel would seek to sow a seed of doubt in jurors’ minds where testimony has been given following a financial incentive. In the US, cases frequently settle prior to reaching trial, so whilst the same risks are experienced there, it is difficult to assess how this plays out in jury trials.
The FCA considered back in 2014 that incentivising whistleblowers might not align with the fact that financial services firms have a regulatory duty to deal with their regulator in an open and cooperative way. It may undermine the personal responsibilities of Senior Managers who are required to report wrongdoing to regulators as part of their role and responsibilities. Whistleblower incentives could also undermine corporate compliance programmes which encourage internal reporting, albeit there is some evidence in the US that a large proportion of whistleblowers report internally within their organisation before reporting to the authority in question.
What next?
Whistleblowing is a topic being discussed in Whitehall. A Department of Business and Trade policy paper on whistleblowing is expected this month. A change of government may have an impact – at the Labour party conference in October 2023 it was announced that Labour would introduce a new whistleblower scheme to reward those who expose stolen assets, sanctions breaches and help to recover misappropriated funds.
The ultimate question may be ‘do we really need to pay whistleblowers to do the right thing?’. It depends who you ask, but Mr Ephgrave seems to think this might be at least one solution to the SFO’s past problems in successfully prosecuting cases.
Enhancements of whistleblowing laws were one of the 13 key challenges for in-house counsel identified in our 2024 Cross-border White Collar Crime and Investigations Review.
