Serious Fraud Office (SFO) Director Nick Ephgrave has consistently touted the benefits of offering financial rewards to whistleblowers. With the FCA also considering its position on financial incentivisation, and a supportive government, there is a growing consensus among key decision-makers. However, financial incentives alone will have a limited impact on the quality and quantity of whistleblower reports and should only be introduced as part of wider reforms to enhance whistleblower protection and impose meaningful sanctions against retaliation.
SFO Director calls for change
The SFO has historically been reluctant to call for the financial incentivisation of whistleblowers. In 2018, then-Director Sir David Green suggested that rewarding whistleblowers “just isn’t British”.1 However, in February 2024, Ephgrave used his first official speech as Director to express his willingness to explore the “many benefits” of “incentivising whistleblowers.”2 For the SFO, these benefits include speeding up investigations and making them more effective by identifying key evidence early and securing the assistance of potential witnesses.
The SFO’s five-year strategy, launched in April 2024, includes a pledge to “explore incentivisation options for whistle blowers.”3 Shortly after the release of the strategy, Ephgrave declared, “I think we should incentivise whistleblowers…I will try and use my influence…and try and use that to lobby for some kind of change in the arrangements of this country.”4
New government supportive
Recent comments made by the Labour government suggest Ephgrave will be pushing at an open door when he takes his lobbying efforts to Westminster. Foreign Secretary David Lammy MP declared in May 2024 that a Labour government would lead a crackdown on money laundering and corruption, including by offering “significant financial rewards to whistleblowers”.5 He followed this up with a promise that Labour “will launch a new whistleblower reward scheme […] to incentivise and encourage sources to step forward.”6
However, whistleblowing reform did not feature in the Labour manifesto or the King’s Speech setting out the new government’s legislative agenda.
FCA reflects on previous position
The Financial Conduct Authority (FCA) considered financial incentives for whistleblowers in a July 2014 note entitled “Financial Incentives for Whistleblowers” but cautioned that their introduction might lead to malicious reporting and that juries may question the reliability of whistleblower evidence where witnesses stood to gain financially.7 The FCA concluded that “rewarding whistleblowers for performing what is arguably their regulatory duty would be difficult to reconcile with the requirements [to] deal with their regulators in an open and cooperative way”.
However, under new leadership since March 2023, the FCA has announced it is reviewing its position and will consult with the SFO before reaching a decision.8
UK legislation offers no incentives
Existing legislation, primarily the Public Interest Disclosure Act 1998 (“PIDA”), aims to protect whistleblowers, rather than to reward them, by providing mechanisms for redress through an employment tribunal if a whistleblower is subjected to dismissal or other detrimental treatment as a result of their disclosure. PIDA does not confer any powers of investigation or enforcement.
PIDA sets a high threshold for obtaining compensation and is not designed to encourage whistleblowers to come forward; the only protection it provides is to compensate workers for detriments that they suffer after making the disclosure. The need to demonstrate a link between the disclosure and the detriment suffered, and the complicated definition of protected disclosures, have contributed to a success rate of claims brought to employment tribunals under PIDA of only 4%.9 Taking into account the cost and stress of bringing a claim, and the potentially ruinous impact on the whistleblower’s career, individuals considering a disclosure will perceive it to be a high-risk, low reward option.
Existing UK reward schemes are limited in scope
The UK Competition and Markets Authority (CMA) and HM Revenue and Customs (HMRC) do have reward schemes in place, although they are insubstantial and there is no published guidance to inform or encourage potential whistleblowers.
The CMA offers rewards of up to £250,000 to people who disclose significant inside information about unlawful cartel activity that leads to enforcement action by the CMA against those involved in cartel activity.10 HMRC’s little-publicised rewards policy resulted in total payouts of only £509,000 to individuals who provided evidence of tax fraud in the 2023 financial year. Its US equivalent, the Internal Revenue Service (IRS), paid out $88.8 million in the year ending September 2023.11
US offers a bolder alternative
Appeals to the benefits of providing financial incentives to whistleblowers invariably point to the US where the availability of astronomic rewards correlates with comparatively high volumes of tip-offs. In the 2023 financial year, the US Securities and Exchange Commission (SEC) received over 26,000 whistleblower tips,12 compared to the 250 the SFO received over the same period.13
The rewards programmes introduced by the SEC and the Commodity Futures Trading Commission (CFTC) in response to the 2010 Dodd-Frank Act entitle eligible whistleblowers to an award of between 10 and 30% of the monetary sanctions collected in actions brought by the SEC or CFTC as a result of the information provided, if the enforcement action results in sanctions exceeding $1 million.
Since the SEC implemented its Whistleblower Program, enforcement actions from whistleblower tips have resulted in more than $6 billion in financial remedies and over $1.9 billion in whistleblower awards.14 Since issuing its first award in 2014, the CFTC has awarded approximately $370 million to whistleblowers. Enforcement actions associated with those awards have resulted in monetary relief totalling more than $3.2 billion.15
On 1 August 2024, the US Department of Justice (DOJ) officially launched three-year “Corporate Whistleblower Awards Pilot Program” designed to fill the gaps in the SEC and CFTC incentivisaton programs and offer rewards for information relating to misconduct that falls outside the jurisdiction of those agencies.16 Individuals helping the DOJ discover significant corporate or financial misconduct could receive a portion of the resulting forfeiture. This programme opens up whistleblower rewards to disclosures related to domestic and international corruption.
Financial incentives will only be effective as part of wider reform
In the 2023 financial year, the SFO received only 250 whistleblower reports.17 The FCA received 1,086.18 The momentum behind calls to introduce whistleblower rewards suggest a belief that these low figures are at least partly attributable to the fact that people do not feel financially motivated to report misconduct. Proponents point to the comparatively high volume of whistleblower tips in the US, where rewards are available. In the 2023 financial year, the SEC received more than 18,000 whistleblower tips.19
Although eye-watering payments made by the SEC in the US grab the headlines, individual whistleblowers are extremely unlikely to receive a dime. In contrast to the 18,000 tips received in 2023, the SEC offered financial rewards to only 68 individuals.20 The vanishingly small prospect of receiving a reward suggests that US whistleblowers are not motivated to make disclosures merely because they expected to be rewarded.
If whistleblowers do not reasonably expect to be rewarded for the information they provide, the high number of whistleblower tips provided to the SEC may instead be attributed to the degree to which whistleblowers feel insulated from retaliatory action. The Dodd-Frank Act contains strong anti-retaliation provisions that make it illegal to terminate, demote, harass, or discriminate against a corporate employee for reporting fraud or misconduct. There is no equivalent provision in PIDA.
Further, US whistleblowers are more likely to feel their disclosures will result in concrete action. As noted above, enforcement actions from whistleblower tips have resulted in more than $9 billion in financial remedies secured by the SEC and CFTC.2122
Offering rewards to whistleblowers may provide some limited incentive, but real impact will only be felt as part of a wider package of reforms. The previous government was conducting a review into the effectiveness of the whistleblowing framework,23 and had introduced a Whistleblowing Bill to Parliament, which was dropped after the election was called and Parliament was dissolved.
The Whistleblowing Bill sought to establish an independent Office of the Whistleblower to protect whistleblowers and to make provision for this body to set, monitor and enforce standards for the management of whistleblowing cases; to direct whistleblowing investigations; and to order redress of detriment suffered by whistleblowers. The bill also aimed to create offences relating to the treatment of whistleblowers and the handling of whistleblowing cases. It is measures like these, more than the offer of financial rewards, that will encourage a higher volume and quality of financial crime-related whistleblowing disclosures.24
This article was first published on 31 July 2024 on counter-fraud.com and i-law.com.
2 Serious Fraud Office, 13 February 2024, Director Ephgrave’s speech at RUSI 13 February 2024, https://www.sfo.gov.uk/2024/02/13/director-ephgrave-speech-at-rusi-13-february-2024/.
3 Serious Fraud Office, 18 Apil 2024, SFO Strategy 2024-2029, https://www.sfo.gov.uk/wp-content/uploads/2024/05/SFO-2024-29-Strategy.pdf.
4 Bianca Castro, Law Society Gazette, 7 May 2024, In depth: SFO chief on his vision for the enforcement body, https://www.lawgazette.co.uk/news-focus/in-depth-sfo-chief-on-his-vision-for-the-enforcement-body/5119615.article.
5 Will Dunn, New Statesman, 21 May 2024, Inside David Lammy’s campaign against kleptocracy, https://www.newstatesman.com/politics/labour/2024/05/inside-david-lammys-campaign-against-kleptocracy.
6 David Lammy MP, speech delivered at the Institute for Public Policy Research, available at: https://ippr-org.files.svdcdn.com/production/Kleptocracy-Speech-FINAL.pdf.
7 Financial Conduct Authority and Prudential Regulation Authority, Financial Incentives for Whistleblowers, July 2014, https://www.fca.org.uk/publication/financial-incentives-for-whistleblowers.pdf.
8 Suzi Ring, Financial Times, FCA plans to name firms under investigation in UK deterrence drive, 27 February 2024, https://www.ft.com/content/10740c84-d316-43d5-8ce2-5076cd2d403c.
9 All Party Parliamentary Group for Whistleblowing, The Whistleblowing Bill, April 2022, https://static1.squarespace.com/static/617d2382e081bb2aead159f0/t/63a5ce3aa252595ebef1cfeb/1671810621253/16936+Navex+WhistleblowingBill-Apr22-v4%5B6%5D.pdf.
10 Competition and Markets Authority, Press Release, 6 June 2023, Blowing the whistle on cartels, https://www.gov.uk/government/news/blowing-the-whistle-on-cartels#:~:text=The%20Competition%20and%20Markets%20Authority,cartel%20activity%20they%20have%20witnessed.
11 IRS Whistleblower Office, Fiscal Year 2023 Annual Report, https://www.irs.gov/pub/irs-pdf/p5241.pdf.
12 Securities and Exchange Commission Office of the Whistleblower, 14 November 2023, Annual Report to Congress for Fiscal Year 2023, https://www.sec.gov/files/fy23-annual-report.pdf.
13 Serious Fraud Office, Annual Report on Whistleblowing Disclosures 2022-23, https://www.sfo.gov.uk/download/annual-report-on-whistleblowing-disclosures-2022-23/
14 Securities and Exchange Commission Office of the Whistleblower, 14 November 2023, Annual Report to Congress for Fiscal Year 2023, https://www.sec.gov/files/fy23-annual-report.pdf.
15 https://www.whistleblower.gov/.
17 Serious Fraud Office, Annual Report on Whistleblowing Disclosures 2022-23, file:///C:/Users/29248/Downloads/Annual%20Report%20on%20Whistleblowing%20Disclosures%202022-23.pdf.
18 Financial Conduct Authority, Prescribed Persons Annual Report 2022/23, 20 July 2023, https://www.fca.org.uk/data/prescribed-persons-annual-report-2022-23.
19 Securities and Exchange Commission Office of the Whistleblower, 14 November 2023, Annual Report to Congress for Fiscal Year 2023, https://www.sec.gov/files/fy23-annual-report.pdf.
20 Securities and Exchange Commission Office of the Whistleblower, 14 November 2023, Annual Report to Congress for Fiscal Year 2023, https://www.sec.gov/files/fy23-annual-report.pdf.
21 https://www.sec.gov/page/whistleblower-100million.
22 https://www.whistleblower.gov/.
23 Department for Business and Trade, Review of the whistleblowing framework: terms of reference, 26 October 2023, https://www.gov.uk/government/publications/review-of-the-whistleblowing-framework/review-of-the-whistleblowing-framework-terms-of-reference.
24 https://publications.parliament.uk/pa/bills/cbill/58-04/0151/230151.pdf.
