Partner Ian Hargreaves explores whistleblower pay in Thomson Reuters Regulatory Intelligence

Partner Ian Hargreaves discusses the Director of the Serious Fraud Office’s push to pay whistleblowers, and explains why such incentivisation programs must be carefully managed, in Thomson Reuters Regulatory Intelligence.

Ian’s article was published in Thomson Reuters Regulatory Intelligence, 3 December 2024, and can be found here.

While it may be exaggerating matters to suggest that convincing the UK Government to introduce legislation incentivising whistleblowers will make or break Nick Ephgrave’s reign as Director of the SFO, he has been quite clear as to how pivotal it may be in relation to the future of the SFO.

Commentators have suggested the importance of whistleblowers is overrated, with it being morally unethical and even counterproductive in pursuing corporate/financial crime. However, looking at the figures coming out of the US, the argument in favour of incentivising whistleblowers becomes more compelling. Not only can whistleblowing alert an employer/corporate (or potentially law enforcement) to a serious matter which needs investigating, but it can also provide the information or intelligence which, especially if corroborated, can provide invaluable evidence.

Incentivising whistleblowers is by no means a new concept. Back in 2012, former Director of the SFO David Green raised this as an issue at the 6th Annual European Forum on Anti-Corruption stating that the SFO ‘‘would welcome a debate on whether bona fide whistleblowers should be rewarded for the information they provide’’. Nick Ephgrave has further prioritised this issue.

In February 2024, he gave a speech at the Royal United Services Institute (RUSI), a leading UK Defence and Security think-tank, during which he said; “… we should pay whistleblowers. If you look at the example of the United States of America, their system allows that, and I think 86% of the $2.2 billion in civil settlements and judgments recovered by the US Department of Justice were based on whistleblower information. Since 2012, over 700 UK whistleblowers have engaged US law enforcement.”

In large part, the figures published by the U.S. Securities and Exchange Commission (SEC) for fiscal year 2023 support the argument that incentivising whistleblowers does result in more matters being investigated and more successful prosecutions. The report highlighted that, over this period, the Commission awarded nearly $600 million to 68 individual whistleblowers – the highest annual total in the program’s history. During this period, the SEC further reported that it received 18,000 whistleblower tip-offs – almost 50% more than the previous record set in the previous fiscal year. In fact, since the inception of this program in 2011, the SEC has now awarded more than $1.9 billion to 397 individual whistleblowers.

However, many have noted that individual whistleblowers are extremely unlikely to receive any financial reward. Notwithstanding this, it does not seem to have deterred people coming forward.

In August 2024, the U.S. DoJ similarly launched a three-year pilot Corporate Whistleblowing scheme offering financial incentives to whistleblowers in order to ‘’fill the gaps’’ with other federal whistleblowing programs. In October, the DoJ announced that it had already received more than 200 tip-offs.

It would be wrong, however, to state that whistleblowers are not already incentivised in the UK; the Competitions and Markets Authority can award whistleblowers up to £250,000 for reports of cartel activity and HMRC has a discretionary scheme for reporting tax fraud. However, this would be the ‘tip’ of the iceberg if a more expansive incentivisation program was to be introduced in the UK.

In 2022, the EU introduced a Whistleblowing Directive focused on protecting whistleblowers, providing confidentiality, and a structured process relating to reporting tip-offs. The EU approach suggests that they believe whistleblowers will be more incentivised to come forward by insulation from retaliation and confidentiality. The U.S. authorities, however, would argue that their laws also provide significant protection against retaliation and UK authorities would point to long-standing laws in the Employment Rights Act 1996 (as amended by the Public Interest Disclosure Act 1998) which are designed to protect workers against retaliation.

There are risks though with incentivising whistleblowers. If significant awards are available then one can foresee a whole new industry of professional whistleblowers growing – where some may be more unscrupulous than others in getting the information and checking it is accurate.

Some have suggested that a counter-balance to financial incentives should be strict sanctions against defamation, perjury and the fabrication of information – potentially with a stricter standard of proof for information provided by witnesses who stand to gain from a conviction.

What would effectively be paying witnesses is an anathema to the UK judicial system. One would expect anyone giving evidence at trial, where it is made clear to the Court that they are a whistleblower likely to benefit from the evidence that they may give, will face the severest of cross-examination.

Further, UK regulators have questioned the concept of incentivising whistleblowers when those that they regulate already have a regulatory obligation to disclose information relating to wrongdoing. In 2014, the UK Financial Conduct Authority (FCA) pointed out that incentivising whistleblowers may not align with the regulatory duty to deal with their regulator in an open and cooperative way.

Critics have argued that financial rewards ‘’crowd out’’ the intrinsic moral motivation of whistleblowers – they should speak out as part of a civic duty, not for profit. However, while many argue that this could lead to spurious tips, studies carried out by Transparency International and the Stockholm institute of Transition Economics have found the opposite. Indeed, many have argued that if money is at stake then a whistleblower will be even more concerned to ensure that what they say is accurate and complete.

Subject to effective guardrails being introduced to manage incentivisation, it must be in our public and private interests to ensure that serious criminals are exposed and that the prosecuting authorities have the evidence available to them. The previous government was conducting a review into the effectiveness of the whistleblowing framework. A Whistleblowing Bill was introduced to Parliament, which was dropped after the election was called and Parliament was dissolved. The 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.

Measures like these are vital to prevent a whistleblower ‘gold-rush’ where individuals employ a whole host of tactics to try to mine for information which might point to wrongdoing. Investigative journalism should be encouraged and supported but not everyone has the skill sets or ethical maturity to appreciate what falls on the right side of lawful investigation/comment. If measures of this nature are introduced alongside incentivisation, a higher volume and quality of financial crime-related whistleblowing disclosures should occur.

Nick Ephgrave’s opening comments when becoming the Director of the SFO were that he wanted to make the SFO “bolder, more pragmatic, more proactive”. Although new legislation such as the Economic Crime and Corporate Transparency Act has provided him with the ammunition to achieve this, alongside more aggressive tactics in pursuing serious criminals, his legacy will almost certainly be judged by his success in the push to introduce legislation incentivising whistleblowing and then utilising any such reform to pursue those committing serious corporate/financial crime more vigorously.