Whistleblowing: the pressure mounts: Financial incentives

The US Dodd-Frank Whistleblower Programme has led to calls for financial incentives to be offered to whistleblowers in the UK and elsewhere.

At a glance:

  • No likelihood of incentivisation in the UK for now, beyond cartel reporting
  • SEC bounty scheme builds international momentum

The UK position

For the moment, financial incentives are unlikely to become a feature of the UK whistleblowing framework. The UK Government raised the issue of financial incentives as part of its consultation on a general review of the whistleblowing framework in 2013/4. Specific conclusions were put on hold until after the PRA and the FCA had conducted research into the effectiveness of financial incentives in the US (as required by the Parliamentary Committee on Banking Standards).

This research was released in July 2014, with the regulators concluding that the case has not been made for the introduction of incentives in the UK (further details are available here).

Separately, reference has been made by the UK Government to the possibility that financial or other incentives will be introduced in respect of whistleblowers in corruption and bribery cases. The UK anti-corruption plan 2014 states that the Home Office and BIS will “consider what more can be done to incentivise and support whistleblowers in cases of bribery and corruption”, [with a date of October 2015 for this to be completed].

In relation to cartel activity, the UK Competition and Markets Authority runs an informant reward scheme to encourage individuals with information to come forward, offering a reward of as much as £100,000 in exceptional circumstances. The scheme was originally introduced by the then Office of Fair Trading and subsequently adopted by the CMA (further details are available here).

The US position

In the US, the Dodd-Frank Whistleblower Programme was established in 2010, with the Securities and Exchange Commission offering whistleblowers between 10% and 30% of the penalties recovered from those convicted of securities law violations following a tip-off, provided these exceed US$1m. The programme has steadily built momentum, with the first payment to a whistleblower in 2012 and nine awards being made in the fiscal year 2014. The largest award to date was of US$30m to a whistleblower who, notably, was from outside the US.

Other states are likely to implement similar schemes in the next few years, though none are likely to be on the scale of the SEC scheme. Slovakia introduced new legislation to protect whistleblowers in October 2014 that included a bounty programme for information that leads to action by the government, though the bounty on offer is minimal compared to the US scheme, with less than €20,000 available.

There are many downsides to such bounty programmes, such as encouraging mischaracterisation of behaviours, undermining internal compliance efforts and even incentivising people to allow wrongdoing to occur so that they can claim a bounty, rather than take steps to stop it. The number of payments made by the SEC is very small compared to the 3,620 tips received in 2014, suggesting that much of the information is of low value. One whistleblower has even been banned from receiving awards after making 142 complaints in two years. These problems, combined with the cost of offering substantial incentives (the Dodd-Frank programme has a fund of some US$439m), makes a similar programme in the UK unlikely in the foreseeable future. However, the international reach of the Dodd-Frank Whistleblower Programme means that many companies still need to factor the possibility of employees whistleblowing for bounty into their thinking.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.