In March of this year, the Chancellor of the Exchequer Rishi Sunak announced the creation of the Coronavirus Job Retention Scheme (‘CJRS’). Protect’s Advice Line rapidly saw a spike in reports of “furlough fraud”, and, at the time of writing, handling nearly 300 calls with HMRC receiving 4,500 reports of fraud from whistleblowers[1].
This level of activity has thrown the question of rewards schemes for whistleblowers back into the arena, with some advocating that where a whistleblower speaks up about furlough fraud (or any public interest wrongdoing), they ought to receive a financial reward.[2]
The U.S. Securities and Exchange Commission (the SEC), an independent agency of the US Federal government operates such a scheme, under the Dodd-Frank Act 2010. However, whilst whistleblower rewards schemes may seem like an attractive proposition, the Dodd-Frank model is unworkable in most sectors, and inconsistent with the public interest served by the whistleblower’s disclosure. Indeed, for most whistleblowers, rewards are the last thing on their mind when they take the decision to speak up.[3]
The Dodd-Frank Model used by the SEC
The SEC scheme is only available to tiny percentage of those who speak up.
Only whistleblowers who provide:
- Original information
- Leading to successful enforcement action
- Of over $1 million
May apply for an award of 10-30% of the sanction imposed.[4]
The reasoning behind this reward scheme is almost entirely a small number of large payouts; proponents point to the large payouts for big scandals as evidence of success.[5] Since 2011, the SEC recovered $2 billion because of whistleblower tips and, in 2019, it awarded approximately $60 million to eight individuals.[6]
However, it does not follow that reward schemes are a sensible legislative proposal simply because the SEC scheme sometimes results in headline- grabbing figures. Kevin LaCroix, an attorney and Executive Vice President of RT ProExec, has specifically highlighted the huge disconnection between the number of reports (5,212 during FY 2019) to the SEC and the small number of awards (eight during FY 2019). LaCroix goes on to say, ‘When I look at the fact that of the total number of reports the agency has received 99.98 percent have not resulted in awards makes me wonder whether this program is really worth it?’[7] This view is supported by the FCA’s research into US financial incentives. The FCA concluded, ‘ Incentives in the US benefit only the small number whose information leads directly to successful enforcement action resulting in the imposition of fines (from which the incentives are paid). They provide nothing for the vast majority of whistleblowers. There is as yet no empirical evidence of incentives leading to an increase in the number or quality of disclosures received by the regulators’.[8]
The Size of the Catch
The whistleblowers who call Protect’s Advice Line are rarely raising concerns about fraud or financial mismanagement of such magnitude; but they often raise concerns about fraud which significantly impacts the public interest. Key public and voluntary organisations are often run on a shoestring, yet provide invaluable support for the communities they serve. For them, the difference between success and failure can be a just few thousand pounds. How can it be right that whistleblowers who raise valid and genuine concerns about fraud, which do not fall within the remit of the SEC reward scheme, be left disregarded and unacknowledged?
Whistleblowing of any concern can have immeasurable and difficult consequences for the individual. This is important, as if the reporting of less severe misconduct is made less attractive, there is a risk that disclosures could be delayed, manipulated or artificially inflated.[9]
Non-Financial Sectors left out in the cold
Little attention has been paid to how reward schemes could operate in any other sector than the financial. Blowing the whistle on financial wrongdoing often exposes a pool of money; from which a ’finder’s fee’ reward can be calculated. However, reporting wrongdoing in other sectors does not often generate funding, and does not provide a comparable source for rewards.
For example, a doctor who raises concerns about patient safety cannot point to any recovered sum of money from which they should be rewarded. How then is a reward to be calculated? The sacrifices of whistleblowers in non-financial sectors are just as real, and it is difficult to justify a scheme that excludes the hospital whistleblower, or the teacher who reports a safeguarding incident, or the factory worker who raises unsafe food practices.
Awards vs. Compensation
Rewards schemes are not compensatory, as the reward is not based on any detriment suffered by the whistleblower. In the UK, detriment is addressed through the Employment Tribunal, where compensatory payments to the whistleblower can be uncapped. If rewards schemes were compensatory this would create a dual-system and an unsatisfactory state of confusion. Efforts should be made to improve the efficiency and robustness of the Tribunal system, rather than focusing on ‘quick-fix’ solutions.
Under the Dodd-Frank Model, rewards are calculated based on the financial value of the information, not the damage the whistleblower suffers; or the value which the information has to the public interest. As such, these schemes do not put the whistleblower or the public at the heart of the process. Whistleblower Wendy Addison, who offers consultation and training to organisations, aptly describes this as treating whistleblowers as a “hired gun for the SEC”.[10]
Whistleblower reward schemes maybe appealing because for complex financial cases there is the opportunity of both their legal costs being paid and the whistleblower being adequately compensated. Making it more attractive for lawyers to assist whistleblowers is positive, given the disparity of arms that claimants face in tribunal. As costs are rarely awarded against the losing party in employment tribunals, whistleblowers may succeed in tribunal, but find their compensation swallowed up in legal fees. Yet there are many sectors where the wrongdoing exposed by whistleblowers carries no financial fine (e.g. the Oxfam sexual exploitation whistleblowing scandal) where fines are not appropriate, therefore awards scheme have little value. A better response to a lack of support for whistleblowers within the legal process is to provide them with access to funding, for example through legal aid.[11]
A fundamental principle of whistleblowing is upholding the public interest in every workplace, in every sector. The facilitation of rewards under the Dodd-Frank model does not reflect the value of the public interest, nor the harm suffered by the whistleblower – only the size of the catch they bring in.
Whistleblowers tell us the real reason they speak up is not driven by a cash reward incentive, but because it is the right thing to do and we should all be grateful this is the case.
By Protect Adviser Kyran Kanda, July 2020
[1] https://www.itv.com/news/2020-07-01/exclusive-4500-whistleblower-complaints-as-bosses-force-furloughed-staff-to-work
[2] https://challenge.globallegalhackathon.com/gallery/5ec8290d136ce600448b0dc4
[3] P.g.5 point 12, Financial Incentives for Whistleblowers, July 2014
[4] https://www.sec.gov/whistleblower
[5] https://fcpablog.com/2015/12/03/gordon-schnell-yes-we-need-whistleblower-rewards/#comment-1286
[6] A list of recent rewards can be found here https://www.sec.gov/news/pressreleases.
[7] https://www.dandodiary.com/2019/11/articles/whistleblowers/sec-whistleblower-reports-and-awards-continue-at-elevated-levels/
[8] https://www.fca.org.uk/publication/financial-incentives-for-whistleblowers.pdf
[9] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2822313.
[10] http://www.speakout-speakup.org/blog/whistleblowers-need-radical-justice-not-radical-incentives/
[11] See Protect’s legal reform campaign: https://protect-advice.org.uk/campaign-for-a-new-whistleblowing-bill/