They say everything’s bigger in America. This month, the UK Competition and Markets Authority (CMA) announced it will increase the maximum amount it pays out to whistleblowers providing information on cartel activity from £100,000 to £250,000. It may sound a lot, but it’s dwarfed by the $279 million paid out to a single whistleblower by the US Securities and Exchange Commission (SEC) only a month before. Such payouts to whistleblowers may seem unusual to UK observers, but they’ve been a key part of the US whistleblowing framework for decades.
Conversely, even the relatively modest increase from the CMA is an outlier on the UK regulatory landscape. The only other UK regulator to offer rewards to whistleblowers is HM Revenue and Customs, who paid out only £495,000 in the 21/22 tax year. We do not have information on how many whistleblowers received that, nor how much HMRC gained from the tips. Paying out $36,144,926 in 2021 the Internal Revenue Service (IRS) says it was able to collect $245,303,646: a compelling argument that rewards could serve the public interest.
Protect’s research has found fewer than 100 whistleblowing cases were reported to the CMA over the previous 5 years, and only 58 of those led to further investigations. Could regulation in the UK benefit from the lessons learned by regulators in the US?
Since 1863, the False Claims Act has allowed US citizens to bring ‘qui tam’ actions on behalf of the government against those defrauding government agencies. 31 states and 13 localities have their own False Claims Acts, which allow whistleblowers to profit from the reporting of wrongdoing, without even involving a regulator directly. In 2022, 89% of the $2.2 billion recovered under the False Claims Act came from these whistleblower-initiated cases.
Most whistleblower reward programmes however take place through federal and state agencies, which give whistleblowers a cut (typically between 10-30%) of fines issued, so long as the fines are over a certain threshold. The SEC launched its whistleblowing programme in 2010 to promote greater transparency in the wake of the financial crisis, and in 2021 it received more than 12,200 tips, from 100 countries. Between 2007 and 2021, the IRS collected over $6 billion in unpaid tax due to information received under its whistleblower rewards programme. A growing number of agencies have been persuaded of the benefits, and whistleblowers can now earn rewards for handing over public interest information in areas as diverse as sanctions evasion, tax fraud, motor vehicle safety, marine pollution and foreign government corruption.
Many of the whistleblowers presenting “tips” do so with the benefit of specialist law firms who work on a contingency basis – doing the work of preparing disclosures up front in exchange for a future share of the reward. This makes the job of law enforcement agencies easier, when the information arrives as a strongly built case. More than just incentivising tips, the system arguably also improves the quality of disclosures. The promise of potential rewards makes a case worth pursuing for the lawyer as well as the whistleblower.
Against this it has been argued that whistleblower systems have effectively been “captured” by lawyers with a large amount of the rewards going towards the legal fees. For whistleblowers with a good case but no lawyer, there is a risk that their tip goes unheeded, and the public interest overlooked.
One obvious drawback is that the US model only currently works in industries where the reporting of concerns can lead to large financial penalties. Typically, US reward programmes only pay out when fines of at least $1 million are levied based on the information. In 2022, less than 1% of tips to the SEC led to rewards, with only 103 rewards paid out for over 12,000 whistleblowing disclosures. The US model, if replicated in the UK, would offer little support to an NHS nurse worried about improper sharps disposal, or a teacher with safeguarding concerns.
In contrast, any whistleblowing worker who faces victimisation in the UK can seek compensation by suing their employer in the Employment Tribunal. The compensation that can be awarded is uncapped and can reflect the true cost of some whistleblowers being unable to work in their chosen profession again. In one case in 2022, a nurse was awarded £462,612.26 after being unfairly dismissed for whistleblowing.
There are also institutional barriers to transposing the American system. Regulators in the US self-fund through the levying of fines, and so there are always ample resources to compensate whistleblowers. In the UK regulators do not keep the money raised through fines, which is returned to the Treasury. The problem may therefore be a lack of enforcement resources, not a lack of information. Protect research has shown that regulators in the financial sector already receive far more disclosures than they act upon, with many disclosures taking a long time to be considered. Arguably, the more effective route to upholding the rule of law would be to adequately fund regulators to carry out enforcement activity.
Too often, whistleblowing comes at great personal and financial cost to whistleblowers. Some may never be able to find work in their industry again, for no other reason than that they spoke up about wrongdoing. It is clearly in the public interest that there is a system in place to compensate whistleblowers for the risks they take in exposing malpractice and risk. Whether that should be through statutory employment rights, a programme of regulator rewards, or a mix of both, is an unsettled question.
To celebrate World Whistleblowers Day 2023, Protect will be hosting a webinar on the pros and cons of adopting US-style whistleblower rewards programmes. The event is free to attend and will feature contributions from leading academics in whistleblowing. Register now.