Recent legislative developments in the United Kingdom, public remarks from the new director of the UK Serious Fraud Office (SFO), and recent parliamentary hearings on the Post Office Horizon scandal put a spotlight on whistleblower protections getting a fresh review this year.

In his first public remarks as director of the SFO, Nick Ephgrave said, “I think we should pay whistleblowers.” He added, “This is not just about the SFO. I would invite us to think about whether or not we want to consider incentivizing whistleblowers. It has many benefits.”

Ephgrave’s pronouncement is significant because the idea of financial incentives for whistleblowers under former SFO Directors Lisa Osofsky and David Green and UK regulatory bodies, generally, have not been well received in the past.

In his remarks, Ephgrave cited the success of the Securities and Exchange Commission’s Whistleblower Program as an example. Data from the SEC Whistleblower Program’s annual reports to Congress shows that the UK has consistently ranked among the top foreign countries from which the highest number of whistleblower tips originates. Since 2011, over 700 U.K. nationals have engaged with U.S. law enforcement as whistleblowers.

Anecdotally, whistleblower attorneys who represent U.S. and international whistleblowers told ACI Insights they have been approached by “hundreds” of UK whistleblowers. “In terms of my practice, I have a number of whistleblowers who are in the UK and have reported misconduct they have observed, either in the UK or elsewhere in the world,” said Erika Kelton, a partner at Phillips & Cohen. “And they are reporting on significant wrongdoing.”

Kelton added that she has heard “countless times” that the reason many UK citizens participate in blowing the whistle to U.S. regulatory agencies and enforcement bodies is because UK whistleblowers “receive no financial reward for the information they give, even if the information leads to significant prosecution and the recovery of very significant sums.”

Moreover, the SEC often recruits international whistleblowers to claim rewards for certain cases – more than 2,000 since 2011. On Feb. 29, the SEC posted 17 new “Notices of Covered Action” for which it is seeking tips, including for charges brought against SAP for Foreign Corrupt Practices Act (FCPA) violations arising out of an alleged global bribery scheme in which the global software company agreed to a nearly $100 million settlement on Jan. 10.

In the United States, it's not just the SEC that’s incentivizing people to come forward to report misconduct. The Commodity Futures Trading Commission (CFTC) is another. In one headline-grabbing example, Deutsche Bank whistleblower received a record $200 million whistleblower award from the CFTC for reporting on the LIBOR manipulation scandal in London. In that case, the whistleblower reported to U.S. authorities first before the UK Financial Conduct Authority (FCA) received information about the LIBOR scandal.

Whistleblowing Act

A renewed whistleblowing bill currently under consideration in the UK parliament indicates that greater whistleblower protections are being reevaluated. On Jan. 24, MP Mary Robinson, chair of the All-Party Parliamentary Group for Whistleblowing (APPG) presented for a second time a whistleblowing bill to the House of Commons, with a second reading expected to take place March 22.

The UK’s current whistleblowing protection law, the Public Interest Disclosure Act (PIDA), has long been criticized by whistleblower advocates as being too limited in scope because it applies only to employment law and only workers who speak out against employers – not suppliers, contractors, and others.

The legal hurdles of PIDA pose further concerns. It applies only to those who make a “protected disclosure,” and the person has to prove they had a reasonable basis for raising the relevant concern. If the person suffered a “detriment,” they can bring their case before an employment tribunal, a costly process that does not allow for the recovery of legal fees.

Thus, stuck with significant legal fees, those who report serious misconduct often experience financial harm and also risk reputational damage, as anonymity is not promised. These are some of the reasons why the Whistleblowing Act aims to repeal PIDA.

Central to the Whistleblowing Act is the proposed establishment of an independent Office of the Whistleblower, whose principal duty would be “to protect whistleblowers and have oversight of the process of whistleblowing,” according to the bill.

Broadly, the act aims to transform whistleblowing protections in the UK by making it an offense to retaliate against whistleblowers, fail to act, or cover up wrongdoing. Specifically, the stated functions of the proposed Office of the Whistleblower would be to:

• Set minimum standards for whistleblowing policies, procedures, and reporting structures;
• Monitor and enforce organizations’ compliance with those standards;
• Bring prosecutions for offenses specified in the bill;
• Provide an independent disclosure and reporting service, information, and advice on whistleblowing, and otherwise provide support for whistleblowers; and
• Share information with relevant agencies in the United Kingdom and abroad.

Stephen Kerr, vice chair of WhistleblowersUK, the UK’s only non-profit whistleblower organization, which helped draft the bill, stated, “The government has listened to the evidence for an overhaul of the law over a number of years. It again has the opportunity to do the right thing and adopt this bill.”

Hurdles to Overcome

What this bill seeks to accomplish by creating a central clearinghouse for whistleblower information is “very ambitious,” said Mary Inman, a partner at Constantine Cannon who launched the firm’s international whistleblower practice.

“What the UK is seeking to do by creating an Office of the Whistleblower in government is fairly unique,” Inman said. “We do not have an equivalent in the United States.”

Just as PIDA has been criticized for being too narrow, the Whistleblowing Act in many ways is too vague and may be putting the cart before the horse. “It could be successful in terms of protecting individuals after they have spoken up, but in terms of encouraging them to speak up, I’m not so certain,” Kelton said.

“Most people want the underlying misconduct addressed,” Kelton added. “I don’t see that the Office of the Whistleblower would have the authority to do that.” For example, it is unclear whether the Office of the Whistleblower would refer cases of serious misconduct to the SFO, FCA, or some other prosecutorial authority.

A more effective alternative could be to mirror the approach taken by the various government agencies in the United States, in which enforcement of the underlying regulatory violation and whistleblower protections work hand-in-glove, Kelton said. The SEC’s and CFTC’s whistleblower programs, for example, are informed by violations of U.S. securities law and the Commodity Exchange Act.

A Turning point?

While financial incentives for whistleblowers have been hotly debated in the UK for many years, the UK government continues to demonstrate a lack of desire to take whistleblowing seriously, even as whistleblowers continued to bring forth massive files of “well-evidenced wrongdoing,” WhistleblowersUK CEO Georgina Halford-Hall told ACI Insights.

“We have seen evidence of human trafficking linked to money laundering, drugs – all sorts of organized crime – huge levels of fraud, medical negligence, sexual assault. I can’t think of anything we haven’t seen,” Halford-Hall said.

This may be a turning point for the UK, however, in taking whistleblowers more seriously. “We need to look no further than the Post Office Horizon scandal to see how badly whistleblowers are treated and how much public money is wasted persecuting them,” Robinson said. Just recently, a public hearing was held before the Business and Trade Committee on the Post Office Horizon scandal.

Just as the Enron scandal brought about the Sarbanes-Oxley Act and the financial crisis brought about the Dodd-Frank Act, “I feel like the Post Office scandal is going to deliver whistleblower reform in a way we have not seen before,” Inman said.

Conclusion

In the UK, whistleblowers have long been perceived as snitches or disloyal employees. Such perceptions are not only misguided, they are costing companies tens of millions, even hundreds of millions, in fines and penalties. Research conducted by George Washington University has found that companies with robust internal reporting mechanisms realize greater profitability and workforce productivity, fewer lawsuits, and fewer external whistleblower reports to regulatory agencies and other authorities.

In the absence of legislation, companies have much to gain by playing a leading role by internally fostering a speak-up culture that values their employees as being those much-needed canaries in the coal mine. “What I always say to corporate is, ‘Don’t think of them as whistleblowers. Think of them as your best risk management tool,’” Inman said. “When there is a problem, you need someone who has the fortitude to hold up a mirror and say, ‘We are doing it wrong.’ That takes real courage.”