Whistleblowing is one of those subjects that the US seems to be better at, or dare I say to make more noise about, than the UK. As my colleague Ann Longmore recently wrote, the US Securities and Exchange Commission has extended their whistleblower reward programme to recoveries made by the Department of Justice. The amounts of bounty potentially involved are eye watering – up to 30% of sanctions collected are over $US1,000,000. When fines can be as high as the US$1.9 billion levied on HSBC in 2012 in connection with allegations of money laundering, it’s not hard to see why this grabs headlines. According to the SEC’s 2012 Annual Report on the Dodd-Frank Whistleblower Program, the agency received more than 3,000 tips from all 50 states and from 49 countries in a year.
So what about the position in the UK?
In fact, it is a topical question to be asking over here since on 25 June 2013, the UK changed its laws in this area. UK whistleblowing legislation was introduced by the Public Interest Disclosure Act 1998, following the Herald of Free Enterprise ferry disaster and the subsequent investigation which found that earlier concerns had been expressed by employees about vessels sailing out of harbours with their bow doors open but that those concerns had gone unheeded. Similar conclusions were reached following investigations into financial disasters such as the collapse of Bank of Credit and Commerce (“BCCI”) with debts of $US10 billion. Despite its name, the Public Interest Disclosure Act never made any reference to the public interest in affording protection to whistleblowers. Instead the Act gave protection to employees provided they could show they were acting “in good faith”.
The Government became concerned that this term was being relied on (and sometimes in their view abused) by employees to muddy the waters in employment disputes. Indeed a court ruling in 2002 expressly permitted employees to raise, “in good faith”, matters relating to their own individual contracts of employment. So from 25 June this year, the “good faith” requirement was substituted by the Enterprise & Regulatory Reform Act 2013 with a “public interest” test. No guidance has been provided on what ‘in the public interest’ will mean in this context; this will be left to the determination of individual employment tribunals. Those making the disclosure must reasonably believe it to be in the public interest, but it seems possible that their belief need not be correct for them to be able to claim protection. It is likely that there will be litigation to clarify the boundaries of this concept in the context of whistleblowing.
‘Bounty US style’
So what’s the position here when it comes to incentives in the form of bounty, US style, above and beyond the statutory employment law protections afforded by The Public Disclosure Act? The short answer is that we do not (yet at least) offer financial awards or incentives to whistleblowers in the UK. The Financial Conduct Authority for example has a whistleblowing programme and offers advice and guidance on the subject but no rewards. But how long will this remain the position? Representatives of the US Plaintiff’s Bar are keen that we should introduce such a system here. See, for example, what Reuben Guttman at law firm Grant & Eisenhofer had to say to the Insurance Business Times earlier this year:
“Rewarding whistle blowers works and the UK could learn from the US system. This is the biggest difference between us. The reality is that we will be in dire straits if we didn’t have these people coming forward and one of the main issues why people do not blow the whistle elsewhere is because of the huge financial and reputational risk to themselves without the necessary protection or reward…”
“You can bulk enforcement staff at the regulators but you can never beef it up enough to efficiently investigate and enforce compliance. For example, the SEC has maybe around one examiner for every $12bn in assets, and it could triple or even quadruple the amount of staff to look into this amount of assets but you would still be massively understaffed. The idea is that you want to basically get to the fraudulent activity before it has a devastating impact on the economy, such as with Tyco, WorldCom and Enron. When Enron collapsed there was a mass loss of jobs and impact on many companies that had dealings with them, but this situation could have been averted if people came forward with information”.
Whether these types of argument will find favour with our legislators remains to be seen. The UK has recently introduced its version of contingency fees for the first time so I wouldn’t rule it out.