/>iIn a July 2014 report, the United Kingdom’s Financial Conduct Authority (FCA) and Bank of England Prudential Regulation Authority (PRA) agreed with the Parliamentary Committee on Banking Standards (PCBS) recommendations to improve whistleblowing in the financial industry.
To accomplish this, they agreed to plan and implement measures to encourage and protect whistleblowers. Recommendations include improving the firm’s culture, increasing senior management accountability, and potentially introducing financial incentives.
However, their report claims that financial incentives may not significantly increase the number nor quality of whistleblower disclosures, essentially suggesting that U.S. whistleblower award programs are largely ineffective and costly. This research contradicts the empirical data from U.S. whistleblower programs.
The Bank of England lacks merit, is rife with false information, and has stifled whistleblower legal developments in the UK, ultimately dissuading regulators from the truth that whistleblower incentives have been the cornerstone of anti-corruption laws in the U.S. for decades and have proven to be the number one tool in fighting fraud and protecting whistleblowers. Many in the UK understand this.
Director Nick Ephgrave QPM of the Serious Fraud Office (SFO) said this about awards:
“If you look at the example of the United States of America, their system allows [payment of whistleblowers], and I think 86% of the $2.2 billion in civil settlements and judgments recovered by the U.S. Department of Justice were based on whistleblower information.”
In response to the false and misleading statements, our team drafted a letter asking that the BoE Report be corrected, as it contains significant inconsistencies and misleading information that could stifle any momentum within the UK for the enactment of an effective whistleblower program.
In this analysis, we review the Bank of England’s position on whistleblower awards, and provide an overview of our rebuttal, which points out massive flaws in their arguments and false information, along with links to other helpful resources.
The Bank of England’s Position
The Bank of England (BoE) has expressed skepticism regarding the effectiveness of financial incentives for whistleblowers. They consider that providing financial incentives to whistleblowers will not encourage whistleblowing nor significantly increase integrity and transparency in financial markets. Their key concerns include:
- Limited Impact: Incentives often benefit a small number of whistleblowers whose information leads to significant enforcement actions, while the majority receive little or no award.
- Lack of Empirical Evidence: There is no conclusive evidence that incentives increase the number or quality of whistleblower reports.
- Complex and Costly Administration: Implementing incentive programs can be complex and costly, both for regulators and firms.
- Potential for Abuse: Incentives could encourage malicious or frivolous reporting, or even entrapment.
- Undermining Internal Reporting: Incentives may discourage firms from developing effective internal whistleblowing mechanisms, which are crucial for addressing misconduct within organizations.
Alternative Approaches
Instead of relying on financial incentives, the FCA and PRA advocate for a more holistic approach to encourage whistleblowing:
- Strengthening Internal Mechanisms: Promoting a culture of openness and accountability within firms.
- Improving External Reporting: Enhancing the support and protection offered to whistleblowers who report to regulators.
- Targeted Outreach: Educating potential whistleblowers about their rights and responsibilities.
- Transparent and Timely Response: Ensuring that whistleblower reports are handled promptly and confidentially.
These groups believe that by focusing on these alternative approaches, regulators can aim to strike a balance between encouraging whistleblowing and mitigating the potential risks associated with financial incentives.
BoE’s False and Misleading Position
Misleading Statement 1: The Truth About Awards
One of the main misleading conclusions from this report is that “None of the [U.S.] agencies have seen a significant increase in either the number or the quality of reports from whistleblowers.” However, this statement is untrue.
The U.S. regulators responsible for implementing the whistleblower award laws have strongly praised them as crucial instruments for fighting fraud, specifically pointing to the high number and quality of such tips.
The number of persons using U.S. award-based reporting laws and the amount of revenue obtained by the U.S. government demonstrates the effectiveness of these award laws.
Misleading Statement 2: Meetings With Unqualified Groups Proves Nothing
The BoE Report’s assessment of U.S. whistleblower award programs is fundamentally flawed. Their claim that a fact-finding mission to the U.S. yielded “scant evidence” of increased disclosures or improved information quality is misleading and inaccurate.
However, these claims rely on data derived from feedback from groups and agencies who have no whistleblower program or authority to be sources of information, including the Office of the Comptroller of the Currency, which has no whistleblower award program.
They also met with representatives of the United Nations, which has no jurisdiction over U.S. whistleblower laws, nor any whistleblower award program itself. Lastly, they “visited the U.S. Department of Justice, which has the power to make awards to whistleblowers in retaliation to prosecutions under the Foreign Corrupt Practices Act.”
However, at the time of the report, the DOJ was still a decade away from creating its own whistleblower award program, and it had no oversight over the FCPA as it relates to the SEC Whistleblower Program.
Misleading Statement 3: Twisting Words
In their report, the BoE mention that they met with the SEC. Yet, they fail to include any of the well-documented praise from SEC officials on the importance of the SEC. Thus, the SEC officials’ statements found in the BoE Report appear to be highly misleading.
BoE investigators were offered a firsthand look at the SEC’s whistleblower program but declined. Instead, they chose to meet with organizations that are not directly involved in administering or implementing whistleblower award programs.
Misleading Statement 4: Omission of Literature Review
There doesn’t appear to be any review of literature within the BoE report. Whistleblowing has been studied for decades, and dates to 1862, when President Abraham Lincoln signed the False Claims Act (FCA) at the height of the Civil War, which aimed to curb fraud against the government by entities awarded contracts.
For example, their analysis could have simply included the following:
“A strong monetary incentive to blow the whistle does motivate people with information to come forward.”
“There is no evidence that having stronger monetary incentives to blow the whistle leads to more frivolous suits.”
“Fraud tends to be revealed by people who find out about it in their normal course of business and who do not have a strong disincentive (or even better some positive incentive) to reveal it.”
– The Journal of Finance, “Who Blows the Whistle on Corporate Fraud?”
Yet, these statements and thousands of others like them have been altogether omitted to avoid lending any insights into the effectiveness of U.S. Whistleblower Programs.
Our simple findings alone rebut the BoE report’s conclusion that monetary incentives could result in abusive lawsuits or necessarily result in negative side effects.
Misleading Statement 5: “Malicious Use”
The claim that award laws encourage malicious reporting is unfounded. Research has shown that this is not the case. In fact, award laws often require whistleblowers to provide original, well-documented, and truthful information. Additionally, the concern about harming innocent parties through public disclosure is misplaced. U.S. award laws mandate that information be shared with law enforcement, not the public.
Misleading Statement 6: Confidentiality Issues
The BoE Report’s criticism of confidentiality provisions in whistleblower award laws is unfounded. These provisions are crucial for protecting whistleblowers from retaliation, which is a major deterrent to reporting misconduct.
Confidentiality ensures that whistleblowers can come forward without fear of reprisal. A study by the Thompson Reuters Foundation and Blueprint for Free Speech highlights the importance of protecting whistleblowers from retaliation, as it is a major flaw in the UK’s whistleblower law. Ultimately, confidentiality is key to preventing retaliation, as it shields whistleblowers from identification by their employers.
Misleading Statement 7: May Slow Internal Whistleblowing Improvements
In the report, BoE claims that “incentives offered by regulators could undermine the introduction and maintenance by firms of effective internal whistleblowing mechanisms.” However, this is unfounded. Former SEC Chairman Mary Jo White has clearly stated that the SEC’s policies have created stronger compliance programs, especially on Wall Street.
“All indications are that internal compliance functions are as strong as ever – if not stronger – and that insiders continue to report possible violations internally first. […] Notably, of these, over 80% first raised their concerns internally to their supervisors or compliance personnel before reporting to the Commission.”
— Former Chairman of the SEC Mary Jo White, Northwestern University School of Law (2015)
Misleading Statement 8: Too Costly and Benefits Few
Speculation that the implementation of a whistleblower program would be costly is simply false. On the contrary, data shows that whistleblower award laws have helped the U.S. government recoup billions of dollars. Furthermore, their claim that awards “benefit only the small number whose information leads directly to successful enforcement action resulting in the imposition of fines” is misleading.
A comprehensive study has shown that the U.S. government’s investment in investigating whistleblower cases under the False Claims Act yields a significant return, often exceeding 20 times the initial investment. This calculation does not account for the additional benefits of holding wrongdoers accountable and deterring future misconduct.
These misleading statements are just a few. The main point is that the report appears to have overlooked critical aspects of the U.S. system, suggesting a superficial understanding of its impact.
Our Letter to Bank of England
Our team drafted a letter to Mr. Mark Carney, governor of the Bank of England, asking that the BoE Report be corrected, as it contains inconsistencies and misleading information. The letter in fact highlights the effectiveness of U.S. whistleblower award programs and urges the Bank of England to remove its report or publish a rebuttal alongside it. The letter also emphasizes the importance of robust whistleblower protection laws and the role of incentives in encouraging individuals to report wrongdoing.
We encourage you to read this letter and the BoE’s response to this letter from Sam Woods, Deputy Governor and CEO of Prudential Regulation Authority. In this letter, they essentially double down on their research and stance found within their report.
Another class of cases where whistleblower tips can be helpful is in our enforcement of the Foreign Corrupt Practices Act. […] Tips related to FCPA violations have increased from 115 in fiscal year 2012 to 186 in fiscal year 2015—an approximate 62% increase. Because of the difficulties in investigating overseas conduct, we are hopeful this trend will continue. […]
[I]nternational whistleblowers can add great value to our investigations. Recognizing the value of international whistleblowers, we have made eight awards to whistleblowers living in foreign countries. In fact, our largest whistleblower award to date—$30 million—went to a foreign whistleblower who provided us with key original information about an ongoing fraud that would have been very difficult to detect. In making this award, the Commission staked out a clear position that the fact that a whistleblower is a foreign resident does not prevent an award when the whistleblower’s information led to a successful Commission enforcement action brought in the United States concerning violations of the U.S. securities laws.
UK Citizens: Use U.S. Whistleblower Award Laws
Citizens of the UK who have information regarding securities frauds or violations of the FCPA that trade in American Depository Receipts, can report their concerns and qualify for awards and protections under the SEC and CFTC Whistleblower Program, as well as under the FinCEN Anti-Money Laundering and Sanctions Whistleblower Program.
Securities Fraud
SEC Whistleblower Program
The Securities and Exchange Commission (SEC) Whistleblower Program was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This program offers significant monetary awards to individuals who provide original information leading to successful enforcement actions.
Key Features:
- Incentives: The SEC awards whistleblowers between 10% and 30% of the monetary sanctions collected.
- Protections: The program offers robust whistleblower protections, including anti-retaliation measures and confidentiality.
- Eligibility: Individuals who provide original information that leads to successful enforcement actions are eligible.
- Anonymous Filing: Whistleblowers can file tips anonymously.
Commodities Fraud
CFTC Whistleblower Program
The Commodity Futures Trading Commission (CFTC) Whistleblower Program, also established by the Dodd-Frank Act, provides monetary awards to individuals who voluntarily provide original information leading to successful enforcement actions.
Key Features:
- Incentives: The CFTC awards whistleblowers between 10% and 30% of monetary sanctions collected.
- Protections: The program offers whistleblower protections, including anti-retaliation measures and confidentiality.
- Eligibility: Individuals who provide original information that leads to monetary sanctions are eligible.
- Anonymous Filing: Whistleblowers can file tips anonymously.
Money Laundering & Sanctions Violations
FinCEN Whistleblower Program
The Financial Crimes Enforcement Network (FinCEN) Whistleblower Program awards individuals who provide original information leading to significant monetary sanctions.
Key Features:
- Incentives: The program offers awards of up to 30% of the monetary sanctions collected.
- Protections: FinCEN provides whistleblower protections, including anti-retaliation measures and confidentiality.
- Eligibility: Individuals who provide original information leading to significant monetary sanctions are eligible.
- Anonymous Filing: Whistleblowers can file tips anonymously.
All three programs emphasize the importance of original information and encourage individuals to come forward with tips about potential wrongdoing.
The specific eligibility criteria and award amounts may vary depending on the nature of the information provided and the complexity of an investigation, among many other factors.
Overall, whistleblower award laws help alleviate the immediate and long-term concerns that often deter employees from reporting wrongdoing by:
- Offering financial incentives: This motivates people to take the risk of reporting.
- Providing safe channels: These channels protect whistleblowers from retaliation.
- Encouraging quality reports: Awards are given only for accurate and well-documented information.
- Protecting whistleblowers: Laws offer legal protection against retaliation.
- Empowering employees: Whistleblowers can choose to report internally or to the government, creating a powerful incentive for companies to have strong internal compliance programs.
- Strengthening investigations: Reward laws provide authorities with crucial information to investigate and address fraud.
If you know of fraud and corruption, you may be eligible for significant awards. As a whistleblower, you also face risks; so, we’re also here to protect your rights. Our firm specializes in complex cases involving whistleblowers from the UK and other European countries. Contact us for a free, confidential consultation.
Conclusion
The BoE Report’s assertion that whistleblower award programs do not increase the number or quality of reports is inaccurate. Evidence from lawmakers, law enforcement officials, and agency leaders indicates that these programs are highly valued for the valuable information they provide.
Statistics on the use of whistleblower tips further support their effectiveness. The BoE Report’s investigators appear to have overlooked crucial information from those directly involved in implementing these programs.
The significant global response to U.S. whistleblower award programs underscores their effectiveness. To ensure informed decision-making, it is imperative that policymakers and stakeholders have access to accurate information, and the BoE Report’s misleading claims should be disregarded.
Joseph Orr, Erin Craig, and Geoff Schweller also contributed to this article.
