Last month, the U.S. Securities and Exchange Commission announced that it had paid out more than $100 million in awards to whistleblowers. This month, financial institutions in the United Kingdom have to start implementing programs that encourage whistleblowers to report corporate malpractice to an in-house “champion.” The hope, in part, is that this approach will discourage them from going to a U.S. government agency that might pay them for the information.
Should Britain have adopted a U.S.-style bounty system instead?
Clearly whistleblower payouts can be a double-edge sword. While Europeans often recoil from the idea, Americans see bounties as a cost-effective way to get information they wouldn’t otherwise have.
The SEC’s Andrew Ceresney said his agency’s program, which provides rewards of between 10 percent and 30 percent of the money collected from corporate wrongdoers, had a “transformative impact” on the agency, allowing it “to bring high quality enforcement cases quicker using fewer resources.” Fines levied and profits repaid often more than covered the costs of the investigation. Viewed in this context, whistleblower bounties look like an investment made by the U.S. government.
U.S. payments are high. The Internal Revenue Service gave Bradley Birkenfeld $104 million — the largest single payment ever — for revealing years of tax fraud at the Swiss bank UBS. (Birkenfeld also spent three years in jail for his part in the fraud, but presumably the prospect of those waiting millions made incarceration more bearable.) The SEC’s biggest payout (given to a source who remains anonymous and is based outside the United States) was for $30 million, and in August it announced its second largest payout — a $22.5 million reward to a whistleblower who revealed accounting irregularities at seeds firm Monsanto.
Not surprising, then, that whistleblowers are more inclined to offer their information about business malpractice to U.S. agencies first. But what would it take for them to talk to their own companies instead?
People like David Green, director of the UK’s Serious Fraud Office, believe that morality should be its own reward. Others like Whistleblowers UK’s Georgina Halford-Hall think that bounties are a moral good — that they validate whistleblowers and send a signal they have done the right thing.
For businesses, it’s less about morality than about the most effective way to encourage employees with knowledge of wrongdoing to approach them rather than running to the SEC or IRS for a slice of the action. That would allow companies to get out ahead of any potential external investigation and obtain the assistance of regulators’ additional investigatory powers if useful.
Such a culture could only succeed, however, if corporations build properly resourced programs that include training and senior-staff involvement.
A shiny new program, even if it satisfies the UK’s Financial Conduct Authority, will not be enough to encourage employees to call out malpractice. A program is only as good as its implementation and the people who run it. In addition, keeping matters inside an organization is not always a recipe for successful fact finding.
If UK companies want the new whistleblowing programs to succeed, they must move beyond the regulators’ minimal requirements to do what really works. That means showing employees that they will take their reports of misconduct seriously by appointing a senior executive — not a junior HR manager — as the whistleblowing champion. It means following up on the reports, not sticking them in a drawer and forgetting about them. And it means encouraging others to come forward by showcasing the policy’s successes inside the company. Because of the stigma attached to whistleblowing, anonymity should be granted when possible.
Indeed, the whistleblowing stigma needs to be removed entirely. And here is where bounties can be helpful.
We believe rewards would help create a beneficial whistleblowing culture. Paying for an action validates that action in the eyes of the person’s peers — especially in the financial world.
Yet many find the idea distasteful, particularly in European countries where past use of state informers created a climate of fear and destroyed trust among colleagues, family members and friends.
That’s left the UK and the rest of Europe stuck in a bind: The stigma of paying for whistleblowing may be so high that it cannot usefully overcome the stigma of whistleblowing itself.
We can avoid this, though, by adopting a bounty system with different language. Rather than offering “rewards” for reporting malpractice, companies should consider paying “additional compensation” or “bonuses” for information that helps the company solve genuine problems. Compensation is what employees expect from their employers, so moving to a culture of compensation can help make whistleblowing seem a more respected part of the job. The size of the bonus can even be tied to the amount of money the whistleblowing saves the company.
Providing compensation is important also for whistleblowers who have to leave their companies, particularly when those employees have incurred costs or losses of their own. A case in point: Former Deutsche Bank whistleblower Eric Ben-Artzi refused his portion of an $8.25-million bounty apparently not just because of the moral message it would send. Reading past the headlines reveals that part of the reward will be kept and passed on to his wife to mitigate his loss of earnings, and a portion will be used to cover his legal bills. This recognizes that doing the right thing has costs. If companies can pay whistleblowers’ expenses through funding legal advice and keeping them employed, and if their employees know they will do so, whistleblowers may feel supported.
At the very least, companies should avoid bad examples like Health Net Inc. The insurer was recently fined $340,000 by the SEC for requiring undertakings from exiting whistleblowers that they would not seek rewards from the agency’s program.
Creating a culture of honesty, protection and compensation is likely to improve the chances that whistleblowers will speak first to their employers rather than to outside agencies. Festering issues could be revealed long before they became systemic problems. And perhaps we’ll have found a true middle ground between the U.S. and European approaches to keeping companies honest.
Mia Wellfare is Director of Compliance, Forensics and Investigations at Control Risks in London and Matthew Getz is a partner at the law firm Boies, Schiller & Flexner in London.
The views expressed in this article are not those of Reuters News.