This article has been inspired by the discussion that took place during the international conference “Whistleblowers: Voices of Justice” that was held in London on the 10th of May 2019.
The awarding of whistleblowers is a subject that has always presented two polarising views. On one hand, the view is that whistleblowers should be compensated for the risk and their potential loss of career due to their actions aimed at unveiling corporate misconducts. On the other, some consider whistleblowing a moral and ethical obligation for which no compensation is necessary. The first view is becoming the norm in the US, whilst the opposing one is still predominant in Europe, including the United Kingdom. As a matter of fact, so far, the enactment of pieces of legislation aimed at introducing awards for whistleblowers has been unsuccessful in the old continent. However, there is an exception, which is represented by a campaign initiated by the UK government in 2017 for awarding whistleblowers. This article will show that the awarding of whistleblowers may in fact be the way to go forward also in Europe and that the experiment launched in the UK can be exported to other sectors and other countries.
Who is a whistleblower?
A whistleblower may be generically defined as “an employee who turns against their superiors to bring a problem out in the open.” Another relevant definition has been given by the Council of Europe in Recommendation CM/Rec(2014)7 of 30 April 2014 according to which a whistleblower is “any person who reports or discloses information on a threat or harm to the public interest in the context of their work-based relationship, whether it be in the public or private sector.”
It is evident that from a legal perspective, in order to be considered as a whistleblower, the reporting person has to work in the private or public sector and has to acquire the disclosed information on breaches in such a work-related context. As a result, individuals that are not employees who acquire such pieces of information and report them are not formally qualifiable as whistleblowers and, consequently, the legal framework implemented to protect whistleblowers is not applicable to them. Because of such a limited scope of application, individuals, such as leakers and investigative journalists, who do not acquire information about wrongdoings within a work-based relationship and report the commission of corporate crimes at great risk to themselves are left irresponsibly unprotected. Such a difference between whistleblowers and investigative journalists or leakers is clearly addressed in Mary Inman’s video-lecture published in this blog (please see from 9:44 onwards).
How are whistleblowers protected in the United Kingdom?
In the UK, whistleblowing protection is found in the Public Interest Disclosure Act 1998 (“PIDA”) which provides for protected disclosures. However, while under such a framework whistleblowers can be protected, there is no provision that includes awards to the person disclosing the information. It has to be specified that the protection under the PIDA is merely ex-post, namely it is applicable only after retaliation from the employer. In particular, PIDA gives employees who blow the whistle the right to complain to an employment tribunal if they are dismissed or otherwise harassed at the workplace for making a disclosure.
Moreover, although a new European Union Directive, which provides for a comprehensive system to protect whistleblowers, has been approved on the 10th of April 2019 by the European Parliament, it is clear that such a gap of award systems in Europe won’t be filled by the European Union’s institutions.
The inherent tension between corporate loyalty and whistleblowing and the compelling need to protect whistleblowers
As Noam Chomsky has brilliantly argued, corporations’ structure is rigidly hierarchical and employers commonly demand blind loyalty and conformity, whereas whistleblowers value individualism and choose public welfare above all else. Consequently, whistleblowers commonly face retaliation such as firing, blacklisting, demoting, harassment, and threats. Even worse, some whistleblowers lose their lives through suicide or other suspicious means.
In response to these retaliatory measures, mechanisms have been put in place to protect whistleblowers. Typically, the protection may come in three main forms. First, direct protection may be given to whistleblowers through legislation. Second, whistleblowers may be empowered to pursue action and legal remedies by themselves through the assistance of the government bodies. Third, whistleblowers may be encouraged to report and compensated for the risk faced through financial rewards.
How do financial rewards work?
A good example of whistleblowers rewarding system is included in the US False Claims Act, which provides for incentives to whistleblowers from 15 to 30 per cent of the money recovered through prosecution by the US Department of Justice. The same law contains a qui tam provision which allows private individuals to sue on behalf of the government.
Another example is the Dodd–Frank Wall Street Reform and Consumer Protection Act, which following the 2007-2008 financial crisis, was introduced to provide whistleblowers with a 10 to 30 per cent award of the monetary sanction collected for violations of securities laws. The administering body for this law is the US Securities and Exchange Commission which is charged with the investigation and imposition of sanctions for securities violations.
In Europe and in the UK, there is seemingly a reluctance to adopt reward schemes for whistleblowers as it is believed that employees should not be compensated for reporting wrongdoings. However, the trend is moving towards rewarding whistleblowers for reporting. A report by the International Bar Association suggested that there should be compensation not just to reporting persons who lose their jobs but also those who suffer discrimination/harassment in the workplace. The private sector has likewise called for the introduction of compensation for whistleblowers in the UK and Europe. The law firm Constantine Cannon and its partner Mary Inman see the benefit of introducing a compensation scheme in the UK similar to that found in the US and advocate this as the next step in the protection of whistleblowers.
The Competition and Markets Authority’s compensation campaign in the United Kingdom
Unbeknown to many is that the UK government has already introduced a campaign to compensate whistleblowers albeit in a specific sector. In 2017, the Competition and Markets Authority (“CMA”) of the UK government, an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and regulated industries and enforcing competition and consumer law, launched the Cracking down on Cartels campaign that encourages people to report any illegal activity to the CMA by offering a reward of up to £100,000 as well as promising them anonymity. While the sum may not be as high as the potential millions that may be received under US law, the paradigm shift of the UK authority in allowing rewards is significant. It shows that UK government authorities can give rewards to individuals for reporting wrongdoings. The only caveat here is that the campaign is limited to cartels within the jurisdiction of the CMA.
In justifying the giving of financial rewards, the CMA reasoned that illegal agreements between businesses cause serious damage to the consumers and the economy and that cartels are hard to detect and prove because they are arranged in secret. Additionally, under the Competition Act 1998, the CMA is able to fine companies up to 10 per cent of their turnover if they are found guilty of cartel activity and the detection and investigation of cartels through whistleblowing may lead to fines and convictions.
It is worth noting that whistleblowing calls to the CMA in 2018 was up 18 per cent from the previous year and it can only be surmised that the financial reward scheme has contributed to the increased number. While only a small percentage of the reports led to sanctions, due to the nature of cartels being criminal, even a few corporate convictions would be considered a success for the government.
Conclusions
While the CMA offers financial rewards for information in the UK, the scope is limited to cover cartels. The term ‘cartel’ covers collusive arrangements between businesses engaged in price fixing, limiting or preventing supply or collusive market sharing. The CMA rewards do not cover other criminal behaviours of corporations.
The next logical step for the UK and Europe would be to expand the reward system to cover also corporate crime. Whistleblowing reward programmes are seen as an effective tool in increasing the quantity of disclosures as studies show that employees are more likely to report when the rewards outweigh the anticipated costs of retaliation. Another benefit of whistleblowing reward programmes is that it increases public awareness. As individuals report, more public disclosures encourage others to also report. Whistleblowing rewards laws are also seen as the government’s most powerful weapon in addressing fraud and corruption by corporations. Moreover, the whistleblower reward laws in the US generate much-needed revenue for the government through the imposition of sanctions – something the UK and European governments must consider.
In sum, whilst introducing financial rewards for whistleblowers in the UK remains a controversial topic, the recent movements and the existence of the CMA financial reward campaign provides some hope. With more support, the number of reports is bound to rise and with enough push, the UK government may decide to finally enact legislation to compensate whistleblowers for reporting corporate crimes.
Disclaimer
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Thank you Amir for such an amazing article. I feel that whistleblowers have given me back my lost belief and confidence that justice can still prevail. Despite the point that definitely whistleblowers must be financially rewarded and supported, I strongly agree with you on the point that there must be an expand of reward system to cover other criminal behaviours of corporations.
First of all, whistleblowers put their life and their families life in danger because of their role. As you mentioned, they may face blacklisting, threats and their future career is in risk due to their actions as well and all that on the name of the public welfare.
On the other side, in my opinion, raising the voice against illegal, corrupt or malpractices is a moral and ethical obligation of every human, however not everyone is doing that because of their apprehensions, manipulations or they may even become part of the fraud in order to take some bribe. That is why whistleblowers compensation is so necessary and well-deserved.
Despite the risks that the whistleblowers have taken, I feel that their role must be considered as a normal job (one of the most paid job due to the high risk they face) ,which undoubtedly must be paid and rated. In that way, they may feel more protected and encouraged from the society and government as well, to continue their fight against financial crimes. In a way whistleblowers encourage and motivate other people to report cases of fraud and corruption by corporations.
As we see, after financial schemes have been provided, the number of whistleblowers has been increased as well. At the end, not only UK but the whole financial world needs more whistleblowers due to the fact that they are seen as the most powerful weapon by the government in the battle against corruption and fraud. Consequently, more whistleblowers means more reported financial crimes which will led on a better world with less corruption and headed by merit and justice.
The protection mechanisms and the awarding of whistle-blowers are important and interesting matters, particularly designed for whoever strives for fairness and justice. Thanks to Amir and Anxhela for your contributions.
Our society needs superheroes, but not the one coming from fiction; we need real people, who are not afraid of leaving some indelible impression in our society, which is characterised by numerous corporate misconducts and crimes. The lack of ethical behaviours and the aggressive pursuit of profit by corporations has led to the collapse of many businesses in recent years, along with some scandals, which sometimes have detrimental consequences. Whistle-blowers are playing an incredible role, by revealing what auditors are not disclosing or are not willing to disclose in the course of their jobs.
The phenomenon of whistleblowing is interpreted differently across nations and the two views mentioned by the author in the first paragraph clearly demonstrate it. Several countries, such as Canada and South Korea, have introduced whistle-blower reward programs like the US. They strongly believe in the fact this program increases the number of disclosures about cases of corruption, fraud, misconduct and other corporate wrongdoings.
UK authorities, even though they refuse to apply the awarding system on the basis that, providing financial incentives will neither encourage whistleblowing nor increase integrity and transparency in financial markets; they do offer a strong, reliable and encouraging protection program against the retaliation. They also provide a reimbursement, which is assessed on the losses suffered by a whistle-blower from submitting a disclosure. (UK Public Interest Disclosure Act 1998).
I would like to stress out however that, the financial rewarding of whistle-blowers, can have some negative impacts and creates the opposite effect. People could, unfortunately, use those incentives as the opportunity to make false or opportunistic reports with the intention to be financially rewarded. ‘A study of incentive-based compliance mechanisms has suggested that as a reward’s size is typically based upon the seriousness and severity of the wrongdoing, whistle-blowers may choose to delay their report until the last possible moment in order to maximise their monetary gain.’(knowledgehub.transparency.org). This could put whistle-blowers in more danger, as the reward comes only after a long legal procedure.
I will conclude by saying that whistle-blowers are playing an important role by creating a huge public awareness. By being heroes, they become leaders of justice, integrity, and social perfection. They need to be recognised as such and therefore, be protected and encouraged by governments, whatever the system applied to achieve that goal. Thanks to amazing people like Tom Mueller and Mary Inman for the amazing job they are doing by raising the flag.