Incentivising Whistleblowers and the Transformation of Corporate Fraud

Current Whistleblowing Laws

The Serious Fraud Office (SFO) appointed Nick Ephgrave as director back in September 2023. Since his appointment, Ephgrave has pushed for the implementation of whistleblower incentives in the UK, specifically financial incentives, in a bid to combat corporate crime. 

The United States are trailblazers when it comes to whistleblower rewards. Four whistleblower reward programmes have been implemented – most notably of which is the Dodd-Frank Act. With its own caveats and protections that are well established and, arguably, seem to be working, its adoption in the UK is being explored.

Why the SFO is Advocating for Whistleblower Rewards

In the UK, whistleblowers are protected under the Public Interest Disclosure Act 1988. Whilst this legislation does ensure whistleblowers are safeguarded and protected, critics argue that there is not enough done to encourage individuals to come forward in the first place. Unlike the US, where the Securities and Exchange Commission and Department of Justice have mechanisms in place to compensate whistleblowers, those in the UK are often left without tangible incentives beyond legal protection.

Put simply, the idea is that monetary compensation would encourage more individuals to come forward with valuable information.  

Potential Impact on Fraud Enforcement

1.      Increased Reporting

An incentive scheme could lead to an uptick in reports of fraud and misconduct which, in turn, might cause employees who would have been previously hesitant be more willing to take the risk.

2.      Enhanced Enforcement

Investigations into allegations of corporate crime are often lengthy, costly and do not always achieve a desirable outcome. Whistleblower incentives could lead to higher prosecution rates, better high-quality evidence, and more effective enforcement which could speed up the process. In turn, this would enhance corporate accountability and transparency.

3.      Stronger Corporate Compliance Culture

Knowing that employees have a financial incentive to report wrongdoings or misconduct may encourage companies to strength internal compliance measures and self-report issues before they escalate. This could lead to a more proactive approach to corporate governance and fraud prevention, addressing it from the grassroots rather than after the fact.

Potential risks

There are potential risks that may come about if these financial incentives are implemented. It may lead to an increase is false or misleading reports that would create additional burdens and costs for enforcement agencies. Additionally, there are some ethical concerns that such rewards could undermine the ethical foundation of whistleblowing, turning it into a transactional act rather than a moral one.

It is also important to note that implementing this would require significant legal changes in order to create a framework of protection laws and for assessing and distributing rewards.

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