Money Talks: Financially Rewarding Economic Crime Whistleblowers

Economic crime has been estimated to cost the UK a staggering £350 billion annually, dwarfing many other threats to national security. UK businesses are experiencing supply chain and procurement fraud at double the global average, despite firms spending £34.5 billion on financial crime compliance in 2023 – a sum roughly two-thirds of the UK’s entire defence budget. 

Technological advances have transformed ways of tackling economic crime, but this represents a double-edged sword. New technologies have enabled financial crimes to escalate in speed, scale and sophistication, outpacing detection and leaving law enforcement struggling to catch up. Globally, the success rate for intercepting and recovering illicit financial flows hovers at a dismal 1%.

The UK government is attempting to rise to the challenge. Recent announcements include a new Domestic Corruption Unit, an Anti-Corruption Champion, and a £36 million funding boost for the National Crime Agency’s (NCA) International Corruption Unit, following news of the NCA’s Operation Destabilise that smashed a billion-dollar Russian money-laundering network. 

But despite these steps to bolster the UK’s economic crime arsenal, one potential weapon remains underutilised – whistleblowers. 

Banking on Whistleblowers

Across the Atlantic, North American regulators and law enforcement agencies are reaping the benefits of reward programmes that incentivise private-sector insiders to report incidents of economic crime. A new research paper has found that US and Canadian programmes have increased the number of whistleblowers coming forward with actionable intelligence about illicit activities, enhancing law enforcement outcomes and improving rates of financial recovery.

Whistleblowers can have a transformative effect on economic crime investigations, which are often prolonged and resource-intensive due to the complexity of the illicit behaviour and the vast quantities of documentary evidence involved. Nick Ephgrave, Director of the UK’s Serious Fraud Office (SFO), recently commented that his office is ‘currently running a case with 48 million documents and the biggest we’ve had in our recent history is 70 million documents’.

In such labyrinthine investigations, law enforcement officials are often searching for multiple needles in thousands of haystacks. Without insider information to illuminate a path forwards, Ephgrave described current UK law enforcement attempts to understand complex, cross-border and covert economic crimes as ‘scrabbling around in the dark’.

An Intelligence Service

In the UK, there has been a long-held antipathy towards paying whistleblowers. Arguably, this could be attributed to the narrow legal protections for whistleblowers that primarily cover an individual who is reporting against their employer. This enables whistleblowing to be framed as a breach of traditional expectations of employee loyalty. Moreover, employees who face retaliation for blowing the whistle must navigate an arduous employment tribunal, where their motivations for reporting will be scrutinised – further entrenching the notion that a whistleblower’s value is intrinsically connected to their moral integrity.

This perspective ignores a fundamental reality – that moral motivations alone are rarely sufficient to outweigh the immense personal, professional and financial risks of whistleblowing. This is especially true for private-sector professionals, whose highly remunerated roles enshrine confidentiality, trust and discretion. By breaching those tenets, even in the public interest, a whistleblower faces being blacklisted for the rest of their lives. 

The North American incentivisation schemes take a different approach. These reward programmes do not require an employment relationship or for the whistleblower to have clean hands. Instead, they prioritise the significance of the information provided over a whistleblower’s motivations for reporting. In this way, whistleblowers become yet another string of intelligence in an economic crime investigator’s bow.

For the UK, reframing corporate whistleblowers as information service providers who deserve remuneration commensurate to the value of their contribution will require a cultural change. But if policymakers are serious about tackling economic crime, adopting an intelligence-first mindset to whistleblowing is crucial, as insiders – especially complicit insiders – are often the most valuable sources of information on illicit financial activities. 

Many other countries have implemented reward programmes, so why has the UK remained behind? After the 2012 LIBOR scandal revealed blatant financial misconduct spanning nearly 20 years, the 2013 UK Parliamentary Commission on Banking Standards requested research into the impact of US-style financial incentivisation schemes. The 2014 response by the Financial Conduct Authority (FCA) espoused its entrenched opposition to rewarding insiders and effectively shut down discussion on the topic for the next decade.

Yet, it appears that attitudes are changing. The SFO is leading the charge, with Ephgrave keen to raise his office’s current rate of whistleblower referrals from 5% by incentivising the hundreds of UK whistleblowers who use US reward programmes each year to blow the whistle at home. Even the FCA Chief Executive, Nikhil Rathi, recently commented that he was ‘not in principle opposed’ to the idea of remunerating those who speak up. Despite the FCA’s chequered history with whistleblowers, this admission may be an indication that the UK’s long-held stance against rewards is gradually softening. 

Balancing Rewards with Risks

How whistleblower rewards would interact with the UK’s existing legal, institutional and cultural conditions will require careful consideration. The North American programmes contain numerous safeguards, sophisticated design dimensions, and ongoing monitoring to minimise the risk of abuse. But to make similar design choices to balance the intended and unintended consequences of a potential UK programme, policymakers need evidence. The first step forwards will therefore be to hold a comprehensive consultation process to fill critical evidence gaps, address stakeholder concerns, and thrash out legal implications. 

There are crucial questions for a UK reward programme that cannot be answered by extrapolating from the North American experience, such as how paying insiders would impact UK disclosure requirements, the existing regime relating to assisting offenders including the use of immunity, and current whistleblower laws. Experts will also have to consider whether current penalties for financial misconduct are high enough to fund whistleblower rewards, and what additional resources law enforcement agencies will need to run the programme. 

Furthermore, what terminology should be used will be a hot topic of debate. Will a UK programme be called an incentivisation scheme, a reward programme, an award regime, or something else? There are some pitfalls to avoid here. The inadequacy of UK employment law remedies to address the wide-ranging harms suffered by whistleblowers has often resulted in rewards being labelled as an alternative form of compensation. However, this runs the risk of creating unrealistic expectations, as a reward programme is not designed to compensate all who use it. Instead, it is intended to create an intelligence service and to pay for that service only when it produces results.  

The US Securities Exchange Commission reward programme provides an example of this in practice. Despite often making headlines for issuing large payments to whistleblowers, the programme has paid rewards on approximately 0.5% of the submissions it has received since 2011. For this reason, rewards should not be implemented in isolation, but must be supported by broader measures to optimise whistleblower compensation and protection, enhance economic crime prosecutions, and bolster law enforcement capabilities.

Start Small, Think Big

Cultural, institutional and legal change cannot happen overnight. Overcoming widespread misconceptions about reward programmes and changing entrenched norms against paying whistleblowers will be no small task. But the UK is more than up to the challenge of designing an innovative and effective reward programme that would give investigators and prosecutors impactful results. Surely, the rampant and insidious nature of financial misconduct means that any policy designed to improve the efficiency of economic crime investigations is worth considering.

Drawing on lessons learnt from existing whistleblower incentivisation programmes, starting small would be a sensible first step, with a pilot initiative that targets high-value financial crimes. Such a measured approach would allow policymakers to test the waters, refine mechanisms and build public, as well as private-sector confidence. If evidence-based and well-executed, a pilot programme could reshape attitudes towards financially rewarding whistleblowers and position whistleblower intelligence as an integral component in the fight against economic crime.

© RUSI, 2024

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