The recent announcement that the U.K.’s legislature and enforcement agencies are considering the case for financially incentivizing whistleblowers in economic crime cases, thus aping the U.S.-approach, presents a serious and insidious threat for U.K. companies.
A government paper issued this month said,
[T]he Ministry of Justice and the Home Office will consider the case for incentivizing whistle blowing, including the provision of financial incentives to support whistle blowing in cases of fraud, bribery and corruption. As part of this work we will examine what lessons can be drawn from the successful ‘Qui Tam’ provisions in the U.S. where individuals who whistle-blow and work with prosecutors and law enforcement can receive a share of financial penalties levied against a company guilty of fraud against the government.
Why insidious? Because good ethics and statutory bribes are inimical.
Clearly, individuals should be encouraged to disclose potential crimes but why should such individuals need encouragement or expect large and benchmarked financial reward for exposing financial wrongdoing any more so than a person who is able to perform a rescue or expose a personal crime?
The announcement may prove valuable if companies now acknowledge and fully embrace the need to meet the threat by putting in place independent and effective internal reporting lines and lobby to restrict financial incentivization only to those cases where a whistleblower can demonstrate that internal reporting would have been a pointless exercise.
Otherwise, and apart from subverting ethics, financial incentivization in a commercial context will only encourage individuals to perpetuate problems and irregularities that could well have been nipped in the bud, in order to receive a larger financial payment, which will potentially jeopardize the employment of fellow employees; subvert good corporate compliance systems that require internal integrity; force companies to make a Dodd-Frank benchmarked payment to departing and often complicit individuals; and will ultimately subvert the credibility of potential prosecution witnesses.
It would be heartening if the purpose of the “incentivization” announcement was to force companies to put in place effective and transparent compliance systems. But more likely is an announcement based on as little appreciation of context as that of encouraging corporate ethics.
Alistair Craig is a commercial barrister practicing in London. He can be contacted here.