Whistleblowers can be such a useful resource in uncovering risks and promoting good corporate governance. Yet historically and more recently, so many seem to be immediately distrusted, ignored, challenged, vilified and penalised. Why is this? Can legal developments help change the pervasive culture?
In March this year, I was part of an international panel discussing this topic at the American Bar Association White Collar Crime Conference in San Diego. It is a 3-day conference which, quite apart from offering great networking with like-minded specialists, promotes some excellent international speakers. The hypothetical scenario we considered involved suspected cartel activity and corporate bribery but this allowed consideration of wider issues such as whistleblower protections, financial rewards and developing trends across jurisdictions.
The UK has comparatively robust protections for whistleblowers. Sadly, it took a number of disasters to bring this about. In March 1987, the Herald of Free Enterprise roll-on/roll-off ferry capsized as it set off for England, killing 193 passengers. A sleeping assistant boatswain hadn’t closed the bow doors but the root cause of the sinking was a “disease of sloppiness” in the corporate hierarchy, including middle management who had failed to act in the face of five warnings from staff about sailing with doors open. A few years later in 1991, the BCCI bank collapsed causing £2bn losses, partly as a result of a corporate culture where nobody dared speak out about wrongdoing. The mid-90s Inquiry into the Arms to Iraq scandal found that a Matrix Churchill employee had warned the Foreign Office that arms-making equipment was being produced for Iraq despite an embargo; he was prosecuted rather than supported. Such events helped bring about the Public Interest Disclosure Act 1998, which of course protects workers in both the public and private sector, for proportionate disclosures in relation to specified subjects of public concern, such as whistleblowing about a criminal offence, breach of contract or health and safety or a miscarriage of justice. The Act sets out different requirements depending to whom the disclosure is made, becoming more demanding as the disclosure becomes more remote from the employer. If the whistleblower satisfies the terms of Act, he or she is protected from various detriments and can bring a claim before an employment tribunal at any stage and with no limits on the compensatory award.
In more recent years, The Enterprise and Regulatory Reform Act 2013 introduced major legislative changes. It brought in protection for some healthcare professionals and the police. Further, the whistleblower must now reasonably believe he or she is acting in the public interest. Conversely, protection no longer depends on demonstrating that disclosure was made in good faith, as this was seen to place the focus too much upon the messenger and not the message. So long as there is a reasonable public interest belief, lack of good faith can reduce compensation by 25%. Another significant development is that employers are now vicariously liable for whistleblower victimisation by workers and agents, subject to proving a defence of having taken all reasonable steps to prevent this.
This concept of corporate vicarious liability subject to a reasonable or adequate measures defence has of course crept into areas of the criminal law, no doubt again with the intention that legislation can bring about a change in corporate culture. For example, s.7 of the Bribery Act 2010 introduced a corporate offence of failure to prevent bribery even where bosses might be unaware of it, subject to an “adequate procedures” defence. The first jury conviction for a s.7 offence occurred in April this year in a case I acted in, of Skansen Interiors Ltd; more prosecutions and/or Deferred Prosecution Agreements are on the horizon. Further, Part 3 of the Criminal Finances Act 2017 introduced corporate offences for a failure to prevent the facilitation of tax evasion, subject to a defence of having all reasonable prevention procedures in place.
There are also examples in UK law of a duty to blow the whistle. So, a bank compliance officer might fall foul of the Proceeds Of Crime Act 2002 if he acquired information that another is or may be engaged in laundering the proceeds of crime, and did not report it. Sections 19 and 20 of the Terrorism Act 2000 have similar provisions regarding failures to disclose financial assistance for terrorism. Further, FCA regulated firms acting to the detriment of whistleblowers may bring into question their own fitness and propriety and so be in breach of threshold conditions of suitability.
So far, so good. Forms of civil, criminal and regulatory liability may well act to change corporate attitudes to whistleblowers. Proactive steps are now required in terms of developing effective policies; a good whistleblower corporate protection policy is no doubt an integral part of wider anti-bribery and anti-money laundering corporate policies and procedures. However, one aspect of this which still intrigues many of our US colleagues is the UK’s failure to implement any widespread system of financial rewards for whistleblowers. We have no legislation comparable to the US False Claims Act or Dodd Frank Act. Particularly in the context of complex, corporate crime, why would anyone speak out against such powerful companies, who have huge resources to defend themselves and undermine the whistleblower, without the possibility of financial reward for doing the right thing? Is it not a little naïve to assume that all whistleblowers can be motivated by the public interest alone?
Of course, there are some limited exceptions in England and Wales. The Competition and Markets Authority operate a discretionary reward system for whistleblowers in cartel cases. Up to £100,000 can be awarded to the whistleblower, for example where he or she was innocent, gave great quality information, prevented significant harm and undertook significant risks. This might sound attractive and indeed it operates alongside a corporate leniency programme for early, unprompted disclosure of cartel activity. It is however a drop in the ocean compared to some US cases. In 2012, Bradley Birkenfield, who had admitted to smuggling diamonds in a toothpaste tube among other offences and who received a 30 month prison sentence, also received $104m for helping authorities to uncover schemes to hide billions of dollars in Swiss bank accounts. Compare that to the HMRC approach over here. They operate a “hotline” encouraging the public to blow the whistle in relation to tax evasion. While rewards can be given, precise figures are not published and are likely to be, in total, less than £1m a year. And while the Serious Fraud Office operates a whistleblower scheme, it does not offer financial incentives.
There are many stated justifications for this difference in rewarding whistleblowers. It undermines the moral stance of the genuine whistleblower. It can lead to a focus on attacking their credibility, which is far easier to do when money can exchange hands. And it can of course deter the very changes in culture that the legislation is generally aimed at bringing about. After all, if the State provided a widespread reward scheme, why should companies offer their own incentives and protections for whistleblowers? Research was carried out into the issue of rewards in 2013/14 by the UK Government, the FCA and Prudential Regulation Authority and it was recommended that, for now at least, a UK rewards scheme should not be developed further.
I suspect that, notwithstanding those objections, there may well be developments here towards a rewards system similar to that in the US. With Lisa Osofsky, a former US practitioner, now Head of the SFO and an estimated £90bn laundered through the UK every year (mainly the London property market), the demand may grow for a far more effective fight against corporate fraud and money laundering. Such investigations so often start with good quality whistleblowers and, in such cases at least, it may be thought that such laudable behaviour can and should be rewarded, albeit with proper safeguards in place.
In the meantime, Sir Anthony Hooper heads up an excellent charity, Public Concern at Work, which has made a number of recommendations. A Code of Practice on whistleblowing which courts and tribunals could take into account would be welcome. The categories of wrongdoing which give rise to statutory protection should be extended to gross mismanagement and serious abuse of authority. Job applicants, student workers and volunteers should be protected. It remains to be seen whether the wider culture will catch up with the changing law. Corporate culture is a fundamental battleground in this regard. During the LIBOR scandal, a Barclays employee told a New York Fed analyst during a phone call, “We know that we’re not posting, um, an honest LIBOR…and yet we are doing it because, um, if we didn’t do it, it draws, um, unwanted attention on ourselves.” He was told he had to accept it and neither his nor the New York Fed President’s warnings were acted upon.