Payments for criminal whistle-blowers: the debate

A current hot topic in the UK economic crime sphere is the question: “Should the UK offer whistle-blowers financial incentives for information useful in securing criminal convictions?”

Capital’s Business Crime and Investigations team lawyers, Phillippa Ellis (Principal Associate) and Anna McIntyre (Senior Associate) (both former SFO Case Controllers), as well as Gemma Bailey (Principal Associate) and Ellie Stephens (Trainee Solicitor), explore this further.

The case in favour

The Director of the Serious Fraud Office (“SFO”), Nick Ephgrave, has suggested that one way to speed up the progress of SFO cases from investigation to prosecution would be the introduction of financial incentives for whistle-blowers.

The potential for financial rewards for whistle-blowers is nothing new; it is common practice in US law enforcement, and is a tool already used by the Competition and Markets Authority (the “CMA”) in the UK. Indeed, last year, the US Securities and Exchange Commission awarded $279mn to a whistle-blower, its largest ever payout, and more than 700 UK whistle-blowers have worked with US law enforcement since 2012.

Ephgrave argues:

1. Whistle-blowers would be incentivised by the potential benefit of compensation as it could go some way to outweighing the inherent risk they take when whistleblowing. Whistle-blowers often risk careers and livelihoods when blowing the whistle on illegal behaviour within their company; and simply relying on a sense of morality when many people will be strongly motivated by protecting their family and livelihood may be unrealistic.
2. The UK has mechanisms to pay criminal informants for information on other criminals. There should be a regime whereby an innocent person trying to do the right thing can be similarly rewarded.
3. There is currently a ‘brain drain’ of whistle-blower intelligence to other countries. Whistle-blowers are taking their information abroad to e.g. the US, leading to no justice served in the UK for those offences. Only 2% of criminal prosecutions in the UK begin with whistle-blower intelligence, when compared to 86% of US cases.
4. The investigation and prosecution of large-scale economic crime in the modern age necessarily involves often impossibly large datasets. The key to managing and mitigating those datasets may lie in a whistle-blower who can point to where exactly investigators should look to locate key evidence.

Phillippa and Anna add:

1. The CMA already has a reward programme for information leading to enforcement action – with the cap increased, on 6 June 2023, from £100,000 to £250,000. HMRC has reportedly paid nearly £1m to people who provided “actionable intelligence” on tax fraud on 2023/2024 – a significant increase on the previous year. The police also have mechanisms for financially rewarding informants. Bringing in whistle-blower incentivisation to criminal investigations would therefore be consistent with other UK authority’s regimes.
2. Currently, the average SFO investigation takes 5 years to reach charge / DPA / other resolution; with many other cases then taking years to reach trial and any convictions. The backlog in our criminal courts is well documented; with some trials being listed for 2028. Anything that could reduce the time spent on the front end investigation process should be viewed, in principle, as a positive.

The case against

Phillippa:

1. One of the main ethical concerns with remuneration is the possibility that individuals would be encouraged to fabricate or exaggerate allegations for personal gain; there is a risk that this system would be open to abuse. While it is well known that the police financially incentivise informants, this has been part of a strict set of rules ensuring that payments are well documented and sanctioned in an attempt to limit this risk. The SFO would need to follow suit and ensure that they have the infrastructure in place to manage this.
2. False claims can tarnish reputations and create unnecessary distractions. There is therefore a potential for an increased burden on businesses, and law enforcement, to manage whistleblowing reports that may be false or otherwise exaggerated in the hope of receiving compensation.
3. Under current discussions, a whistle-blower may still receive a payout if they are in fact complicit in the offence under investigation and are convicted. The result is that they could receive funds from fines that would otherwise be paid into the treasury, while public funds pay for their incarceration. I am not convinced that the public support for the payment of whistle-blowers is truly there in this situation.

Anna:

1. I think the introduction of this mechanism in the UK system may, in reality, lead to disappointment:
   a. Whistle-blower rewards would be tied to any fine levied at the conclusion of a case. These would be a percentage of any potential fine; which may either not come to fruition, or otherwise not be of a sufficiently large sum to allow whistle-blowers to move forward / to genuinely outweigh the risks to them of coming forward.
   b. The outcomes of SFO investigations are a) in no way guaranteed (with high profile failures to achieve convictions in recent years); and b) are often a long time coming. As well-published court wait times are added to already long complex investigation timelines, whistleblowers may find the uncertainty of the wait too long to outweigh the more immediate considerations facing them when considering blowing the whistle.
2. There may be challenges in how to deal with whistle-blower information in the context of UK criminal disclosure; which is more burdensome than in the US. It is impossible to consider rewards in isolation, without their effect on the integrity of evidence / how this could be argued at any trial.

Employment angle

Our colleague Gemma Bailey, Principal Associate in Capital’s Employment team, adds further:

“Workers who have blown the whistle already have statutory protection from detriments and dismissal motivated by their whistleblowing which employers need to be mindful of in their management of whistleblowing reports. Employers commonly operate Whistleblowing policies which are designed to uphold the statutory protections afforded to whistle-blowers and deliver on the public policy objectives of self-regulating their business activities ethically. The definition of a ‘protected disclosure’ for these purposes is broader than blowing the whistle on fraud, although fraud would fall within the prescribed types of wrongdoing that apply.

The statutory definition builds in the requirement for the worker to have made the protected disclosure in the public interest and there is a long line of case law discussing whether a blurred line between a personal and public interest in blowing the whistle removes the statutory employment protections. Arguably, the introduction of financial incentives for whistle-blowers could on the one hand, at least provide a financial cushion should the existing statutory employment protections prove ineffective, but the proposals would seem to be reserved for fraud and therefore the net impact upon whistle-blowers as a whole in the employment law arena would in our view be marginal’.

Conclusion

The debate over whether or not to introduce financial incentives for criminal whistle-blowers in the UK has generated rigorous debate, with black and white views on its appropriateness from either side of the fence. In our view, there is a need for caution and an appreciation of the nuances of the UK context to consider before introducing such a significant change.

However, the significant delays to justice the vast datasets inherent in modern economic crime currently pose, especially when tackled with public money, necessitate radical solutions and an innovative approach. It is clear that the new Director of the SFO is keen to implement these; but time will tell how this plays out in practice.