On both sides of the Atlantic, law enforcement agencies are showing increasing interest in using incentivisation as a means to detect financial crime.
The UK Serious Fraud Office’s (the SFO) current Director, Nick Ephgrave, has promised to make the SFO ”bolder, more pragmatic, more proactive”, and signalled his intent to use all available techniques to increase the volume of, and successful outcomes from, investigations. In an interview last week, he reiterated that this includes the incentivisation of witnesses and confirmed his interest in exploring the potential to pay whistleblowers for information. These are both themes that are also prominent features of the public dialogue about financial crime enforcement in the US, so it feels as though there is at least a conceptual alignment in what is happening, and what may happen.
Although by no means the only active jurisdictions for the enforcement of corporate crime, the US and the UK are often drivers of global mood and best practice. This might also be a year in which, post-elections, both countries’ governments’ are headed by ex-prosecutors, which is an interesting dynamic. It is therefore timely to note briefly what is going on in both spaces, looking at cooperation and immunity offerings and whistleblower rewards, and for corporates to consider whether any response is needed.
The US
There are two sides to encouraging corporate self-reporting – incentive and threat - and for a system to work effectively there is a delicate balance to strike between the two. The US has always been a market leader in using cooperation and credit as a tool to incentivise good corporate citizenship and has formally developed guidelines for the same. The US Sentencing Guidelines provide for mitigation when a company fully cooperates with the US Department of Justice (DOJ) and the DOJ also publishes, and regularly updates, guidance to clarify the meaning of cooperation and the incentives available – most notably its Evaluation of Corporate Compliance Programs and Self-Disclosure Policy (ECCP) (which it recently updated again in September 2024) – see our previous posts on this here and here for more detail.
Reporting is still a difficult decision for any Board though. Qualifying for the full suite of cooperation benefits is an art, not a science, and often the criminal enforcement aspect is not the only impact it can have. Related civil litigation, to take one example, is a common and usually financially material factor. To dial up the threat element of the equation that Boards have to solve for, US authorities have invested in broadening the potential sources of detection and evidence by developing programmes offering incentives to whistleblowers, creating a “race to the prosecutor”. As is well known, since 2010, the U.S. Securities and Exchange Commission (SEC) has been authorized to pay out monetary awards to qualifying whistleblowers who come forward with information that leads to an SEC enforcement action resulting in a $1 million or more award. Since 2011, the scheme has resulted in nearly $2bn in payments to almost 400 whistleblowers. The rewards can amount to up to 30% of the enforcement penalty. The SEC reported 2023 as a “record year” for reports (some 18,000) and in May 2023 awarded its largest ever award to an individual whistleblower, a scarcely believable $279m. The DoJ has followed suit: earlier this year, in August 2024, it launched a three-year pilot Corporate Whistleblowing scheme, also offering financial incentives to whistleblowers in order to “fill the gaps” with other federal whistleblowing programs (see our post on this here). Individual US Attorney’s Offices have even implemented programs that allow whistleblowers to receive non-prosecution agreements where they were, themselves, involved in the underlying misconduct (for example, see our post on the Southern District of New York here). Given that the DoJ has publicly declared that it is already seeing results, announcing in October 2024 that it had already received more than 200 tips in the first few months of operation, then it does not seem unreasonable to see this as a policy that is here to stay.
The UK
History tells us that successful enforcement policies in the US can, and do, translate into the UK system, and that the same dynamic of incentive and threat is relevant. The SFO, for example, has published guidance on what it expects from cooperating corporates who want to avail themselves of credit if a resolution is needed. It has stated that it is in the process of considering and refreshing that guidance, interestingly at a time when the ways in which a company can face criminal liability are expanding with the provisions of the Economic Crime and Corporate Transparency Act 2023.
On the threat side, there are similar, but less developed, trends in the UK. Looking at whistleblower rewards, there are signals that more UK authorities will follow the US’s lead and develop formal programmes. This is not totally new in the UK: two regulators already run limited regimes. The Competition and Markets Authority (CMA) can award whistleblowers up to £250,000 for reports of cartel activity and HM Revenue & Customs (HMRC) has a discretionary scheme for reporting tax fraud. The UK’s enforcers of financial and white-collar crime, the SFO and the Financial Conduct Authority (FCA), have previously commented publicly on their ongoing assessments of whistleblower compensation, including their reasons for historically deciding against it. Nick Ephgrave has, however, publicly thrown his hat into the ring in support of the idea. In his inaugural speech as Director earlier this year, he stated categorically that “I think we should pay whistleblowers” and he has since disclosed that, although he has not yet discussed this proposal with the new Labour government, he hopes that it will be introduced within his five year tenure at the SFO. It is not unlikely that an SFO policy would also incentivise the FCA to explore a parallel scheme. It has already stated publicly that it is reviewing its position and would consult with the SFO as part of this.
Mr Ephgrave has also communicated a desire for UK authorities to follow the lead of the US in better exploring cooperation and immunity arrangements. He has criticised the fact that, although there is UK legislation (the Serious Organised Crime and Police Act 2005) which gives prosecutors powers to provide immunity or reduced sentences in return for cooperation (called “turning the King’s evidence” in the UK) this legislation is not well used and indeed there appears to be a cultural reluctance to use it in the white-collar and financial crime space. He has suggested that he would be open to the SFO making better use of it and that this, combined with whistleblower incentivisation, could provide “the building blocks for a much quicker and more efficient way of dealing with big cases”.
Takeaways for Corporates
Whilst major change in the UK is some way off, and the DoJ’s programme in the US is still in its pilot stage, there appears to be a change in approach underway that is likely to result in greater detection of misconduct, potentially more accessible evidence of it (in the form of human testimony) and, as a result, an increase in investigations. It is therefore worth taking note. Companies can minimise the risk of whistleblowers taking issues externally to regulators by testing and, where necessary, strengthening their own internal whistleblowing reporting mechanisms. These should give employees confidence that internal reports will be dealt with fairly and competently – for tips see our blog post here, published as part of our 2023 Whistleblowing Survey. Whistleblowing systems that are effective empower a corporate to take stock of risks generated within its business, and to address the various potential impacts – cultural, regulatory and commercial – in a controlled way, even if that does in the end result in a planned self-report to an authority. Most would consider that preferable to having to react to an issue that is first surfaced only when an enforcement authority makes contact.
The apparent changing environment is of relevance beyond just US and UK-incorporated corporates. This is a cross-jurisdictional space. The existing US laws already have a wide jurisdictional scope – non-US persons can, and already are, reporting there (and might increasingly chose to do with the new DoJ pilot). Nick Ephgrave disclosed earlier this year that, since 2012, over 700 UK whistleblowers have already engaged with US law enforcement. It is well known that there is regular and high-quality dialogue between regulators in the UK and the US, as well as with other international regulators, so it is in the best interests of compliance teams wherever located to critically consider their whistleblower programmes and ensure these provide for issues to be considered and appropriately addressed internally.
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