July 31, 2014

UK Continues to Say No to US-Styled Whistleblower Rewards

By Gordon Schnell

It was only two months ago that the United Kingdom first made official its absolute rejection of US-styled whistleblower rewards. It came out of the response by the Department for Business Innovation & Skills to the “Call for Evidence” it put out last year soliciting comments on how to improve the country’s burgeoning whistleblower system. See UK Rejects Whistleblower Rewards. One of the key issues the UK teed up was whether it should adopt the financial incentives provided to US whistleblowers under the False Claims Act and Dodd-Frank Act.  After tallying up the 78 written responses — (here is our response) — the Department came back with a resounding NO to adopting the financial bounty so integral to the US system.

Yesterday, two more UK regulators piled on with their own strongly worded assessment that whistleblower rewards are a bad idea. According to the Financial Conduct Authority and the Bank of England Prudential Regulation Authority in their just released paper on the subject, “financial incentives could create a number of moral and other hazards.” In arguing against a whistleblower bounty, these two regulatory bodies pretty much echoed what appears to be the primary concern underlying the Department’s take on the subject. Namely, that introducing financial incentives would corrupt the process and replace justice with greed as the whistleblower’s driving motivation.

However, what is different in this latest rebuff is that it apparently involved a full-fledged analysis of how whistleblower rewards have worked in the US. Representatives of the two UK agencies even visited the US and met with the Department of Justice and Securities and Exchange Commission about the effect of financial incentives on their respective whistleblower programs. What the UK took away from these meetings is that whistleblower rewards have not contributed to a significant increase in either the number or quality of whistleblower reports to these US regulators.

But clearly something went wrong in the UK’s trip to Washington. That is because there is little dispute that the whistleblower incentives intrinsic to the False Claims Act have been a driving force of the statute’s huge success.  This is a fact the Supreme Court and Congress have repeatedly emphasized. The SEC likewise has made it painstakingly clear that financial incentives are what have been driving the unprecedented success of its relatively nascent Dodd-Frank whistleblower program. See Message to the UK — Whistleblower Incentives Work. How these UK representatives could have gotten a different takeaway from their US experience is befuddling to say the least.

Equally puzzling is the UK’s continued failure to appreciate the basic policy rationale supporting financial incentives. Plain and simple, they are just and necessary.  They are just because they compensate whistleblowers for what will almost certainly be a tiresome and unpleasant ordeal, with the risk of retaliation — no matter what legislative protections are in place — all too real. And they are necessary to allow for whistleblowers to more easily find qualified counsel to represent them through the legal process.  This is not only important for the whistleblower, it is critical for weeding out those claims or complaints not worthy of the government’s involvement.

Perhaps it just comes down to a cultural divide between the two countries and how differently each views what it really means and what it really takes to be a whistleblower. But based on the US experience with financial incentives, and the clear policy reasons for their use, this should not even be a close call.

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If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team, please click here.

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