RUSI Report highlights benefits of whistleblower reward programs
Last month the Royal United Services Institute (RUSI), a British think tank engaged in research on defense, security, and international affairs, issued a report that examines the body of research supporting whistleblower award programs and makes recommendations for implementing successful whistleblower programs. The report, titled “The Inside Track: The Role of Financial Rewards for Whistleblowers in the Fight Against Economic Crime,” points to strong evidence from programs in North America to show that financial rewards have driven greater reporting by insiders about financial crimes. The report cites the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC)’s Whistleblower Programs and Canada’s Ontario Securities Commission as examples of successful whistleblower programs.
Key findings and research supporting whistleblower programs
To research the questions posed by the report, the author conducted interviews with current and former representatives of the government agencies that run the whistleblower programs, whistleblower attorneys, academics, whistleblowers, and other stakeholders. The author also examined the body of current research on whistleblower award programs in the US and UK.
The report addresses the concerns countries including the United Kingdom and Australia have about implementing similar whistleblower award. In interviews, critics of these programs expressed that the practice of financially rewarding whistleblowers goes against historic cultural norms and suggested that reporting wrongdoing should be done out of a sense of civic duty, and not driven by money. They also contend such reward programs inevitably trigger an increase in reporting and questioned the quality of such information.
Four observations for implementing effective whistleblower programs
The report concludes with four observations, intended to offer insight to policymakers considering implementing programs to offer financial rewards to whistleblowers: (1) that rewarding whistleblowers for information achieves certain goals, but not in isolation; (2) that whistleblower programs must be customized to be successful; (3) that a successful whistleblower program should prioritize the message, not the messenger; and (4) that whistleblower programs must evolve as economic crimes change over time.
Rewards achieve important goals in fighting financial crime
The report’s first observation is that whistleblower programs achieve important outcomes in the fight against financial crimes, including increasing the number of whistleblowers who come forward with actionable intelligence, increasing successful law enforcement actions, deterring financial crime, and improving private sector compliance. Offering financial rewards to whistleblowers who bring forward valuable information helps provide regulators with inside information that regulators would not otherwise have access too. The report further concludes that offering whistleblowers financial incentives helps authorities by improving the speed, efficiency, and cost-effectiveness of enforcement efforts.
The report determined that these achievements are not possible unless a whistleblower program exists in a comprehensive framework that contains extensive anti-retaliation requirements, confidentiality provisions, and is defended by a robust, “empowered and proactive” regulator. To guard against unmeritorious submissions, the report found that eligibility requirements and recovery thresholds serve to deter the submission of false, frivolous, and incomplete claims. Consequently, whistleblower programs are most effective in the fight against financial crimes when they include criteria that thwart false and incomplete claims from prospective whistleblowers.
Customization and public support: keys to success
The report’s second observation is that policymakers must conduct widespread consultation and research to customize a whistleblower program to accommodate individual circumstances, mitigate unintended consequences, deter future crimes, and ensure certainty for stakeholders. For example, the report suggests that Australia and the UK would benefit from conducting research to determine whether instituting a financial rewards program for whistleblowers would necessitate implementing higher sanctions for financial crimes and allocating additional resources to enforcement authorities. The report further recommends that countries considering implementing whistleblower programs engage in thorough consultation with a wide range of stakeholders in order to garner public support. The report suggests ways that policymakers can collaborate with law enforcement agencies, whistleblower advocacy groups and professional associations, such as publishing consultation papers for public comment, workshopping ideas, and organizing scenario mapping sessions to evaluate legal implications.
Prioritizing intelligence over motivation in whistleblower programs
As a third observation, the report notes that successful reward programs prioritize the quality of information provided by the whistleblower over their motivations for reporting. Shifting the expectation that whistleblowers should come forward purely out of moral concerns to instead prioritize an “intelligence-first” mindset recognizes that complicit whistleblowers often prove to be the most valuable source of information about illicit activities. The report also notes it is unrealistic to expect a whistleblower program to effectively combat economic crimes by relying on complicit actors to come forward out of a sense of moral obligation. The report recommends that countries considering implementing whistleblower programs conduct research to assess current cultural perceptions of financially rewarding whistleblowers to evaluate how the public would react to a whistleblower reward program. For example, a survey carried out in Australia found that despite Australians’ longstanding biases against paying whistleblowers for information, most survey respondents would support financially rewarding whistleblowers for reporting financial crimes. Finally, the report recommends that studies and research could help to develop ideas to educate the public about the effects and benefits of whistleblower award programs and help to facilitate a cultural shift around whistleblowing.
Continuous improvement and adaptation for whistleblower programs
The report’s final observation is that a reward program cannot be successful with a “set and forget” strategy. Financial crimes continually evolve to exploit regulatory weaknesses. Once a whistleblower program is put in place, it must be constantly scrutinized to ensure positive outcomes are elevated and negative consequences mitigated. For example, the US SEC whistleblower program adapted the program to permanently ban individuals who frequently make frivolous claims. The SEC and CFTC also amended the agencies’ respective whistleblower programs to allow the agencies to fine employers that illegally prevent employees or customers from reporting to the agencies.
The report points out that all the current and former representatives of US and Canadian government agencies interviewed for the report described their experiences with whistleblower programs as a continuous learning process. The interviewees agreed that policymakers considering implementing an economic crime whistleblower reward program should start with an incremental approach, including starting with a reward program of limited scope, targeting the most egregious financial crimes, which could be gradually broadened as data is gathered and the program’s impact is assessed.
The RUSI report provides valuable insights about whistleblower programs, not only for policymakers considering adopting new whistleblower programs, but also for those assessing and managing existing programs.
Phillips & Cohen protects whistleblowers
Phillips & Cohen represents whistleblowers before the SEC and CFTC whistleblower programs and in False Claims Act claims. Our partners include Sean McKessy, the first Chief of the SEC Office of the Whistleblower and the principal architect of the SEC whistleblower program and Christopher Ehrman, the former Director of the CFTC’s Whistleblower Office from 2013 until 2023. If you would like to speak to an experienced whistleblower attorney, contact Phillips & Cohen for a confidential review of your case.