When it emerged that a number of global banks had been colluding to rig the London inter-bank offered rate (LIBOR) a decade ago, the ensuing scandal resulted in billions of dollars of fines for banks and huge reputational damage for an industry that was already reeling from the aftermath of the financial crisis.

With enforcement agencies attempting to piece together the extent of the fraud, the Commodity Futures Trading Commission (CFTC) had a helping hand from whistleblowers whose collective intelligence helped the US regulator to impose more than $3bn in monetary sanctions. One of those whistleblowers – a former Deutsche Bank employee, according to the Wall Street Journal – landed a whopping $200m bounty last October for the information they dished out.

That award – the biggest on record so far – is just the latest in a series of bumper payouts for whistleblowers, following the US Securities & Exchange Commission’s (SEC) $114m reward to a whistleblower in October 2020. That more than doubled the previous highest award of $50m issued in June of that year. In total, the SEC has awarded more than $1bn to more than 200 whistleblowers since it issued the first award in 2012. In 2021 the SEC made 108 awards, more than all the previous years combined.

Cash for tips

The success of those whistleblower programs is prompting other regulatory agencies to consider cash rewards for successful tips. In Canada, the Ontario Securities Commission has introduced a program that pays whistleblowers for any information that results in enforcement action, albeit capped at $5m. Other US agencies are also introducing programs that provide cash incentives for tipsters.

“Success begets success,” says Mary Inman, a partner at law firm Constantine Cannon. “Whereas it used to be we just had one or two statutes that paid whistleblower rewards, now we have about a dozen. You can audit and investigate something from the outside all day long, but there’s no substitute for a well-placed insider to give you the roadmap to a fraud.”

While most of the reward programs have been focussed on financial-related fraud, the US Department of Transport (DoT) recently introduced one that pays out for information on safety defects. It handed over $24m in its first award last November to a former Hyundai employee from South Korea whose concerns about a fault that caused engine fires had been ignored by the carmaker, prompting him to go to the DoT.

For Ingram, such reward programs are necessary to encourage would-be whistleblowers to speak up, given the backlash they potentially face from their employers.

“There’s a recognition that whistleblowers need more than just retaliation protection, because that only protects you against that one employer. There is still a risk that you could be blacklisted for future employment,” says Inman. “So the idea of a reward could be better described as compensation or unemployment insurance.”

Fear of retaliation is one of the biggest deterrents to speaking out.

“The whistleblower is a David against a Goliath,” says Stephen Hasegawa, a partner at specialist whistleblowing law firm Phillips & Cohen. “There are a lot of pressures on whistleblowers and there are a lot of reasons why they’re reluctant to come forward.”

At the extreme, whistleblowers can lose their jobs, but they can also risk being ostracized by colleagues or face other workplace discrimination, such as being transferred to another department or location.

“All of those pressures make it very difficult for people to call out misconduct, so the purpose of statutory awards is to try to counterbalance those pressures,” says Hasegawa.

A hostile European environment

But whistleblowing rewards are not universally embraced. In Europe, for instance, there has traditionally been resistance to adopting a reward model.

“I don’t think you need the reward necessarily to encourage people to speak up. I think their own moral compass or ethics often is the motivator,” says Nicholas Thorpe, an employment partner at Fieldfisher.

“Companies need to strengthen their internal reporting procedures and create a culture within their businesses that encourages both employees and independent contractors to report their concerns internally.”

Emory Moore of US law firm Honigman

Attitudes towards whistleblowers have also sometimes been hostile in Europe. When the Financial Times exposed accounting fraud at German payments business Wirecard following a tip from Singapore-based whistleblower Pav Gill – Wirecard’s senior legal counsel – the German regulator BaFin filed a criminal complaint against the journalists who wrote the story.

Europe is, however, seeking to do more to encourage whistleblowers. The European Union’s Whistleblowing Directive is currently being transposed into member state national laws, which will create more protections for whistleblowers and force companies across the region to put in place a hotline for people to report wrongdoing.

“Obviously most whistleblowers face retaliation from their employers for speaking up, so they certainly need those protections, but that’s not all that they need. What they really want is someone to address what they spoke up about,” says Ingram. “That’s where I feel like the laws in Europe have been lagging in the past and the EU directive actually for the first time starts to take that on a little bit by imposing timetables for when a company must react to a whistleblower report.”

In the US, the Sarbanes Oxley Act passed in 2002 required public companies to enable anonymous tips related to accounting and auditing matters, which led to many organizations introducing whistleblower hotlines, says Emory Moore, partner at US law firm Honigman. Those requirements were strengthened by the Dodd-Frank Act in the wake of the 2008 financial crisis.

“In the US, whistleblowers have more incentive than ever to bypass internal reporting,” says Moore. “This means that companies need to strengthen their internal reporting procedures and create a culture within their businesses that encourages both employees and independent contractors to report their concerns internally.”

Yet despite the increase in protections for whistleblowers and more advanced reporting channels, retaliation still persists, says Hasegawa.

“Companies obviously would deny that, but we see people being transferred out of positions because of their whistleblowing activity and sometimes their performance reviews go from great to terrible as soon as they begin asking questions about things that they believe are misconduct,” he says. “I don’t perceive that the attitude toward whistleblowers within many companies has changed at all.”

Mishandling cases of whistleblowing

That is reflected in the SEC whistleblowing data. More than 75% of the 108 awards the SEC issued in 2021 were for incidents that had first been reported internally and not acted on. Indeed, there is a long history of companies mishandling whistleblower cases.

“One example is where complaints or concerns are ignored entirely – not just by the employer but in some cases even by the regulator,” says Thorpe.

Take the UK’s health and social care regulator, the Care Quality Commission (CQC). Back in 2011, the CQC was accused of failing to act on warnings from a whistleblower about staff abusing patients at Gloucestershire-based private hospital Winterbourne View.

That culture in which whistleblowers are treated as adversaries rather than conscientious allies is still rife across many organizations. In 2018, for example, Barclays’ then-boss Jes Staley was fined £642,000 by the UK’s Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) for trying to uncover the identity of a whistleblower who had raised concerns about the hiring of former JPMorgan banker Tim Main to run Barclays’ New York financial institutions group.

“A good speak-up culture is also indicative of a good overall culture.”

Giles Newman of NAVEX Global

Attempting to discredit whistleblowers can go spectacularly wrong. In 2011, Japanese firm Olympus fired its British CEO Michael Woodford after just two weeks in the role when he exposed a long-running fraud to hide more than $1bn of financial losses. Despite the company’s denials, the scheme quickly unraveled. Olympus shares lost as much as 80% of their value and several senior executives, including its former chairman, received suspended prison sentences. Woodford himself was handed £10m for wrongful dismissal.

Likewise, when Danish financial institution Danske Bank turned a deaf ear to a whistleblower’s complaints about a Russian money laundering scheme facilitated through one of its Estonian branches, the fall-out was severe. When the scheme came to light five years later in 2018, Danske’s share price tumbled by more than half and its CEO and chairman were both sacked. The bank could still face billions of dollars in fines as enforcement agencies around the world continue to probe the scandal.

“In some organizations, there is still a psychological prejudice towards whistleblowers and some legacy tendencies around seeing whistleblowers as disloyal,” says Thorpe.

Loyal and caring employees

Research published in 2018 by George Washington University and the University of Utah show that such attitudes are back to front.

“Whistleblowers have been shown to be the most loyal employees because they care. If they don’t care, they might just leave the organization,” says Giles Newman, Managing Director of NAVEX Global’s international business, which provides whistleblowing technology. “A good speak-up culture is also indicative of a good overall culture.”

The research shows that companies with good culture around whistleblowing are more profitable, less likely to be hit with substantial fines or reputational damage if wrongdoing is uncovered, and have significantly better staff retention, Newman says. “It’s far from universally accepted but it’s just a matter of time before it is.”

So what can companies do to ensure they have such a culture?

At a minimum, they need to ensure that they have a proper whistleblowing policy in place, says Nicola Ihnatowicz, an employment partner at Trowers & Hamlins.

“This will encourage a culture where concerns are reported internally at an early stage, which will make it easier for employers to address the concerns raised, and to avoid more serious regulatory breaches or reputational damage,” says Ihnatowicz. “It will also reassure individuals that there will be no reprisals if they do raise concerns.”

Organizations should also be more proactive, says Hasegawa. If compliance departments hold periodic interviews with staff to ask about potential compliance risks, they could detect wrongdoing before it escalates.

Having the ability to report anonymously and maintain that anonymity is also essential for encouraging whistleblowers to come forward, says Newman.

“That takes away a lot of the fear,” he says.

For Thorpe, ensuring whistleblowers are not only protected but also actively supported is key to ensuring that people do not hesitate to speak up.

“Psychological safety is not just a buzzword, it’s a really important element of an effective whistleblower scheme,” he says. “That’s where a lot of corporates need to put their focus now.”