New research examining the efficacy of whistleblower programs that offer financial rewards for enforcement tips — such as the ones in operation at the U.S. Securities and Exchange Commission, the Ontario Securities Commission and the Canada Revenue Agency — finds that they are useful in detecting and deterring financial crime.
The paper, published by the U.K.-based Royal United Services Institute, reviews the impact of whistleblower programs that pay financial rewards for tips that lead to successful enforcement action in the financial sector, and aims to assess the features of these programs.
The research, which was conducted between September 2023 and July 2024, involved a literature review, interviews with key stakeholders in Australia, Canada, the U.K. and the U.S., and a series of validation exercises with U.K. policymakers and whistleblowers.
Among other things, the research finds that the “key impacts” of these kinds of whistleblower reward programs in Canada and the U.S. are that they increase the “actionable information provided to law enforcement;” have a deterrent effect; improve compliance; and facilitate access to specialized legal counsel for prospective whistleblowers.
“The findings of this briefing note provide a viable basis for the conclusion that a cash-for-information scheme could increase the effectiveness of economic crime investigations, and play an impactful role within wider strategies to combat illicit finance, by increasing detection and deterrence of economic crime,” it said.
However, the paper also stressed that whistleblower programs also need to include certain safeguards as part of the design of these initiatives, must involve, “comprehensive stakeholder consultation,” as part of their development and ongoing monitoring after they get up and running.
“[T]o operate effectively as a strategy to combat illicit finance, rewards must form part of a comprehensive framework to ensure all whistleblowers are adequately compensated and protected,” it said, noting that only a tiny proportion of tips actually result in financial payouts.
In particular, to be effective, these kinds of programs also need anti-retaliation protections and confidentiality provisions, along with the promise of effective enforcement — in addition to the prospect of financial rewards.
“[W]hile financial rewards are essential, many whistleblowers use reward programs because of the robust anti-retaliation protections, assurance of confidentiality and confidence that their disclosure will lead to meaningful action,” the research found. “Consequently, it is imperative that a reward program is run by an empowered and well-resourced regulator. This is equally critical if a reward program is to create a deterrent effect, as deterrence requires active enforcement.”
In particular, it found that the “effectiveness of the U.S. reward programs largely stems from the U.S. regulators’ ability to act on reports, preserve whistleblower confidentiality and impose significant penalties for retaliatory behaviour,” it said.
“The U.S. regulators are not only willing to pursue those who have retaliated against whistleblowers, but also take proactive legal action against corporate behaviour that obstructs whistleblowers from reporting,” it noted.
Additionally, the research concluded that it’s essential that these kinds of programs are designed to account for cultural attitudes, such as cultural reluctance to reward informants; and to mitigate possible unintended consequences, such as attracting frivolous or malicious tips, creating conflicts of interest with existing legal duties, or compromising the integrity of the regulator, the paper noted.
It also advised that whistleblower reward programs be developed incrementally, noting that interviews with U.S. and Canadian agencies described the development of these programs as a “continuous learning process.”
“If a whistleblower reward program had to be unwound, it would send a dangerous message to white-collar criminals,” it said. “By contrast, a successful pilot program could reshape political, institutional and cultural attitudes towards financially rewarding whistleblowers, and play a pivotal role in establishing whistleblowing as an integral component in the fight against economic crime.”