New DoJ whistleblower pilot programme targets white collar crime in US

The US is piloting a new whistleblower programme designed to encourage individuals to report evidence of high-priority white collar crimes. The pilot, run by the Department of Justice (DoJ), covers a range of corporate crimes including financial misconduct, fraud and corruption and offers  whistleblowers rewards of 10%-30% of asset forfeitures exceeding $1 million. It follows a global trend of incentivising whistleblowers with financial rewards, albeit  not one that has so far reached the UK. We’ll look at the current position in both the US and UK. 

This is the Corporate Whistleblower Awards Pilot Program which was launched by the Department of Justice on 1 August. The program covers a broad swath of laws to “fill in the gaps ” of the “patchwork quilt” of the other agencies’ programs such as the one run by the Securities and Exchange Commission (SEC) which covers violations of securities laws such as Ponzi schemes, accounting fraud and insider trading and which, since 2010, has paid out billions of dollars to whistleblowers. Last year the SEC issued its largest-ever whistleblower award of $279 million which it cites as a symbol of the ‘tremendous success’ of its program.

On September 17, 2024, senior officials from the Department of Justice gave an update on its pilot. In a speech in New York, Principal Deputy Assistant Attorney General Nicole Argentieri told the Society of Corporate Compliance and Ethics that the programme was a key tool in the DoJ’s fight against corporate crime. Plenty agree. Six more US attorney’s offices have since launched their own programmes.

The concept of handing out rewards to whistleblowers is not unique to the US. Canada launched a programme in 2016 which offers rewards of up to $5 million Canadian dollars for reporting securities-related misconduct whilst South Korea’s programme offers rewards of up 30% of recovered assets. Australia has recently expanded its whistleblower protections but has not yet implemented financial rewards. In Europe, some countries have implemented a limited rewards scheme – Slovakia and Hungary included – although none has gone as far as the US. 

As for the UK, there is currently no financial reward scheme for whistleblowers and the approach remains, like most EU countries, protective rather than incentivising. Nonetheless, when it comes to corporate crime, the importance and profile of whistleblowing has never been higher and especially so since last October when the previous government introduced the Economic Crime and Corporate Transparency Act 2023 to make it easier to bring successful prosecutions against large companies.

The Act is being introduced in stages the first of which came into force in late 2023 with the remainder due to come into force in stages during 2024 and 2025. One of the reforms will result in large businesses held criminally liable where a person associated with it, such as an employee, commits a fraud intending to benefit the organisation and the business did not have reasonable procedures in place to prevent the fraud. The new offence of failing to prevent fraud is effectively one of strict liability for the business, albeit there is a complete defence if the business can show that, at the time of the fraud, it had ‘reasonable procedures’ in place to prevent fraud, including whistleblowing policies and procedures. The new Labour government is preparing the guidance required under section 204 of the Act setting out what those procedures should look like after which the new offence will become law, probably in the second half of 2025.

So, clearly this is something HR professionals should know about so let’s hear more about it. Neil McInnes is a specialist in this area and earlier he joined me by video-link from the London office to discuss it: 

Neil McInnes: “This was a piece of law that had cross party support and when that guidance comes out there is an expectation that there will be a lead-in time for organisations to get ready, but that lead-in time may only be six months. But there are a lot that organisations can be thinking about now and, in our experience, it takes time for an organisation to roll out a programme of this kind to make sure it's effective and to ensure that it's promoted and communicated widely amongst its people. There are lots of other good reasons for starting now too. So, for example, there is currently a liability that attaches to corporates for the acts of their senior managers that came into force on Boxing Day. A lot of what I'm talking about, in terms of compliance enhancements, protects an organisation in that respect as well, even though the failure to prevent fraud offence is yet to have a date for its commencement.”

Joe Glavina: “You’ve written about this for Out-Law and you say, ‘recent statements from senior law enforcement officials in UK have expressed desire for criminal investigations to support whistleblowers more.’ What do you mean by that?” 

Neil McInnes: “So this was a statement made by the incoming new director of the Serious Fraud Office, the Serious Fraud Office being the organisation that typically takes on the most complex financial crime cases. In his first speech in office earlier this year, he talked about the attraction for him, when he's building a case, to incentivise whistleblowers to, essentially, get evidence from whistleblowers who would come forward to law enforcement. Now, when we think about those sorts of steps taken by law enforcement - it's not what they're currently doing but it could be what they will want to do - it emphasises for organisations the need to build trust in their own systems, so that people will come to the organisation and speak up with concerns to the organisation primarily, and if there isn't that trust in the whistleblowing system it means, in the most serious cases, someone might decide that they're not going to be listened to by an organisation and will go to law enforcement. So I think it's an interesting development that he's engaging in this area about building his cases using whistleblower evidence. Of course, there are lots of counter arguments to that and there are sceptics who think that that throws down certain challenges for prosecutors with that sort of incentivisation, but we are seeing that elsewhere in the world and it will be interesting to see if that gets traction again post-election.”

Joe Glavina: “This idea of incentivising whistleblowers is a trend which is being led chiefly by the US. Can you tell me more about that?” 

Neil McInnes: “Well, over a number of years, a number of US agencies have had schemes to incentivise whistleblowers and, in fact, there was a SEC office of the whistleblower set up and it monitors and tracks the number of tips that came into the SEC in the US from outside of the US. So it was cross border, the reach of this whistleblower system under the SEC's regime. What's happened this year is the US Department of Justice responsible for all manner of other investigations involving fraud, corruption, has issued a pilot programme to encourage whistleblowers to come forward and be incentivised. There are certain conditions around that, there are certain aspects of that programme that are still being tested but, again, it’s a sign that law enforcement wants to encourage people to come forward and they will be incentivised. They will potentially, if certain guardrails are met, be paid through those systems. So watch this space. Very much a global trend that we're seeing.”

Joe Glavina: “Can I ask you about UK law because you talk about further possible law reform in the UK given what some see as weaknesses in the current framework. It’s crystal ball gazing, I know, but what's the problem with the current legislation and what might any new law look like?” 

Neil McInnes: “Well, the argument that has been made about the problems with the existing legislation, as far as investigations are concerned, is that whistleblowers may not be adequately supported by their organisations and there may be a risk of victimisation and other things happening when people come forward in the most sensitive cases. So there have been a number of statements made by s number of political parties about supporting whistleblowers further and that really comes off the back of a number of what might be said to be national scandals where people have not been listened to. What we would say from a perspective of advising in-house teams who are running, or responsible for, their whistleblower programmes is that this is a call for action to make sure that your whistleblowing systems are adequately supporting people and that they're effective and that investigations that happen off the back of a whistleblowing report are timely and well managed.”

Joe Glavina: “Finally, Neil, anything else to add?”

Neil McInnes: “Well, I think the debate about whistleblowing systems has moved on. If we were to look at the failure to prevent fraud draft guidance, the level of sophistication of comments around whistleblowing systems has moved on dramatically since we were looking at an equivalent law, such as the failure to prevent bribery in 2010. In that period, the expectations of government, of law enforcement, about how effective whistleblowing systems, and investigations off them, happen has moved on so organisations shouldn't be complacent that what they've had already is sufficient to meet these law changes coming up in 2025.”

Neil and his team have prepared a detailed guide on the new offence of failing to prevent fraud and it’s available now from the Out-Law website. That’s ‘Failure to prevent fraud under the UK's Economic Crime and Corporate Transparency Act’ and we’ve included a link to it in the transcript of this programme.


Failure to prevent fraud under the UK's Economic Crime and Corporate Transparency Act (pinsentmasons.com)