World Whistleblowers Day puts spotlight on workplace fraud

Sunday 23 June was World Whistleblowers Day, designed to raise global awareness in combatting corruption and to acknowledge the important role whistleblowers play in that. In the last 12 months there has been a noticeable shift towards the reporting of economic crimes and fraud, and we have seen that in evidence the UK. We’ll speak to a criminal defence and corporate crime specialist about blowing the whistle on that this particular type of crime, and the subsequent investigation.

In the UK, the law has protected whistleblowers who raise concerns of potential wrongdoing in the workplace since 1999 through the    It provides them with the means to claim compensation in the employment tribunal if they’re dismissed or subjected to detriment in retaliation for blowing the whistle. To be protected, they must make a disclosure of information which, in their reasonable belief, is made in the public interest and tends to show that wrongdoing relates to one or more of a number of specified areas (on screen). Crime, such as embezzlement and fraud, is on the list but is rarely reported. By far the most common type of wrongdoing we see in practice is a failure to comply with a legal obligation of some sort such as a breach of health and safety rules but, in light of new laws passed last year there is a definite shift in focus. 

The  Economic Crime and Corporate Transparency Act 2023 received Royal Assent on 26 October 2023 with the first changes coming into force in late 2023 and 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 offence 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 The government has now prepared the draft guidance required under section 204 of the Act setting out what those procedures should look like, with final guidance to follow, after which that new offence of failing to prevent fraud will become law.

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. First question, when will that new offence come into force?

Neil McInnes: “There is uncertainty as to exactly when the legislation will come into force. What we're expecting is for guidance to be finalised by any new government that comes in after the general election. 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: “In your article 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: “You mentioned that globally this is a trend we’re seeing and how, for example, in the US in the last few months the Department of Justice has launched a pilot programme for whistleblowers to report into. 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 post-election 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: “On those investigations, you said all of this underlines the need for organisations and their senior leaders to make sure that investigations are handled effectively and in good time. HR professionals will be very familiar with conducting investigations so is this something be handled internally, or should they bring in expertise from outside?” 

Neil McInnes: “I think that will depend. You need to have a system to triage your different types of investigation. There will be investigations where it is perfectly appropriate for an organisation to prepare to handle internally, but even that ground is changing. It’s changing because of guidance that's been put out in relation to failure to prevent fraud, which is still in draft, but it suggests that there needs to be much more senior leadership involvement in how whistleblowing investigations are run. It has also been affected by things like, this year, the SRA’s guidance on internal investigations to make sure that those are sufficiently independent and that can mean that in certain types of case you do need to be thinking about who the investigators are, and does the organisation have a sufficiently robust response if it is asked, you know, was that sufficiently independent? So, I think it’s a really interesting area. It doesn't mean that all investigations have to be handled externally, but it does mean that organisations need to think about triaging different types of investigation and thinking about who is responsible for looking after them.”

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.

LINKS
- Link to Out-Law guide: ‘Failure to prevent fraud under the UK's Economic Crime and Corporate Transparency Act’