GUEST COMMENT: How to blow the whistle without blowing your career

Collective eyebrows were raised yesterday following news that a convicted fraudster Brad Birkenfeld has been paid over $100m by the US tax agency (IRS) for blowing the whistle on tax cheats at UBS.  A similar reward would not happen in the UK, because we do not have a regime for making payments to whistleblowers.

However, the encouragement of whistleblowers is not new. Under the Public Disclosure Act (PIDA) companies must provide internal channels and procedures for employees to report potential or actual wrongdoing, with a view to minimizing the opportunity for fraud, regulatory breaches, cartels, bribery and corruption – not to mention the attendant reputational damage these incidents cause.  Companies have statutory legal obligations to rout out wrongdoing under both the Bribery Act 2010 and PIDA.

Companies cannot prevent employees from bypassing internal whistleblowing channels and making whistleblowing complaints direct to their regulator, i.e. the FSA in certain circumstances. Whistleblowing is such an important focus for the financial regulator, that the FSA has a dedicated whistleblowing line.  The FSA would not pay for tip offs however, in stark contrast to the IRS.

Employees are often concerned about the effect that blowing the whistle will have on their careers. Once an employee has whistle blown, the law protects whistle blowers whose employer dismisses them, or subjects them to a detriment, on the grounds that they have made a protected disclosure. There is clear guidance on what information is considered to be protected by PIDA. To qualify for such employment protection, the information disclosed must, in the reasonable belief of the worker, tend to show that one of following has occurred, is occurring, or is likely to occur:

1. A criminal offence;
2. Breach of any legal obligation;
3. Miscarriage of justice;
4. Danger to the health and safety of any individual;
5. Damage to the environment;
6. The deliberate concealing of information about any of the above.

Disclosures must be made in good faith. A disclosure motivated by malice or personal gain i.e. just to get a higher settlement figure from an employer with whom an employee is in dispute, will not qualify for protection. Indeed if the FSA were to pay whistle blowers, this would contravene the provisions of PIDA which make it clear that an employee will only benefit from the protection of PIDA if the disclosure is made in good faith and not for personal gain.

Whistleblowing cases are not subject to the usual 2 year qualifying period of employment for unfair dismissal claims, or the statutory cap on unfair dismissal compensation, so are highly lucrative for employees to bring (if successful). Awards are based on the employee’s actual loss of earnings going forward which, in the case of investment bankers and traders, can be extensive especially when loss of bonus is factored into the calculation.

“Approved persons” owe duties to the FSA to assist their regulator.  Honesty and integrity are the cornerstones by which the FSA assesses whether approved persons are “fit and proper” to perform controlled functions. The FSA would take a dim view if an approved person who was aware of breaches of PIDA did not disclose this to them.  Further it would be likely to adversely impact on their approved person status.

Normally we follow closely behind the footsteps of our cousins across the pond. However, that will not happen in this case, as the FSA does not and will not make payments to whistle blowers.  It would contravene the FSA Code of Conduct, Handbook and the Financial Services and Markets Act (FSMA), as well as having the effect of depriving the whistle blower of the protection against detrimental treatment by its employer under PIDA, as the protected disclosure would arguably have been made for personal gain.