A proposed SFO scheme to pay whistleblowers has sparked fears about fair trial safeguards. Could such an initiative also prove a ‘moral hazard’ that weakens corporate governance?
A Serious Fraud Office incentive scheme for corporate whistleblowers proposed by the government – something former director Nick Ephgrave pushed for during his tenure – has prompted mixed responses from the legal profession. Though many seem intrigued by the concept of US-style rewards for reporting economic crime, others have questions.
A government consultation, which closes on 8 January, proposes that individuals could be eligible for a reward if the information they provide leads to a corporate conviction or alternative enforcement action.
A reward would be funded from a proportion of the financial penalty paid by the offender, meaning the whistleblower would get their money only once the case has finished and all appeal rights are exhausted. The consultation seeks views on whether to impose a cap on the maximum payout, and on whether a criminal offence should be introduced for those who knowingly make false reports under the scheme.
The consultation also asks whether the existing whistleblowing framework is ‘operating effectively and, if not, how it should be reformed’.
Neil Swift, partner at international firm Peters & Peters, said a reward scheme could have implications for the SFO’s workload. ‘The SFO will have to be prepared to filter very many more snippets of pre-investigation intelligence than before,’ he said. ‘Those with peripheral involvement in the misconduct are likely to be the most tricky to deal with under any such scheme. While their knowledge may make the information they have and the assistance they can provide of greatest value to law enforcement, such cooperators have always posed difficulties for prosecutors and have largely fallen out of fashion in white-collar crime enforcement.’
'It is never helpful to have to question the motives of someone reporting an alleged crime, which will always be a risk, and so paying people to do so is fundamentally flawed'
Jo Mackie, Michelmores
Alun Milford, former general counsel at the SFO and now a criminal litigation partner at London firm Kingsley Napley, said the consultation was a ‘significant step’ – though concerns remain about fair trial safeguards if witnesses’ motives are called into question.
Lloyd Firth, partner at international firm WilmerHale, noted that incentives would be provided ‘for intelligence, not evidence’. Although some whistleblowers may go on to become cooperating witnesses, he said, many will not. ‘Their primary value is their inside-track information, which can materially improve the speed and effectiveness of a criminal investigation. With an insider’s knowledge, investigators know what to look for and where to look for it, who to speak to, and what to ask.’
Speed is a factor that former police officer Ephgrave often highlighted when talking about incentive schemes. In his first speech as SFO chief in 2024, Ephgrave said: ‘How much quicker would [cases] be if we could access what we might call “smoking gun” evidence from an insider who was actually there when it happened, saw what happened… that has the documents that prove the case?’
However, Gena Ritchie, a solicitor in the commercial litigation team at City firm VWV, said any reward scheme must complement, rather than replace, proactive fraud prevention measures: ‘Without forming part of a broader fraud prevention strategy, overreliance on whistleblowing risks simply creating distrust within an organisation.’
Ian Hargreaves, partner at disputes specialist Quillon Law, noted that the issue is divisive. ‘The argument is that it should be a public and social duty, without the need to be paid. However, whistleblowers must also be protected against retaliation or more sinister treatment, which is covered to an extent under employment legislation, although arguably not as effectively as it should be,’ he added.
Jo Mackie, employment partner at Michelmores, is sceptical. She said: ‘The introduction of financial incentives (payments) is not a sensible option. It will lead to a moral hazard and undermine internal corporate governance. It is never helpful to have to question the motives of someone reporting an alleged crime, which will always be a risk, and so paying people to do so is fundamentally flawed.’
The consultation shows a new willingness from the government to explore a financial reward scheme following recommendations by Jonathan Fisher KC in Part 2 of his independent review of disclosure and fraud offences. There is no denying it would be another tool in the SFO’s arsenal – one it has sought for many years.
Despite significant scepticism, the SFO is clearly confident the pros will outweigh the cons.
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