Cheating or Competing: The impact of whistleblowing reward policies in competition law

Article authored by Fieldfisher Regulatory Associate James Groves and Employment Senior Associate Richard Branson. This article was first published on Thomson Reuters Regulatory Intelligence.

The provision of a reward for whistleblowing is not currently common practice in the UK, but the concept has been raised as a way of overcoming one of the main reasons why individuals do not blow the whistle (which is the fear of retaliation).

The Competition and Markets Authority ("CMA") is the regulator responsible for promoting competition and enforcing competition law in the UK.  It has a prescribed role under the Public Interest Disclosure Act 1998, meaning that people can report anti-competitive practices directly to the CMA.

On 6 June 2023 the CMA announced that it has increased the reward to individuals who blow the whistle on cartel activity from £100,000 to £250,000.  The increase in the reward is part of the CMA's broader Cheating or Competing? Campaign, designed to encourage more people to come forward and provide it with the information it needs to investigate suspected cartels.

The 'whistleblowing' reward is available to anyone with information on a cartel who has not been directly involved in the illegal activity.  It is distinct from the CMA's leniency program, which provides a route for any business or individual that has participated in a cartel to avoid (or mitigate) sanction if they come forward with information, provided certain conditions are met.

The size of reward, which cannot be negotiated, depends on various factors, including: (i) the qualitative value of the information and whether it leads to enforcement action by the CMA; (ii) the risk(s) associated with the disclosure of the information; (iii) the level of cooperation by the whistleblower; and (iv) the amount of harm to the economy and consumers that the information may help to prevent.

The decision of the CMA to increase the reward has been influenced, at least in part, by the US model, where reward-based whistleblower programmes have been in place for many years.  Whistleblowers who share knowledge of securities/commodities laws violations with the US regulators are rewarded with up to 30% of any fine or penalty imposed because of information provided by the whistleblower.

The effectiveness of whistleblowing reward programmes has long been debated in the UK.  The Financial Conduct Authority and the Prudential Regulation Authority published a note in 2014 rejecting financial incentives for whistleblowers, pointing to a lack of empirical evidence that the introduction of incentives had led to an increase in the number and quality of disclosures made.

However, WhistleblowersUK, a not-for-profit organisation, published a report in May 2023 on the reward programmes in the US and Canada that contrasts this position, highlighting that:

• The US Securities and Exchange Commission received 12,210 whistleblowing complaints between 2020 and 2021 – a 77% increase on the previous figure.  More than 75% of the whistleblowers who received awards in 2021 had tried to report their concerns internally before going to the regulator
• In 2021, 20% of all rewards paid in the US were awarded to whistleblowers from outside of the country.  Across Europe, British citizens are consistently the highest users of US whistleblowing programmes.
• In the period 2014 up to March 2022, the Canadian Revenue Agency received 979 disclosures from whistleblowers, from all over the world, resulting in the collection of CAD $69.3 million in tax recovery.
• Since the programme’s inception in 2016 up to July 2021, the Ontario Securities Commission generated approximately 650 disclosures from whistleblowers across Canada and 15 other countries.

Whistleblowers often face retaliation after disclosing information on fraud and corruption within their organisation, and the risk is heightened when this relates to cartel activity.  Commentators have noted that the Public Interest Disclosure Act 1998 does not provide as much protection for whistleblowers as the US and Canadian programmes.  It is therefore imperative that UK employers proactively assess the risks of whistleblowers being subjected to any detriment and, where necessary, identify and implement strategies and actions to prevent such detrimental treatment within their organisation.  This issue is magnified when considering the complexity of any subsequent investigation undertaken by the CMA.

The CMA's increase in award for whistleblowers who notify it about cartel activity, however, may act as the necessary incentive for individuals to come forward and overcome the barrier of fear of retaliation.  If the whistleblower wishes to remain anonymous, the CMA will not meet them (or know who they are).  Instead, the person will interact with the CMA’s independent intelligence team, who will ensure that the whistleblower's identity is kept confidential.  The CMA will not be able to rely on what the whistleblower's disclosure in any enforcement action, but will have to find the evidence for itself as part of its investigation.

In some cases, individuals may have no incentive to remain anonymous and, instead, use whistleblowing (or the threat of whistleblowing) openly, as leverage for a financial settlement (for example, in the case of disgruntled employees).  This highlights the importance of having a robust whistleblowing procedure that both works for the business and achieves compliance.

Employers therefore need to focus on achieving a culture in which employees feel comfortable raising concerns.  With effective whistleblowing procedures in place, employees are also more likely to report prohibited activities internally as opposed to going outside the organisation, even where there is the opportunity of a reward (such as with the CMA).  This will entail continually reviewing and improving the suitability, adequacy, and effectiveness of whistleblowing management systems.

It is not just a case of encouraging people to report wrongdoing; it is also essential that the reports are handled effectively and that measures are put in place to protect the business in the event of an external investigation.

Where this may concern competition law, the consequences can be severe and include the risk of significant financial penalties, adverse publicity and harm to reputation where an infringement is found.  Businesses can protect themselves by ensuring that they understand how competition law impacts their businesses, by implementing effective competition compliance measures (that are refreshed periodically) and by putting in place an adequate response strategy that enables them to deal with any investigation on the front foot.