Corporate Fraud Exposed by Baker H. Kent;Purda Lynnette;Saadi Samir;

Author:Baker, H. Kent;Purda, Lynnette;Saadi, Samir;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2020-09-26T00:00:00+00:00

THE UNITED KINGDOM

In contrast to the United States' approach, the United Kingdom's whistleblower program centers on protecting whistleblowers from employer retaliation. Several regulatory authorities focus on protecting workers from detriment from their employer. The program also requires employers to implement internal reporting mechanisms. Under the Public Interest Disclosure Act (1998), whistleblowers may receive an award from an employment tribunal if their employer retaliates against them after blowing the whistle but no financial incentives are available for making the initial disclosure. After conducting research, the Financial Conduct Authority (FCA), in concert with the Bank of England's Prudential Regulation Authority (PRA), decided against having incentives (Financial Conduct Authority 2014).

The FCA cited numerous reasons for not having a financial incentive structure. For example, given the minimum recovery before an award occurs, financial incentives are not claimed by the vast majority of whistleblowers. Additionally, the incentive system creates a complex governance structure that is costly to the government. Finally, the Financial Conduct Authority (2014) concludes that there is no evidence that agencies in the United States saw significant increases in the number or the quality of whistleblowing disclosures and that the incentives would undermine introducing internal whistleblowing mechanisms. The FCA apparently sees financial incentives as a costly, ineffective, and counterproductive aspect of a whistleblowing regime, a conclusion with which the SEC and OSC appear to strongly disagree. Conversely, other provinces in Canada, specifically Alberta and Quebec, have regimes more consistent with the UK's approach. Regardless of this difference, the UK's whistleblowing program still generated more than 1,200 tips in the fiscal year 2018 (Financial Conduct Authority 2018), much more than Ontario's 200 tips but considerably less than the SEC's 5,200 tips (Ontario Securities Commission 2019; Securities and Exchange Commission 2019b).

Some support exists for the UK's reasoning in refusing to offer financial awards. For example, Berger, Perreault, and Wainberg (2017, p. 2) find that when the fraud is small, a financial incentive actually reduces “the intrinsic moral incentive to report.” In other words, although financial incentives increase the likelihood of reporting when the fraud is above an “incentive threshold” ($1 million), financial incentives decrease the likelihood of reporting when the size of the fraud is below the threshold or when the whistleblower is ineligible for an award. Thus, while some find that “monetary incentives for fraud appear to play a role regardless of the severity of the fraud” (Dyck et al. 2010, p. 2215), the minimum required recovery before an award is given out may discourage reporting. This situation may encourage whistleblowers to wait until the fraud is large enough to get an award before filing a tip, which is concerning as early detection of fraud is crucial to reduce the potential damages to investors and the market as well as increase the availability and security of evidence. According to Feldman and Lobel (2010), financial awards reduce tipping if the malfeasance is considered of high moral outrage. These are critical findings as they show that early detection of fraud, when the fraud may be below

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