The Importance of Rewards

Whistleblower reward laws are the key to successfully combating fraud and corruption

Whistleblowers are the single most effective source of information in detecting financial fraud. According to a 2007 study by PricewaterhouseCoopers focused on economic crime: “While professional auditors were only able to detect 19% of the frauds on private corporations, whistleblowers exposed 43%.  Executives surveyed estimated that the whistleblowers saved their shareholders billions of dollars.”

However, the biggest barrier to whistleblowing is the long history of retaliation. For company insiders, the risk of losing one’s livelihood as a result of disclosing wrongdoing by top executives is substantial. Oftentimes, encouraging them to step forward requires a financial safety net.

The presence of reward laws sends a message to potential whistleblowers that their information is valued and can mitigate the risks of retaliation. Reward laws create a safe, effective, and highly successful method for employees to disclose fraud to the appropriate authorities. Data shows that incentivizing whistleblowers is extremely effective in generating high quality tips that result in successful prosecutions. Prosecutors regularly praise financial awards for this reason.

However, some proponents of big business allege that these reward laws lead to an increased number of false reports. There is no evidence to support the idea that offering rewards will cause individuals to step forward with false reports of wrongdoing – in fact, multiple empirical studies from researchers with Transparency International, the Stockholm Institute of Transition Economics, and the Booth School of Economics found the opposite.

Rewards are only paid if a prosecutor vets the information, finds it to be credible, uses it to win a prosecution, and a court decides that it is important to the successful outcome of the case. Due to these stipulations, false reports are rare. Learn more about these and other common debunked whistleblower myths here.

The best whistleblower laws provide a statutory guarantee that whistleblowers will receive a percentage of monetary sanctions recovered by prosecutors thanks to their disclosures.

Learn more about what makes reward laws so successful and the current state of reward laws around the world below.

If you need help or want to contact an attorney, please fill out a confidential intake form. To learn more about how NWC assists whistleblowers, please visit our Find an Attorney page. 

Why Rewards Work

Rewards laws are effective for two reasons: (1) they promote positive behavior by employees who witness wrongdoing, and (2) they create a deterrent effect within the market through large award payments.

Promoting Positive Behavior

Rewards laws incentivize employee to come forward with original information on waste, fraud, and abuse by addressing both the short-term and long-term problems caused by the realistic fear about blowing the whistle.

Importantly, these rewards laws establish safe and protected channels for employee to report their allegations to law enforcement confidentially. These laws also permit employees who disclose allegations to the government to obtain protection from retaliation as government witnesses under criminal obstruction of justice laws, along with traditional employment discrimination laws.

By compensating whistleblowers for their contribution to successful prosecutions, these laws also help alleviate the risk to their career and financial stability. According to a study from Bradley University’s Dr. Tanya Marcum and Dr. Jacob Young, 69% of whistleblowers reported losing their jobs or being forced to retire, and 64% reported being blacklisted form getting another job in their field. By recognizing these risks and providing a solution, reward laws can incentivize employees to still come forward.

Deterrent Effect

Whistleblower rewards laws also have a powerful deterrent effect on economic crimes. As University of California-Davis professor Dr. Dennis J. Ventry has written, effective whistleblower programs make noncompliance by companies significantly riskier since they increase the probability of detection and the likelihood of penalties, which are the two most important variables in deterrence models.

Objective academic studies have verified this conclusion. For example, Jetson Leder-Luis’ careful study, “Whistleblowers, The False Claims Act, and the Behavior of Healthcare Providers” (2019), documented that the deterrent value of whistleblower cases is over six-times as great as the immediate enforcement value.

This line of thought has been a driving force behind the development of U.S. reward laws and other similar laws around the world. In 2008, Congress reviewed the impact of the 1986 False Claims Act. Department of Justice officials with direct knowledge of the law’s progress over time testified on the positive impact of the whistleblower reward provisions had on deterring economic frauds.

The larger the reward, the greater the deterrent effect. The higher the reward, the more likely it is that wrongdoers would perceive that other employees, or their co-conspirators, would be motivated to report an economic crime.

Real life case studies like that of UBS whistleblower Bradley Birkenfeld bear this conclusion out. In 2012, Birkenfeld received a historically large public award for his disclosures documenting illegal offshore banking in the Swiss bank UBS. After this award was announced, other Swiss bankers came forward to blow the whistle on their banks. By 2014, nearly every Swiss bank had executed a settlement or pled guilty to tax crimes, often based on whistleblower disclosures.

To read more about other whistleblower success stories, read The New Whistleblower’s Handbook, the first-ever guide to whistleblowing, by the nation’s leading whistleblower attorney. The Handbook is a step-by-step guide to the essential tools for successfully blowing the whistle, qualifying for financial rewards, and protecting yourself.  

Current Reward Laws Around the World

As the global expansion of whistleblower protections continues, it’s crucial that new laws incorporate and existing laws are updated to include all the key features of successful whistleblowing regimes, including rewards.

The United States is a leading influence in the global promulgation of these key whistleblower protections, stemming from its long history of whistleblower law. Not only are U.S. whistleblower protection laws among the strongest in the world, many of these laws can be applied transnationally, allowing whistleblowers around the world, U.S. citizens or not, to confidentially report fraud to U.S. law enforcement authorities, as long as it has a U.S. nexus.

To date, whistleblowers have relied heavily on U.S. laws because of the unique protections and rewards they provide. These laws have been widely praised by law enforcement officials knowledgeable of the direct contributions made by whistleblowers to the successful detection and enforcement of various crimes.

Examples of these laws include:

  • The False Claims Act, which requires payment to whistleblowers of between 15 and 30 percent of the government’s monetary sanctions collected if they assist with prosecution of fraud in connection with government contracting and other government programs. Senator Chuck Grassley (R-IA), Chairman of the Senate Whistleblower Caucus and staunch whistleblower advocate, said in his 2016 testimony regarding oversight of the False Claims Act that, “The False Claims Act is, hands down, the most effective tool the government has to fight fraud against the taxpayers.” The False Claims Act is the most successful piece of anti-fraud legislation in history with 72% of fraud recoveries stemming from whistleblower disclosures.
  • The Dodd-Frank Act, which requires payment to whistleblowers of between 10 percent and 30 percent of monetary sanctions collected if they assist with prosecution of securities and commodities fraud.
  • The IRS whistleblower law, which requires payment to whistleblowers of 15 to 30 percent of monetary sanctions collected if they assist with prosecution of tax fraud.

Since 2011, law enforcement agencies implementing these programs have collected a staggering amount – over $37 billion – for the benefit of taxpayers and investors and paid nearly $6.7 billion in rewards to whistleblowers.

Similar laws in South Korea and Canada have also shown tremendous success. Through South Korea’s whistleblower channel created by the Anti-Corruption and Civil Rights Commission (ACRC) in 2008, whistleblowers have assisted the South Korean government with USD $265 million in recoveries. In a 2019 annual report, the ACRC attributed the whistleblower program with an improvement in the country’s Corruption Perception Index score.

And in Canada, which offers rewards to individuals who provide information related to “international tax evasion” and “aggressive tax avoidance” through the Canadian Revenue Association, whistleblowers helped the government collect USD $19 million in 2018 to 2019 fiscal year – the first year that awards were issued – alone.

Whistleblower reward laws have also been enacted recently in PakistanNigeriaChina, Lithuania, and more; meanwhile, some countries with existing reward laws like Ghana have recently expanded their programs. While these reward programs remain limited due to restrictions on the scope of wrongdoing covered and protections available, they demonstrate the interest in and potential power for global whistleblower reward laws to combat corruption.

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