Recently the UK’s Serious Fraud Office (“SFO”) started a major new investigation into allegations of corruption involving one division of European Aeronautical Defence and Space (“EADS”). It is alleged that EADS’s subsidiary paid millions of dollars to win a multi-billion contract from Saudi Arabia. Specifically it is alleged that EADS gave cars, jewellery and cash to win a £2bn contract to upgrade the satellite systems of the Saudi National Guard.
This is not the first time that the UK has been involved in allegations of high value bribery in recent times. In fact, in 2007, under pressure from the Saudi Government (which threatened to withdraw from an intelligence sharing agreement with the UK), the then UK Prime Minister, Tony Blair, ordered the SFO to drop an investigation into the alleged corruption by British Aerospace of a Saudi prince who was also a Saudi government minister. The very wide and stinging international criticism and damage that Mr Blair’s decision caused to the UK’s reputation as a fair and transparent place to do business led him to order UK government lawyers to draft a new and robust 21st century anticorruption law, the Bribery Act 2010. It took three years for the new Act to be drafted, negotiated in parliament and then finally passed. It only comes into force on 1st July 2011.
The SFO’s new investigation into EADS was sparked by a whistleblower’s report to the SFO by Lt. Col. Ian Foxley, a former employee of GPT Special Project management (“GPT”), which won the contract. GPT is ultimately owned by EADS.
If Lt Col. Foxley had still been an employee of GPT, under UK law Lt. Col. Foxley would have been protected from any dismissal or disciplinary proceedings by the Public Interest Disclosure Act 1998 (“PIDA 1998”) as a consequence of making such disclosure. . Section 1 of the PIDA 1998 inserted some new provisions into the Employment Rights Act 1996 (“ERA 1996”). The relevant one is 43B which provides:
“In this Part a “qualifying disclosure” means any disclosure of information which, in the reasonable belief of the worker making the disclosure, tends to show one or more of the following-
(a) That a criminal offence has been committed, is being committed or is likely to be committed…..”
Section 43F of the ERA 1996 deals with disclosures to a “prescribed person”
“A qualifying disclosure is made in accordance with this section if the worker—
(a)makes the disclosure in good faith to a person prescribed by an order made by the Secretary of State for the purposes of this section, and
(i)that the relevant failure falls within any description of matters in respect of which that person is so prescribed, and
(ii)that the information disclosed, and any allegation contained in it, are substantially true.
(2)An order prescribing persons for the purposes of this section may specify persons or descriptions of persons, and shall specify the descriptions of matters in respect of which each person, or persons of each description, is or are prescribed.”
The Public Interest Disclosure (Prescribed Persons) Order 1999 (S.I. 1999/1549, the “1999 Order”) includes amongst many regulatory bodies the SFO as a prescribed body. This order has been amended by the Public Interest Disclosure (Prescribed Persons) (Amendment) Order 2010 which will add the Pensions Regulator to the list of prescribed bodies.
Helpfully, for employees who are in a dilemma about what to do but don’t have access to a lawyer, there is a useful website run by a UK charity called Public Concern at Work which advises employees of their rights and protections as whistleblowers www.pcaw.co.uk
Anyway, the PIDA 1998 is all about protections for workers. It also overrides normal express and implied contractual duties of confidentially but of course does not apply to lawyers if they received the information in a legally privileged manner from a person who was obtaining legal advice.
PIDA 1998 does not provide for rewards for the whistleblower.
Compare this with the new US legislation for whistleblowers which has just been finalised. One of our US colleagues, Kurt E Wolfe, has produced a comprehensive paper on the new SEC “Whistleblower Incentives and Protection Program” which was published on 25th May 2011. The SEC’s new rules are implemented under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as the Dodd-Frank Act). Kurt Wolfe’s paper sets out in some detail the provisions which reward whistleblowers in the US. The provisions are reasonably complex (so I commend Kurt’s paper to be read in full) in order to avoid abuse of the new system, so I will just summarise them here: in short, the new SEC rules provide a bounty or reward for a whistleblower who meets the following requirements:
The whistleblower voluntarily comes forward to the SEC;
- With original information about a violation of the federal securities laws;
- That leads to a successful judicial or administrative enforcement action by the SEC;
- In which the SEC obtains monetary sanctions totalling more than $1m.
Many people have been surprised to learn that the SEC may award between 10% and 30% of the total monetary sanctions collected by the SEC. With many sanctions now stretching into the $100s millions, some will justifiably see this as a “get rich quick scheme” for employees who are aware of their company infringing laws, and the floodgates will open for the SEC.
Its clear that these new SEC rules ought to really scare corporates into cleaning up their act quickly as corporates now all effectively have a workforce of potentially very well rewarded employee-informants, who are protected by the law from any punishment if they breach confidentiality by reporting their employers’ illegal conduct to the SEC.
The sort of people who cannot benefit from the bounty scheme include:
- Anyone with a pre-existing legal, contractual or judicially mandated duty to report to the SEC potential violations of federal securities laws.
- External and in-house counsel who attempt to make whistleblower claims based on information obtained from attorney-client relationship.
- Exceptions exist where disclosure of the information is permitted under SEC or state bar rules.
- People deemed by a U.S. court to have obtained information by illegal means.
- Foreign government officials.
- Officer, directors, trustees or partners of an entity who learn of the alleged misconduct from another person, or who learn the information through the company reporting or compliance processes.
- Compliance and internal audit personnel.
- Public accountants, if the information relates to potential violations by the engagement client.
So for those companies who need to be FCPA compliant, particularly regulated entities, they may need to take another look at their existing compliance programmes especially the whistleblower parts of it.
Sources close to the UK government insist that the Dodd-Frank Act will not be mirrored in the UK. It seems that the general establishment feeling is that this type of legal device, which is intended to bring crime out in to the open, is far too mercenary an approach and that it would give rise to all sorts of ethical concerns. For my part, I am more open minded about whether the UK should adopt similar provisions in the future. The US has been at the anticorruption game a lot longer that the UK, and they are far more active prosecutorially than the UK. The US has learned a lot along the way over the past 15 years or so since they have been actively been pursuing the FCPA.
For example, the use in the US of deferred prosecution agreements and also binding plea bargain agreements are very useful legal devices to secure settlements and or convictions more often and more cost effectively . Such things don’t exist yet in the UK and after stinging rebukes of the SFO by the UK Court of Appeal, our so-called plea bargains cannot be properly agreed until the “deal” eventually comes before the judge, who only gets involved far later in the process in the UK, so the defendant doesn’t really know from the outset whether he has a proper deal or not. This is very unsatisfactory and isn’t likely to encourage UK defendants to do deals.
Returning to the new SEC rules on rewarding whistleblowers, I believe that we in the UK should watch what happens in the US before simply dismissing it out of hand as an odd American idea that we couldn’t possibly replicate here in the UK. Corruption is very much a crime carried out in secret and across borders, so inevitably the evidence is much harder for prosecutors to find or obtain. The new SEC rules will encourage those individuals with evidence to come forward much more quickly and more frequently than previously, and now whistleblowers have a real incentive/reward for taking the risk of damaging their personal career prospects (whatever the built-in employment protections), and also to reflect the risk of the inevitable unpleasantness of him/her becoming involved possibly in lengthy criminal and civil proceedings.
As to Lt Col Foxley in the new EADS investigation, if he had reported these allegations in the US, and were the new SEC rules in force at the time, then he may well have benefitted very substantially, in time, from the information he gave to the prosecutors. He must be kicking himself as to his bad luck.
I will return to the subject of whistleblowers and their new rewards as the jurisprudence develops in the US under the new SEC rules. I think a few of us are now expecting some whistleblowers to become instant lottery winners!