It is often difficult to expose and unravel corruption schemes without the cooperation of insiders. Yet would-be whistleblowers are frequently deterred from making disclosures due to the personal and professional risks of doing so. One increasingly popular way that countries are addressing this problem is through whistleblower reward programs. While such programs vary widely in their specifics, most operate under the same basic framework, offering a whistleblower who discloses material nonpublic information that leads to an enforcement action a monetary reward—typically, a percentage of the fines imposed on the liable parties—as an inducement to come forward.
In the United States, which pioneered this mechanism, whistleblower reward programs have seen broad success. Between 1986 and 2020, whistleblower cases under the False Claims Act (FCA) brought in $46.5 billion in penalties, with whistleblowers receiving $7.8 billion in rewards. And this is only under the FCA—other U.S. whistleblower reward programs have also led to the recovery of significant additional sums. For example, under the whistleblower program created by the Dodd-Frank Act, which was created in 2011, whistleblower tips have contributed to at least $2 billion in financial remedies for violations of the securities laws, with over $720 million awarded to whistleblowers. The success of whistleblower reward programs in the United States has inspired similar programs in several other countries, including South Korea, Canada, Nigeria, Ghana, Hungary, and Kenya. But not all of these programs have been similarly successful. For example, in Ghana, the first country in Africa to introduce a whistleblower reward program, no rewards are known to have been issued—in fact, few have made use of the Ghanaian Whistleblower Act’s provisions at all.
What factors help explain when a whistleblower reward program will work as intended? There is no easy or simple answer—the issue is complex, and the effect of any given program depends in part on details of the program’s design, including the prerequisites for receiving a reward and the scope of the program, as well as the country’s culture around whistleblowing. That said, two factors stand out as key indicators of whether a whistleblower reward program will succeed in encouraging substantial numbers of whistleblowers to come forward:
- The first factor is whether the government adequately protects whistleblowers from retaliation. The possibility of eventually receiving a monetary reward will not be sufficient if the government does not provide whistleblowers with protection from loss of employment and other reprisals. This has proved to be an impediment to the effectiveness of whistleblower reward programs in many countries. In Kenya, for example, the whistleblower reward program has been ineffective in part because Kenya’s weak whistleblower protection means that the risks faced by whistleblowers are likely to outweigh any financial recovery. Similarly, in Ghana, reprisals against whistleblowers have led many Ghanaians to believe that their safety will be at risk if they blow the whistle, and the financial incentives offered by the reward program have proven insufficient to overcome this disincentive to report. Even in countries where reward programs are initially effective in encouraging individuals to blow the whistle, the programs may lose their efficacy if the government does not provide whistleblowers with protection from retaliation. For example, while Nigeria’s whistleblower reward program has largely been considered a success—a 2018 report found that over N7 billion ($378 million) had been recovered through the program—the country’s lack of whistleblower protection legislation threatens the program’s continued efficacy. Despite handsome rewards offered to informants, the number of whistleblowers in Nigeria continues to decline, and a recent survey found that roughly three-quarters of respondents were hesitant to report corrupt practices without legal backing from the government. By contrast, in countries with strong whistleblower protections, whistleblower reward programs have proven to be much more successful. For example, in South Korea, which has some of the most comprehensive whistleblower laws in the world, the number of cases filed by whistleblowers under the county’s whistleblower reward programs has steadily increased since 2012.
- The second factor that appears to make the biggest difference in the efficacy of a whistleblower reward program is whether the financial reward offered to whistleblowers is sufficiently large. These rewards must be big enough to balance the personal and professional risks faced by whistleblowers. The size of the reward is especially important given that the reward is generally contingent on the enforcement action resulting in substantial monetary penalties. Thus, blowing the whistle does not guarantee a reward, and any reward that does result may not be received for years. Given the risks faced by whistleblowers and the uncertainty associated with the reward, the amount offered must be significant enough to outweigh these risks in the eyes of potential whistleblowers. Those countries that have adopted whistleblower reward programs, but with relatively low reward amounts, have not seen much success in encouraging more whistleblowers to come forward. In Hungary, for example, whistleblower rewards are limited to 1% of the fine imposed, with a maximum of HUF 50,000,000 (approximately $180,000). No rewards are known to have been issued through the program, and studies have indicated have indicated that the size of the reward in Hungary is inadequate to induce potential whistleblowers to make disclosures. A similar situation exists in Pakistan, where rewards are capped at Rs2 million ($12,000) and few, if any, whistleblower cases have been pursued under the reward program. By contrast, increasing rewards has been shown to remedy an initial lack of response to whistleblower reward programs. South Korea’s second whistleblower reward program, introduced by the Korean Fair Trade Commission (KFTC) in 2002, was initially ineffective, with fewer than ten reports were generated in a four-year period. However, after increasing the maximum reward amount from 20 million won ($19,000) to 100 million won ($94,000), the KFTC has built one of the active enforcement regimes in the world.
As evidenced by the success of whistleblower reward programs in countries such as the United States and South Korea, financial rewards for whistleblowers can be a powerful tool in the fight against corruption. While reward programs may have fallen short in other countries, they remain a huge source of potential for increasing whistleblower reports. For countries that are considering implementing whistleblower reward programs, along with those looking to amend their programs in order to increase their efficacy, two priorities emerge. First, such countries should ensure that whistleblowers are afforded protection from retaliation, and second, they should focus on providing a sufficient financial reward.