Why Are Whistleblowers Offered Financial Incentives?

When whistleblower cases prevail, questions often surface about whether it is ethical to incentivize integrity with monetary rewards. While discussing the effectiveness of whistleblower programs is always important, these questions about the merits of financial incentives have already been addressed through research.

As the report highlights, “the only way to prevail in a reward law is to be right about the wrongdoing.

In December 2014, a report produced on behalf of the National Whistleblower Center analyzed the impact of whistleblower awards and found that concerns that these incentives may increase false reports of fraud are unsubstantiated.

The myth of the opportunistic whistleblower

The National Whistleblower Center’s report stemmed from the concerns of international regulators about whether to emulate American whistleblower laws. As it stands, 1136 foreign nationals utilized the SEC’s Whistleblower Program from 2011-2014, primarily to report Foreign Corrupt Practice Act (FCPA) violations. In total, the government paid out $30 million in rewards to international whistleblowers in that time period.

The success of the False Claims Act, the SEC Whistleblower Program and state whistleblower incentive programs has been considerable, but there are still those that wonder whether financial incentives corrupt the motivations of employees and contractors that report fraud.

The idea behind such concerns is that employees may eagerly search for wrongdoing at their jobs, or even entrap their colleagues or employers into fraud schemes in order to collect rewards.

However, the reality is that the government only offers rewards to whistleblowers whose information and evidence proves the existence of deliberate fraud. Qui tam cases take around four years on average, because that’s how long it can take for the government to thoroughly investigate the allegations. Those investigations utilize federal resources, so the government has a vested interest in only pursuing accusations that genuinely have merit.

Financial incentives are part of a bigger picture

Financial incentives serve as a just reward for the bravery it takes for individuals to stand up against companies and organizations with considerable power. Though it may seem that most people would do the right thing when confronted with a potential fraud scheme, people that work for fraudulent companies are sometimes under serious pressure to participate in the scheme. Breaking from the pack, as whistleblowers so often do, can be daunting and isolating. For obvious reasons, many whistleblowers find themselves seeking other jobs or career paths after blowing the whistle.

Knowing that persevering through the government’s investigation and providing detailed evidence of the fraud could yield a financial reward helps offset some of those risks.

Still, financial incentives are not the entire reason that people from around the world make use of U.S. whistleblower laws whenever possible. Monetary incentives are only valuable when they are accompanied by strong confidentiality and anti-retaliation laws.

The research cited by National Whistleblower Center showed that the combination of those benefits, rather than any one alone, consistently generates high-quality, valid information about fraud schemes in the U.S. It is not the case, as detractors of incentive programs have suggested, that the existence of financial awards leads to an influx of false or unsubstantiated claims.

Learn more about whistleblower rewards here.