74 out of 324 financial crime tip-offs from outside the US received by the Security and Exchange Commission (SEC) during the 2012 fiscal year (year ending September 30) were from the UK*, followed by Canada (46 tips-offs) and India (33 tips-offs).
Barry Vitou, Partner at Pinsent Masons, says: 'Whistleblowing should be a major concern for City-based banks and fund managers. City of London-based whistleblowers at international institutions aren’t just limited to reporting to UK regulators if they encounter wrongdoing; they can go to much more powerful US regulators instead, and a substantial number do so'.
'With investigations into HSBC and Standard Chartered over alleged money laundering activities, US regulators have recently shown that they are willing to be the world’s policeman and are prepared to launch investigations into businesses or wrongdoing on a global basis'.
Barry Vitou adds: 'City firms need to make sure that their compliance procedures are absolutely watertight. The growth of whistleblowing means that the eyes and ears of regulators extend right to the heart of businesses'.
Pinsent Masons adds that the SEC and other US-based regulators offer substantial financial rewards to whistleblowers, in contrast to UK regulators, such as the Serious Fraud Office or the Financial Services Authority, which offer no rewards at all.
Whistleblowers to the SEC can collect between 10-30% of fines collected by the SEC as a result of investigations following a tip-off.
Barry Vitou comments: 'Whistleblowing to the SEC can lead to millions of dollars’ worth of rewards, while reporting the same problem in the UK will earn the whistleblower nothing'.
'There are different kinds of whistleblower: those that report wrongdoing because they feel it is the right thing to do; and those that do it for the money. And the fact is, money talks. Whistleblowing to the SEC is a very attractive option to City workers who can be quite financially motivated'.
'The rewards available in the US for whistleblowing can outweigh any doubts an individual has about coming forward. Very often, the whistleblower might have had a role in the wrongdoing so will need extra incentives to come forward if doing so would put them at risk of prosecution'.
In September 2012, the US Inland Revenue Service awarded a whistleblower more than $100m for his role in uncovering fraud at UBS – the whistleblower also served more than two years in federal prison for his own role in the fraud.
Pinsent Masons adds that the high number of redundancies made in the City over the past year may have contributed to the large number of UK-based whistleblowers.
Barry Vitou explains: 'Redundancies can result in a spurt of whistleblowing. Those made redundant will have plenty of motivation to report compliance failures or financial crimes'.
'Individuals may have an axe to grind, or they may feel that they have nothing to lose by reporting problems having already lost their job. Alternatively, they may be after the reward to provide financial security, or they may be seeking the legal protection that whistleblower status might offer them in a redundancy dispute'.
*UK-based employees can ‘whistleblow’ to the SEC if they work for a US headquartered financial institution, or for a UK institution that has an ADR programme or other US-listing.
image: © Steven Depolo