How do you root out corruption? Well, to a competition lawyer one answer is obvious; whistleblowing.
In a recent post my colleague Adam Greaves pointed out that corruption is a crime carried out in secret, so inevitably the evidence is difficult for prosecutors to find or obtain. This is exactly the same issue faced by competition law regulators; cartels are generally secret so difficult to find.
Recognising this issue in the securities field, the US has recently introduced new whistleblowing rules as part of the Dodd-Frank Act. Adam commented that sources close to the UK Government insist that the Dodd-Frank Act provisions will not be replicated in the UK in relation to corruption enforcement, apparently since this would be too 'mercenary' an approach and would raise ethical concerns.
Yet, using whistleblowers is standard investigative procedure world-wide against cartels, including in the UK. Indeed, it seems that these days the UK Office of Fair Trading (OFT) (the competition law regulator) will not investigate suspected cartels without a whistleblower. Why? Because, just like the UK Serious Fraud Office (SFO) in relation to corruption investigations, using its limited resources it needs to find the evidence to mount its inquiry in the first place and the evidence needs to stand up to the inevitable appeals. Also, like the SFO, it needs to justify its existence, and failed (or no) cartel investigations do not help. It needs successful cartel busting with large fines which stand up in court, so that it can demonstrate the benefits to consumers. The easiest and safest route to this is using whistleblowers' evidence.
The whistleblowing model used in the competition law field for cartel enforcement usually includes a corporate scheme (the leniency programmes which virtually all sophisticated competition law regulators have introduced) and, less commonly, a personal reward scheme. Corporate schemes (including that used by the OFT) typically reward the first company to provide evidence demonstrating the existence of a cartel with a 100% reduction in any eventual fine imposed against it for being involved in a cartel (in other words, full immunity). Second, third, fourth etc. companies in the line receive lesser reductions in any eventual fines (leniency). In the UK, which includes as part of its arsenal potential individual criminal penalties for cartel involvement, the corporate leniency programme can also provide protection against criminal sanctions for individual employees of the companies which admit involvement.
Although the decision whether to 'go in' is complex (for example: will we ever be found out anyway?; what about future private damages claims for increased prices arising out of the cartel?), companies regularly do so, spurred by the huge fines imposed for cartel infringements and the commensurate benefit from obtaining immunity/leniency, as well as (in the UK) the focussing element of possible protection from individual criminal prosection. Indeed, following 'dawn raids' against suspected cartelists in the UK, there is often an unseemly race for the OFT's door as companies try to benefit from some fine reduction by providing further evidence. Wouldn't this type of scheme help the SFO in the corruption field?
The OFT has also introduced a personal whistleblowing incentive scheme. Although it is possible that an individual who was (peripherally) involved in a cartel could benefit, it is really aimed at those who have inside information about it, but were not involved. Disgruntled employees, for example, could be a good source.
Advertising this scheme, the OFT comments:
"Cartels are generally conducted in secret and they can be hard to detect and also hard to prove. Given their potentially very harmful effects and their secretive nature, the OFT believes that it should offer financial rewards for information which helps in the detection and investigation of cartels and which, in appropriate cases, leads to the fining of the companies and the criminal prosecution of the individuals involved."
The OFT has never admitted to paying out under this scheme. Perhaps this is because it indicates that the maximum reward is £100,000, which is anyway discretionary, and this must be balanced by the potential whistleblower against a number of factors (loss of employment, future employability etc.). If it paid out along Dodd-Frank rules (between 10% and 30% of the total monetary sanctions collected from companies involved) then the incentive would clearly be hugely increased. Cartel fines, even at the UK level, can run into the 100s of millions. Again, wouldn't this type of scheme help the SFO?
What about loss of employment, however? The UK employment law concerns arising out of personal whistleblowing such as this, where there could be a reward from the OFT, have not, in the absence of examples, been worked through. There may be an issue as to whether the disclosure to the OFT was not made in good faith due to the monetary incentive (therefore potentially negating protection under the Public Interest Disclosure Act). However, surely any reasonable employment tribunal would find that rewarded whistleblowing to the OFT was made in good faith, not least since an alternative finding would in turn negate the public policy benefit of rooting out cartels.
If the SFO is serious about finding corruption, the use of corporate and personal whistleblowing incentive schemes in the cartel field seems to provide an obvious model. Cartels are usually secret, just like corruption, and, in the words of the OFT "can be hard to detect and... to prove" (which is an understatement). The SFO needs to use all weapons and tricks at its disposal.