A guest post from Judy Krieg. Krieg is currently a partner at DLA Piper and previously served as a Joint Head of Fraud, Bribery, and Corruption at the UK Serious Fraud Office. Her experience also includes being an enforcement lawyer at the UK Financial Services Authority (now the Financial Conduct Authority) handling criminal and regulatory matters and in-house experience, including as Chief Compliance Officer of Rolls Royce plc and Willis and in other compliance roles at Microsoft and Red Robin Gourmet Burgers.
The UK Serious Fraud Office (SFO) is suggesting that the UK should “follow the US” and find a way to pay whistleblowers in corporate criminal cases. But the UK is not the US. The complexities of dealing with – much less paying – monies in corporate criminal cases are clear from US and UK experience. I know this first-hand from the Rolls-Royce plc (RR) investigation (resulting in 18 criminal charges resolved through DPAs with the US Department of Justice (DOJ) and SFO), as well as the Red Robin Gourmet Burgers (RRGB) SEC investigation in the US.
This post uses the RR example to show the complexities of paying criminal whistleblowers in
the UK.
RR Whistleblower Comes Forward
To set the scene: By March 2013, RR was well into its investigation and self-report of numerous
corruption issues to the SFO and DOJ. RR was also undertaking a review of its Energy division
in contemplation of a possible sale (which also eventually happened in late 2014). Quoting the DPA:
“In March 2013 an RR employee was prompted by RR’s due diligence review of the Energy business to alert Compliance to certain irregularities on the Egina [Nigeria] project.”
The DPA describes documents that RR received from its Nigerian intermediary regarding a competitor’s bid. Per the DPA, Compliance noted “[the whistleblower] understood [the documents] originated from someone in the Nigerian government departments. Obviously, the use of personal email calls into question the appropriateness of the information.” The DPA Judgement notes that the Judge has been made aware of the identity of all the RR employees involved.
RR withdrew from the Egina tender process, but this incidence of bribery was part of the UK
DPA.
What Happens When the Whistleblower is Involved in the Misconduct?
The RR whistleblower came forward with documents in personal email that were key evidence of this bribery. The employee knew that information from a government source was being transmitted through off-channel (non-company) communication. Barring either the personal email account holder or someone else copied on those emails coming forward, this information would not have been known to RR or the SFO. The most common personal email services are hosted in the US. In all likelihood, the SFO could only obtain these emails using a foreign assistance request to the US government (an MLAT) and having enough information to show that such request would meet the probable cause standard for a subpoena under US law. Without a running start from the whistleblower, any such request would be a non-starter. But that means the whistleblower would have to be knowledgeable about, and potentially criminally liable for, the bribery.
For starters the employee almost certainly breached RR employment policy and procedure. This put them at risk of disciplinary action. Especially in the midst of a self report, companies need to robustly and evenhandedly enforce polices.
This pales in comparison to the whistleblower’s personal criminal liability. The employee would have been individually implicated in any self-report to the SFO. Even worse, the DOJ had jurisdiction over the entire RR Energy division which was based in Ohio. Whether they knew it or not, the whistleblower exposing themself to criminal liability in the US. As it transpired, the only individuals charged were three RR Energy employees charged by the DOJ with conspiracy and FCPA breaches. The DOJ charges referenced personal emails among the overt acts in support of the conspiracy. All three of those charged had some remit over the RR Energy business in Nigeria. Was the whistleblower among those who were charged? One of the individuals pleaded guilty the same day the DPA was filed in Ohio federal court and paid a $250,000 penalty – a clear sign that he cooperated with the DOJ under a plea deal.
How Would This Work if the RR Whistleblower Was Paid
The RR whistleblower came forward without the possibility of payment as RR did not fall within the Dodd Frank Act or Sarbanes Oxley. So how would this play out in the UK if the whistleblower had been eligible for a bounty? With RR disgorging £240 million in profits for the entirely of the UK DPA (including the profit that would have been earned on the Egina project had RR not withdrawn), there would be an amount available to pay. This is how it would work:
- The SFO would have to interview the whistleblower as a suspect (under caution) rather than as a witness. The whistleblower would likely require the UK equivalent of immunity in order to give a witness statement. But under UK law (unlike US law), plea deals require a full, compete disclosure of all wrongdoing by the whistleblower. With the widespread bribery at RR Energy (half of the US and UK DPA charges involved this group which was responsible for only 4% of RR’s profit), this particular whistleblower would likely have to disclose additional wrongdoing. Any whistleblower needs to carefully consider that they cannot contain the scope. They also have less certainty of any outcome, as UK judges have wider discretion in imposing any sentence, including any forfeiture of monies the whistleblower’s benefit from the bribery scheme (e.g. salary and bonuses). The DOJ Pilot Program recognizes this risk in criminal cases and requires that any whistleblower meet a “minimal participant” requirement. This is modeled on the US sentencing guidelines so at least some guidance is available as to how that will be assessed. The SFO has suggested a similar requirement in the UK but this would likely eliminate the most helpful whistleblowers to keep SFO investigators from “scrambling in the dark” (to quote the words of the Director of the SFO).
- UK law requires the SFO to follow “all reasonable lines of enquiry.” The US does not. For the SFO to rely on the personal emails would likely require a MLAT to the US and take years. If the evidence was in end-to-end encrypted message, the whistleblower would have their device seized and searched. Again, the whistleblower cannot contain the scope of intrusion into their privacy.
- Any payment would be contingent on the SFO completing its investigation and obtaining any forfeiture. Given the SFO’s current track record, expect years (if not the better part of a decade) of investigation. The DOJ has a mechanism to fund its enforcement as it controls and can pay expenses for the forfeiture operations from the Assets Forfeiture Fund. The SFO relies on the UK Treasury for its funding, with any forfeited funds being paid into the UK Treasury.
- Given the reference to the whistleblower in the DPA, their identity would have been made known to the Judge who decided the DPA. The Judge would also need to be made aware of the whistleblower’s potential stake in the outcome, and judge their evidence accordingly.
- The whistleblower’s involvement would not necessarily end with the DPA and any payment. Their identity would also be disclosed to any individuals who are charged, along with full details of all statements that the whistleblower gave to the SFO and likely the negotiations between the SFO and the whistleblower. If the Glencore case is any indication, the whistleblower could also be called upon to give a witness statement and be called as a witness in any trial of the individuals. If those individuals happened to disclose or uncover any additional wrongdoing by the whistleblower, that has the potential to unravel the whistleblower’s immunity deal and (depending on how any UK program is structured) the whistleblower’s payment.
Any UK criminal whistleblower would need to balance these risks against the possibility (however remote) of a whistleblower payout. The SFO should give serious consideration of how they expect any compensation program to overcome these issues.
So why is the US system so successful in driving whistleblower reports?
I’ll address this topic in a future post.
