Whistleblower incentives could strengthen fraud detection – IEA

Fraud is becoming an increasing issue in the UK, accounting for 41% of all recorded crimes in the year ended September 2022, according to a new report by the Institute of Economic Affairs (IEA).

Published last week (21 November 2024), the Fixing Fraud report urged the UK to adopt stronger measures to encourage whistleblowing as a key tool in exposing corporate fraud.

Counter-fraud experts in the UK insurance sector have been trying to raise awareness of the growing impact of commercial lines originated insurance fraud in the sector.

Speaking to Insurance Times in September this year, Allianz head of counter fraud James Burge said that the insurer was seeing a “large increase” in fake or duplicated business claim fraud. 

He explained: ”Commercial fraud need to get more traction in the industry, because while we’ve talked about personal lines for a long time, commercial fraud needs to be front and centre as the future of the discussion.”

US examples

Drawing on successful examples from the United States, where whistleblowers have uncovered billions in fraudulent activity, the IEA advocated for financial incentives to motivate corporate insiders to come forward with evidence of criminal conduct.

In the United States, whistleblower programmes, such as the False Claims Act, have led to over £59.15bn ($75bn) in sanctions, with whistleblowers contributing to around 70% of fraud recoveries.

The IEA’s report argued that similar schemes in the UK could improve enforcement by making hidden evidence more accessible to regulators and law enforcement.

The report also noted that providing financial rewards to whistleblowers would be a cost-effective way to reduce fraud and strengthen the UK’s anti-fraud efforts.

Alison Cronin, principal academic in law at Bournemouth University and author of the report, explained: “The most efficient way to obtain evidence is to buy it from those with easiest access to it, and the UK should incentivise corporate whistleblowers.”

Simon Fell, former UK government anti-fraud champion, added: “Fraud is at epidemic levels and the system-wide response must change. We need better prevention, increased awareness and stronger enforcement mechanisms to hold corporations accountable.”

Limits of prosecution

While the IEA’s report noted the need for improved whistleblower support, it also highlighted that deferred prosecution agreements (DPAs) are inadequate in preventing corporate misconduct.

Deferred Prosecution Agreements (DPAs) allow prosecutors to suspend criminal charges against a company in exchange for co-operation, self-disclosure of wrongdoing and payment of fines.

The IEA believes that these agreements, instead of promoting cooperation, allow companies to see fraud as a business expense rather than a crime.

As a result, many corporations view DPAs as a way to mitigate reputational damage while continuing business as usual.

Cronin added: “Companies that stay in business because of criminal behaviour are parasitic. They do not increase the economic pie, but merely redistribute it in a non-efficient way.”