Strengthening whistleblower protection in India: Lessons from the West

White-collar crime remains a significant global issue, with regulators around the world intensifying efforts to enforce laws and hold companies, corporations and individual perpetrators accountable. Brave, independent and proactive whistleblowers have held some of the world’s largest corporates accountable by exposing deep-rooted misconduct, opening several governmental and internal investigations both in India and across the globe.

Many countries are implementing stronger protections and reward programs for whistleblowers to encourage the reporting of wrongdoing. This article delves into global whistleblower frameworks, evaluating their successes, and explores why India could adopt similar initiatives.

United States: A trailblazer in financial incentives

In May last year, the US Securities and Exchange Commission (SEC) issued its largest-ever whistleblower award of $279 million. The award was granted to an anonymous whistleblower who provided information leading to a successful enforcement action, exemplifying how financial incentives and robust protections can bolster reporting.

While the SEC’s whistleblower programs have been successful, the United States set a global benchmark with the Corporate Whistleblower Awards Pilot Program released by the Department of Justice (DoJ) on August 1, 2024. This program incentivises whistleblowers to report corporate misconduct, with focus on (i) violations by financial institutions; (ii) foreign corruption and bribery by companies including violations of the Foreign Corrupt Practices Act, 1977 (FCPA), Foreign Extortion Prevention Act, 2023 and money laundering laws; (iii) domestic corruption and bribery by companies; and (iv) fraud under healthcare schemes.

Whistleblowers who provide original, truthful information about criminal activities (within 120 days of internal reporting) not covered by other federal programs may qualify for monetary awards if the information leads to a successful criminal or civil asset forfeiture exceeding $1 million. The Pilot Program also includes measures to protect whistleblowers against retaliation. Companies engaging in retaliatory actions may face criminal charges, such as obstruction of justice, underscoring the DoJ's commitment to safeguarding whistleblowers and encouraging accountability.

The European Union: An ethical debate

The EU does not currently offer financial rewards for whistleblowers, reflecting a broader debate over the ethics and effectiveness of such programs. Proponents argue that rewards incentivise individuals to come forward with critical information, especially when exposing misconduct involves significant personal and professional risks. They also highlight how these programs have proven successful in jurisdictions like the US in uncovering major fraud cases. Critics, however, caution that monetary rewards could undermine the ethical foundation of whistleblowing, potentially attracting individuals motivated by financial gain rather than a genuine desire to address wrongdoing. The EU’s approach emphasises protecting whistleblowers through strong legal safeguards rather than financial incentives, aiming to create a culture of integrity without commercialising the act of reporting misconduct.

Singapore, China and South Korea: A mixed bag

Singapore has a limited whistleblower reward framework, primarily through the Competition and Consumer Commission of Singapore (CCCS). The CCCS operates a reward scheme, offering monetary incentives of up to SGD 100,000 (around ₹6.3 lakh) for individuals who provide information that leads to the detection and successful enforcement of anti-competitive practices. However, this scheme is narrowly focused on anti-trust law violations and does not extend to other areas of misconduct, leaving Singapore without a broader whistleblower reward system across sectors.

Mainland China has introduced financial incentives for whistleblowers in certain sectors. The Ministry of Finance's 2021 interim measures offer rewards up to RMB 1 million (around ₹1.1 crore) for whistleblowers reporting major market violations, provided the report includes specific evidence, is not already known to authorities, and leads to a closed case. In 2022, the Ministry of National Security introduced the Provisions on Incentives for Reporting National Security Threats, offering rewards over RMB 100,000 (around ₹10 lakh) and ensuring confidentiality, non-retaliation and protection for whistleblowers. Additionally, various industry-specific whistleblowing rules have been established, offering reporting channels and financial rewards in sectors such as healthcare, securities, banking and the environment.

However, contrary to China and Singapore, the South Korea has enacted a series of extremely successful and comprehensive whistleblower laws in both public and private sectors that serve to protect and incentivise whistleblowers. These include the Tax Evasion Informant Reward Program (1951) and the Foreign Financial Account Report Reward Program under the National Tax Service; the Establishment and Management of the Anti-Corruption and Civil Rights Commission (2008) and the Act on the Protection of Public Interest Whistleblowers (2011). Under the said initiatives, individuals are eligible to receive rewards for their disclosures. The program’s success is further evidenced by the substantial financial rewards disbursed with South Korea awarding whistleblowers approximately US $44 million.

India’s current landscape

Agencies like the Securities and Exchange Board of India (SEBI), the Directorate of Enforcement (ED) and the Central Bureau of Investigation (CBI) have intensified actions against corporate and individual offenders. Since joining the Financial Action Task Force in 2006, India has amended key laws, including the Prevention of Money Laundering Act 2002 (PMLA), the Prevention of Corruption Act 1988, (as amended in 2018) and the Companies Act 2013, to enhance transparency and foster corporate governance norms. Even statistically, there has been a sharp rise in financial crime reporting, from 2,62,000 in 2020-21 to 6,64,000 in 2022, indicating a 150% higher jump. Notably, the ED, as of last year, has issued provisional attachments order for properties exceeding ₹1 lakh crore under the PMLA.

When it comes to rewarding whistleblowers, only SEBI’s Prohibition of Insider Trading Regulations 2015 provides for monetary rewards for whistleblowers. But this is limited to cases of insider trading and stock market manipulation. In fact, the success of such a reward system is evident since SEBI increased the reward payable to whistleblowers to ₹10 crore.

The absence of more elaborate and comprehensive reward mechanisms has been a point of criticism, where other jurisdictions such as the US and South Korea have demonstrated the effectiveness of financial incentives in encouraging disclosures. The only reward we have seen is the 2015 Ramon Magsaysay Award given to Sanjiv Chaturvedi, an Indian Forest Service officer for exposing corruption in a public office. In fact, Indian whistleblowers have used US laws to report illegal practices to regulators in the USA and have received rewards for the same.

Drawing inspiration from the US DoJ’s pilot whistleblower program, India could consider a similar approach that incentivises reporting beyond insider trading. India’s need for a whistleblower reward program is underscored by the critical role whistleblowers play in exposing malpractices across both public and private sectors. Despite the rising tide of financial crimes, whistleblowers in India face numerous challenges, including retaliation and hostility from the companies or individuals they expose, institutional barriers, and a lack of anonymity in reporting mechanisms. For instance, the Competition Commission of India requires whistleblowers to disclose personal information, making it difficult to ensure confidentiality.

A reward program could address these gaps by incentivising individuals to come forward with credible information while providing them with adequate safeguards. Offering financial incentives would not only motivate employees to report wrongdoing, but also lend legitimacy to whistleblower efforts.

To ensure the integrity and effectiveness of a whistleblower reward program in India, robust checks and balances have become the need of the hour. First, a mandatory requirement for whistleblowers to report through internal compliance systems before escalating to external authorities can ensure that organisations have an opportunity to address concerns internally. Second, stringent penalties for false reporting must be imposed to deter frivolous or malicious complaints. Such penalties could include hefty fines or legal action against individuals found guilty of deliberately misleading authorities. Third, to maintain the program’s credibility, private companies should be required to comply with standardised whistleblower policies and establish independent vigilance committees free from internal dominance.

As India continues to position itself as a global economic powerhouse, strengthened whistleblower mechanisms is imperative. Adopting a reward program modelled on global best practices could be a critical step toward combating white-collar crime and ensuring ethical corporate governance.

Payel Chatterjee is a Partner, Shuchita Choudhry is a Senior Associate and Pranay Tuteja is an Associate at Trilegal.