Whistleblower rewards, false reports, and corporate fraud

• Published in: European journal of law and economics Vol. 51; no. 3; pp. 411 - 431
• Main Authors: Buccirossi, Paolo, Immordino, Giovanni, Spagnolo, Giancarlo
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-06-2021; Springer Nature B.V
• Subjects: Allegations; Burden of proof; Commercial Law; Courts; Economics; Economics and Finance; European Integration; Fraud; Judicial error; Law and Economics; Legal system; Public Finance; Retaliation; Rewards; Sanctions; Whistleblowing; False allegations; Whistleblowers rewards; Judicial errors; Standard of proof; Corporate fraud; K20; K42; L40; M41; G38
• ISSN: 0929-1261; 1572-9990; 1572-9990; 1572-9346
• DOI: 10.1007/s10657-021-09699-1

It is often claimed that rewards for whistleblowers lead to fraudulent reports, but for several US programs this has not been a major problem. We model the interaction between rewards for whistleblowers, sanctions against fraudulent reporting, judicial errors, and standards of proof in the court case on a whistleblower’s allegations and the possible follow-up for fraudulent allegations. Balancing whistleblower rewards, sanctions against fraudulent reports, and courts’ standards of proof is essential for these policies to succeed. When the risk of retaliation is severe, larger rewards are needed and so are tougher sanctions against fraudulent reports. The precision of the legal system must be sufficiently high, hence these programs are not viable in weak institution environments, where protection is imperfect and court precision low, or where sanctions against false reporting are mild.