Incentivising Whistleblowing in South Africa

Corruption in government – that is a plague that must be erased from every regime in every place in the world” – Nelson Mandela

The current state of fraud and corruption in South Africa necessitates drastic change. Although section 9(1)(b) of the Protected Disclosures Act 26 of 2000 (“PDA”) protects employees in the public and private sector who disclose information of unlawful or corrupt conduct by their employees, such whistleblowers do not receive any incentives for whistleblowing. Considering the above, should South Africa take more drastic steps to recover state funds?

The False Claims Act, also known as the “Lincoln Law” is the United States’ first and strongest whistleblower legislation. The provisions of the legislation include a qui tam (a Latin phrase describing a person bringing an action for himself and the State) that allows people who are not affiliated with the government to file actions on behalf of the government. The person filing under the Act can expect to receive a portion of any recovered damages. Since its inception, the government has been able to recover more than $62 billion under the Act and 71% of the actions were filed by whistleblowers.

According to an article published by Pietragallo Gordon Alfano Bosick & Raspanti, LLP(Pietragallo Gordon Alfano Boscik & Raspanti, n.d) whistleblowers, known as “relators”, file their actions under seal in a District Court. Filing it under seal means that neither the defendants nor the public have any knowledge of the file complaint and it allows the government to investigate the allegations for a period of 60 days. Should the government agree to take on the matter, the whistleblower and their legal representative will still be involved as a crucial party to the matter. If the government declines to intervene then the whistleblower still has an opportunity to continue litigating against the defendant on their own or on behalf of the government.

The reward for reporting the fraud ranges between 15 to 30% of the recovery received by the government. Furthermore, defendants found in violation of the Act are required to pay the government three times the amount of damages sustained by the government and civil penalties of between $5 500.00 and $11 000.00 for each fraudulent claim. In United States of America, et al., ex rel. Danielle Ailts v Campeau v NeuroScience, Inc et al 13-811 (W.D. Wis) the FBI was contacted regarding a claim that the defendants were committing fraud by selling illegitimate laboratory testing services, reporting illegitimate testing results and then using those tests to sell nutritional supplements under a different business name. The defendants were ordered to pay a total of $6 188 769.00 to the government and $1.3 million to the whistleblower and her attorneys. The whistleblower’s disclosure played a critical role in alerting the government to fraudulent activities committed by healthcare providers.

The Act however is not free from any fault. Whistleblowers are only entitled to a financial reward if it is proven that there was a financial loss. This poses an issue as those matters where there is no identifiable financial loss are not reported. Furthermore, whistleblowers have delayed reporting matters to allow that fraud to accrue more value so that they receive a better return. The cost of this is that the harm done goes undetected until such persons believe the time is right to disclose the matter.

Should South Africa apply similar legislation? The incentivisation of whistleblowing makes it easier to obtain inside information whilst counteracting most of the personal risks facing whistleblowers. The reward programmes have also proven in most countries to be cost effective as public spending is lowered through using less costly traditional investigative methods. The integral part is ensuring that all whistleblowers are adequately protected from all forms of retaliation.

South Africa should consider rewarding whistleblowers for reporting valuable information that leads to successful prosecutions. Whistleblowers should be incentivised over and above being compensated for any occupational detriment suffered as a result thereof, to aid in the fight against fraud and corruption which is rampant in our country. The State is implored to seriously consider adopting legislation similar to the False Claims Act as it is a great deterrence for corruption, fraud and looting of state funds. Such legislation would also require an effective enforcement strategy to ensure that it is properly implemented. If South Africa had laws imposing heavy penalties on corruption and making those in contravention pay three times the recovery amount, it would ensure that those engaging in these illegal activities think twice because of the heavy consequences.


Written by Sifiso Msomi- Partner & Sinenhlanhla Nene- Candidate Attorney