Effective whistleblower protection
February 2019 | FEATURE | FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2019 Issue
Whistleblowing is one of the most effective ways of exposing malfeasance within an organisation. According to the Association of Certified Fraud Examiners, around 40 percent of all detected occupational fraud cases are identified by whistleblowers.
However, historically, whistleblowers have been denied the protection required to allow them to report wrongdoing, often leaving them exposed to retaliation. According to the Ethics & Compliance Initiative (ECI), retaliation against US workers who report suspected unlawful activity within their companies is occurring “in ever-greater numbers”. The ECI suggests that the rate of retaliation doubled between 2013 and 2018.
Thankfully, many jurisdictions have begun to offer greater legislative protection to whistleblowers in recent years. “In 1998, two countries had whistleblower protection laws in place – the UK and US,” explains Mark Worth, executive director of the European Center for Whistleblower Rights, and international policy analyst with the Government Accountability Project. “Today, at least 46 countries do, including about 20 in Europe, and about 10 each in Africa and Asia-Pacific. On paper, we have come a very long way in these 20 years. Standards developed by the United Nations (UN), the Organisation for Economic Co-operation and Development (OECD), the Organisation of American States (OAS) and non-government organisations, such as Transparency International and Blueprint for Free Speech, have greatly assisted with the development and passage of new laws with up-to-date provisions.”
Anonymity is a core pillar. “The introduction of whistleblower programmes like the US Securities and Exchange Commission’s (SEC’s), in which whistleblowers are allowed to report anonymously to the government regulator and their identity is not revealed when a whistleblower reward is made, will encourage more whistleblowers to come forward,” explains Mary A. Inman, a partner at Constantine Cannon. Previously, concerns about their identity being revealed publicly have been an impediment to whistleblowers speaking to government prosecutors and regulators.
However, the challenge today is making these laws work in practice, which has proved difficult. Even relatively modern legislation, such as Australia’s federal public sector whistleblower legislation, which was passed in 2013, has been found wanting. In December 2018, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2018 was passed, which will create a single consolidated regime under the Corporations Act 2001, extending protections to whistleblowers across the corporate, financial and credit sectors. Globally, however, it is clear that more must be done to shield whistleblowers from reprisal. As such, efforts are under way, across various jurisdictions, to improve whistleblower protections, both legislatively and within organisations.
In April 2018, the European Commission proposed new EU-wide standards to guarantee a high level of protection for whistleblowers who report breaches of EU law, as only 10 Member States have such measures in place. The proposals introduce reporting mechanisms across all industry sectors within both private companies and public organisations. They protect against dismissal, demotion and other forms of retaliation by an employer. “This would be a big step forward when it comes to whistleblower protection that is lacking in many European states today,” says Karin Henriksson, a partner and senior adviser at WhistleB. “In countries where whistleblower protection is stronger, there is also an urge within organisations and companies to set up a whistleblowing system, in order to have beneficial means of internal reporting.”
“On 20 November 2018, a European Parliament committee approved a directive which, if approved by the European Council, would require all EU countries to provide legal protections for public- and private-sector employees who report certain crimes and public health dangers,” says Mr Worth. “This is a huge step forward.”
Expanded whistleblower protection is currently under active consideration in both the Australian and New Zealand parliaments and other measures have been adopted elsewhere. “In North America, over the past two years, we have seen an expansion of the government programmes that incentivise whistleblowers to come forward and provide government prosecutors and regulators with information about various frauds,” says Ms Inman. “For instance, spurred by the unparalleled success of the SEC’s whistleblower reward programme, Canada’s Ontario Securities Commission has adopted a similar programme for whistleblowers with information about securities law violations perpetrated by companies traded on the Toronto Stock Exchange and the US Department of Transportation has adopted a programme rewarding whistleblowers working for motor vehicle manufacturers or parts suppliers who report information about safety defects.”
Yet, while legislative developments are important, companies must do more internally to provide an adequate whistleblower programme. But what steps will encourage whistleblowers to come forward?
First, companies must encourage a culture of ‘speaking up’, suggests David Yazbeck, a partner at Raven, Cameron, Ballantyne and Yazbeck, LLP. Without this, employees will be fearful of reprisal if they do raise concerns about wrongdoing. “Management must back the ‘speaking up’ culture by demonstrating that they will take expressions of wrongdoing seriously and that they will act immediately and appropriately. It is also imperative that companies prohibit reprisals for disclosing wrongdoing and demonstrate that they would be prepared to take action against those who engage in reprisals. The bottom line is that employees must feel comfortable and safe when disclosing wrongdoing,” he says.
The most important elements to an effective whistleblower system within a company are external channels that allow employees to report corruption, fraud and other misconduct anonymously – offering no opportunities for managers or colleagues to identify the person. Some companies are hiring outside contractors that provide these services on a third-party basis. “Workplace retaliation is almost guaranteed if the whistleblower’s identity becomes known,” suggests Mr Worth. “Anonymity is absolutely essential. Also critical are legally binding bans on workplace retaliation. Codes of conduct are toothless in this regard. Protection must be woven into legally enforceable work contracts.”
“Companies need effective publicity and must offer training so all in the organisation are aware of the system. They must also ensure that whistleblowers are treated confidentially,” says Clive Howard, a senior principal lawyer at Slater and Gordon. “But you can have the most robust protection system on paper, you can have widespread training and awareness, but if there is an issue with the culture of the organisation, the system will simply not work. The culture is set from the top. If people in the organisation see the leadership not taking compliance seriously, then no one will. It means that acts must be seen to have consequences. If someone is reported as acting in breach of rules, yet is still rewarded by the organisation with, for example, a bonus, then any potential whistleblower is given a very clear message – the company does not care about wrongdoing and does not care about whistleblowing.”
Companies must be aware that in whistleblowing cases, trustworthiness is everything, believes Ms Henriksson. In order to design an effective whistleblower protection system and to encourage whistleblowing, companies must consider a number of issues. “Companies must prioritise data security and handle sensitive information in a safe way. They must guarantee the anonymity of the whistleblower, also technically, if the person wants to report anonymously. Companies must also consider ease of use – employees should be able to report in their own languages, for example. There must be transparent case handling and investigation process and a policy for non-retaliation. In order to implement their protection frameworks, companies must make sure that they describe how the whistleblower can remain anonymous while reporting. Policy decisions are not enough; the anonymity of the person reporting has to be also technically thought through and ensured,” she says.
On an organisational level, whistleblower protection is integral to fostering transparency, promoting integrity and detecting misconduct. Historically, employees may have been aware of wrongdoing, but unwilling to come forward for fear of reprisal or because they did not expect to be taken seriously. Andrew Samuels, a founding partner at Addveritas, believes that, in such cases, a company undoubtedly suffers in both the long and short term. “An effective whistleblowing system protects whistleblowers and organisations; if one is not protected, then neither is,” he says. “Starting with a clear policy, organisations need to provide three assurances to people who would raise a concern. First, they must ensure that the organisation wants to know of their concern. Second, employees must know that any person raising a concern will be protected from retaliation or detriment. Thirdly, employees must know that something will be done with the information provided. A good whistleblowing system covers culture, awareness, accessibility, action and trust with controls built into each of these steps to ensure consistency of handling and protection of the whistleblower and the organisation are facilitated throughout the lifecycle of the concern.”
Attitudes toward whistleblowing are changing. Given the recent discussions concerning corporate ethics and compliance following the #MeToo movement, it is fitting that ‘speaking up’ is becoming a much more accepted and widespread practice. However, there is much more work to be done, legislatively and within organisations.
For Mr Howard, authorities in the UK must go further and take their inspiration from other jurisdictions. “A bounty scheme, such as operated in the US, is something we should continue to review and consider. To date, that option has been closed down by Westminster but on any objective view, it has been a real success in the US, uncovering widespread fraud which had directly hurt members of the public. Also, and this should not be overlooked, it has generated considerable revenue for the US government,” he explains.
“Whistleblower protection should develop more sensitive and effective approaches to rooting out wrongdoings and more purposive and nuanced approaches to assessing whether reprisal has occurred,” suggests Mr Yazbeck. “More attention has to be paid to systemic or institutional reactions to whistleblowing, which are often unintentional and harder to detect. Jurisprudence regarding reprisal should draw heavily upon human rights and other reprisal jurisprudence, which confirms that intention is not required to establish a reprisal.”
Undoubtedly, there are risks associated with any whistleblowing system. Employees may exploit anonymity, particularly if financial incentives are offered to whistleblowers and make false reports. However, it is in the best interests of organisations to ensure that they have the right whistleblowing framework and culture in place to encourage employees to speak up without fear of retaliation. And offering incentives has proved successful in the US.
Gratifyingly, the efforts of legislators and companies alike are beginning to have an effect. Whistleblowing is becoming better understood as a force for good and organisations are embracing the need to listen to and investigate internal reports. On 14 November 2018, the SEC’s Office of the Whistleblower issued its annual report to Congress, detailing record-breaking numbers for the SEC’s whistleblower programme in fiscal year 2018, including the highest volume of whistleblower tips and the highest amount of dollars awarded to whistleblowers.
Furthermore, new international standards for whistleblowing remain in development across a number of jurisdictions. If companies wish to encourage people to come forward, with regulators, they must continue to work to communicate the benefits of good systems and controls,” notes Mr Samuels. “They must outline how, when done well, good systems will help reduce fraud, bullying and harassment, and unethical behaviours among other areas of wrongdoing, and as a result, protect their people, their business and their customers,” he adds.
© Financier Worldwide