UK, US companies will suffer without sufficient whistleblowing measures during Covid-19
16 Apr 2020 12:00 am by Annie Robertson
British companies will suffer huge financial losses and potential enforcement action unless whistleblowing measures are taken seriously during the Covid-19 pandemic, while the US is trying to keep its more robust whistleblowing programs functional on several fronts, with an increase in reports expected.
An apparent surge in financial crimes during the coronavirus crisis has highlighted the lack of protective measures afforded to whistleblowers across the globe.
By addressing employee concerns and investigating suspected wrongdoing, companies in the UK can help protect the economy during the unprecedented pandemic. In the UK, more than 190 billion pounds ($237 billion) is lost each year to fraud, the UK’s National Crime Agency estimates. Most of this amount is never recovered.
By contrast, the US Treasury has recovered billions in misappropriated funds as a result of whistleblower actions since 1986. The recovered amount — while still overshadowed by the sheer volume of money stolen — has helped carve out a culture of cooperation between law enforcement and whistleblowers under various laws.
"Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $62 billion," the US Justice Department said in January in a report on fraud recoveries under the bill. The whistleblowers who reported those false claims receive a portion of the recovered funds.
Also, individuals helping the US Securities and Exchange Commission close cases against securities law violators receive a portion of the sanctions against the misconduct. The SEC today said, upon awarding $27 million to a single whistleblower, that it has paid about $425 million to 79 individuals since issuing its first whistleblower bounty in 2012 under Dodd-Frank Act provisions.
The UK government, meanwhile, has been reluctant to support or incentivize individuals to come forward with suspected wrongdoing. Despite an all-party parliamentary group's demand last July for a radical overhaul of whistleblower legislation and the adoption of an Independent Office for the Whistleblower to handle tip-offs, no progress has been made since.
The longer the UK government continues to stall its implementation of whistleblower legislation, the greater the impact on the economy will be.
— EU requirements, company behaviors —
In December, a new EU directive on whistleblower protection was introduced requiring public and private bodies to have “reporting channels” for whistleblowers by the end of 2021. In addition, the European Commission urged member states to enact wider whistleblower protections in the spirit of the directive; the UK, however, arguably viewed it as a mere box-ticking exercise and hasn't implemented any further measures.
This is often the attitude adopted by large banks and corporations across the globe, and only a slim minority of companies work to nurture a culture where individuals feel safe to speak out.
Earlier this year, a UK High Court was told auditing giant Ernst & Young "colluded with the Dubai authorities" to help protect a corrupt client involved in a $200 million money-laundering scheme. A former employee, Amjad Rihan, blew the whistle over the wrongdoing and claims he was pressured to resign. EY faced no action by the authorities.
In May 2018, Barclays’ chief executive was fined 642,000 pounds by the UK’s Financial Conduct Authority for attempting to unmask a whistleblower at the bank. In December 2018, Barclays was fined $15 million by the New York Department of Financial Services for the same conduct. The vast difference between the fines highlights how the UK and US deal with similar conduct.
In the UK, whistleblowers are often marginalized and viewed as troublemakers. The UK’s Serious Fraud Office has made clear its stance on refusing to incentivize whistleblowers, with former Director David Green calling it “slightly grubby” — a sentiment echoed by current Director Lisa Osofsky. This position is also shared by the UK’s FCA and NCA.
In the absence of legislative will, the answer lies with private companies adopting creative solutions and working toward a common goal of protecting against financial crime.
— US efforts —
US regulators say they remain open to receiving whistleblowing complaints during the Covid-19 crisis, and are maintaining web-based complaint submission forms. Today's $27 million whistleblower award from the SEC was for information that saved significant resources. It's the ninth such award this year.
Further, the Commodities Futures Trading Commission is still operating its whistleblower.gov site, which includes an online submission form and information about its award program.
On the corporate side, Navex, an integrated compliance firm, said it is seeing an increase in health-related internal reports to companies from their own employees. About 60 percent of employees who are concerned about working under unhealthy conditions are bucking a trend in whistleblowing by giving their full names rather than reporting anonymously, Navex said. By contrast, in 2019, about 60 percent of all internal reports were made anonymously, Navex added.
Covid's impact on global business — and the increased risk of financial crime — will see a surge in corporate whistleblowing.
"On the [Foreign Corrupt Practices Act] front, I think there is a definite concern that while the globe is under this work-from-home quarantine and resources in certain areas are becoming scarce, that there will be an uptick in bribery of officials in order to secure necessary product," Greg Keating, chairman of Choate, Hall and Stewart's whistleblower-defense group, told MLex.
While individuals work remotely, “it becomes increasingly tempting to operate in the dark and the temptation to cut corners or make shady deals via cell phone increases," Keating added.
Whistleblowing allows a company to investigate and eradicate wrongdoing — reducing the possibility of future losses and subsequent enforcement action.
While the typical method for internal reporting in corporations relies on telephone and online submissions, they constitute only the initial phase of whistleblowing. Keating explained that the follow-up phases during the Covid-19 lockdown, where companies investigate and attempt to resolve or close the cases, will be more difficult.
"I think contemporary staffing levels both in government units and private companies will be strained going forward, particularly if the pipeline of concerns [and] complaints which are logged builds," he told MLex.
While preliminary measures can be taken to interview witnesses and review documents, “a great many investigations cannot practically be done remotely using remote technology," Keating said.
Unless companies take initiative to embrace whistleblowing policies and safeguards amid the heightened risk of financial crime, they will continue to fall into the same enforcement traps — at great expense to the economy and themselves.
29 Jul 2020 1:08 pm by Martin CoyleThe head of the UK's white-collar crime agency has seen pressure on her intensify, with a complaint alleging “serious professional misconduct” by Lisa Osofsky.
13 Jul 2020 12:12 pm by Martin CoyleA swoop by US prosecutors on Saman Ahsani sparked an extraordinary row between the two countries’ fraud agencies.
A mammoth fine dished out to Commerzbank by the UK financial services regulator is a taste of things to come, as fraud is driven by Covid-19.