Whistleblower programmes: the why and the how
February 2024 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2024 Issue
In 2023, two events in the regulatory world were of particular note. The first, in August 2023, concerned the largest-ever money laundering investigation in Singapore, where the Singapore authorities arrested 10 individuals and seized over $2.1bn of assets in the city-state. The second followed in November 2023, when the US Department of Justice announced that a fine of $4.3bn had been levied on cryptocurrency exchange Binance for its failure to comply with relevant regulations.
Events such as these have again focused the spotlight on the importance of sound corporate governance and processes. Such processes include the implementation of safe and efficient internal whistleblowing programmes.
Organisations and regulators rely heavily on employees to act as whistleblowers and to report any wrongful or criminal conduct within an organisation. But employees who identify wrongdoing may be reluctant to report the wrongdoing for fear of retaliation or the exposure of their identities. This fear is not without basis – a 2021 study by Harvard Business School called ‘Cash-for-information whistleblower programs: Effects on whistleblowing and consequences for whistleblowers’ found that in 37 percent of cases, firms retaliated and responded to employee whistleblower reports by dismissing the whistleblower employee.
This is an unfortunate state of affairs. Employee aversion to whistleblowing can have profound consequences – legal, financial or otherwise – on their companies. The implementation of sound whistleblowing frameworks is therefore crucial to the operations of all organisations, large and small.
The why: importance of whistleblowing frameworks
In 2018, months into his new role as head of Wirecard’s Asia-Pacific legal department, Pav Gill identified various instances of falsified accounts and forgery. He reported these issues to Wirecard’s Munich headquarters, but this backfired unexpectedly – attempts to investigate these discrepancies were stonewalled and Mr Gill was eventually forced out of the company.
The response of the powers-that-be in the upper echelons of Wirecard’s management show that whistleblowing may sometimes be met with resistance. Companies may view whistleblower reports as nothing more than mere road bumps in the drive toward revenue and profits.
But this ought not to be the case. In any organisation, observers of any wrongdoing must feel free to report it via sound whistleblowing frameworks, and assured that the report will be managed fairly and expeditiously, and without fear of reprisals.
Around the world, governments increasingly recognise whistleblowing as a valuable source of information and a driver of regulatory compliance. Most countries have now adopted some form of whistleblower protections, whether through legislation, regulations, directives or any other legal mechanism. In some jurisdictions, such as Germany, Japan and Australia, laws which require that companies establish whistleblowing frameworks with whistleblower protections have been enacted.
It is therefore incumbent on organisations to put in place suitable whistleblowing programmes specifically designed to manage employee whistleblower complaints. Organisations should not only ensure that their whistleblowing programmes meet the minimum requirements of the jurisdiction, but also that they provide their employees with confidence and belief that any complaints will be managed expeditiously and in the appropriate manner.
The benefits of a safe and effective whistleblowing programme are myriad. Maintaining a culture where employees feel safe to call out risks and raise concerns encourages collaboration and diverse thinking, and allows companies to take steps to address and manage misconduct or ethical concerns. Rank-and-file employees are typically the first line of defence against corporate wrongdoing, and a whistleblowing framework may allow companies to take prompt action against any wrongdoing, such as fraud or breaches of regulatory requirements. In doing so, companies may avert not just financial consequences but also reputational damage. Nipping the problem in the bud will therefore often benefit the company, financially or otherwise, in the long term. Even in regions where regulations do not mandate whistleblower programmes, companies that adopt them signal a commitment to a culture of compliance.
In extreme cases, an effective whistleblowing programme can mean the survival of an entire organisation. Two years after Mr Gill’s departure from Wirecard, the company’s financial discrepancies were exposed and over €1.9bn was reported to be missing from its accounts. Its chief operations officer fled to Germany and remains a fugitive. Additionally, Wirecard’s chief executive has been criminally prosecuted and faces up to 15 years imprisonment. As for Wirecard itself – once a darling of the German FinTech world with a market capitalisation of $28bn – the company filed for insolvency in June 2020.
The how: implementation of whistleblowing frameworks
While the specific requirements in each jurisdiction may differ, certain core tenets are typically applicable to any whistleblowing framework, as outlined below.
First, to encourage whistleblowers to come forward freely, whistleblowers should be provided with an avenue to make reports anonymously. If the whistleblower opts to provide his or her identity, or if the identity of the whistleblower is clear from the content of the report, the whistleblower’s identity should be kept strictly confidential and cannot be disclosed without their consent. The protections afforded to whistleblowers should be made clear in the organisation’s policies. In particular, it must be guaranteed that no retaliatory actions will be taken against any good faith whistleblower.
Second, the whistleblowing policy should provide clarity on matters which fall within the whistleblowing framework. These would typically include information relating to illegal or immoral acts, such as corruption, fraud or unacceptable workplace conduct.
Third, the manner by which an employee may whistleblow should be communicated clearly to all within the organisation. A step by step guide on the whistleblowing process may be provided. The avenues by which the report can be made, whether by way of phone hotlines, email, website submission or direct communication to a line manager or to the relevant department, should also be spelled out explicitly. Whistleblowing policies should also be clear about when processes or investigations are expected to be completed.
Fourth, to facilitate the smooth handling of any report, a standard operating procedure should set out the steps to be taken by any persons in charge when a report is received. Crucially, procedures should be put in place to ensure that any information relating to the report and any subsequent communications on the report are kept strictly private and confidential. Larger organisations can consider appointing a specialised team dedicated to addressing whistleblower complaints. Training sessions may also be conducted for manager-level employees, guiding them on how best to manage any whistleblower reports they receive.
The guidance set out above is of general application, but organisations should of course take heed of the specific regulations applicable to them in their jurisdiction. The growing cognisance of the importance of whistleblowing frameworks indicates that developments can be expected in this field. Where necessary, legal guidance should be sought on implementing whistleblowing processes and handling whistleblowing reports.
Navin Joseph Lobo is a partner and Shaun Oon and Chun Kai Yap are senior associates at Premier Law LLC. Mr Lobo can be contacted on +65 6422 3029 or by email: navinjoseph.lobo@rpc.com.sg. Mr Oon can be contacted on +65 6422 3025 or by email: shaun.oon@rpc.com.sg. Mr Yap can be contacted on +65 6422 3026 or by email: chunkai.yap@rpc.com.sg.
© Financier Worldwide
BY
Navin Joseph Lobo, Shaun Oon and Chun Kai Yap
Premier Law LLC
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Whistleblower programmes: the why and the how