Corporate Whistleblowers

Securities and Exchange Commission

In announcing its first two whistleblower awards of the year, the Securities and Exchange Commission notes:

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity.

In one case, a whistleblower alerted the agency to a fraudulent scheme and received a share of the recovery — $277,000.  In another case, an investor alerted the SEC. That person was awarded $45,000.

The SEC also notes: All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violation.

We await action on proposed changes to the SEC whistleblower law that could hurt whistleblowers.

Nigeria

Worldwide, whistleblowers have much less protection than they do in the U.S. Nigeria, for example, did poorly on this week’s Corruption Perception survey, scoring a 26 out of 100. A new video from an ongoing anti-corruption effort tells the stories of several Nigerian whistleblowers.


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Corruption persists worldwide and whistleblowers in many countries risk everything. So, two years ago a group of lawyers, anti-corruption activists and investigative journalists founded PPLAAF – French acronym for Plateforme de Protection des Lanceurs d’Alerte en Afrique –  Platform to Protect Whistleblowers in Africa.

PPLAAF co-founder, veteran French human rights lawyer William Bourdon, told

The business writers at The New York Times promise a bump in white-collar crime news in 2020. At the same time, a series of reports raises concerns about oversight of the accounting industry.

From The Times:

Goldman Sachs is negotiating with the Justice Department to pay a penalty of about $2 billion for its role in the 1Malaysia Development Berhad scandal, known as 1MDB.

Accounting fraud became a particular focus of the Justice Department toward the end of 2019. In December, federal prosecutors indicted executives from Outcome Health and MiMed, and opened an investigation into whether BMW, the German automaker, manipulated its sales figures.

The 1MDB case involves 17 Goldman Sachs executives accused by Malaysia of taking  $2.7 billion of the $6.5 billion raised for the 1MDB fund.

How that case will be resolved is an open question because the Malaysian authorities are looking to recoup all of the money raised on behalf of 1MDB.

In the United States, federal prosecutors are looking at possible money-laundering and Foreign Corrupt Practices Act violations by Goldman.

The Times reports the money raised by the fund was to finance infrastructure and other public development projects in Malaysia. But instead, it went to pay bribes and “fuel the lavish lifestyle” of a local financier involved in the case, according to charges.


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We still hear a lot of talk about the reliability of second-hand information in relation to the Trump whistleblower. In November, a study of data from whistleblower reports filed at more than 1,000 companies found it very reliable. Secondhand reports are “47.7% more likely than firsthand reports to be substantiated by management, which suggests that management views many secondhand reports as credible.“

Read our interview with Kyle Welch, the George Washington University business professor who co-wrote the study. Then check out his new piece in the Harvard Business Review.

Kyle Welch

Whistleblowing stories are all over the news. Some observers have attributed this to a systemic change in society. There are more stories about whistleblowing, the argument goes, because there are more crimes to report.

However, rather than an increase in criminal activity, we may instead be observing an increase in the willingness of employees to speak up

The researchers looked at anonymous data from NAVEX Global, which runs employee hotlines for some of the world’s largest companies.

Our study of the data led us to two important findings: First, whistleblowers are crucial to keeping firms healthy. The average manager seems to take these reports seriously and uses them to learn of and address issues early, before they evolve into larger, more costly problems. We also found that second hand reports are more credible and more valuable, on average, than firsthand reports.

Companies that have a higher volume of complaints from whistleblower hotlines report fewer lawsuits and smaller legal settlements, they found. The HBR piece quotes Daniel Garen of Pivot Point Compliance Management. He says employee hotlines “have been the single greatest source for uncovering problems at the organizations I have worked with.”

Unless they are used against employees, he noted.  Some lawyers advise whistleblowers to seek outside counsel first and approach company hotlines with care. The program’s aim is to protect the company, not the whistleblower, creating a built-in conflict of interest.
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Corporate compliance programs aim to make sure a company obeys laws and regulations. One problem with compliance — companies can sometimes make more breaking the rules than following them. And they are complicated. So, they mount compliance programs for show and look the other way. That’s where whistleblowers come in. Or go out. Some internal reporting programs work against whistleblowers, so insiders choose to report wrongdoing to a government agency or the press.

And when they do, companies are sometimes forced to assess the efficacy of their compliance programs.  At Danske Bank, the cost of doing so may lead to layoffs. Bank employees are being offered buy-outs, with managers of the international bank citing rising compliance costs. From Bloomberg.

 Danske Bank A/S is offering 2,000 of its employees in Denmark the option of stepping down as the cost of adapting to a world with stricter regulations and negative interest rates just keeps growing…

Danske has acknowledged its costs are still rising, following a vast Estonian dirty-money scandal. In an interview in Stockholm, the chief executive of Danske in Sweden, Johanna Norberg, said “the peak” level of investment to meet anti-money laundering requirements has “not yet been reached.”
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Bloomberg Law reports on an upcoming legal battle over the denial of Department of Justice request to dismiss a qui tam suit. Over the past two years, federal district courts have granted 25 DOJ motions to dismiss such suits, compared to six in the previous two years, the story notes.

Companies that bill the federal government for services are eager in 2020 to see what courts say about Justice Department decisions to dismiss whistleblower cases it finds to be meritless or a burden on government resources.

The U.S. Court of Appeals for the Seventh Circuit is considering how much deference the federal courts should give to those dismissal decisions in a specific case over whether an Illinois federal judge erred in rejecting the DOJ’s move to dismiss a suit alleging a drug kickback scheme by CVS, Omnicare, and others.

More on the Granston memo, which triggered the dismissals:


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It may be the end of the year for the rest of the world, but the fiscal year ended in October. As we wait for the Department of Justice to crunch its numbers for the year end report on False Claims Act collections, we look back on this year’s reports from other federal programs.

The Inspector General (IG) of the Intelligence Community, Michael K. Atkinson, called whistleblowers the agency’s  “first responders” in his semi-annual report to Congress. In April, the office issued a report entitled “Whistleblowing Works.”

The Commodity Futures Trading Commission awarded more than $75 million in FY 2019 to five whistleblowers  “who voluntarily provided original information or analyses that led to successful enforcement actions.” This total includes the program’s largest-ever award of approximately $30 million.

SEC

The Securities and Exchange Commission reported that it awarded approximately $60 million in awards to eight people  “whose information and cooperation assisted the Commission in bringing successful enforcement actions.” This included a $37 million award to a whistleblower who supplied information that led to a settlement against JPMorgan Chase & Co. over claims the company was not transparent with investors about conflicts of interest.

The most recent report from the IRS came out in February and reported that whistleblowers helped the agency collect more than $1.4 billion in criminal fines, and civil forfeitures in fiscal year 2018. Since 2007, the program has made more than $800 million in whistleblower awards based on the collection of $5 billion.


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  • A round up of recent news begins with a link to a new piece in The Hill by the founders of the NWC. They ask “(N)ow that the impeachment case is clearly headed to a Senate trial, what will become of the whistleblower?”
  • Time magazine declared public servants the “Guardians of the Year.” Whistleblowers expect blowback. But paranoia about a “deep state” conspiracy has brought much wrath upon those professionals. Previously they were seen, at worst, as bureaucratic or boring. So, a tribute is in order.

There are 363,000 federal workers in the greater Washington, D.C., area. In the first week of September, history turned in the office of one of them. The intelligence analyst who blew the whistle on President Donald Trump had just gotten off the phone with the Inspector General’s office.

The piece quotes NWC chair Stephen Kohn on how the intelligence community statutes were designed to protect both classified information and the whistleblower.

“That’s what’s so significant about the Ukrainian case,” says whistle-blower attorney Stephen Kohn. “Congress specifically said, If you want to be protected under this law, you raise your concerns this way.”


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Two whistleblowers are scheduled to testify on Capitol Hill this morning. Both hearings begin at 10 a.m.and will be broadcast live.

Coast Guard Lt. Cmdr. Kimberly Young-McLear will testify about retaliation she faced after complaining about bullying and harassment at the Coast Guard Academy.  In 2018, the Department of Homeland Security inspector general confirmed her complaints. From the New London Day. (The academy is based in the Connecticut city.)

Young-McLear says she endured four years of abuse at the academy, including her supervisor making belittling comments toward her, using her as a scapegoat and undermining her work. She said she exhausted the complaint process, making reports to her Coast Guard chain of command, including senior leadership at the academy and the commandant, and through the Coast Guard and Department of Homeland Security’s civil rights reporting processes.

“They all failed me. The reporting systems that we have in place failed, and I was retaliated against,” said Young-McLear, who left the academy this summer for a cybersecurity fellowship under the Department of Homeland Security.

Coast Guard officials say they have addressed Young-McLear’s concerns but problems at the Coast Guard persist.


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The Securities and Exchange Commission (SEC) cancelled a meeting in October to consider controversial changes to its whistleblower program. Clearly, the agency is reconsidering, but Stephen M. Kohn, chair of the National Whistleblower Center, predicts we won’t see any details until 2020.

Stephen M. Kohn

Kohn argues that the proposed changes would destroy the program by discouraging whistleblowers from coming forward. When asked by a writer from the Corporate Crime Reporter how he feels about possible amendments to SEC’s proposals, Kohn had this to say:

“I’m on a wait and see on the outcome. The devil is in the details. They can meet us halfway. But on some of these, halfway is a disaster. But we will fight to the end. If the outcome is bad, we will litigate it and we will take it to Congress.”

However, he did say that the postponement of the decision suggests SEC staff are listening to what the NWC has to say. Kohn his team met with them several times and brought along emails and signature from 110,000 people.


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