Don’t blow the whistle to get rich quick

In the Sicilian Mafia, being a police informant was the biggest crime you could commit against the mob. Police informants were often psychologically traumatised in the weeks leading up to their murder, and their murders were in itself brutal in nature.

However, in a society like South Africa’s, where corruption and racketeering has grown into its own culture, whistle blowing has risen in prominence and has become a vital part of our society. There are even laws in the Companies Act which gives people a legal obligation to be whistle blowers if they are aware of any wrongdoing.

But there have been cases throughout history where people have made money off being police/government informants. There is a danger of using this as a career or as a get rich quick scheme.

Taking a chance

Whistle Blowers, a South African independent whistle blowing service provider, reports that it is receiving a growing number of calls from companies seeking advice on the pros and cons on the offering of rewards for information that leads to a fraud conviction.

Dale Horne, Director of Operations, believes this is because of publicity surrounding massive pay outs running into hundreds of millions of dollars in America where it is encouraged.

Bradley Birkenfeld, an ex-banker who reported his bosses at UBS for helping US clients to hide money in Swiss accounts received $104 million and Cheryl Eckard, a former employee of drug maker Glaxo Smith Kline, who alleged that there were manufacturing faults at one of the company’s plants, collected $96 million. A group of employees at Pfizer netted $102 million in September 2009 for exposing the illegal promotion of the arthritis drug Bextra while Kyle Lagow pocketed $14.5 million for providing information about alleged underwriting and mortgage fraud at a Bank of America subsidiary.

Think about your actions

Horne urges local companies considering going this route, albeit on a far smaller scale, to think carefully about the potential consequences for both themselves and their employees.

America’s much debated Dodd-Frank Act, which targets corruption in the financial industry in particular, contains a whistle blowing clause that enables the Securities and Exchange Commission to pay out a reward equivalent to between 10% and 30% of the money recovered should it obtain a conviction with sanctions exceeding $1 million.

Horne believes that whistleblowing is the best and most effective means of rooting out wrongdoing in the corporate domain – a fact underscored by the 2014 Report to the Nations on Occupational Fraud and Abuse carried out by the Association of Certified Fraud Examiners (ACFE).

“Based on 34 615 cases spread across America, Europe, Asia, Canada, Latin America, the Middle  East and Africa from October 2013 to December 2013, this report indicated that over 42% of all prosecuted fraud cases were the result of a tip. However, less than 11% of companies provided rewards for whistle blowers,” says Horne.

Getting to the crux of the matter

The crux is that companies need to closely examine the motives of those reporting questionable activities in exchange for cash. There is always the chance of a get rich quick scheme that could backfire.

“The company intending to pay rewards must consider elements such as how the informer would communicate the information, who would the information be communicated to, how he will be guaranteed protection, how the value of the reward will be determined, the grounds on which rewards will be paid out, and how the rewards would be paid. Should a company be satisfied with answers to these questions, then this should be operated separately from any official whistle blowing facility,” says Horne. 

Those administering internal whistle blowing programmes should not also administer the reward scheme, as this creates a conflict of interest. If rewards are offered, these should be totally independently administered from the management of the whistle blowing program.”

The silver lining

The good news, according to Horne, is that most people who do blow the whistle on corruption don’t do this for a reward. The AFI study noted that at any company, 25% of employees are dishonest, 25% are honest and the remaining 50% could go either way depending on the culture of the organisation.

Therefore Whistle Blowers concentrates on the aspects of ethics and bringing the majority into the crime fighting fold. “Our experience shows that people don’t come forward to give information for money generally but because it’s the right thing to do. Ultimately, the aim should be to create a culture of honesty within an organisation. We encourage an ethical solution to a problem where employees speak up in order to protect their employment and their companies,” he says.

Editor’s Thoughts:
Whistle blowing should be seen as an important function in the financial services industry. Imagine the money that would have been saved in the Fidentia and Sharemax saga’s if the whistle were blown earlier. The recent case involving James Stern is another example that proves that while nobody likes a snitch, whistle blowers play a vital role in our society. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.