Whistleblowing is (in a few words) the act of passing on information regarding wrongdoing in an organization that is aimed at identifying and resolving the issue being reported.
The person coming forward with such information is called a whistleblower. Any member of the organization, no matter their spot in the hierarchy of command, can be a whistleblower, provided that they are acting in public interest.
It is crucial to remember, that a whistleblower is not a snitch:
Whistleblowers can provide data on several types of misconduct, such as (but not limited to):
Examples of famous whistleblowers include:
Sherron Watkins – a former Vice President of Corporate Development who shed light on the fraudulent accounting practices of Enron, considered a major player in the field of energy, commodities, and services at the time. In recognition of merit, she was named one of Times “Persons of The Year 2002”
Sherron Watkins (on the right); source: time.com
Harry Markopolos - a securities executive who warned the U.S. Securities and Exchange Commission about Bernard Madoffs wealth management business thrice over the course of five years, each time supplying proof. Three years after Markopolos’ last tip, in 2008, Bernard Madoff confessed to operating the largest Ponzi scheme in world history, which was also the largest financial fraud ever committed in the US.
Harry Markopolos; source: npr.org; “Madoff Whistleblower: SEC Failed To Do The Math”
Howard Wilkinson – a manager at Danske Bank, where he worked until 2014. He alerted the Estonian branch of the company to money laundering taking place at the bank, but his reports were ignored at the time. In 2018 the 200-billion-dollar scheme came into light, with evidence of money being funneled from Russia to the United States through Europe.
On numerous occasions Wilkinson called upon the European Union to impose regulations that will “undercut the fear to report wrongdoing and a culture of silence that permits crimes, such as money laundering”.
The main challenge to whistleblowing remains the fear of negative consequences that arise for those who report misconduct, such as bullying, retaliation and employment loss.
Why is whistleblowing vital both in public and private sectors?
Internal knowledge of an organization is priceless when it comes to detection of wrongdoing. It is much more difficult to detect illegal activity “from the outside”. According to the calculations performed by the Association of Certified Fraud examiners a company in which misconduct or malpractice occurs on average loses approximately 5% of its’ profits annually.
Independent studies published by the Association of Certified Fraud Examiners determined that:
The results of ACFE research show, that when uncovering wrongdoing, companies which neglected to implement any compliance tools suffered twice more in damages than those that adopted even the most basic solutions.
What are other advantages of whistleblowing?
Studies show that a company’s image is directly reflected in its’ value:
Furthermore, implementing whistleblowing procedures facilitates in growing trust within the members of the organization.
The sole purpose of compliance is to make sure that an organization is operating in accordance with the law and its internal policies. Without proper whistleblowing measures there is no way to uncover areas, where compliance is not being implemented correctly. It is important that every employee plays their part in ensuring that a company is operating with ethical values at its core and whistleblowing remains the only tool to guarantee that.
Due to the entry into force of the Directive 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law, the EU members are obliged to either establish or adapt their existing legal rules so that whistleblowers are provided with a mandatory level of protection.
EU member states must make sure that from the 17th of December 2021 their domestic regulations provide that:
In Ukraine on the 1st of January 2020 a law entered into force that:
Even though regulating whistleblowing remains a global legislative trend, it is quite possible (and greatly beneficial) to implement appropriate measures even if there is no legal obligation to do so.
Let us look at Poland as an example – up to this point only the banking sector was required to provide protection to whistleblowers, as well as to establish formal procedures of signalizing. Despite that, the subject of whistleblowing have been present in the public debate and both public (e.g. the Office of Competition and Consumer Protection) and private entities (e.g. in the field of pharmaceuticals) have begun to adopt whistleblowing solutions.
HOW TO ESTABLISH A WHISTLEBLOWING SYSTEM?
1. First of all, the employees should have access to appropriate channels of communication, through which they can pass information about the possibility of misconduct. It is crucial that the form of communication matches the character of an organization and is useful to its’ employees – e.g. a post box where written complaints can be left or a hotline may prove to be a solution more effective than an online tool in case of companies who mostly hire employees performing physical labour and don’t provide them with electronic devices for work use
The usual channels include:
2. The employees shall have a guarantee that their personal data, shared when making a tip, remains confidential. Enabling whistleblowers to report wrongdoing anonymously is also worth considering.
3. The procedure of reporting wrongdoing shall be formalized (e.g. enjoy status of an internal policy), the knowledge on how to initiate it shall be common and the instructions shall be easily accessible.
4. The reports shall be reviewed by an impartial person either within or outside the organization. Such matters are usually handled by a legal or compliance team and can be easily resolved with the help of outsourcing.
5. Following the report, an internal investigation shall be opened that thoroughly explores the allegations presented by the employee. The employee shall be informed of the results of the investigation.
For whistleblowers to take an active role in exposing misconduct:
WHEN TRUST IS ROOTED WITHIN THE COMPANY’S STRUCTURE, THEN THE WHISTLEBLOWING SYSTEM IS EFFECTIVE AND THE ORGANISATION SAFE.
The authors of the lesson:
Julia Besz, LL.M | DZP Compliance Team | Associate, Poland
Barbara Lorenz | DZP Compliance Team | Paralegal, Poland