Whistleblowing (WB): A powerful tool to deter and detect fraud and corruption – Part 2

By: Kyriacos Savva*

Protection from retaliation

Joseph Wells (2012), believes that whistleblowers (WBs) frequently suffer a fate worse than death. Most of the WBs are vilified, demoted, fired and scorned as rats. Kovacich (2008), is also reluctant about WB, although their role is vital, they may pay a heavy price. The career of a whistleblower will be in danger as management use reorganisations as a common way to squeeze someone out of the corporation. Additionally any chances of joining another organisation are limited due to the stigma attached on the name of the whistleblower.

WBs suffer discrimination and retaliation from fellow employees, as well as, from current and future employers (Vinten, 1995). WB disturbs not only one’s relations within the current organization; it also endangers future job prospects. One reason why employers are reluctant to hire WBs is that their action is seen as a breach of loyalty to the organisation (Qusqas and Kleiner 2001). Needless to say that Cynthia Cooper, internal auditor of WorldCom, is still unemployed. Following the WorldCom debacle in 2002, where she managed to unearth $3.8 billion in fraud, she is still unable to find a new job.

The Ethics Resource Center conducted a study in 2010 on blowing the whistle on workplace misconduct, which revealed several forms of corporate retaliation to be at a significantly high level. 60% of the respondents received cold shoulder, 62% were excluded from management decision making, 55% were verbally abused by supervisor or senior management and 48% almost lost their job. Also 43 % were not given promotions or salary raises, and in contrary 18% were demoted.

Cendrowski, Martin and Petro (2007) went deep into their research on fraud deterrence by expanding on the importance of the Company accounting reform and Investor Protection ACT of 2002 known as Sarbanes Oxley case (SOX). When it comes to WB, every book refers to SOX, an ACT signed in an attempt to recover public confidence in the US market, reform corporate accounting practices and provide protection of WBs who bring violations of the Act to the attention of the authorities. SOX requires all publicly traded companies to have an anonymous reporting function. Both public and not public companies should involve lawyers specialised in employment law in the development of internal WB procedure and in case of any investigation the lawyers to safeguard the integrity of the process, including the preservation and protection of all relevant documents. SOX enacted several provisions on antiretaliation statutory measures for criminal penalties, fines and/or imprisonment up to ten years for such a conduct against an employee blowing the whistle on covered entities engaged or planning a violation of criminal law or securities fraud.

However, there are several authors and writers that criticized SOX of failing to foster and encourage WB (Rappa and Anderson, 2012).Berkowitz (2011), states that under SOX, an employee was protected from retaliation only if the whistleblower reasonably believed the reported act constituted a violation of certain specified statutes. The Dodd-Frank Reform (2012),  which brought the most significant changes to financial regulation in the US since the regulatory reform that followed the Great Depression,  extends protection to any employee bringing a complaint to the regulatory authority, being the SEC, without specifying the need for that employee to reasonably believe the conduct constitutes such violation.

The US Whistleblower Protection Act (WPA) of 1989 protects federal WBs working for the government and report agency misconduct. A federal agency violates the WPA if agency authorities take or threaten to take retaliatory action against any employee or because of disclosure of information by that employee. On November 27, 2012, President Obama signed into federal law the Whistleblower Protection and Enhancement Act (WPEA). This landmark legislation strengthens the WPA to better protect federal employees who come forward to disclose government waste, fraud, abuse, and other wrongdoing.  WPEA established the Whistleblower Protection Ombudsmento educate agency public sector personnel about whistleblower rights and to provide the Office of Special Counsel with the independent right to file «friend of the court» briefs, or amicus briefs, with federal courts.

The Australian Public Interest Disclosure Act commenced in mid-2013. This Act offers comprehensive management and protection to WBs. Confidence in this protection is anticipated to positively influence the reporting of wrongdoing by fed­eral public service WBs and will require ongo­ing monitoring. It is important to note that WBs from the corporate, unincorporated and charitable sectors still remain largely unprotected in Australia. In UK, the Public Interest Disclosure Act 1998, inserted new sections and amended the existing sections in the Employment Rights Act 1996 to introduce whistleblower protection in UK.

The European Anti Fraud Office (OLAF) requires that «if you are a civil servant working for any of the EU institutions, you have an obligation to report possible cases of fraud, corruption, other illegal activity, or professional conduct which may constitute a serious failure to comply with the obligations of officials». WBs respecting the staff regulation on this matter will be protected from adverse consequences. This covers the identity of the whistleblower, as well as the mobility and staff report of the person concerned. The report to OLAF whistleblower Office can be made anonymously. There is also the flexibility to communicate with OLAF in any of the 23 official EU languages. It is crucial to be precise and provide detailed information as possible in case someone suspects:

  • fraud or other serious irregularities with a potentially negative impact for EU public funds, whether EU revenue, expenditure or assets held by the EU institutions.
  • serious misconduct by Members or staff of EU Institutions and bodies.

The Council of Europe Resolution 1729 (COER) emphasised the importance of offering adequate protection to WBs. In particular, COER highlights the danger of «offering a shield of cardboard» which would entrap them by giving them a false sense of security. Thus attention is drawn to deal with any form of retaliation. This shall include those who undertake reprisals to counterclaims from the victim «with the intention of having them removed from office or otherwise sanctioned».  In practice, this will simply mean that employers would victimise WBs by including a list of matters that will be regarded as serious misconduct and dealt with internally under their internal disciplinary procedure (Vandekerckhove and Lewis, 2011). In these cases several laws are also protecting the whistleblower with regards to wrongful, unfair and wrongful dismissal.

According to Barisar (2010), over 30 countries have now adopted specific whistleblower protections. Others have adopted protections through other laws such labour laws or public sector employment rules. Only a handful of countries have adopted comprehensive WB laws. These laws have two major aspects:

a) proactive part which attempts to change the culture of organizations to come forward and facilitate the disclosure of information corrupt practices and mismanagement in the organisation, and

b) a series of protections and incentives for people to come forward without fear of being sanctioned for their disclosures.

A 2009 report of Transparency International «Alternative to silence: Whistleblower protection in 10 European countries» revealed that most countries in the study rely on a patchwork of legislation that fall under different sectors and existing laws. There is no single piece of legislation except in Romania, which passed a Whistleblower Protection Act in 2004. National legislation are generally fragmented and still weakly enforced. The most of the WB related laws are too narrow, only applying to the public sector or to certain types of wrongdoing. There is considerable evidence in most countries that retaliation against WBs regularly occurs and that many workers’ concerns about it, persuade them to keep silent.

WBs are now being seen in a more positive angle and there is a possible culture shift underway, contributing to the fight against corruption and to preventing mismanagement, abuses and accident.

It is important for the Cyprus case, to thoroughly study the 2010 summit of the G20 which issued a special report for the Anti-Corruption Action with the title: Whistleblower protection frameworks, compendium of best practices and guiding principles for whistleblowing legislation which is a crucial guide for countries not yet put forward such programs.

According to the 2013 National Report «Towards Greater Protection and Support for Whistleblowers in the EU» in Cyprus there is weaker protection for private sector workers (in relation to public sector employees) involved in internal WB.  Even weaker is the protection for external WBs who are not satisfying the employee criterion. In terms of content, the protection levels created by the complex and multi-sourced legislative framework are primarily limited to the public sector.

 

*Kyriacos Savva

FCCA, CIA

Member of the Economic Crime and Forensic Accounting Committee of the ICPAC

Member of Transparency Cyprus

Associate member of the Association of Certified Fraud Examiners

Member of the Institute of Internal Auditors (IIA) of  America and IIA Cyprus