Whistleblowing: should “doing the right thing” be rewarded?

Gary Gill, Partner in Charge, Forensic
Gary Gill, Partner in Charge, Forensic
Lauren Witherdin, Director, Forensic
Lauren Witherdin, Director, Forensic

It’s no secret that whistleblowing is a risky business. Historically, whistleblowers have had little protection from reprisal and even less incentive to come forward to “do the right thing”.
However, with increasing calls for stronger legislation in Australia to protect whistleblowers and the increasing use of financial rewards by the US government, is the tide finally turning?

In August, for the first time, the US government awarded a bounty of nearly USD5 million to a former employee of an Australian corporation. This marked the first time a US whistleblower bounty has been provided to an employee of an Australian company.

Meanwhile, over in the UK last week, the Financial Conduct Authority (FCA) released its new whistleblowing rules, which bring UK regulations for banks more in line with the US Securities and Exchange Commission. The rules aim to encourage a culture where individuals feel able to raise concerns and challenge poor practice and behaviour. The new rules will require UK banks to consider the adequacy of their whistleblower system, effectiveness of controls and communication and training of employees, however the rules fall short of including financial payments for information.

All this further highlights the weaknesses in Australia’s whistleblower system, particularly in the private sector, on the back of a stream of high-profile cases including CommInsure, 7-eleven, IOOF and Thiess.

In Australia, we have a mismatch of inconsistent whistleblower laws at both federal and state level.

While the Commonwealth public sector whistleblowing framework is now in good shape, the protection available through the state frameworks and the private sector is limited at best. Eligibility for this protection depends upon the status of the whistleblower, the subject matter of their concern, and the applicable jurisdiction.

Current Australian laws provide very little practical protection from reprisal and certainly no chance of a financial reward for whistleblowers who are often isolated, mistreated and victimised, sometimes to the point where their livelihood is adversely impacted.

By contrast, whistleblowers in the US are encouraged and rewarded for speaking out. The US whistleblower protection laws are more mature and allow for a whistleblower to receive a share of any fine issued to a company as a result of the information they have provided. Given the magnitude of potential fines, this can amount to millions of dollars.

Global KPMG research released in May 2016 showed that the most effective measure for uncovering fraud are whistleblowing hotlines (20%) and internal tip-offs (24%).
In light of these numbers, and considering the potential impact on whistleblowers’ livelihoods, should whistleblowers receive financial incentives for their trouble? Some would argue that a financial incentive could skew motivation for reporting wrongdoing and whistleblowing should be considered a public good which shouldn’t be associated with personal gain.

On the other hand, a financial reward would go some way to compensating whistleblowers for the significant personal distress many of them experience. It could also give reluctant bystanders to company fraud the nudge they need to speak up.

If a financial reward scheme was to be introduced in Australia for whistleblowing, it would likely be limited to very specific situations such as tax frauds where monies are recovered and fines issued as a result of the ‘tip-off’. Financial rewards would, however, send a strong message that we take whistleblowing seriously in Australia, and speaking out is encouraged.

Regardless of whether reward-based whistleblower incentives are introduced, it is vital that Australian corporations encourage individuals who have knowledge of or concerns about instances of fraud or misconduct to speak up, and that whistleblowers are protected from reprisal.

In the meanwhile, it’s unlikely that too many more Australian whistleblowers will see a multimillion dollar bounty for their efforts… Just a clear conscience for calling out poor behaviour, and the peace of mind that comes with knowing that they have “done the right thing”.

@ggil_kpmg

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