News Analysis

Should whistleblowers be rewarded?

by Stephen Conmy on Oct 14, 2021


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Whistle-blowers can have a major impact on corporate activity. Many people worldwide were gripped by the testimony of Frances Haugen, 37, a former employee of Facebook who worked as a product manager. Haugen appeared before the US Congress giving evidence, against Facebook, to the Senate Commerce Subcommittee on Consumer Protection.

In testimony to Congress, she said that the social network’s products harm children and polarise people in the US and that its executives ignore safety concerns to focus on profits.

In America, whistleblowing, while still very challenging, is encouraged. Can other nations adopt a more progressive and supportive stance towards whistle-blowers?

Can whistle-blowers stop harm before it is unleashed?

In Ireland, for example, scandals caused by banks and financial brokers can be devastating to people and communities, and they have ruined many lives and families. What if there was a way to prevent the scandals from happening, rather than trying to chase the white-collar offenders after the event?

New laws are to be introduced in Ireland to tackle financial crimes carried out by bankers and brokers. The Individual Accountability Framework is a piece of legislation introduced in Ireland. It will allow the Central Bank to hold executives in banks and other financial institutions personally accountable for any regulatory failings on their watch.

Is it a substantial piece of legislation?

Many people think it isn’t strong enough. The proposed legislation deals only with potential sanctions once wrongdoing has been identified.

Do you mean the regulators can only do something once someone has been found guilty of wrongdoing?

Correct. Some argue this won’t be enough to prevent a banker from ‘having a go’. After all, if their misdeeds are very hard to prove, what are the chances of getting caught? The tracker mortgage scandal is a case in point. There were entire teams of people working in the banks who knew what they were doing was wrong, and none of them was held to account.

So, what’s the solution?

One proposed solution, put forward by Vincent Digby in The Irish Times, suggests that an effective way of stopping the white-collar perpetrators of wrongdoing as early as possible is to introduce incentivised whistleblowing.

That sounds interesting

It is. As we all know, whistleblowers in Ireland are typically castigated, shunned and bullied. What if they were rewarded instead? What if they got paid quite handsomely for blowing the whistle before any financial crime got out of hand?

Do other countries incentivise whistle-blowers?

They do. In the United States, where financial crime is taken seriously, incentivised whistleblowing was introduced in 2012, and it has proven to be very effective.

The US Securities and Exchange Commission (SEC) says that in total, it had paid out more than $1 billion (€854 million) to whistle-blowers and issued its second-highest ever award to a person for flagging wrongdoing.

“Every single one of the whistle-blowers has provided an important public service,” says SEC chairman Gary Gensler.

As Vincent Digby wrote in the Irish Times, “In every scandal involving financial services over the decades, there has been one constant factor: someone always knew what was going on.

“Incentivised whistleblowing facilitates effective and timely notification of wrongdoing to the regulator.”

Some people think financial crime doesn’t hurt people

Financial crime, as we know, has devastating consequences for real people.

As we saw with the Davy saga and the tracker mortgage scandal, it was luck and hard-nosed work on the part of a few individuals that brought these incidents to the attention of the press.

The Central Bank says the tracker mortgage scandal impacted more than 40,000 customers.

Think of the stress and hurt those families would have avoided if an incentivised whistle-blower had alerted the regulator in the early years of this problem?

Are there any other benefits of incentivised whistleblowing?

It is very cost-effective since it is financed by fines levied against wrongdoing firms.

Whistle-blowers in the US receive between 10 and 30 per cent of any fines they collect. No public funds are needed to make these payments.

Sounds good. How could we start to introduce incentivised whistleblowing?

We could follow the SEC example when designing an incentivised whistleblowing programme.

“It could be a real game-changer in terms of improved culture and behaviour across financial services,” says Vincent Digby. “In the SEC programme, the whistle-blower does not need to be an employee of the firm doing the wrongdoing, or even directly impacted by that firm’s wrongdoing. As long as the whistle-blower provides “independent analysis” and defines that analysis, then anyone can be a whistle-blower.

“This means that in the right circumstances, we can all act as whistle-blowers.

“How powerful would that be as a deterrent? If that prospect doesn’t change culture and behaviour in financial service companies’ boardrooms, then I am not sure what will.”

Vincent Digby is the managing director of Impartial Financial Advice, and you can read his entire Irish Times article here.


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