Principal at Compliance Strategists LLC and editor of the weekly CS Newsflash (and former chief compliance and ethics officer at two leading multinationals). Follow her on Twitter @DonnaCBoehme.
Originally Published in Corporate Counsel (September 20, 2012)
Last week’s outsized bounty award of $104 million to former UBS AG banker-turned-whistleblower Bradley Birkenfeld has commentators lighting up the Twitterverse with outrage and the Wall Street Journal calling Birkenfeld’s tale one of “sordidness piled on sordidness.” Seems his 2007 testimony regarding thousands of U.S. tax dodgers netted the Internal Revenue Service a $780 million fine and the names of 5,000 potential tax cheats from the Swiss banking giant—not to mention potential recovery of over $5 billion in unpaid taxes.
This has resulted in what one of Birkenfeld’s lawyers has called “the largest whistleblower reward issued to a single individual.” What has got so many folks’ knickers in a wad is not just the record-setting, eye-popping monetary reward, but the fact that Birkenfeld himself had a spectacular role in the scheme, at one point famously smuggling diamonds for a client in a tube of toothpaste. And what’s more, he lied to the IRS and served 30 months in jail before collecting his reward. Judging by much of the commentary, this is being seen by many as whistleblower protection gone horribly awry and the end of civilization as we know it.
As a former chief compliance officer who has been in the trenches for 20-plus years, I’d like to offer an alternative view, starting with some undeniable truths about whistleblowers (and, by the way, we need another term for individuals who report misconduct, but I digress.) To all the outraged commentators, please have a glass of Pinot and unwad your knickers. Go ahead, I’ll wait.
OK, on to the undeniable truths about corporate whistleblowers:
UNDENIABLE TRUTH NO. 1
Whistleblowers are not always model citizens (gasp). Sometimes they are very close to the misconduct—that’s how they know about it. This is the same reason that in developing the Dodd-Frank whistleblower program, the U.S. Securities and Exchange Commission declined to exclude whistleblowers involved in the misconduct unless criminally convicted: it makes no sense to automatically exclude the people most likely to have the information. Ever heard of the U.S. Department of Justice’s antitrust leniency program?
UNDENIABLE TRUTH NO. 2
Whistleblower bounty programs help create a level playing field. Without these programs, the deck is always stacked against the mere mortal employee or regulator slaving away in the trenches trying to unravel the facts. The large, well-resourced financial institution holds all the cards (and the data). But the introduction of large financial rewards creates incentives for others, such as plaintiffs law firms (or in some cases, hedge funds investing in a whistleblower case for a percentage of the bounty), to support a whistleblower and thus even the score. Harry Markopolos is, no doubt, well versed in Undeniable Truth No. 2 [PDF].
UNDENIABLE TRUTH NO. 3
Sometimes it takes a thief to catch a thief. Who better to unravel the mysteries of complex business misconduct than a whistleblower steeped in the nuances, tricks, and practices of the fraudulent scheme? Wal-Mart’s alleged massive Mexican bribery scheme, which was splashed across the headlines earlier this year, wasn’t uncovered by a regulator or a compliance officer, but by the ex-Wal-Mart executive who for years was allegedly at the center of the bribery-palooza. See Undeniable Truth No. 1.
Ultimately, all whistleblower bounty cases, whether under the False Claims Act, Dodd-Frank, or IRS programs, are a form of “whistleblower arbitrage.” If companies do not seriously root out misconduct through their internal compliance programs, then someone else probably will. However unpalatable the whistleblower, and however ridiculously large and undeserved the bounty may appear, misconduct left on the table will likely be disclosed for profit. Sometimes a very, very big profit. Time will tell whether that becomes Undeniable Truth No. 4.
Reprinted with permission from the September 20, 2012 edition of Corporate Counsel© 2012 ALM media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com .