Whistle-blowers or bounty hunters ?

Bradley C. Birkenfeld, the UBS whistle-blower who just received 104 million US dollars from the IRS, must be rather pleased with himself. If you missed the beginning of the story - here is a recap in The New York Time article.

I really believe that whistle-blowing is important, and that people who raise the alarm need to be protected. I am just concerned that the financial reward will create a stampede - which will have nothing to do with right or wrong - but will be based on trying to cash in what the IRS is offering: i.e. up to 30% of the fines or unpaid taxes recovered.

The US has a long tradition with bounty hunters going back to the wild west days. Other cultures less so. In some countries whistle-blowers are not always right - but are doing it to settle scores or create unpleasantness for colleagues they don't like. Even if these colleagues survive the audit - they remain somehow tainted (the no smoke without fire maxim). 

My other issue with the financial reward for whistle-blowing is that employees will skip internal communication to go immediately for the money. An employee who spots something wrong should first try to correct things from the inside - by talking to their boss, the human resource department or even their boss's boss. And only if no one is listening, only then go into whistle-blowing mode. Exaggerated a bit - no one will care about doing the right thing - only reporting the wrong thing. Could be a worrying side effect...

Comments

[Dave]

Your argument that whistleblowers should be required to first report wrongdoing internally before going to the authorities is the sort of half-baked argument that was successfully defeated in passing the new SEC whistleblower provisions. This merely gives the offending corporate entity time to twist the truth, lay blame elsewhere, orchestrate a cover up, destroy evidence and retaliate against the whistleblower before the authorities arrive on the scene.

People who believe that this initial internal reporting is helpful fall into two catagories: 1) those who seek to protect the corporate interests at all costs and; 2) those who believe in the Easter Bunny.

Can you imagine a similar requirement in any other law enforcement endeavor? Before coming here to the police department to report on who robbed the bank and killed the bank teller, you must first sit down with the bank robbers and see if they realize what they did was wrong and to determine what corrective measures may be taken to make sure that this doesn’t happen again.

The weakness of this "internal report first" argument is highlighted by the experience of the most significant whistleblower in recent memory, Bradley Birkenfeld, the Swiss Bank Whistleblower.

Birkenfeld first reported the problems of UBS's offshore banking practices internally in accordance with three different internal UBS whistleblowing policies (as reported in detail by Haig Simonian in the Financial Times in August, 2008). In response, the executive leadership of UBS covered this up and tried to blame Birkefeld as the wrongdoer.

Led by chief legal counsel Peter Kurer, they "interviewed" only 12 of 60 private bankers regarding what Birkenfeld had reported, and only those in Geneva, none of them in Zurich or Lugano where the other private bankers serving the U.S. account holders were based. Kurer then came out with the absurd finding that he found only 250 accounts out of 19,000 accounts with evidence of tax fraud.

After Birkenfeld went to the U.S. authorities, this lie by UBS was exposed. As we now know, almost all 19,000 accounts involved tax fraud.

This UBS case is most instructive. It illustrates the futility and foolhardiness of requiring whistleblowers to first report the wrongdoing internally before going to authorities.

The corporate proponents of this "internal report first" requirement have misplaced their energies. They are consumed with the dread that comes with the threat of being exposed. Thus, they are focusing their energies on ways to contain and restrain the whistleblowers. They would be well served to spend less time worrying about how to extinguish the wildfires of revelation and instead focus on the poor corporate governance that ignites these fires in the first place.

[BIlly]

I would love to re post this entry on my own website will that be okay

[media]

i like it