US authorities and regulators have a love-hate relationship with whistleblowers. European powers are even more confused with what to do with them.
Authorities like it when whistleblowers get them tax money back but they don’t like it when they uncover state secrets. Sometimes, especially in Switzerland, the lines can become blurred.
On the one hand, you have Edward Snowden, who leaked classified information about the National Security Agency (NSA) spying on American citizens, as well as political figures and embassies, via phone calls and internet use in 2013. He was called a traitor and was charged by the U.S. under the Espionage Act.
On the other hand, you have Bradley Birkenfeld, who was rewarded £68 million for helping the Department of Justice fine UBS £506 million for helping US clients evade taxes through Swiss bank accounts. While Birkenfeld was sent to a federal prison for more than two years, until his release in 2012, this was because he was found to have helped the bank in aiding wealthy clients to dodge paying taxes.
And then, more recently, we have the curious case of Herve Falciani. Falciani handed over 100,000 HSBC client accounts to French authorities in 2008. In total, the accounts are worth £78 billion in assets. Since then, France, Spain and the UK have recovered over £500 million in tax from the data.
However, the former HSBC employee is was charged in December 2014, by the Office of the Attorney General of Switzerland for qualified industrial espionage and violating of banking secrecy.
“If the Swiss government prosecutes Falciani for cooperating with a governmental agency, one wonders how much the Swiss are truly concerned about their banking institutions meeting cross border obligations in a global economy,” said one of the world’s most prominent whistleblower lawyers, Reuben Guttman, to Business Insider. “Individuals should be protected when they report impropriety to legitimate regulatory bodies which monitor compliance of financial, banking and other institutions. Protecting these individuals sends the message that compliance is paramount; penalising them is counter to that message.”
The U.S. needs whistleblowers for the financial industry
Today, the New York Attorney General Eric Schneiderman announced his proposed legislation in Albany to “protect and reward employees who report information about illegal activity in the banking, insurance, and financial services industries.“
Schneiderman’s bill, the Financial Frauds Whistleblower Act, is aimed at getting more people to come forward with evidence of financial wrongdoing and with the confidence that they will be rewarded and protected.
“The bill would also guarantee the confidentiality of the whistleblower’s information, and make it illegal for any employer to retaliate in response,” said Schneiderman in a press statement. “The rewards paid to whistleblowers will be drawn from monetary recoveries paid by those who commit wrongdoing, and not out of state funds, making this a cost-free way to increase the government’s ability to detect frauds and obtain recoveries.”
This is the latest in a line of steps that the US has taken to bring would-be whistleblowers out of the closet. Guttman, who represented a string of high profile whistleblower cases that led to multi-billion of dollars worth of money recovered for the U.S. government, said inside informants are vital to uncover wrongdoing.
“Particularly in the financial and banking sectors, whistleblowers play a critical role in compliance enforcement,” said Guttman. “As insiders they can explain complicated transactions, identify and explain the meaning of documents, and testify to the role of key players. They can explain why documents, rules or programs, with a lawful appearance can be used to carry out unlawful schemes.”
The U.S. versus Europe
On top of Schneiderman’s new whistleblower proposal the US have a few others in place. The Securities and Exchange Commission (SEC) rewards whistleblowers 10% and 30% of the money collected by the government following a case.
The IRS also awards 30% of money collected by the tax agency if it uses information provided by the whistleblower. However, in Europe, it is a different picture altogether.
“Through legislation at the State and Federal levels, the US has recognised the role that whistleblowers play in compliance enforcement,” said Guttman. “The heart of this recognition is the bounty provisions found in some statutes where whistleblowers are rewarded for their efforts. These bounty provisions are separate and apart from laws that protect whistleblowers from retaliation. In the U.K. and Europe there are not analogous statutes that provide bounties to whistleblowers.”
“My sense is that we (the US) have both a common law tradition of protecting whistleblowers in addition to multiple statutory proscriptions. We have private statutory remedies that an individual may use to recover a multiple of damages. I do not think the same number of avenues of protection exist in Europe.”
In Europe, the most recent and high profile case of Falciani delivering data on 100,000 HSBC Swiss bank accounts to French authorities in 2008, has sent mixed messages.
While European authorities recovered over £500 million over the last seven years, Falciani is being prosecuted in Switzerland for violating its banking laws. He is currently under protection by the French government but Switzerland want to send him to prison.
In European Union, there are only four countries that have legal frameworks for whistleblowing; Luxembourg, Romania, Slovenia and Britain.
The UK has a whistleblower act but it does not provide financial rewards. Luxembourg may have some provisions to protecting a whistleblower but the latest case regarding Antoine Deltour draws comparisons to Falciani.
Deltour is the French whistleblower behind the LuxLeaks data dump which unveiled 28,000 pages of evidence showing how some of the world’s largest companies, like Pepsi, used Luxembourg to lower their tax bills dramatically.
The attitudes towards whistleblowers does not seemed to have changed too dramatically since the benchmark Transparency International report in 2013. No new E.U. countries have joined the advanced whistleblower protection laws table [above].
“I don’t think it’s a good thing. We should not have a system that relies on theft [when it comes to transparency over potential criminal activity],” said HSBC Chairman Douglas Flint at a British parliament hearing this week.
That may be so but until corporates and financial institutions can be trusted to do carry out widescale questionable activity, it looks like regulators will have to lean on informants to clean it up.