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The whistleblowers are considered the unseen guards of an otherwise complicated—sometimes esoteric—world of finance with hardly any accounts of malpractices and illegal rackets. They are the people with courage who work behind the curtain to ensure transparency of operations and integrity of an industry indispensable to the global economic system. Why are whistleblowers so indispensable that regulators motivate and reward them with high awards?
Deliberate manipulation of financial data can often go on for a long time without a whistleblower because outsiders often lack the necessary information and context to scrutinize financial data. Without whistleblowers with insider knowledge, many financial scandals and wrongdoing would not be uncovered.
Sherron Watkins, a former VP of the collapsed Enron, warned officials at the company that accounting errors were being made. These accounting errors turned out in the forensic analysis to be intentional and systematic and ultimately brought down Enron. As a whistleblowing insider, Watkins facilitated the exposure of the biggest corporate fraud in history and showed the vital role a whistleblower can play in ensuring financial disasters are averted.
Another example would be Harry Markopolos, a financial analyst who repeatedly warned the Securities and Exchange Commission about Bernie Madoff's Ponzi scheme for a number of years before it collapsed. The persistence of Markopolos, though in vain for nearly a decade, greatly emphasized the importance of whistleblowers for detecting and increasing immunity from systemic risks.
When these financial wrongdoings go undiscovered, their effects are felt throughout the entire world. Whistleblowers are called to save not only companies or markets but also to maintain trust in the whole financial system. Their revelations may bring about the right regulatory interventions when they are crucially needed to prevent larger crises, which can create a more stable springboard to future growth.
Whistleblowers are compliance agents, but they do not always act selflessly. Their ethical standards often drive them, but they can also be motivated by revenge or reward. Often, whistleblowers are spouses, ex-partners, or jealous competitors. Often it is also the perpetrators who get scared and want to escape punishment. It doesn't matter as long as they contribute to compliance with their information. The enormous power of the whistleblower concept lies precisely in these different motivations.
Consider, for example, Bradley Birkenfeld, an ex-UBS banker, who blew the whistle on how that Swiss bank helped wealthy Americans avoid taxes. He was not exactly an innocent guy. In the mid-to late-2000s, he revealed information about UBS Group clients to the U.S. government, violating Swiss banking secrecy laws and exposing potential tax evasion. This disclosure, known as the 2007 "Birkenfeld Disclosure," led to the U.S. Department of Justice (DOJ) reaching a deferred prosecution agreement with UBS, resulting in a $780 million fine and the release of information on American tax evaders. In the U.S., Birkenfeld was convicted of fraud conspiracy and served 40 months in prison with a $30,000 fine. Later, after seeking whistleblower protection, he was awarded $104 million by the IRS Whistleblower Office.
On the other hand, former Danske Bank manager Howard Wilkinson exposed a massive $230 billion money laundering scheme that involved transferring rubles out of Russia, converting them to dollars at Danske Bank’s Estonian branch, and then moving those dollars to New York through three correspondent banks: Bank of America, J.P. Morgan, and Deutsche Bank. In recognition of his actions, the Association of Certified Fraud Examiners awarded Wilkinson its highest honor, the Cliff Robertson Sentinel Award, in 2020 for "Choosing Truth Over Self." His whistleblowing efforts have helped recover over $2 billion for the victims of this fraud.
The risks run by whistleblowers are usually high: their careers, economic security, and sometimes even their own safety are at hazard, but their contribution to the establishment of justice and order in the financial world is immeasurable. More than that, their actions come not from great responsibility but selfishness: without them, the industry would be much more open to corruption and abuse.
The digitally networked and highly complex cyberfinance world would be unimaginable without whistleblowers. They are the agents of compliance, and their motives can vary widely: from truth-loving do-gooders with high moral standards and a great love of the truth to revenge-driven former partners to perpetrators who blow the whistle for fear of punishment. The result is independent of the motivation of these compliance agents.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Alex Kreger Founder & CEO at UXDA
22 August
Nick Green Director at Purple Patch Broking Ltd
Priya Kumari
20 August
Oleg Stefanet Chief Risk Officer at payabl.
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