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Monitoring Against Whistleblower Retaliation
Saves Lives, Prevents Major Crimes, and Accelerates Voluntary Self Disclosures
The U.S. Department of Justice (“DoJ”) recently spotlighted its Whistleblower Awards Program and Voluntary Self Disclosure (“VSDs”) incentives with their revised Evaluation of Corporate Compliance Programs (“ECCP”) VSDs significantly reduce prosecution severity and monetary penalties.
This paper describes why whistleblower retaliation suppresses and adversely diminishes the benefit of VSDs.
Monitoring Whistleblower Retaliation
Virtually everyone agrees (except for retaliators themselves), that retaliation against whistleblowers is wrong and illegal. Yet it seems no one really knows how to actually prevent, detect, and monitor against it.
Effective retaliation monitoring benefits organizations because it:
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Removes employee fears to escalate major violations and misconduct, and
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Enables and accelerates voluntary self-disclosures to regulatory agencies.
And until effective retaliation surveillance tools are in place, the reputational and compliance consequences to a company, non-profit, government agencies or university can be considerable.
Consequences of Whistleblower Retaliation
Global surveys reveal that employees fear and / or witness retaliation against whistleblowers at alarmingly high and rising rates. Indeed, almost half of employees globally (46%) indicate that they experienced retribution for reporting observed misconduct. Retaliation maliciously suppresses and demoralizes employees wishing to raise integrity issues and reflects a hostile workplace and culture.
The Boomerang Effect – Retaliation, Suppression, and Delayed Self-Disclosure
Importantly, retaliation squashes employee attempts to escalate integrity issues, and therefore delays corporate investigation, remediation, and ultimately, voluntarily self-disclosures of major violations such as bribery and corruption, mis-pricing, conflicts of interest, money laundering, sanctions evasion, and overall misconduct.
That is, until frustrated or fearful employees have no recourse but to expose corporate wrongdoing to reporters, regulators like the SEC, IRS, or EEOC, and / or the U.S. Department of Justice (“DoJ”) under its new Whistleblower Pilot Program.
Suddenly without warning, the boomerang of investigative journalists, prosecutors, enforcement actions, and possible guilty pleas swarm and overwhelm board members and the C-suite.
Imagine if the very foundation of a company crumbles as allegations of cultural erosion and control failures remains major headlines for weeks. Especially when evidenced through legal discovery and public disclosure of aggressive corporate compliance budget cuts and management’s inability or unwillingness to monitor retaliatory “chatter” through normal business and “off-channel” communications.
Retaliation Explained
“Retaliation” occurs when an employer (through a manager, supervisor, or administrator) fires an employee or takes any other type of overt or subtle “adverse action” against an employee for engaging in “protected activity.” An employee engages in protected activity when reporting illegal activities such as safety violations, complaining about discrimination, or refusing to participate in illegal activities.
Subtle, More Difficult Types of Retaliation
An adverse action dissuades a reasonable employee from raising a concern about a possible violation or engaging in other related protected activity. These include overt acts such as terminations, demotions, pay cuts, and unusual performance downgrades.
Retaliation also diminishes employee morale. Especially for more subtle actions which can be much more troubling, significant, and long-lasting emotionally and physically, than overt actions. Living with subtle retaliation can be more distressing, and much more difficult to detect, let alone prevent.
The perpetrators can include managers, peers, and even Human Resource managers who bully, intimidate, ostracize, and isolate whistleblowers from business meetings or social events, and other forms of workplace harassment. It also includes “boycotting” of whistleblowers from future employment opportunities within or beyond the retaliating company.
Retaliation, VSDs, and Key Compliance Risks
Timely VSDs, cooperation, and remediation go a very long way to avoiding an independent monitor, significant fines, reputational damage, and even prosecution.
The longer retaliation suppresses the timeliness of issue escalation, the more likely firms are prevented from voluntarily self-disclosing wrongdoing to the DoJ and regulators. The (un)timely submission of VSDs could make or break a firm’s ability to negotiate and avoid a prosecution agreement and guilty plea with regulators and the DoJ.
Conversely, the sooner VSDs are submitted, the better a company can demonstrate in good faith to the SEC, DoJ, or other agencies that it intends to “extraordinarily cooperate” and “genuinely remediate” its compliance program – and corporate culture.
Concerns over Off-Channel Communications
The SEC and CFTC have levied over $3.4 billion in fines (and counting) against financial firms and ratings agencies for poor recordkeeping of employees’ messaging through personal devices with apps like WhatsApp and Signal (so-called, “off-channel communications”).
The DoJ and banking agencies also recognize that poor off-channel monitoring can lead to major risks beyond recordkeeping because it can reflect ineffective surveillance over significant misconduct, with a corporate culture of evasive behavior.
These include offline “chatter” by:
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Sales staff with third parties, to facilitate bribery and corruption
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Operations employees, to send or receive payments instructions to evade AML and OFAC sanctions; and importantly,
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Senior managers, Human Resources, peers, and others, to discuss how to overtly or subtly retaliate against a whistleblower employee.
Retaliation Raises the National Security Stakes
Dangerously, these three types of offline “chatter” are not mutually exclusive. For example, managers could be secretly discussing ways to: 1) retaliate against a whistleblower who discovers that 2) payments are being made to clandestinely bribe corrupt foreign officials in order to 3) evade, for example, OFAC sanctions on Russian or Iranian businesses.
As described in my previous blog, whistleblower retaliation can magnify compliance and national security risks tremendously. The consequences could be devastating.
Deterring Retaliation Through Effective Monitoring
Employees on the ground who witness wrongdoing have the first and best opportunity to raise integrity concerns. They should be able to do so without fear of retaliation.
Indeed, effective retaliation monitoring will create and reinforce a “chilling effect” against managers and peers who overtly or subtly retaliate against the whistleblower. They will know they are being watched and ultimately, will be disciplined for illegal “retaliation chatter” including through off-channel communications. They will refrain going forward.
A Safe Future for Whistleblowers, Prompt VSDs, and Reduced Violations and Misconduct
Effective retaliation monitoring will create a safe future and environment for whistleblowers – ordinary, caring employees, to raise concerns about significant violations such as bribery and corruption, fraud, sanctions evasion, and misconduct.
It will accelerate corporate investigations, remediation, and voluntary self-disclosures to take place much sooner, which in turn, will escalate fraud, misconduct, and other major violations, which in turn, will further minimize major prosecution and reputational damage, and ultimately, strengthen corporate compliance programs going forward.
Third Party Evaluation
It is always prudent for financial, healthcare, technology, and many other companies, non-profits, and universities, to evaluate their compliance programs. The root cause of many weaknesses is the inability to raise, investigate, remediate, and voluntarily self-report wrongdoing promptly and continuously.
Additionally, engaging a third-party consultant to evaluate corporate compliance programs including implementing the right technology and surveillance tools to prevent and detect whistleblower retaliation is an important first step.
Part 2 of this blog will help explain how.
Eric Young
Senior Managing Director
Eric T. Young advises highly regulated organizations on reengineering compliance, ethics, and regulatory technology programs to enable reputable and sustainable business growth. He has deep regulatory experience having spent close to 40 years in chief compliance officer roles at some of the world’s largest institutions, including five global banks. Throughout his career, Mr. Young has remediated and transformed corporate compliance programs and financial crime compliance programs including sanctions; integrated compliance and ethics cultures between regions, countries and companies to ensure consistency across enterprises; built compliance budgets; enhanced reporting; created governance frameworks and risk assessment, monitoring and testing programs; closed compliance gaps; restructured compliance teams; and mentored junior staff to create a pipeline of future compliance leaders and enable grassroots compliance ideas, solutions and digital upgrades.
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