Whistleblower Incentives: A Double-Edged Sword for Compliance Programs?

?? Unpack this week’s edition of Ctrl + Alt + Comply – your dose of news in the tech and compliance landscape. Happy reading!

The US Congress recently launched a whistleblower rewards program, established to incentivize the reporting of corporate conduct with respect to financial crimes, such as money laundering and sanctions violations. Whilst this indicates the growing importance being placed on whistleblowing in compliance efforts, it also raises a critical question: is whistleblowing potentially a double-edged sword for compliance professionals??

For our tenth edition of Ctrl + Alt + Comply, we’ll be looking into the benefits, challenges, and future of the whistleblowing-compliance nexus – asking the hard questions that will help us understand the full impact of this development on the industry.?

A Catalyst for Positive Change in Compliance?

Whistleblowing can play a vital role in detecting and deterring misconduct, empowering employees to report suspicious activities, and holding companies accountable for potential violations.?

In the specific context of compliance, there are some who argue that whistleblower rewards programs are key in reporting and deterring fraud for a multitude of reasons – all from breaking the corporate code of silence to spurring internal whistleblowing. Saying that, there’s another side of the argument that argues whistleblowing problematizes compliance initiatives by fostering mistrust amongst employees, potentially leading to false and harmful accusations motivated by the prospect of financial gain; this perspective is elucidated below.

The Whistleblowing Dilemma

Whilst whistleblowing can be seen as essential for preventing serious financial crimes, the potential for its abuse presents a legitimate worry for compliance personnel. Balancing these competing, and valid, interests requires careful consideration. Just a few challenges of whistleblower incentives for corporate compliance programs include:?

• Disgruntled employees: in the worst case scenario, whistleblowing could be misused by disgruntled or terminated employees.?
• Limited resources: AML departments are already stretched thin, and whistleblowing claims alleging insufficient resources just exacerbate this problem, as opposed to aiding in creating any legitimate solutions.
• Reduces trust among employees: these kinds of programs may create a “walking on eggshells” environment, with managers, team members, and staff overly cautious about everything said or written – just in case it might be misunderstood or taken out of context.
• Manager/ Employee distrust: arguably, managers become less willing to approve new documents or new processes out of fear of potential “employee retaliation”.

Highlighting a similar sentiment, in a recent insightful article for Bloomberg, Jeffrey Clark and Paul Rodriguez from Cadwalader, Wickersham & Taft LLP present a potential area of concern regarding whistleblower rewards programs, stating that:?

“...reward-minded whistleblowers have no incentive to self-censor by holding back where the transgressions may be minor or the evidence of wrongdoing questionable.”

Clark and Rodriguez shed light on the harm whistleblowing may cause for compliance culture, emphasizing not only the possibility of false information, but also how such programs undermine compliance initiatives, in addition to incurring burdensome costs for companies. They finish the thought piece with this poignant statement:

“Unfortunately, with the increasing prevalence of government whistleblower rewards programs, it’s likely that companies will have to incur both the cost of prevention and the cost of enforcement.”

In a similar vein, there have also been concerns expressed over how whistleblower rewards programs like this will impact companies’ existing internal reporting channels. Whereas some argue that the two go hand-in-hand, others believe that such programs might incentivize individuals to bypass internal channels in favor of external reporting for potential financial gain.?

Final Thoughts: Moving Forward?

The reality is, achieving 100% compliance is almost impossible in such fast-paced and constantly changing environments. Companies often adopt a risk-based compliance program and may take on too much risk. However, this creates the unique challenge of encouraging genuine whistleblowing, whilst protecting compliance professionals from damaging accusations. This is a gray area with no easy answers, but fostering an open dialogue about the matter is a useful step in ensuring the maintenance of a healthy compliance culture. Thoughts??

Compliantly Yours,?

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