whistleblowers

Index of forum topics, talk to us.

Re: whistleblowers

Postby admin » Thu May 26, 2011 10:55 am

BUSINESS
MAY 26, 2011
SEC Issues Final Whistleblower Rules

By JESSICA HOLZER And ASHBY JONES
WASHINGTON—The Securities and Exchange Commission approved in a 3-2 vote a plan to pay financial rewards to whistleblowers who report evidence of corporate wrongdoing merely to the agency, without also informing their employers.
Business groups and others had argued that to earn such "bounties," employees should have to first report their findings through internal company channels before going to the SEC.
"Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire," David Hirschmann, president and CEO of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, said in a statement after the SEC vote on Wednesday.
But advocates for whistleblowers praised the rules. "Today, investors and whistleblowers scored a major victory," National Whistleblowers Center Executive Director Stephen M. Kohn said. Mr. Kohn and others had argued that the bounty provision of Dodd-Frank would effectively be neutered if employees first had to tell their employers of evidence of, say, financial or accounting fraud, before telling the SEC.
The SEC agreed. "Incentivizing—rather than requiring—internal reporting is more likely to encourage a strong internal compliance culture," said SEC Chairman Mary Schapiro.
The Dodd-Frank financial overhaul law enacted last year directed the agency to create a bounty system allowing people who report original information to the SEC about large frauds to receive a minimum of 10% and as much as 30% of all sanctions collected from the case. The information must lead to enforcement action with penalties of at least $1 million. The provision aimed to create incentives for employees to report accounting frauds and other corporate abuses.
The commission's vote settled some long-awaited details on how the bounty program would operate.
The commission's two Republicans voted against issuing the rules. Commissioner Kathleen Casey argued companies could be in a better position than the SEC to act swiftly to uncover a fraud after receiving a tip. "By diverting tips and complaints from private channels to the commission, we may end up permitting violations to last longer and grow more serious," she said.
The agency added new incentives for people to report problems through internal company channels as well as come to the SEC. But it didn't, as many corporate lawyers and compliance officers had hoped, either require whistleblowers to blow the whistle internally before reporting to the SEC, or mandate higher bounties to those who do so.
Scores of companies, including Verizon Communications Inc. and Goodyear Tire and Rubber Co. had argued the promise of large paydays would spur workers to run to the SEC, bypassing the anonymous hotlines and other mechanisms companies put in place after the 2002 Sarbanes-Oxley accounting law and leaving them in the dark about potential frauds.
The new rules contain some changes from draft rules that aim to address company concerns. The rules also aim to broaden the types of tips that may qualify a person for a bounty and treat whistleblowers more generously.
The SEC said people who report problems to their employer aren't disqualified from receiving an award as long as the company informs the SEC about the violation. For example, a whistleblower could get credit for reporting a small bribe to his employer if the company uses the tip to uncover a larger bribery scheme that it reports to the SEC.
The SEC also said whistleblowers would have 120 days, rather than the 90 days originally proposed by the SEC, to report a problem to the SEC after first notifying their company.
And people who report a tip that prompts the SEC to reopen a closed investigation or to open a new line of inquiry in an existing probe may qualify for an award.
The rules broadly bar corporate compliance officers obligated to report wrongdoing as well as lawyers and others who are bound by confidentiality rules from receiving bounties.
But the SEC created an exception Wednesday for certain company officers, internal compliance personnel and others who believe that reporting a problem may prevent substantial financial harm to the company or investors or when such people believe the company is blocking an investigation.
SEC Enforcement Chief Robert Khuzami said the bounties, which took effect when the Dodd-Frank became law last July, haven't prompted the flood of tips some had argued would overwhelm the agency. But since the creation of the new bounties, the SEC is seeing tips on conduct "that, quite candidly, we really wouldn't have had any capacity to discover without a whistleblower coming forward," Associate Enforcement Director Stephen Cohen said.
Mr. Cohen described a recent two-day interview with a whistleblower he said saved the SEC staff six to twelve months of investigating time because of the information it yielded. He noted the person was a former employee of a company who had first raised concerns to management to no effect.
Write to Jessica Holzer at jessica.holzer@dowjones.com
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Sun May 15, 2011 6:31 pm

By way of follow up to the previous post about Montreal officials banning or putting a damper on whistleblowing..................

I have to say that a "whistleblower hotline" in my opinion would be nearly next to useless. Why?

Because, most intelligent upper management types do their crimes in secret, and without a great deal of paperwork etc to be found to convict them with. If you allow a whistleblower to only "call" a tip in on a hotline, the onus then falls to the hotline person to try and investigate what might be the most powerful persons in the organization (or the country). Suffice it to say that this is not going to happen.

Even if it were to happen in some unique parallel universe that I am not aware of..........without sufficient information and followup from the whistleblower, the wrongdoer would find it rather easy to come up with any "reasonable or rational" explanation of whatever the complaint might be....("the dog ate my homework"........"I never did that thing"............"who is my accuser anyway".............."how dare you accuse me"............and not having an intelligent, insider to elaborate or dispute, the hotline may have no alternative but to accept an explanation, regardless of how lame or ludicrous. They (the hotline) will simply not posess enough expertise, talent, (or balls) to fully understand how they are being lied to, nor the courage to call bullshit at the appropriate time.

So, having said that, a whistleblower hotline would, in my opinion, be about as effective as calling a fire department for a small nuclear explosion.

What is truly needed is a fair, open and transparent process of resolving any and all whistleblower complaints, including finding out if they are revenge motivated or real credible threats. The process must be so independent, so transparent and so professional that it cannot cause harm to the truth teller, the investigators, and/or the persons accused of wrongdoing, while investigation is done.

Then, as this investigation is followed, and the truth teller is allowed to fully elaborate on what is discovered, and the wrongdoer also allowed to fully defend his or her actions, more and more will be learned about the issue, and about whether or not there is validity to the accusations.

A closed, behind the scenes investigation will soon be corrupted by internal codes of silence and loyalties. One where open documentation becomes available to those involved, might be less able to be tainted, or silenced. This information would then be useable by either party in court who felt that they were "cheated" out of justice etc.

That is one man's opinion, and it could use some refining and perfecting, but at the beginning of the article, I set out to state that a telephone "hotline" in my case (largest bank in Canada) would have gotten exactly zero results. In fact, most banks have someone called an "ombudsman" and possible an entire department supposedly setup to protect those with complaint. Nope.

Those who believe that might also believe that the "compliance department" in a large bank or investment dealer is there to protect customer's interests and safety. Nope again.
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Sun May 15, 2011 6:14 pm

City of Montreal’s whistleblower policy silences staff

Credibility of hotline called into question

BY LINDA GYULAI, GAZETTE CIVIC AFFAIRS REPORTER MAY 10, 2011

MONTREAL - Imagine that your boss has set up a whistleblower hotline to encourage you to expose wrongdoings by colleagues but has also created an explicit policy forbidding you to blow the whistle and is threatening severe penalties if you do.

That’s just what Montreal city hall has done.

The Tremblay administration has a policy that prohibits city employees from signalling wrongdoings even though it created a whistleblower hotline 18 months ago, The Gazette has learned.

Tremblay and his executive committee adopted a “security of information” policy in 2006 that, among other things, forbids city employees to divulge “confidential,” “reserved,” “internal use” or “personal” information.

The policy, which doesn’t define sensitive or confidential information, is still on the books, city spokesperson Gonzalo Nunez confirmed last week.

The contradiction is one more element that calls into question the credibility of the whistleblower hotline Mayor Gérald Tremblay launched after his re-election in 2009, as a linchpin of his high-profile get-tough measures to counter mounting allegations of collusion and corruption at the city.

Municipal unions have called for a boycott of the hotline because they question its promise of confidentiality. Meanwhile, the city hall opposition has attacked its credibility since the Tremblay administration recently transferred its responsibility from city auditor-general Jacques Bergeron, who is independent from the administration, to the comptroller-general’s office, which has become embroiled in controversy over secret “spying” on the emails of Bergeron and of Lachine borough mayor Claude Dauphin.

Now, the contradiction between having a whistleblower hotline on the one hand and a policy that forbids whistleblowing on the other reveals that Montreal city hall lacks a serious and coherent whistleblower policy, experts say.

“It looks as if they are simply trying to maintain the status quo, which is that it’s not safe to make disclosures,” said David Hutton, executive director of Ottawa-based Federal Accountability Initiative for Reform (FAIR).

The organization, founded in 1998, advocates tougher federal laws to protect whistleblowers and offers them support.

“A whistleblower hotline is essentially useless on its own,” Hutton said. “I wouldn’t start by thinking of a hotline. I would start thinking about some sort of structure and legislation.”

Employees remain silent for two main reasons, Hutton said: They have no faith that anything will change, and they fear reprisals.

“Whistleblowers are people who put themselves at risk to protect us,” Hutton said. “People often find it hard to understand just how vicious and determined the reprisals are against whistleblowers.”

Wrongdoers cover their tracks and watch for anyone who might expose them, Hutton said. Often when a would-be whistleblower notices something is going on, the wrongdoer has already identified that person because they seem too independent, too competent or too principled. So a pre-emptive strike is common, Hutton said. The wrongdoer starts to spread rumours about the whistleblower, isolating him or her. It’s not uncommon for a 20- or 30-year stellar personnel file to be replaced by a stream of bogus complaints and retaliatory internal investigations, often accusing the whistleblower of the wrongdoing, he said.

“Or you can give them work that’s impossible to do, or no work. There’s no limit to what the wrongdoer can do because they often have management supporting them, and they have no scruples.”

Research has consistently shown the most productive way of exposing fraud within an organization has been information from employees, Hutton said. Employees expose more wrongdoing than auditors and other internal controls and law enforcement combined, he said.

It’s vital to protect whistleblowers through legislation because they face severe punishment for speaking out, he said. “It can’t just be a policy because a policy can be changed on a whim. It has to be legislation that’s solid and provides a structure for disclosure, a structure for investigating and sanctioning the wrongdoers and a structure for protecting whistleblowers from reprisal.”

Only New Brunswick, Saskatchewan and Ontario have legislated whistleblower protection.

Sylvain Simard, a Parti Québécois MNA, has tabled a bill in the National Assembly to protect whistleblowers in the Quebec civil service. Bill 196 calls for the naming of an integrity commissioner to vet tips.

Given the scandal in Montreal over the comptroller-general’s email snooping, the integrity commissioner’s role could include investigation, Simard told The Gazette.

Simard’s proposed legislation defines what “reprehensible act” a whistleblower would be protected from exposing. That includes: any act that contravenes a provincial or federal law; a serious breach of

public-service law obligations; abusive use of public funds and property; a serious case of bad management in the public sector; causing – either by acting or failing to act – a serious risk to life, health or safety of people or the environment; or knowingly ordering or advising a person to commit any reprehensible act.

The bill would obligate the managers of a public body to establish internal procedures to allow employees to report wrongdoing. The body could appoint someone to receive those tips. The bill would also make it illegal for anyone to retaliate against the employee who made the complaint. Reprisals could include disciplinary action, demotion, dismissal, diminishing work conditions or threats to do any of the above. Reprisals would be punishable by a fine of up to $10,000 and up to two years in prison.

The province doesn’t have to create a large or expensive structure to enforce the law, Simard said. For instance, the province could name Quebec’s lobbying commissioner to act as integrity commissioner and conduct investigations, he said.

He’s had to re-table the bill because it died with the end of the last National Assembly session.

No one from the government called The Gazette back to offer a position on whistleblowing legislation.

A whistleblower law alone doesn’t solve the problem, Hutton warned. The federal government’s Public Servants Disclosure and Protection Act went into effect in 2007, but critics say it’s flawed and ineffective.

Moreover, the first Public Sector Integrity Commissioner appointed under the law, Christiane Ouimet, resigned in the fall less than halfway through her seven-year term just as federal auditor-general Sheila Fraser released a report stating that of 228 complaints that were filed with the integrity commissioner, Ouimet had investigated only seven. She found no wrongdoing in the public service in any of the cases.

The cases that were ignored included veteran Sean Bruyea, whose personal medical records were widely distributed in the civil service to discredit him in his role as a defender of the rights of veterans. The Harper government later apologized after the media reported on his case. A coalition of 30 accountability organizations, including FAIR and Democracy Watch, demanded the new commissioner be selected through a public, merit-based process overseen by a body independent of cabinet. The coalition also called for an independent review of 150 past claims of wrongdoing and 59 claims of reprisal.

“Canada is a wasteland in terms of having whistleblower legislation,” Hutton said. “I hope I live long enough to see someone in Canada punished for taking reprisals against a whistleblower. I don’t know of any case where that’s happened.”

For more information: http://fairwhistleblower.ca

lgyulai@montrealgazette.com



Read more: http://www.montrealgazette.com/news/Cit ... z1MTQUOV00
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Tue Mar 22, 2011 7:48 am

National Post

Should we pay for whistle-blowing?

Edward Waitzer, Financial Post · Mar. 22, 2011 | Last Updated: Mar. 22, 2011 4:04 AM ET

The new chairman of the Ontario Securities Commission recently announced that it may implement a whistle-blower program as part of a concerted effort to enhance its enforcement regime.

He specifically referred to the program introduced under the Dodd-Frank Act in the U.S. Unlike traditional whistle-blower procedures (such as that established two years ago by the Investment Industry Regulatory Organization of Canada), the Dodd-Frank Act authorizes the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Department of Justice and self-regulatory organizations to pay whistle-blowers a 10% to 30% bounty from monetary sanctions of over US$1-million recovered as a result of original information about securities and commodities law violations.

The provisions were a reaction to criticism of the SEC's existing whistle-blower program, which only authorized rewards for information leading to successful insider trading prosecutions. They are modelled on financial incentives in the U.S. False Claims Act (a whistle-blowing statute targeting fraud by federal government contractors), which led to the recovery of US$2.4-billion in 2009.

The Dodd-Frank legislation excludes certain categories of individuals (e.g., those who obtain information during a required audit or through communications that are subject to the attorney-client privilege) and information (e.g., information obtained from a company's internal compliance functions, if that information is disclosed by the company to the regulatory authority within a reasonable time). However, the class of potential whistle-blowers extends beyond current and former employees to third parties (such as consultants and contractors) whose dealings with a company may allow them to gather and provide "original information" with a view to collecting a bounty.

In the U.S., the Sarbanes-Oxley Act of 2002 required companies to establish procedures for the receipt of complaints on an anonymous and confidential basis. This has proven a powerful tool for uncovering and addressing corporate wrongdoing. The Canadian Securities Administrators followed suit in their Corporate Governance Guidelines, requiring codes of business conduct and ethics that address the reporting of illegal or unethical behaviour.

While a wide range of other Canadian regulatory statutes (particularly in areas such as health and safety or environmental law) contain extensive anti-retaliation protections for whistle-blowers, the use of financial rewards as an incentive for whistle-blowing has yet to find favour. Before implementing such provisions, we should pause to reflect on several fundamental issues.

For one, how might a bounty program interact with existing procedures? To what extent will the prospect of substantial financial rewards give employees (and others) a powerful incentive to bypass existing compliance programs? Will the Dodd-Frank whistle-blower provisions put corporate agents in a conflict of interest, with potential personal gain trumping their duties to act in the company's interest? Will this, in turn, detract from other regulatory efforts to encourage companies to adopt effective internal compliance and disclosure programs? Should whistle-blowers be required to report internally and wait a reasonable time for the company to do the right thing before being able to seek a bounty?

Consideration might also be given to the attractiveness of whistle-blower bounty provisions when compared with relatively nascent private securities class action litigation under Canadian securities laws. Do we risk cutting off the development of this mode of private enforcement and shifting costs back to public agencies? How do we strike the right balance between internal compliance programs and various forms of public and private enforcement? To what extent are the choices further complicated by new "enforcement" mechanisms, such as WikiLeaks?

Should we be considering other approaches to encouraging whistleblowing? For example, a U.K. charitable organization, Public Concern At Work, not only lobbies for effective whistle-blower standards and assists corporations in implementing whistle-blower support programs, but also provides advice and assistance to employees who raise "matters of public concern." Other organizations (such as the General Accountability Project in the U.S.) conduct legal clinics and make awards to employees who expose unsafe or illegal activities. Should securities regulators be investing in this sort of infrastructure, as they seem prone to do with financial literacy initiatives?

The time may be ripe to ramp up whistle-blower programs, particularly in the financial services sector. Presumably, employee and public outrage has mounted with the public perception that corporate misconduct fuelled the recession. Hopefully, the OSC will think through what works best to reinforce and capitalize on this personal sense of caring about and responsibility for institutional wrongdoing without undermining other efforts to promote effective corporate cultures.

— Edward Waitzer is a senior partner of Stikeman Elliot LLP, a professor and director of the Hennick Centre for Business and Law at York University and a former chairman of the Ontario Securities Commission.

(advocate comments......I believe that wrongdoing by Canadian corporations and agencies would be largely diminished if there were a program to allow "bounty hunters" to help protect or inform on violations of the public interest. The code of silence is too powerful at any institution I have been involved with to allow them to embrace open transparency)
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Fri Mar 18, 2011 9:48 am

The whistleblower word of the day is.............."TEAMWORK".

I spotted in in a letter to a Calgary doctor (Dr. Lloyd Maybaum) who was opposing the closure of public services. "This is not a matter of forcing you to be quiet, but it is a matter of teamwork and leadership........." Sent to him by senior health region official. (Calgary Herald cover story March 18th, 2011.

The word enclosed here is "teamwork", and it will jump out at anyone who has ever been bullied, intimidated, coerced, threatened etc, by someone in a position of power or control over your life. They always seem to say "you have to be a "team player", or something to that effect.

What it really means is that you need to NOT do what you feel is right, but you need to do what I want you to do......for my benefit. They even (as this letter does) go so far as to state exactly what it is about, (by saying it is not about just that)......."it is not a matter of forcing you to be quiet".

Well of course it is. If it is not, and if it is about teamwork instead, then what does "teamwork" have to patient care delivery. Teamwork in this kind of environment is about "getting our story straight", "sticking together", etc.,etc. It is about spending taxpayer money, and wasting much of it, but needing to protect their own jobs and positions, so "we need to stick together on this".

"If the public gets wind of this, I might be fired for being inept, corrupt, or worse............so come on, be a pal, play ball with me, show some team spirit here........." Anyone else ever had something like this spoken to them?

Read the book "THE LUCIFER EFFECT" if you want a greater understanding of why good people do evil things. There is a great little paragraph in there about how it begins with words like "teamwork". Begins on the bottom of page 259 and it pretty much tells it all.
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Thu Mar 10, 2011 10:45 pm

image002-4.jpg
If people like Integrity Commissioner Christiane Ouimet and those who are paid to do a public service for people, whistleblowers, etc.........cannot, will not, or don't want to do the job they are hired...............

Here is an alternative:

Public Interest Leaks
Suite 309,
440-10816 Maclead Trail SE
Willow Park Village
Calgary, Alberta T2J 5N8

Whistleblowers, truth tellers, employees, people who have an inside story of greed, fraud, theft, government corruption, corporate wrong, environmental abuse, what have you. I am passing on this address, in hopes that others will also pass it on, in hopes that issues and people who are doing damage to the public interest, will be outed and caught in the act.

I wish it some success, for all our sakes.
(photo of Harry Marcopolus who wrote the book NO ONE WOULD LISTEN outlining his eight year effort to inform the SEC of Bernie Madoff being a fraud. They did not want to bother with the info.)
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Wed Mar 02, 2011 12:54 pm

being a whistleblower is like................

I listened to NHL star Theo Fleury the other night, tell his story of abuse, followed by powerlessness, by rage, by addiction, anger, violence, drug abuse, gambling, self sabotaging behaviours, career sabotaging behaviours, etc., etc.

It sounded a great deal like what it is like to speak the truth to powerful corporations, agencies or entities. First comes full denials of any wrongdoing of course. Then comes the "full retaliation" against the truth teller, bringing as much discredit and dishonour as can be brought against anyone foolish enough to speak the truth about them. This is abuse #2, the first being the particular kind of "violence" that the corporation or agency has done in it's "zest" to make money or power.

So, long story short, if you plan on going up against a powerful corporation or any other agency, please keep in mind the damage that can be done against you. I was not prepared for it, and in fact I laughed when I was told this. I had no experience and absolutely no clue, how powerless it would feel to be making truthful claims against "trusted criminals". They will say and do anything to remain in their positions. Anything.

They have the justice system on their side, first because police rarely get up to speed on most kinds of abuse, until the evidence is "overwhelming". Think back to how many decades children suffered under reserve schools, and some church denials.

The courts are out of reach for most abused people (I am talking about new kinds of abuse, like legal abuse, corporate abuse, financial abuse, but applies as well to the old kinds of abuse as well). Entry to the courts is now reserved for people who have money to enter the courts. Even if that hurdle can be overcome, the Canadian court system might take anywhere from five to fifteen years to hear a case against a powerful opponent. You have to know going in, that the powerful entity can hire more lawyers than you can, and more lawyers means more power on their side, more years of delay on their side, and more judicial "loyalty" on their side. (it may just be judicial "respect", but whatever it is, it means the same thing........it means that the person who can afford the most lawyers, often gets better treatment from the courts. So even if you were rich and powerful yourself, justice will be delayed for a decade in Canada while you "kill time" for that duration. What happens to a person who is forced to wait ten years whilst killing time? Someone once said that "justice delayed is justice denied", and I think this applies to what justice in Canada is like. Especially when you combine it with former RCMP IMET officer Bill Majcher's comments in Canadian Business mag sept 24, 2007, "Canadians have to understand that we have a two tiered justice system where people with money can play the system". (cover story)

So, a person who tells the truth about matters of safety or protection of the public interest are shunned, abused, marginalized, discredited, delayed, driven to a point just about like Theo Fleury described that he felt, after being sexually abused as a helpless child. By a power figure. A trusted authority.

Same feeling.

What will it do to you? Don't even try to answer that until you have gone through it.

I can tell you that it is the closest you will come to experiencing emotional, psychological, and financial tortures.

Theo Fleury said "give me physical pain, any-day, over emotional pain". You can heal from physical pain.
Attachments
20080108121139_00013.jpg
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Thu Feb 24, 2011 2:34 pm

Dear Stephen Harper,

Why is there an appearance that covering things up and making fraud and corruption easier in Canada is an objective of yours?
Sincerely,
Investor Advocate

see below a report on your results:

FAIR publishes damning critique of federal whistleblower protection law

February 24, 2011

At a press conference today an alliance of more than 30 accountability organizations called for urgent reforms to the whistleblower legislation that provided the mandate of now-disgraced former Integrity Commissioner Christiane Ouimet’s office stating:

“The collapse of the government’s whistleblower protection system was not only due to the former commissioner’s egregious misconduct: she was aided and abetted by deeply flawed legislation that gave her far too much discretion to turn people away and ensured that most whistleblower cases would be rejected.”

FAIR (Federal Accountability Initiative for Reform), a whistleblower charity that has studied the legislation and monitored its implementation since 2007, published today its 24-page analysis of the Public Servants Disclosure Protection Act, setting out 26 serious shortcomings under 8 broad categories.

David Hutton, executive director of FAIR stated “Our analysis shows that this law does not provide the ‘ironclad protection’ for whistleblowers that was promised. It is more like a bureaucratic ‘Temple of Doom’ – a labyrinth of traps and pitfalls that will ensure that few if any whistleblowers can ever prevail. It’s also a charter of rights for wrongdoers, ensuring that few if any allegations of misconduct will be properly investigated.”

The accountability organizations are calling for the scheduled 5-year review of the legislation to be brought forward, and for the reformed legislation to be applied to the backlog of more than 200 whistleblower cases closed by Ouimet that the Auditor General recommended should be re-examined – otherwise many cases that have merit will remain closed due to loopholes in the law.

FAIR is working with Canadian NGOs to build a consensus regarding the specific reforms required, and also drawing upon the expertise of countries such as the USA, UK and Australia that have had far more experience (and success) than Canada in protecting honest employees who speak out about wrongdoing. “We cannot leave the development of such important legislation to government lawyers alone, since they clearly dropped the ball last time” said Hutton.

The following is an excerpt from FAIR's detailed analysis.
See the full text here: What's Wrong With the PSDPA (pdf)
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Wed Feb 23, 2011 8:15 pm

February 18, 2011
Whistle-blower rules proposed for financial industry
By JANET McFARLAND
From Saturday's Globe and Mail
Investor protection group says members of profession should be required to report on colleagues if they suspect fraud

People working in Canada's financial industry should be required to report possible fraud by colleagues, and members of the public should be eligible for rewards for tipping regulators about possible financial frauds, a new report recommends.

The Canadian Foundation for Advancement of Investor Rights (FAIR), an independent Toronto-based investor protection group, has reviewed 15 major financial frauds that occurred in Canada over the past decade, and concluded that 78 per cent of them involved firms or individuals who were registered with securities regulators.

FAIR said the finding is "surprising" and suggests that many major frauds involve regulated and supervised organizations. For example, failed investment funds such as Norbourg Asset Management Inc. and Portus Alternative Asset Management Inc. were registered with securities commissions in one or more provinces.

Of the cases examined by FAIR, only 17 per cent of the losses involved firms that were members of a self-regulatory organization such as the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada. Both organizations have compensation funds that support victims when firms become insolvent, but few victims of major frauds in Canada end up being covered by the funds.

"The registrants that appear to be the highest risk to retail investors are not members of [a self-regulatory organization] and have no compensation fund," the report concludes.

FAIR's report recommends that regulators require all registered market participants to become members of an organization with a compensation fund. It also suggests regulators convene a meeting to ensure that compensation funds "address gaps" in their payout rules so that more victims are covered when member firms collapse.

The report also proposes recommendations to help prevent frauds from occurring, including rules that require all people registered to work in the financial sector to report "potential serious misconduct" by another registered person.

It also suggests Canada develop a system to pay rewards to members of the public who tip regulators or police about potential financial frauds.

FAIR said the incentives would "take a leaf out of the rules for professional conduct of the legal profession" by requiring registrants to disclose possible unprofessional conduct by a colleague.

"Registrants are often best placed to detect potential fraud or other misconduct by another registrant," the report concludes. "Reporting potential misconduct could lead to the misconduct being identified at an earlier stage and loss or damage to clients being reduced or eliminated."
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Tue Jan 11, 2011 9:16 am

Why Canada’s federal whistleblower protection law needs to be rewritten

David Hutton – The Hill Times, January 10, 2010

In the wake of the Auditor General’s startling revelations regarding misconduct by the government’s whistleblower watchdog, there’s a tendency to attribute all of the problems to former public sector integrity commissioner Christiane Ouimet’s actions.

The reality is that deeply flawed legislation – which experts confidently predicted would fail – gave Ouimet the discretion to turn away virtually all whistleblowers, denying them any possible remedy and effectively providing cover for dozens of accused wrongdoers.

Even a committed and proactive commissioner will find his or her hands tied by the same faulty law: this system simply cannot be made to work without major changes.

It’s impossible to grasp what happened here without understanding the context: the almost universal hostility that exists towards whistleblowers by employers, including government departments. The interests of those in power are nearly always threatened when allegations of wrongdoing surface – especially if these are true! This hostile attitude is evident in the way that employers invariably portray whistleblowers as irresponsible, untrustworthy, attention-seekers, mentally unbalanced or motivated by personal vendettas – although research consistently finds that they are the most loyal, the most diligent high-performers. These distortions are all part of a strategy designed to silence, crush, discredit and, above all, to punish truth-tellers for ‘disloyalty’.

This attitude is also evident in the extreme lengths that institutions will go to in order to crush and silence truth-tellers. When FAIR’s founder, Joanna Gualtieri, sued her bosses for harassment after she warned the department about massive waste and extravagance in its accommodations for diplomats abroad, government lawyers dragged out her case for 12 years, forcing her to answer 10,576 questions during pre-trial discoveries – only to settle in the end, virtually on the courthouse steps. After wasting millions of taxpayers dollars on this obscene abuse of legal process, the government finally gagged her: she apparently cannot discuss any aspect of her case or her allegations. And this is not an isolated example.

This institutional hostility is also evident in jurisdictions around the world, where laws drafted to protect honest employees have been systematically sabotaged by those in power: by gutting legislation so that it has no teeth; by starving enforcement agencies of resources; and by putting in charge people who can be relied on to protect the status quo. Many would consider Ouimet to be just such a choice.

So, although many ordinary Canadians may be shocked and puzzled by the failure of this system, informed observers and experts in the field are not surprised: given the background, this is pretty much what we expected to happen. Canadian politicians have not yet become serious about protecting whistleblowers, and will not do so until the public demands protection for honest conduct in the workplace.

What’s wrong with the law we have today? There are so many problems that it’s difficult to know where to start. Just three examples will have to suffice, although these only scratch the surface.

1) Most real-life cases can (or must) be refused on jurisdictional reasons

The whistleblower law allows (and in many cases requires) the public sector integrity commissioner (PSIC) to refuse to deal with a complaint that is being dealt with, has been dealt with, or could be dealt with by some other process.

For example, suppose that the whistleblower has already launched a grievance against apparent reprisals by bosses and finds that it is going badly. PSIC will refuse to deal with this person’s complaint because there is another process (the grievance) under way. Once the grievance is settled, PSIC will again refuse to deal with the complaint because it has already been dealt with by another process. Suppose that the bosses accused of wrongdoing were involved in settling the grievance? That doesn’t matter – because the grievance process provides a comprehensive remedy, according to legal precedents. What if the whistleblower didn’t launch a grievance? PSIC can still refuse to deal with the case on the grounds that it would be better dealt with by some other process – like a grievance.

It’s a true Catch-22 situation. Since the law allows (or even requires) PSIC to defer to any other jurisdiction, there’s virtually nothing left that it can or must deal with: it can turn everyone away.

This is bizarre, especially when you consider that grievances, internal departmental investigations and the like almost never work in whistleblower cases – because bosses can so easily manipulate these and turn them into reprisals. That’s supposedly the very reason why this law was created – so that there is somewhere safe for honest employees to go when all other official channels have failed.

2) The Commissioner cannot pursue investigations that lead into the private sector

It is noteworthy that the auditor general, after launching her investigations into PSIC under the whistleblower legislation (thus assuming the powers of the integrity commissioner) abandoned this approach within weeks and continued her investigation under the powers of the Auditor General Act. She did this mainly because the whistleblower law did not give her the authority to investigate any private sector involvement. Being blocked from the private sector would seriously impede her investigation even if the private sector participants had done nothing wrong but were merely witnesses.

Why would the private sector be excluded from any investigation where public resources are possibly being misused? Probably the majority of government whistleblowers who come to us allege scams that involve the private sector in some way: contracting fraud and manipulation; grants handed out to phony companies that do no real work; consultants and auditors hired to write phony reports exonerating wrongdoers… the possibilities are endless. If we reflect upon the major scandals that have become public in the past few decades – the tainted blood scandal, the gun registry overrun, the sponsorship scandal – every one has had significant private sector involvement.

In an era where public-private partnerships of all sorts are in vogue, when much of the work of government is being done through contractors, this is a gaping omission in the law.

3) The Tribunal (that never sat) will probably never protect anyone

The law does not give PSIC any power to protect whistleblowers directly: the commissioner can only investigate complaints of reprisal, and if these are founded, refer the case to a tribunal. This is a special-purpose administrative body, a kind of pseudo court that adjudicates complaints of reprisal by hearing evidence from both parties.

Out of the 55 complaints of reprisal submitted over three years, only a handful of were investigated and not a single one was referred to the Tribunal. So this body, with a small full time staff and an annual budget of $1.8 million sat idle, waiting, waiting… and no whistleblower even had the opportunity to plead for protection.

Unfortunately even if any cases had been referred to it, we expect the tribunal to be a kangaroo court, nearly always finding against the whistleblower – because of the way the law is written.

The most serious obstacle is that the law puts the onus on the whistleblower to prove that any adverse actions taken were reprisals for a disclosure of wrongdoing. In practice this is usually impossible for an employee to prove since bosses engaged in such harassment generally don’t admit to it, and proof is hard to obtain. However, without such proof the employee has no recourse, no possible remedy, and no defence against further retaliation.

The solution adopted in more progressive jurisdictions, is a reverse onus provision: once the employee has proven that there is a connection between the whistleblowing and the adverse action (e.g. a short time frame between the whistleblowing and a demotion) the burden shifts to the employer to prove that these actions were taken for good reasons other than retaliation. Even with this reverse onus, proving reprisal is not a slam dunk for the whistleblower – only about 20 percent prevail – but at least they have a chance.

There is also little pressure on this tribunal to perform: it can hold its hearings in secret, it can take as long as it likes, and it does not even have to file its decisions with the Federal Court. The only avenue of appeal is to a judicial review. No matter how questionable the Tribunal’s actions or decisions the whistleblower cannot gain access to the normal court system, with court reporters, rules of procedure and judges who can be impartial because their tenure is secure.

The seriousness of this problem can be seen by examining U.S.A. experience of a similar arrangement (a special purpose administrative body, no access or right of appeal to the courts, and no reverse onus provision): of the first 2,000 whistleblowers who submitted complaints of reprisal, only four prevailed.

As a final insult, the whistleblower is given no legal assistance to make their case before the tribunal – only $1,500 for pre-tribunal consultations (if the commissioner authorizes this). Considering that those accused of wrongdoing will certainly have their hefty legal bills paid by Treasury Board, it’s difficult to imagine a more uneven playing field.


These three examples address just a few of the problems build into this law: there are many others just as serious. The bottom line is that it creates a regime that is littered with deadly traps and loopholes, shrouded in impenetrable and unnecessary secrecy, and stacked against the whistleblower, so that few (if any) can ever prevail.

But perhaps the most serious failing lies in the basic concept: creating a complete quasi-legal system in a bubble with a monopoly over whistleblower cases. This system is hermetically sealed off from the outside world, from the proper legal system, from access to information, from the media. Rather than giving whistleblowers more choices and more control on their dangerous journey, it forces them into a secretive bureaucratic process that is little more than an elaborate trap with multiple jaws. Can it be fixed without starting over? That remains to be seen.

FAIR is in the process of re-writing our four-year old publication “What’s wrong with the PSDPA” to explain in more detail the full scope of the problems with this law. We are also working with other organizations such as Canadians for Accountability and the Democracy Watch-led nationwide Government Ethics Coalition, with the goal of arriving at a common position regarding what should be done to fix the problems when Parliament returns at the end of this month.

It’s time for politicians of all stripes to do the right thing, to scrap this sorry piece of legal window-dressing and give us a law that will truly protect honest employees, so that they can protect the public interest. How can any party claim to be serious about transparency and accountability as long as they deny this fundamental right to Canadian employees? The time to act is now.

David Hutton
Executive Director
FAIR (Federal Accountability Initiative for Reform)
http://fairwhistleblower.ca/
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Mon Dec 27, 2010 10:42 am

William K. BlackAssoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
Posted: December 27, 2010 11:27 AM

Why Cash Incentives for Whistleblowers Are So Useful Against Control Frauds

Read More: Control Fraud , Fraud , Mortgage Fraud , SEC Whistleblowers , Sec Whistleblowers Fund , Whistleblowers , Whistleblowing , Business News


Marty Robins' December 15, 2010, column "Blow the Whistle on Pointless Whistleblowing" in The Huffington Post opposed the SEC implementing the Dodd-Franks Act's provision that the SEC should develop a system of financial incentives for whistleblowers. Mr. Robins is a former corporate counsel with strongly conservative, anti-regulatory views. His purpose in writing was to enlist support for businesses lobbying the SEC to adopt a weak rule undercutting the Dodd-Frank's whistleblowing provision. I'm interested in the SEC rule on its merits and as a serial whistleblower, but Mr. Robins' primary arguments as to why this provision of the law was "pointless" is that fraud is trivial and played no material role in the crisis. As a white-collar criminologist and former senior financial regulator I find his claim as dangerous as it is astounding.

Mr. Robins does not evince any expertise in investigating sophisticated financial frauds, but he has strong views on such frauds.

In the first instance, this effort [to increase whistleblowing] is totally unrelated to financial stability. While the 2008 crisis and Great Recession were undoubtedly the result of terrible decisions on Wall Street, by mortgage originators and by borrowers on Main Street, in lending and borrowing beyond ability to pay, virtually none of this activity was even arguably illegal. As indicated by the absence of criminal prosecutions, there is nothing illegal about doing things that are really dumb. These new provisions in the law will do nothing to deter abject stupidity on the part of private actors that imperils the broader economy. As noted, doing the latter requires significant reform of corporate governance law. There is no credible evidence that illegality had anything to do with the financial meltdown.

Mr. Robins feels no need to cite any experts or data to support his assertions that fraud played no role in the crisis. He believes his case is demonstrated conclusively "by the absence of criminal prosecutions."

Mr. Robins timing on his column is embarrassing to his thesis, for it is contemporaneous with mea culpas and data refuting his thesis and excoriating the Justice Department for its lack of prosecutions. Joseph Stiglitz, Alan Greenspan, and Andrew Ross Sorkin have recently emphasized the prominent role of fraud in the crisis and decried the fact that elite bankers looted with impunity. These are remarkable advances. Until very recently Dr. Stiglitz refused to use the "f" word. Chairman Greenspan infamously refused to use the Fed's unique statutory authority (under HOEPA) to regulate the unregulated lenders that made the bulk of the fraudulent loans. Greenspan refused to regulate on the grounds that the securities markets automatically excluded material fraud. The securities and contract markets must exclude fraud or they would not be "efficient" -- and because all of "modern finance" and much of modern microeconomics was based on the efficient market and contracts hypotheses, it followed that fraud must not exist. Sorkin, the New York Times' leading columnist on financial elites, had never been willing to contemplate fraudulent elites. This made his epiphany all the more striking.

Many experts, of course, have been warning about the role of fraud in the crisis for a very long time. The FBI began using the word "epidemic" to describe mortgage fraud in September 2004 and predicting that it would cause an economic crisis if it were not contained. It was not contained. Instead the epidemic grew rapidly. The FBI warning was more than six years ago. Greenspan, Bernanke, and Geithner all ignored it -- and produced a disaster of proportions not seen in 75 years. Criminologists that specialize in the study of white-collar crime, and economists that have expanded the canon to consider the findings of criminologists, have written, spoken, and testified about the driving role that control fraud played in the crisis and provided the data and analysis supporting their findings. Mr. Robins appears to be unaware of all of this, as he certainly attempts no refutation of the facts or analysis.

Mr. Robins' claim that it is self-evident that insider fraud played no meaningful role in the crisis is curious. In the U.S., this is the third financial crisis in 20 years. The national commission that reported on the S&L debacle found that "fraud" was "invariably present" at the "typical large failure." Those frauds were led by the senior S&L officials and used accounting as their "weapon," i.e. they were "accounting control frauds." The Enron era frauds were also accounting control frauds. Why would this third in a series of recurrent, intensifying crises be uniquely free of fraud? Was it because private market discipline became far more effective? Did the banks, in 2003-2007, characteristically refuse to fund imprudent or fraudulent loans? Did banking and SEC regulation and supervision in 2003-2007 become substantially more effective? Did bank executive compensation become substantially more strongly tied to real, long-term bank profitability during that period? Did executive compensation fall sharply so that a CEO could no longer become wealthy by substantially inflating reported income for four years?

The banking environment became increasingly criminogenic during 2003-2007 precisely because each of the factors discussed above became more perverse as the crisis grew. Fraud also begets fraud. As an epidemic of accounting control fraud grows it can cause bubbles to hyper-inflate (which makes the environment increasingly criminogenic) and triggers "echo" epidemics. The mortgage fraud epidemic, for example, sparked an epidemic of fraudulent appraisals and loan applications by loan brokers.

The burden is on Mr. Robins to explain why this crisis has no fraud. Given an undisputed epidemic of mortgage fraud and a crisis that arose in mortgages he cannot meet that burden. The criminogenic environment that prompted this crisis exceeded the perverse incentives that drove the second phase of the S&L debacle and the Enron era frauds. Publicly available reports on the Icelandic and Irish crises also demonstrate severe insider fraud. Again, Mr. Robins does not even attempt to respond to these facts and the accompanying analytics.

Mr. Robins' sole claim is that a lack of prosecutions proves "there is nothing illegal." That claim lacks any logical basis and has long been rejected by critics from the right and the left. The famous conservative economist Bastiat warned:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."

Edwin Sutherland, the scholar that identified and named "white-collar crime," warned that looking at criminal prosecutions systematically and massively undercounted elite financial crimes because powerful corporations were far less likely to be prosecuted when they violated the law.

Go back in time to early 1986. There were no prosecutions of elite savings and loan (S&L) officers. Seven years later, there were more than 1,000 successful felony prosecutions of elites for S&L frauds. The fraudulent conduct was endemic in 1986. The National Commission on Financial Institution Reform, Recovery and Enforcement reported in 1993 that "at the typical large failure" "fraud was invariably present." Criminal referrals by the Federal Home Loan Bank Board (Bank Board) were just beginning to ramp up at the direction of Bank Board Chairman Gray in early 1986. (Representative Barnard's House investigation of the agency's failure to file criminal referrals helped provide Gray with the impetus to make his reforms.) Superb criminal referrals by the regulators are a sine qua non for successful prosecutions of large numbers of sophisticated financial frauds by the officials who control banks (which white-collar criminologists refer to as "accounting control fraud"). It takes time for the FBI to investigate once the agency begins to file large numbers of criminal referrals and the interconnections between fraudulent lenders require many referrals and investigations to establish. The lack of criminal prosecutions in 2006 proved that the combination of deregulation and desupervision at the agency level and the FBI's inability to investigate successfully complex accounting frauds led by senior managers and the low priority that the FBI had assigned to such investigations created a self-fulfilling prophecy. If you don't investigate effectively, you don't find sophisticated financial frauds.

Go back in time to early 1985 when there were few prosecutions for insider trading -- but widespread insider trading. The U.S. Attorney for the Southern District of New York, Rudy Giuliani, came into federal service denouncing the emphasis on prosecuting white-collar crime. He left that office to become mayor of New York City on the strength of his many successful prosecutions of elite white-collar criminals, particularly for insider trading. The most profitable investment banking firm in America, Drexel Burham Lambert, was exposed as an accounting control fraud.

Go back in time to 2001. There were few prosecutions for accounting control frauds among major firms. President Bush chose Harvey Pitt to be the new chairman of the SEC because he was the leading opponent (in alliance with Rubin and Summers -- the leaders of Clinton's economic team) of his predecessor's efforts to prevent the conflicts of interest among auditors that helped produce the criminogenic environment that triggered an epidemic of accounting control fraud. Chairman Pitt's first major speech was to the accounting profession, in which he blamed his agency for not always being "kinder and gentler" in its dealings with auditors. By late 2002, the failure of the accounting control frauds helped drive a massive loss in the market value of U.S. stocks and prosecuting accounting control fraud would soon become a federal priority. By 2005, there were a series of largely successful prosecutions against the controlling officers of many enormous corporations.

In 2001, there were few federal investigations or prosecutions for a wide range of Wall Street frauds, for example mutual funds. By 2003, Eliot Spitzer's investigations established the existence of widespread Wall Street frauds. The lack of federal prosecutions demonstrated the failures of the SEC and the Department of Justice, not the lack of crime. The failures intensified the criminogenic environment that made Wall Street the epicenter of control fraud.

Unfortunately, 2001 also brought the terrorist attacks on the U.S. and led the FBI to transfer more than 500 special agents from investigating white-collar crimes to national security. The rationale for the transfers was clear, but the refusal of the Bush administration to allow the FBI to hire replacements for the lost white-collar specialists seriously reduced the Justice Department's capacity to respond to sophisticated financial frauds. (Criminologists refer to this as a "systems capacity" problem.) With most of its remaining top white-collar-crime special agents assigned to investigating the accounting control frauds of the Enron era, the FBI's ability to counter the emerging accounting control frauds that drove the current crisis was crippled.

The FBI testified in September 2004 that there was an emerging "epidemic" of mortgage fraud and predicted that it would cause an economic crisis if it were not contained. More recently, FBI Deputy Director John Pistole testified before the Senate on February 11, 2009:

[I]t would be irresponsible to neglect mortgage fraud's impact on the U.S. housing and financial markets.
The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 1,600 in FY 2008. In addition, the FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI's limited White Collar Crime resources.

In December 2008, the FBI dedicated resources to create the National Mortgage Fraud Team at FBI headquarters in Washington, D.C. The Team has the specific responsibility for all management of the mortgage fraud program at both the origination and corporate level. This Team will be assisting the field offices in addressing the mortgage fraud problem at all levels. The current financial crisis, however, has required the FBI to move resources from other white collar crime and criminal programs in order to appropriately address the crime problem. Since January 2007, the FBI has increased its agent and analyst manpower working mortgage fraud investigations. The Team provides tools to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and provide information to evaluate where additional manpower is needed.

[T]he FBI has increased the number of agents around the country who investigate mortgage fraud cases from 120 Special Agents in FY 2007 to 180 Special Agents in FY 2008.


Mr. Pistole is now the head of the Transportation Safety Administration. Good for the struggle to safeguard us from terrorists, bad for the effort against mortgage fraud.

The current epidemic of accounting control frauds has caused massively greater damage than did their S&L counterparts, but the number of FBI agents assigned to deal with the current epidemic is far smaller than the staff assigned to the investigations of the S&L control frauds. DOJ has recently informed Congress that in Fiscal Year (FY) 1992 (the peak year for S&L prosecutions) there were:

FY 1992 Actual Obligations: 2,926 positions (992 agents, 655 attorneys, and 1,279 other); 2,795 FTE; and265,108,000.
For mortgage fraud, in the coming year, DOJ said it is "projecting for FY 2009, approximately 500 positions and up to100 million... "
To provide fewer than one-fifth the staff and less than 40 percent of the budget (and that budget comparison ignores 17 years of salary and other cost increases) than proved necessary to deal with the vastly smaller epidemic of S&L accounting control frauds the DOJ has had to cannibalize other, already severely inadequately staffed efforts against other serious white-collar crimes. That makes us more vulnerable to the next epidemics of control fraud in other fields.

The mortgage industry informed its members that:

The FBI reports that, based on existing investigations, 80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders.

The data on the FBI's grossly inadequate resources to deal with white-collar crime have several important implications for Robin's claims. They help to show why the FBI has not conducted effective investigations against the accounting control frauds that drove the nonprime housing crisis. The data show that the FBI failed to even begin their investigations of the major nonprime lenders until 2007, after the secondary market in nonprime paper collapsed. If you don't investigate, you don't find. Even when the FBI began these investigations it faced crippling systems capacity problems. It takes roughly 100 FBI agents to staff the investigation of a huge fraud such as Enron. In the current crisis, the FBI authorized investigations of roughly 20 lenders of roughly the size of Enron (a number were far larger than Enron). As recently as FY 2008 it had a total of 120 agents to investigate all mortgage frauds. It had no national task force. Its agency was scattered across the nation in what the military would call "penny pockets." These tiny, scattered groups of agents with no national coordination, no systematic search for interconnections, and no national prioritization worked on whatever cases came to their local attention. They were overwhelmingly (almost exclusively) assigned to smaller cases rather than the large nonprime lenders. There is no indication that they engaged in wiretapping, bugging, or undercover investigations of any large lender. They had no chance of success in investigating any large lender under these limitations.

The current crisis is far worse than the S&L debacle on multiple dimensions. When I'm asked for my judgment I guesstimate it as 40 times worse. Pick whatever multiple you consider reasonable -- and use it to estimate the FBI and DOJ resources essential to investigate the control frauds in this crisis. By any measure, the FBI's resources assigned to mortgage fraud were and will be grotesquely inadequate to deal with the fraud epidemic even if they were optimally assigned. In reality, due to the death of effective supervision, the Treasury regulators (OCC and OTS) ceased making criminal referrals. Without the guidance, resources, and expertise of regulators, FBI resources were repeatedly misallocated to what should have been far lower priority cases. I will return in future columns to estimates of the incidence and injury of the accounting control frauds that drove this crisis and explanations of why DOJ prioritization became so ineffective in this crisis.

I will also return to the question of how best to incent whistleblowers in future columns. For now, I will simply explain that Mr. Robins has, inadvertently, prompted a discussion of a vital distinction. If control fraud were rare and not particularly damaging then the proposed financial incentives for whistleblowers would be more dubious. If one assumes that only junior officials commit fraud and that the corporation wishes to prevent their frauds and will take prompt, effective action against them upon another employee blowing the whistle, then paying whistleblowers will only cause a substantial reduction in fraud if it incents correctly blowing the whistle in cases where the employee would otherwise have failed to blow the whistle.

One cannot, however, assume that the firm will take action against the frauds when an employee blows the whistle on a control fraud. In the case of control frauds the firm's controlling officials want the firm to engage in fraud. They will not take prompt, effective action against the controlling officers or those assisting the fraudulent controlling officers when the whistle is blown. Instead, they will typically retaliate against those that blow the whistle.

Control frauds cause massively greater losses than do "rogue" frauds by more junior officers and employees. Indeed, control frauds cause greater financial losses than all other forms of property crime -- combined. Some variants of control fraud maim and kill (think Chinese infant formula) and others do great environmental damage. When epidemics of accounting control fraud concentrate in single field they are likely to cause financial bubbles to hyper-inflate and can cause economic crises. The SEC's top priority should be to identify at the earliest possible time accounting control frauds and put them out of business. Financial incentives for whistleblowing may prove very effective in helping the SEC identify these frauds at an early point. It is an empirical question. (The SEC can counter the claim that financial incentives tied to loss could lead to delaying blowing the whistle until damages have grown by providing a sharp loss in incentive payments if the whistle blower delays unduly in blowing the whistle.)

It is essential for the SEC to understand that the status quo also employs financial incentives and they are far larger and totally perverse relative to the financial incentives the SEC is considering. The status quo is that accounting control frauds frequently use broad performance bonus programs. Fannie Mae, for example, had its internal auditors on such a plan -- and the results were, as intended by senior management, the death of internal controls. These broad, generous bonus programs enlist thousands of potential allies (who can manipulate the accounts while providing those controlling the fraud with deniability -- they will in many cases not know the exact means by which the firm made the "number"). The bonuses also align the interests of those who are supposed to provide internal controls, governance, and checks and balances with those that control the firm. Executive compensation typically further misaligns the interests of the CEO and the shareholder. Finally, the bonus programs eviscerate whistleblowing. The officer that blows the whistle not only loses his bonus, but also his peers and his employees lose their bonuses. Ostracism is already one of the worst forms of retaliation against the person who blows the whistle. The bonuses ensure that the ostracism will be brutal. Whistleblowers are one of the leading ways in which regulators learn of control fraud, so any reduction in blowing the whistle on control fraud is a major loss. To sum it up, once Mr. Robins' false assumption that fraud played no material role in the crisis is cleared up, the distinction between control fraud and rogue frauds provides a powerful justification for the Dodd-Frank provisions calling for financial incentives for those that blow the whistle on corporate fraud.


Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

http://www.huffingtonpost.com/william-k ... 01558.html
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Wed Dec 15, 2010 12:36 pm

Whistleblower 'bounty' plan under fire


National Post
Susan Hackett, senior vice-president and general counsel to the ACC, said
corporate counsel are hoping the SEC will limit its definition of 'whistleblower.'
Drew Hasselback, Financial Post · Wednesday, Dec. 15, 2010

In-house lawyers for some of the largest companies in North America are warning the U.S. Securities and Exchange Commission that a proposal to pay large rewards to whistleblowers will do more to create "bounty hunters" than it will to root out bad corporate apples.

The Association of Corporate Counsel, an international group that represents 27,000 in-house lawyers in 70 countries, is offering its comments on the proposed whistleblower rules in a letter to be filed with the SEC on Wednesday.

The gist of ACC's concern is that the whistleblower provisions run contrary to existing U.S. corporate policies, which encourage companies to police themselves by having employees report misconduct internally. The new regime, which is mandated by the Dodd-Frank financial reforms, would grant both protection and payment to whistleblowers who report matters directly to the SEC.

Susan Hackett, senior vice-president and general counsel to the ACC, said corporate counsel have no trouble with whistleblowers receiving legal protection. Rather, they're hoping the SEC will limit its definition of "whistleblower" to those who've tried to report problems internally before reaching out to the SEC. Otherwise, the rewards promised under Dodd-Frank, which range from 10% to 30% of any financial penalties resulting from enforcement actions, could lead employees to contact the SEC first in search of windfalls.

"To my mind a whistleblower is someone who needs protection, not someone who tries to figure out how to skewer the company," Ms. Hackett said.

The letter has been cosigned by counsel from at least 250 of the largest companies in the United States, among them Anheuser-Busch InBev, FedEx Corp., Intel Corp., Mc-Donald's Corp., and even some big Canadian companies with U.S. operations, including BMO Financial Group, Royal Bank of Canada and TD Bank Financial Group.

Contacted Tuesday, Simon Fish, executive vice-president and general counsel to BMO, said that nothing in the existing rules prevents an employee from reporting a problem to an external body, such as the SEC.

However, he suggests that having a regime that encourages internal reporting can perhaps be more effective at rooting out problems. "The proposal--and it is still a proposal-- fails to place sufficient reliance on the effectiveness of existing internal compliance procedures that companies may have."

Mr. Fish said that ACC members support the implementation of a process that punishes those who are responsible for violations, and that the ACC's letter is not intended to be a broad criticism of Dodd-Frank's basic intent. "The concerns that are raised are more about how the proposed rules are intended to apply, and what are perhaps the unintended consequences of those rules."

The letter is being submitted as part of the consultation process set up by the SEC to draft rules for a whistleblowing system mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 922 of the law creates incentives for employees and others to blow the whistle on corporate fraud. Persons who report "original information" about securities violations to the SEC could be entitled to financial rewards. The ACC is concerned the SEC's proposed regime would make those rewards available too broadly.

"Fraudulent misconduct, the bane of good compliance systems, then becomes the gold mine, rather than an impetus for companies with effective compliance systems to address the underlying issues," the ACC's letter states. "The Commission's proposed approach invites employees to focus on timing their report so as to maximize the bounty they'll receive, potentially allowing misconduct to fester."

The legislation is designed to protect whistleblowers from retaliation. Employees who suffer demotion, dismissal, suspension, threats or harassment because they've contacted the SEC will be able to sue employers.

Proponents say the whistleblower provision will make it easier for regulators to discover fraud, and perhaps even unearth the next Bernard Madoff. Opponents deride the provision as a "bounty" that will unfairly put the squeeze on companies and their advisors.

dhasselback@nationalpost.com
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Fri Dec 10, 2010 10:51 am

"The law (or bureaucrats......) can be used to keep justice away"


OAG report on Integrity Commissioner – a devastating indictment

The Auditor General, Sheila Fraser, released yesterday the results of her investigation into the the conduct of the government whistleblower watchdog, Integrity Commissioner Christiane Ouimet – an investigation that was prompted by complaints from three of Ouimet's former employees. These findings amount to a devastating indictment of the Commissioner's conduct.

Fraser concluded that the three areas of complaint were founded:

that the Commissioner failed to perfom her mandated functions, showing great reluctance to accept or investigate cases, failing to establish proper procedures for handling cases, and refusing to investigate for reasons that were not supported by the available evidence
that she engaged in inappropriate conduct towards her staff – that she "yelled, swore, berated, marginalized and intimidated" certain of her employees
that she engaged in reprisals against employees, in one case devoting significant resources to a bogus security investigation against a former employee whom she suspected of complaining about her.
Fraser also reported separately to Treasury Board about allegations related to performance pay decisions, and referred to the Privacy Commissioner violations of the Privacy Act by Ouimet that she uncovered.

FAIR's analysis

The importance of Auditor General Sheila Fraser's thorough investigation cannot be overstated. Over the past three years FAIR has repeatedly criticized the inadequacy of the law and the lack of results from Christiane Ouimet's office. We are pleased to see our concerns validated and to understand better why this office accomplished nothing.

It is ironic that this commissioner was a role-model for the types of behaviour that she was employed to help drive out of the public service: misconduct in the performance of her mandate; and reprisals against honest employees who objected to this.

OAG's findings lay bare at least three major failures:

A failure of the whistleblower legislation. It is noteworthy that OAG soon found that it could not even conduct its limited investigation effectively under the whistleblower act and decided to proceed under the Auditor General Act instead.
A failure of the appointments process. This commissioner did not suddenly turn into this type of person when appointed to this office – she had a track record which should have been examined. This is the kind of bad decision that so often results from secretive back-room deals.
A failure of oversight. This appalling situation continued for more than three years before being brought to light. The first complaint to OAG was more than two years ago – yet when Ouimet appeared before parliamentary committees she essentially got a free pass. Committee members asked her few tough questions because they had no idea what was going on.
Described by some as a 'reign of terror', Ouimet's actions over the past three years have had very serious negative consequences.

The worst is that instead of deterring wrongdoers she has emboldened them, since they could quickly see that her office presented no threat to them.

And instead of protecting honest public servants from reprisals, she has terrorized her own employees and abandoned to their fate those who came to her office for help: they soon learned that the safe harbour promised to them was an illusion. There is a human tragedy behind so many of the 228 complaints that she ignored, as we know only too well from the many calls we have received from desperate whistleblowers.

Sheila Fraser's description of the lax and arbitrary manner in which cases were disposed of, and the bizarre reasons given for refusals, suggest a contempt for due process and a complete disregard for the plight of many of these truth-tellers who had been brave enough to come forward.

Some of the details revealed by the report are quite surreal. For example, Ouimet launched an investigation of an employee who had left 6 months before because she suspected (incorrectly) that he had complained about her. In the process she compiled four binders of information on him containing more than 375 pages, circulated at least 50 emails about him, and engaged at least six of her 20 staff in this task. She also attempted to get access to the personnel files of this person (and three others) from previous employers and shared confidential personal information about him with others within and outside the public service.

For those who, like us, wondered what the Commissioner was doing with her time – since her office seemed to be doing nothing – here perhaps is part of the answer.

Further revelations to come

There is a lot more information still to come out about what was going on within this office – and across the federal government.

At least two Parliamentary committees have an obligation to examine and learn from this catastrophe – Government Operations for the operational aspects, and Public Accounts for the legislative aspects. The Public Accounts committee has apparently decided already to call Mme Ouimet to appear before it on Tuesday.

We will hear in due course from the Privacy Commissioner the results of her investigation into Ouimet's actions, and the Treasury Board will be under great pressure to release the results of its investigations into allegations of improper performance pay decisions by Ouimet.

There are also the dozens of public servants who went to this office for help – submitting a total of 170 complaints of wrongdoing and 58 complaints of reprisal. When their cases are re-examined properly there will surely be many more investigations, followed by more exposures of wrongdoing within government departments.

In addition many people who have been silent while waiting for Fraser's findings can now speak out publicly, knowing that their concerns have been vindicated. These include former PSIC employees such as Normand Desjardins (who submitted the first complaint) and Pierre Martel, the acting Commissioner who left within weeks of Ouimet's arrival.

It is noteworthy that, although FAIR has received a steady stream of calls from whistleblowers over the past three years, we never heard from any PSIC staff – until this audit was announced. Now we are in contact with several former employees – some still very fearful and insisting upon complete anonymity – who say that there is yet more more to this story that needs to be told.

Actions required

As recently as October 25, after the OAG audit was announced, President of the Treasury Board Stockwell Day assured the public of his confidence that PSIC "continues to be a safe and independent agency for public servants to bring concerns about wrongdoing in the workplace without fear of reprisals". How was he so badly briefed?

Hopefully Fraser's report will erase the government's past denials that there is a problem, and it will then become possible to have sensible discussions on the Hill about how to fix this mess.

So one of the first things that needs to happen is a frank admission by the government of the magnitude of the problem. Its much-touted "ironclad" protection for whistleblowers, the core of its Accountability Act, is a complete shambles – a bad law compounded by a bad choice of commissioner.

The Liberals also need to avoid turning this situation into a purely partisan debate, since their track record is no better: after promising during their successful 1993 election campaign to clean up government and protect whistleblowers, they reneged and even blocked several private members bills. Only when forced into a corner by the Gomery Inquiry did they introduce legislation – a pitifully inadequate bill that never came into force.

Minister Day's statement today – that he 'assumes' the acting Commissioner will now review all the old files – raises serious concerns.

The current acting Commissioner Joe Friday was Ouimet's long-standing senior legal counsel. In this role he was responsible for reviewing all cases and providing guidance to the Commissioner regarding the legal basis for her decisions. Is it reasonable to expect him to review his own work?

The government must also realize that this review will be a massive task, since it involves essentially re-doing three years of work – the work that this office of more than 20 people was supposed to be doing. This will require an entire team of people, who must not only be competent, but must also be independent of those who did the original work.

Going forward, we see at three major processes that need to be initiated:

The search for a new Commissioner – this time using a public, merit-based appointment process, not the type of secretive back-room process that led to Mme Ouimet's selection and the glowing endorsement of her as the ideal candidate.
A root-and-branch reform of the current deeply-flawed legislation, which was condemned by FAIR and many others even before it came into force. This law creates so many barriers and pitfalls for whistleblowers that most will fare just as badly under a new Commissioner, whose hands will be tied until the law is rewritten.
A complete, thorough and independent re-examination of all the past cases, and thorough investigations of wrongdoing and reprisals where warranted.
There also need to be consequences for those who perpetrated this massive obstruction of justice – and not just the Commissioner. Other senior PSIC staff who willingly collaborated in depriving whistleblowers of due process – and effectively assisted in the cover-up of suspected departmental wrongdoing – need to be disciplined.

This office was created to punish and thus deter wrongdoers, as well as to protect whistleblowers and make them whole after reprisals. These same goals must be pursued in the efforts to clean up the current fiasco. We cannot allow yet another scandal in which the wrongdoers retire in comfort while the truth-tellers have to lick their wounds and adjust to straightened circumstances.

The USA began protecting whistleblowers more than 30 years ago. The UK has had effective protection for truth-tellers for more than a decade. Even former Communist-bloc countries like Bulgaria have made important strides. Meanwhile Canada has been pretending – but doing nothing serious – for 17 years.

This government, with assistance from Mme Ouimet, has brought about a spectacular meltdown of whistleblower protection. On the issue of protecting honest employees, which is central to the entire process of transparency and accountability, we are now the laughing stock of the developed world.

Canadians deserve better.

FAIR looks forward to assisting all sincere efforts to fully understand what went wrong and to develop a way forward. We will work with the government, opposition leaders and any other interested parties to help recover from this body blow to the integrity of our democracy.

We hope that this time around the government will pay attention to the expert advice available from ourselves and others to create a system that’s not just for show, but one that will work to protect the public interest.

David Hutton
Executive Director

About FAIR

Federal Accountability Initiative for Reform (FAIR) promotes integrity and accountability within government by empowering employees to speak out without fear of reprisal when they encounter wrongdoing. Our aim is to support legislation and management practices that will provide effective protection for whistleblowers and hence occupational free speech in the workplace. FAIR is a registered Canadian charity.
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Wed Oct 06, 2010 11:46 pm

..........to follow up on the posting previous, that it "is thousands of times harder to tell the truth than it is to continue a lie".

This seems to explain some of our economic crisis of the moment. Our decline in the economy, perhaps in ethics and morality to somewhat of an "everyman for himself" mentality. A decline in our political integrity to an "every politician bought and paid for by corporate lobbyists" reality.

I started to notice it when looking into multi, multi million dollar financial scams. Or even just semi legal but hugely unethical skims by some of our best and most "trusted" financial institutions. I found it rampant. Standard Industry Practice.

So well entrenched and so well supported that it was fed and condoned by the regulators, who themselves were in on the money action. I am talking Canada here kids, and let me tell you this came as a shock to my sensibilities and my OH Canada upbringing. I was taught that this kind of thing was expected in third world countries, but that we were far too civilized to succumb. I was wrong. We simply did a better job of keeping it quiet. Very British, don't talk. Loose lips sink ships and all that.

I now am at the point of concluding that big financial crime is a sure winner. If you want to have crime pay, and never involve police or any agency of the government powerful enough to lift a finger against you, just commit financial crimes in excess of $100 million. Scam, skim, churn, burn, whatever your particular preference. Do it in excess of $100 million (that is only $3 per head in a country like Canada) and there is not a police force nor a prosecution in the country that is strong enough to even consider a prosecution. I could be wrong, and I am patiently waiting for someone to send me the example where there has been ONE prosecution over that level. Meanwhile I can add up a trillion dollars worth of damage (done by professionals) during my career. That is about ten thousand crimes in the 100 million dollar range.

I am no longer a believer in "crime does not pay" or the good guys always win. Those are simple fairy tales we were raised with. I today think it is more likely that the ratio of dishonest to honest is more likely in the nature of tens of thousands to one. I am only guessing. I have nothing meaningful to go by except the dollar value I can add up in money taken or skimmed from rightful Canadian investors, by righteous Canadian financial professionals. Some of these figures are posted elsewhere on this site on topic "FINANCIAL CRIME MORE THAN ALL OTHER CRIMES".

I sure hope I am just exaggerating about this.
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Re: whistleblowers

Postby admin » Wed Oct 06, 2010 11:23 pm

Stew Webb Savings & Loan Whistleblower faces federal charges.jpg
Telling the truth verses telling a lie........

I have learned that it is perhaps orders of magnitude more painful for one to tell the truth in difficult situations than it is to tell lie.

Example:

Telling the truth (lets look at whistleblowing) might be in the public interest, and might be intended to help the public, but there is no quantifiable return nor often even simple gratitude for making this move. However, telling the truth when it reveals damage or danger to the public interest is feared, avoided and resented by those who are hurt by the revealing of this truth.
Corporations, management, bureaucrats, whomever, who live, breathe, eat, sleep and profit from keeping things exactly the way they are, will be very, very, VERY upset if you take away some of the secrecy, power, money or moral high ground on which they operate. Even if they are the ones doing the harm and you are the one telling the truth.

They will come at you like a hive of angry bees, intent on using every possible technique to ruin and destroy you or your credibility. Lives broken is often the result.

All this activity, this “bee hive” of attacking, dismissing, deflecting, discrediting will come your way if you tell the truth in some difficult situations. And there can be thousands, no, hundreds of thousands of people who depend and rely on the status quo. I mean literally depend and rely on the status quo to eat and to feed their families. They can look away and do perhaps any injustice if it means they can continue to support those families. (see Stanley Milgram Yale University Shock Obedience experiments, circa 1960's) I worked in the largest bank owned brokerage in Canada, and our entire workforce, including the bank, was 40,000 when I worked there, and closer to 60,000 employees today.

Add in the outside suppliers, accountants, lawyers, regulators, politicians who relate, rely or revolve around the power and money that spins off of this large a corporation and there is enough human will involved to totally ruin ones life. Add in the other four or five top banks, and their own brokerage firms who have a nearly identical business model, or mode of operation, and if you are criticizing one of them, you will find yourself taking on them all. You could find yourself up against the combined will of one million people who are dependent on that one industry. Once million people who also know the truth, but know how much easier it is to continue the lie than it is to tell the truth.

Think of how it affects your financial health. How about your physical health when it involves industries that profit from damaging that health. How about being a truth teller at the FDA, talking about growth hormones in dairy milk? A truth teller from the FBI telling of failed investigations prior to 3000 people dying in 911? How about your mental health when you are a rocket scientist at Morton Thiokol who argued that space shuttle Columbia should not be launched under cold conditions? How many died? Literally thousands of such examples exist to remind and reinforce just how much more painful it is to tell the truth, than it is to continue the lie.

Perhaps this is why our economy is suffering, our politicians appear to be bought and paid for by lobby groups and other fund raising interests. Our north american economy is looking less and less like the world leader and starting to appear as a laggard. Is it temporary or permanent? Your guess as good as mine, but that is not how this article started out. It started out just to remind myself just how difficult it is to find the truth. Remind myself to write it down for the benefit of those who follow this path. And how much easier it is to go with the lie, the easy story, the favorable spin. Thousands and thousands of times easier.

For those of you thinking of acting on your conscience and speaking out about something bad, something dangerous or costly to the planet or the public interest, remember this. I am not saying don’t speak out. By all means do speak out, or we are doomed. Just know that by speaking out, the costs to you and your life will perhaps be greater than anything you will have ever imagined prior to embarking on this path.

You will emerge a completely different person coming out the other end of this tunnel, much stronger, provided you make it out the other end alive. My thoughts, hopes and prayers are with you.

Larry Elford
http://www.breachoftrust.ca
admin
Site Admin
 
Posts: 2861
Joined: Fri May 06, 2005 9:05 am
Location: Canada

PreviousNext

Return to Click here to view forums

Who is online

Users browsing this forum: No registered users and 3 guests

cron