REPRINT risk & R&Ccompliance WHISTLEBLOWINGDATA PRIVACY – MANAGING RISK INTHROUGH EUROPE EFFECTIVE RESPONSE REPRINTED FROM: RISK & COMPLIANCE MAGAZINE JAN-MARAPR-JUN 20152014 ISSUE rriskisk && && compliance compliance ������������ JAN-MAR 2014 RC ��������������������������������� RC www.riskandcompliancemagazine.com ������������������ ������� �������������������������� ������������������������������ ���������� Inside this issue: ������������ ������������������������������� FEATURE ��������� The evolving role of the chief risk officer ��������� �������������������������� EXPERT FORUM �������������������������� Managing your company’s ������� regulatory exposure HOT TOPIC Data privacy in Europe www.riskandcompliancemagazine.com VVisitisit the website to request a free copy of the full e-magazine Published by Financier Worldwide Ltd [email protected]@financierworldwide.com © 20152014 Financier Worldwide Ltd. All rights reserved. MINI-ROUNDTABLE MINI-ROUNDTABLE WHISTLEBLOWING – MANAGING RISK THROUGH EFFECTIVE RESPONSE 2 RISK & COMPLIANCE Apr-Jun 2015 www.riskandcompliancemagazine.com WHISTLEBLOWING – MANAGING RISK THROUGH EFFECTIVE... MINI-ROUNDTABLE Edward T. Kang Timothy P. Hedley Partner Partner Alston + Bird LLP KPMG LLP T: +1 (202) 239 3728 T: +1 (212) 872 3496 E: [email protected] E: [email protected] Edward Kang is a partner in Alston & Bird’s Government & Dr Hedley is a partner in KPMG LLP’s Forensic practice where Investigations Group and focuses on white-collar defence and he serves as Global Lead for the firm’s Fraud Risk Management compliance in areas of the Foreign Corrupt Practices Act, False service offerings. He provides his clients with a wide range of Claims Act and Office of Foreign Assets Control sanctions. forensic services by assisting with the prevention, detection Previously, Mr Kang served as a federal prosecutor in the and response to fraud and misconduct. He is a member of the Department of Justice’s Criminal Division. Executive Committee of the New York State Society of CPAs where he serves as Vice-President of Professional Issues. He is also co-author of the book, ‘Managing the Risk of Fraud and Misconduct: Meeting the Challenges of a Global, Regulated and Digital Environment’, published by McGraw-Hill. Kirk Ogrosky Alex Willscher Partner Partner Arnold & Porter LLP Sullivan & Cromwell LLP T: +1 (202) 942 5330 T: +1 (212) 558 4104 E: [email protected] E: [email protected] Kirk Ogrosky is a partner in the white-collar practice at Alex Willscher focuses his practice on securities class Arnold & Porter LLP in Washington, DC. Mr Ogrosky represents actions and complex commercial litigation, white-collar companies and executives in qui tam litigation, internal criminal defence, regulatory enforcement proceedings, internal investigations, and trials. He served as an assistant US attorney investigations and cyber security matters. Mr Willscher has from 1999 to 2004 and as deputy chief of the Fraud Section at represented a number of companies and individuals under DOJ in Washington from 2006 to 2010. investigation by the US Department of Justice, the Securities and Exchange Commission, the US Commodity Futures Trading Commission, the US Treasury, the US Senate Permanent Subcommittee on Investigations, and state and local prosecutors’ offices. www.riskandcompliancemagazine.com RISK & COMPLIANCE Apr-Jun 2015 3 WHISTLEBLOWING – MANAGING RISK THROUGH EFFECTIVE... MINI-ROUNDTABLE RC: How do corporates perceive the misconduct. They also have a much better chance concept of whistleblowing? Are they of detecting misconduct in a timely fashion if they taking a proactive approach, or is there take proactive steps to help ensure employees still a need for increased awareness? know they have an affirmative obligation to report misconduct, and, importantly, that they can do so Kang: Companies are certainly becoming without fear of retaliation. With respect to awareness increasingly aware of the risks and issues posed by of whistleblower mechanisms, there is always a whistleblowers. The publicity surrounding recent need for increased awareness. There is always room high-dollar whistleblower awards – such as the $30m for improvement and this is especially true for those award announced by the SEC in September 2014— organisations that happen to place lower on the has certainly helped get the word out. That said, ‘maturity scale’ of compliance programs. many companies have still not taken the affirmative step of re-evaluating their compliance policies and Ogrosky: Corporations support mechanisms programs in light of the increase in whistleblowing that identify and prevent real fraud and create level activity. In today’s environment, all major companies playing fields within markets. Problems arise due to should have a well-defined process for responding the intersection between governmental enforcement to and managing whistleblower complaints. For actions and traditional employment issues. In far example, the Fifth Circuit recently held that a too many instances, employees claiming to be company’s identification of an employee as a whistleblowers are misusing laws that were set up to whistleblower in a document preservation notice help the government detect and prevent misconduct was an “adverse action” under the anti-retaliatory as a way to extract excessive remuneration from provisions of the Sarbanes-Oxley Act. Therefore, companies. The expense of defending against companies failing to establish well-defined internal frivolous allegations puts whistleblowers in a processes for managing employee complaints can position to raise spurious issues knowing that result in companies not only paying large penalties companies are likely to seek to avoid meritless under the False Claims Act, but also potentially being investigations. In certain markets, the problems have accused of having engaged in retaliatory conduct. become so severe that whistleblowing has become like a lottery for poorly performing employees. For Hedley: Corporations understand that their example, US healthcare sectors have been riddled employees are critical in uncovering major with hundreds of whistleblower driven qui tam cases. To the extent that real legal issues exist in 4 RISK & COMPLIANCE Apr-Jun 2015 www.riskandcompliancemagazine.com WHISTLEBLOWING – MANAGING RISK THROUGH EFFECTIVE... MINI-ROUNDTABLE these cases, most could have been prevented had Willscher: Since 2010, when the Dodd-Frank Act the whistleblower utilised the corporate compliance authorised awards of up to 30 percent of recovered reporting mechanisms. It is a frustrating process to funds to individuals who provide “high-quality see individuals threaten to raise issues only when original information”, many companies have needed personal employment problems arise. Finally, most to contend with the new incentives and implications corporations have been extremely proactive in of whistleblowing. Of course, it has always been creating and enforcing sophisticated compliance important for companies to be good global citizens, programs. but the new whistleblowing rewards programs – and www.riskandcompliancemagazine.com RISK & COMPLIANCE Apr-Jun 2015 5 WHISTLEBLOWING – MANAGING RISK THROUGH EFFECTIVE... MINI-ROUNDTABLE the resulting surge in purported whistleblowing whistleblowing. At the end of the day, ‘crying wolf’ claims – now may require corporates to refocus should carry some punishment. their compliance regimes to account for this new reality. Particularly after last year’s $30m dollar SEC Willscher: The surge in purported whistleblowing award payout to a whistleblower – the largest to claims is further evidence of a pendulum swing in date and one which the SEC indicated could have the direction of increased regulatory attention on been larger – most companies are paying attention. corporates. Companies are operating in a highly- The challenge will be proactively and effectively regulated environment in the post-2008 financial responding to the changing regulatory tide. crisis world. Among other things, Congress and various state and federal regulators have created RC: What does the growing number very enticing financial incentives for individual of whistleblowing complaints tell us, if employees to file reports. In light of the new awards anything, about today’s corporate culture programs, it is unsurprising that the number of and regulatory environment? purported whistleblowing claims has grown recently. But one should hesitate before attempting to draw Ogrosky: Whether it is securities or government any larger conclusions about the state of today’s programs, the concept of regulation through corporate culture based on the fact that more investigation and litigation is simply not a complaints are being made. It remains to be seen sustainable, long-term solution. The resources that what percentage of the new complaints relate to are expended on legal and consulting services actual violations of the law. to combat many of these allegations are not commensurate with the level of alleged wrongdoing. Kang: The number of whistleblower tips sent to Governmental agencies need to establish rules that government agencies is up dramatically, and the allow for consistent and well functioning markets. To increase highlights the fact that we are now at a allow whistleblowers to saddle certain companies point where companies have to anticipate that with expensive investigations while others go misconduct such as bribery and fraud will eventually untouched