Evidence shows that whistleblowers want to make things better, both for their companies and customers. Yet many companies ignore internal tip-offs, or worse, retaliate against those giving them. It’s an increasingly questioned approach – because evidence also shows overwhelmingly that companies ignore whistleblowers at their peril.
In 2013, Howard Wilkinson, a senior Danske Bank trader in Estonia, needed information about a UK-registered customer. Wilkinson checked the firm’s details in the UK business registry, which listed it as dormant. Yet he knew it was making transactions worth up to US$20 million a day. He also found that the Russian-owned company shared a London address with 64 other companies holding accounts with Danske Bank, and was connected to offshore banking centres known for secrecy.
Finding similar patterns in other customers’ records, Wilkinson warned managers that the bank had breached “numerous regulatory requirements”, handling vast sums of money without due diligence. But they ignored him. Prevented by Danish banking secrecy laws from reporting to an external regulator, Wilkinson resigned in 2014 – unaware he had discovered the largest money-laundering scandal in history.
Exposing corruption on a breathtaking scale
Although internal auditors soon raised similar concerns, Danske Bank didn’t commission an independent inquiry until 2017, after the media began probing its money transfers. The inquiry found that US$234 billion had passed through the Estonian branch between 2007 and 2015 with inadequate money-laundering checks.
In late 2018, Danish prosecutors charged Danske Bank with insufficient transaction monitoring and research into customers’ beneficial owners. Executives have been charged with violating Danish anti-money laundering laws, and in February 2019, Estonia’s financial regulator ordered the bank to leave the country within eight months. It subsequently announced its withdrawal from Estonia, Latvia, Lithuania and Russia.
Whistleblowing for long-term corporate health
The scandal underlines why shareholder demands for effective whistleblower programmes are growing. Companies that encourage and listen to whistleblowers signal to investors and the public that they prioritise risk management, social responsibility and integrity – supporting long-term value creation.
In 2018, academics analysed 1.2 million anonymised internal reports by employees of public US companies. They found that whistleblowers are essential to achieving business goals, including profitability. They enable firms to address wrongful conduct before liability is triggered, and to earn lighter sanctions by voluntarily self-reporting to regulators. The analysis found that the more employees use internal whistleblowing hotlines, the fewer lawsuits companies face and the lower settlements they pay. Whistleblowers are clearly a valuable asset – yet often aren’t treated as such.
When Courtland Kelley, a quality inspector with General Motors (GM) in the United States, reported product safety concerns to managers, the company sidelined him – making safety inspectors feel afraid to speak out. In 2014, GM faced investigation for a defect blamed for numerous crashes and 124 deaths – possibly preventable had the company nurtured a whistleblowing culture. Employees had known about the fault, but taken no action.
GM was forced to pay over US$1.5 billion in fines and compensation. It also paid over US$3 billion to recall 30 million vehicles worldwide, and suffered incalculable damage to its reputation and sales.
The value of listening
Like Kelley, former EY partner Amjad Rihan was mistreated by management when he raised concerns uncovered during a client audit in Dubai in 2013. Rihan found that Kaloti Jewellery International had shipped silver-coated gold from Morocco to avoid export restrictions. He also suspected money laundering through $5.2 billion-worth of gold, possibly from countries exporting conflict minerals.
Having reported his findings to Dubai’s regulator, Rihan said he was pressurised at EY to change them. EY bosses allegedly then helped Kaloti and the regulator conceal the findings. Fearing for his life, Rihan fled back to Britain and resigned.
Unable to find comparable work, he sued EY for damaging his reputation. In April 2020, the high court in London stated that EY had breached the accountants’ ethical code in dealing with Kaloti, and breached its duty to Rihan. It sentenced EY to pay him US$10.8 million compensation.
Although EY aims to appeal, the judgement threatens the firm’s brand and sends a clear message that corporate whistleblowers can successfully challenge unethical conduct externally when a company deals inadequately with it internally.
Tapping insider insight
More fraud is uncovered by whistleblower tips than any other method, says the Association of Certified Fraud Examiners. But a cultural shift is often needed before they’re considered a business asset.
Many people wondered where the whistleblowers were in the 2015 Volkswagen emissions scandal. Their absence in such a widespread scheme highlights their crucial role, both to employers and societies, and the need to encourage and protect them. It also shows the importance of a corporate culture that ensures everyone understands their responsibility to report malpractice – and knows how.
Companies like Danske Bank, GM and EY serve their customers and themselves far better if they listen when concerned employees blow the whistle. To do so effectively, they must supply reporting mechanisms with four essential components: active encouragement to speak up, accessible and confidential reporting channels, effective response systems and robust user protection from retaliation.
Although not all whistleblower reports indicate malpractice, they offer timely insider insight into what’s really going on – so companies can address problems long before they grow into scandals.