Doing the Right Thing doesn’t Really Pay?

 

At the end of last month, I had the honour of being invited to a seminar conducted by Rajah & Tann, one of the larger local law firms. The seminar was around the topic of knowing your customer and the perils of money laundering and terrorism financing. It was clear from the presentation that Singapore has a very comprehensive set of laws to deal with “doggy money.”

 

 If you were to look at the set of laws dealing with things like money laundering and terrorism financing, you will be undauntedly impressed by the legal tools in which the government has given itself to catch the bad guys. You will also admire the fact that the various sets of laws place responsibility on getting things right where it should be – on senior management.

There is, however, one slight flaw to our legal system when it comes to financial nasties. It assumes that people on the top are automatically responsible and decent people who will always be responsible. Hence, the trick to making everything work like clockwork is make senior management responsible for everything.

There is one slight fallacy with this. This situation only existed in the wettest dreams of Confucius. While it does take a lot of positive qualities for someone to get to a high level, being “always moral,” simply isn’t one of them and we need to remember that the law in practice and the law as it is written are not necessarily the same thing. You can have all the laws in the world but if there’s no ability to detect and enforce those laws, then the laws are pointless.

In theory, Singapore law states that if an employee knows his or her employer is guilty of something or other, they have a legal obligation to report it. However, let’s be honest, how many of us would be willing to report the source of our livelihood to the authorities when there is a risk of losing your job and never being hired and the potential for vengeance from an employer who may get acquitted whereas you only have the reward of knowing you did the “right thing”?

Let’s look at one of the most famous “whistleblowers” in recent years – Lieutenant Colonel (LTC) Alexander Vindman, who famously reported his “Commander-in-Chief,” then President Trump for trying to shake down Ukrainian President Zelensky into conducting an investigation into Hunter Biden.

What was LTC Vindman’s reward? The President Trump was acquitted in the Senate Trial and took no time in disposing of everyone who got him impeached. LTC Vindman, a decorated war hero was labeled “insubordinate” by his “Commander-in-Chief,” not something which any military officer wants to be known for. The man fought for his country and has been rewarded with the hatred of a good percentage of it:

https://news.am/eng/news/559243.html

 

 Sure, LTC Vindman has now gotten himself a new career as a celebrity of sorts. However, let’s remember that this happened in America which has laws and rewards for whistleblowers:

https://www.youtube.com/watch?v=5azzC0ZS9yM

 

 At the time of writing, America is the only major economy that rewards whistleblowing. A good portion of the EU economies do not have strong laws protecting whistleblowers let alone having a reward program, specifically in the financial sector.

When I attended an International Fraud Group (IFG) conference in November of last year, the question of whether more countries should implement a whistleblower reward program along the American model. The general consensus was no. The Eastern Europeans had scars of the Soviet era and argued that nobody wanted to be know as the “informant” and a lot of the attendees from the developed world argued that it would incentivize frivolous information. Only the boss of an NGO that deals with human trafficking argued that whistleblowing was necessary to reduce human suffering.

This sentiment wasn’t particular to the group. The Bank of England’s Financial Conduct Authority and Prudential Regulation Authority, henceforth (FiCA & PRA’s), writes in a note for a UK Parliament Committee that “There is as yet no empirical evidence of incentives leading to an increase in the number or quality of disclosures received by regulators” (PRA and FiCA 2014, p.2, italics in original).

Now, if this is the sentiment of regulators in the “democratic Western,” world, what can be said of Asian countries where the culture remains focused on the importance of the “patriarch.”

Going against “your boss” or the person who has power over you and in cultures where authority figures are venerated, its even more difficult. However, the fact remains that you’re not going to get fraud punished if you don’t get it reported and you’re not going to get it reported if people are fearful of doing so. Going against someone who has the power of an organisation involves serious risk. Let’s face it, one can say “it’s only money,” but its different story when it means you can’t feed yourself or look out for your family.

One might event ague that whistleblowing is not necessary or that it encourages “frivolous” complaints. However, if you look at the UK where there is a system of rewarding whistleblowing in the health care sector, it was found that 41 percent of fraud causes were detected by employees.

Whistleblowing or getting people who are under the power of others to report crimes is good for the system. While government’s might be hesitant to get involved, there are at least private sector companies willing to step in. One example is Omni Bridgeway, a litigation funder, which has argued that whistleblowing takes “courage”

 

It also understands that being a whistleblower means putting yourself in financial harm’s way.

 

While Omni Bridgeway does have a system that funds whistleblowing suites, it only offers the service in the US market, where whistleblowing has financial rewards. Would Omni Bridgeway or companies like Omni Bridgeway be allowed to work in other markets? Just because governments may be hesitant to take on rewarding whistleblowers, there’s no reason why they can’t encourage the private sector to step in.

Whistle blowing takes courage but it’s shown that it is an essential part in combating things like corruption, money laundering and terrorist financing. These are things that societies need to deal with if they are to grow in every sense of the word. Isn’t it time we stop talking about combating financial crimes and lauding people’s courage and actually protect and reward people for doing the right thing and being serious about combating crime?