Company whistleblower systems: detecting and preventing white-collar crime

Steinbeis Compliance Monitoring evaluates whistleblower systems

Whistleblower systems in businesses and administrative organizations can be used as an instrument to detect and prevent abuse and wrongdoings such as white-collar crime. In the past, whistleblowers – i.e. people who blow the whistle on perceived irregularities – have helped uncover inhumane treatment in care homes and rotten meat that had illegally re-entered the distribution chain. In the United States and UK, there are already laws in place to protect whistleblowers. This is not yet the case in Germany. Steinbeis Compliance Monitoring is a system developed by the School of Governance, Risk and Compliance (School GRC) at Steinbeis University Berlin to evaluate the degree of compliance within companies, including the level of protection afforded to whistleblowers.

When allegations of white-collar crime become public knowledge, the damage to everyone involved can be serious, regardless of how true the allegations are. There is a loss of trust and respect among third parties, such as clients and suppliers, not to mention banks and stakeholders as well as investigators. It’s also difficult to quantify the damage to a company’s reputation. Many potential whistleblowers lose heart, worrying about the mental anguish and the work and legal implications if they are identified. Until now, whistleblowers in German companies and public authorities have enjoyed little public recognition, personal support or legal protection. This may be because whistleblowers are seen as “informers” who denounce companies for their own ends. It could also be due to the absence of a legal framework and the resulting lack of protection for whistleblowers. But introducing a whistleblower system in corporations is more than just a useful way to uncover and prevent white-collar crime. It can also be a reflection of professional management practice and promote corporate culture.

The United States has introduced a slew of laws to protect people who “speak out”. The Sarbanes-Oxley Act (SOX) gives special protection to people at companies listed on the American stock exchange if they reveal wrongdoings in accounting or financial practices. Companies must have whistleblower systems and people in place to re- ceive tip-offs and investigate allegations relating to accounting practices, accounting controls and auditing issues. It’s forbidden by law to sack, demote, suspend, threaten, bully or in any way discriminate against whistleblowers. People are also allowed to contact the authorities, members of congress and superiors who have the authority to investigate and rectify abuse or wrongdoings. The Dodd-Frank Act, which came into effect in 2010, provides further incentives to whistleblowers in the form of rewards for uncovering abuse or wrongdoings. The law makes special provisions for the protection of anonymity.

In the UK, whistleblowers are protected by the Public Interest Disclosure Act. In July 2011, the Bribery Act also comes into power, and this will also affect German companies. This act lays down tight restrictions regarding compliance and corruption avoidance guidelines, although the law doesn’t specifically mention whistleblowers. Nevertheless, companies are obliged to introduce compliance systems to avoid corruption. Indirectly, this means whistleblowers will have more protection, and guidelines for setting up the necessary anti-corruption procedures will need to be drawn up. These will have to include instructions, checklists and forms for specific scenarios, including guidelines covering the anonymous reporting of suspicions. Firms will face criminal action if corruption is uncovered or if they fail to implement suitable measures.

Until now, there have been no laws regarding whistleblower protection in Germany. In 2008, legislators did attempt to alter infringement arrangements under the German Civil Code (BGB, Section 612a). However, this failed after constitutional concerns were raised regarding anonymity protection, the lack of specific sanctions that could be threatened if an employer failed to comply, and the difficulty of proving wrongdoings as a result of the wording “sufficiently definitive indications”.

If employees choose to hand on company information, their freedom of expression is already subject to special restrictions due to clauses in their contract of employment. But even if there are no special contractual obligations, workers do have a loyalty and allegiance towards employers, which stems from their obligations as a employee. The integrity interests of an employer are easily affected. Confidentiality obligations, often the norm in employment contracts, frequently go beyond the statutory nondisclosure obligations captured under Section 17, Paragraph 1 of the Act Against Unfair Practices (GWB). This relates to unfair competition, i.e. the protection of corporate and trade secrets. It also covers information declared confidential by the employer and any other issues worthy of protection, of a personal nature or relating to a business. It is not difficult for a would-be whistleblower to enter an area of legal uncertainty regarding who may be told what. Employees who disregard non-disclosure obligations can be dismissed instantly under Section 626, Paragraph 1 of the BGB.

It is evident how important it is for companies and senior managers to understand the benefits of whistleblower systems and to work out – and put in place – suitable procedures. The Steinbeis Compliance Monitoring system developed by the School of Governance, Risk & Compliance makes it possible to evaluate and understand systems and procedures already in place, and understand how best to design systems according to the overall degree of compliance needed, by industry, size of company and location.

Companies can use Steinbeis Monitoring, a standard for compliance check launched by School GRC, to regularly inspect and evaluate their degree of compliance. The assessment is based on the current situation in the company, with the aim of ensuring the implementation of suitable and effective compliance standards. The assessment looks at individual measures to see if they are in place at all (i.e. their integrity) and whether they are effective and efficient (i.e. their quality). All of this is captured in a four-box model. The assessment also considers the elements that make up a whistleblower system and whether there are tools in place to ensure the system is sustainable.

Factors that affect the integrity and quality of systems include anonymity protection and the existence of whistleblowing channels, such as an ombudsman, help lines, electronic or web-based systems. The key issue is whether employees know who to turn to, and where, if they discover wrongdoings or abuse – and whether they can expect sanctions, or whether the whistleblowing system is accepted in all areas of a company, and can thus be considered an integrated and established part of the corporate culture.

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