The loneliness of a whistle-blower – Newspaper | #employeefraud | #recruitment | #corporatesecurity


IN the corporate context, whistleblowing is reporting by employees of suspected misconduct, illegal acts or activity that can be construed as violation of law or outright fraud and corruption that may lead a firm into jeopardy.

The merits of a whistle-blower first came into sharp focus in 2001 when the seventh largest company in the United States, Enron Corporation, found itself in a financial crisis and declared the biggest bankruptcy in American history. But the disaster could have been prevented had the company chairman, Kenneth Lay, listened to his vice president, Sherron Watkins, who alerted the former on an “elaborate accounting fraud” in the company. Chairman Lay apparently did not take Watkins seriously, which led to Enron’s bankruptcy that shook the entire corporate world.

The whistle-blower puts their life and limb on the block by providing such secret information to the top management or the regulator. But why must they do so unless they are adequately rewarded for their efforts? In Pakistan, the Competition (Reward Payment to Informants) Regulations were released on May 23, 2014. They provide that the regulators would reward persons who furnish information regarding the contravention of Section 4 of the Act. “The informant ought to provide the Competition Commission of Pakistan (CCP) information regarding the prohibited activity, which is known by the undertaking’s board of directors, management, and/or employees but not by the public,” the regulations say.

The quantum of reward, its calculation and payment methodology make an interesting read. The regulations provide that the commission may grant a reward ranging from Rs200,000 to Rs2 million to the person furnishing the information of the prohibited activity. The reward payable will be calculated by the commission while taking into account the accuracy, usefulness and effectiveness of the information provided, efforts made by the informant, the nature of cooperation extended by the informant and the seriousness of the prohibited activity. The regulations provide that the payment of reward will be made in the following two stages: initial payment may be made within 30 days of the receipt of complete information and, subject to the regulations above, after assessing generally the value of information given. The final/remaining payment may be made within 60 days of the conclusion of the enquiry and the issuance of a show-cause notice.

Khalid Mirza, former chairman of the Policy Board of the Securities and Exchange Commission of Pakistan (SECP), said some people disclosed a couple of interesting cases and furnished information about prohibited company activities, including anti-competition practices and cartelisation, during his time as chairman of the Competition Commission of Pakistan (CCP) 10 years ago.

“One whistle-blower had furnished all actionable evidence that suggested that the telecom companies had entered into a discreet agreement in cartelisation on back-end services, meaning all services other than call charges,” Mr Mirza said.

This insider had produced evidence like emails and voice recordings that quite clearly implicated the telecom operators. “After I left the office of CCP chairman, the case was hushed up,” he added.

Apparently, there are no regulations relating to a whistle-blower in either the Companies Act or the Code of Corporate Governance. An official of the SECP said the surveillance, supervision and enforcement department of the regulator’s Securities Market Division monitors, inspects and investigates market participants (and listed companies). A senior official in a state-owned enterprise said that legislation on whistleblowing is mandatory for Pakistan under the United Nations Convention Against Corruption (UNCAC).

Many large corporations and banks do have their own in-house rules and rewards for whistle-blowers. But the boards of directors of the subsidiaries of large multinational corporations and banks are as much anxious to avoid the exposure of any misconduct as they are to accept a qualified audit report from statutory auditors.

They are eager to sweep the matter under the carpet and quietly dismiss an errant employee than make the matter pubic or bring it to the notice of foreign holding companies because their own internal controls come into question in that case.

“For an informant, perhaps the biggest setback is that there no procedure to ensure the protection of the identity of the whistle-blower either here or anywhere else,” said a person familiar with the subject.

Although the commission promises to keep the identity of the informant confidential under the Competition (Reward Payment to Informants) Regulations, potential whistle-blowers know that they will be identified and have to endure a hostile work environment, face the threat of losing their job and a reprisal that can put their life at risk at the hands of the organisation or groups that they have accused.

In case of smaller companies where seth culture still prevails, the owner plants their people to keep them informed. Any backbiting or even verifiable information on wrongdoing by senior staff or managers is not welcome.

In a mid-sized textile mill operating in the Korangi Industrial Area of Karachi, an overenthusiastic employee managed to gather information and irrefutable evidence against the company’s general manager who had embezzled Rs1m. When he discretely informed the sole proprietor about it while hoping for a reward, the owner escorted the informant to his office. After both men were comfortably seated, the seth pulled out the firm’s accounting statements, spread them on the table and tapped his index finger on the bottom line. He told the whistle-blower: “See, the general manager has produced a profit of Rs34m for me from this firm last year. What have I to complain if he is robbing me of a million? Let him enjoy it.”

Published in Dawn, The Business and Finance Weekly, July 27th, 2020


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