WHISTLEBLOWING CASES SOAR BY 276 PER CENT SINCE BEGINNING OF FINANCIAL CRISIS

Posted on: 30 October 2012
Written by: Claire Middleton

Whistleblowing cases reported to the Financial Services Authority have increased by 276 per cent in four years, according to information¹ obtained under the Freedom of Information Act by Kroll Advisory Solutions, the global investigations firm.

 

Kroll found that between June 2011 and May 2012 the FSA received 3,733 contacts to its whistleblowing helpline. This is a 189 per cent increase on the 1,293 calls to the helpline in the same period three years earlier (June 2008-May 2009) and a 276 per cent increase on the 994 calls made in the same period four years earlier (June 2007-May 2008).

 

Kroll, which provides corporate investigations, says that over the last 12 months almost one in five (18 per cent) of its investigations were prompted by a whistleblower². In 60 per cent of these investigations the original allegations were upheld, while 19 per cent stemmed from malicious allegations made intentionally to get revenge on an individual or company.

 

The firm says that the increase in whistleblowing is likely to stem from three key factors:

• an increase in the level of financial crime within businesses, probably stemming from the growth of investments into developing overseas markets, which often have less stringent controls on criminal activity
• the ease of creating electronic identities, which can make it easier for individuals to perpetrate fraud
• the development in recent years of clearer and more established procedures for handling whistleblowing cases and protection for whistleblowers

 

Kroll is warning that businesses need to handle whistleblowing allegations with the utmost care to ensure that their responses are appropriate and the best outcomes are achieved.

 

Benedict Hamilton, a Managing Director at Kroll, said: “Whistleblowing cases are becoming much more common and they can be hugely significant for companies; we have investigated cases where losses of up to £1 billion have been reported by a whistleblower.

 

“As companies increasingly invest in often risky emerging markets and individuals see criminal opportunities made possible by the advancement of technology, we believe cases of whistleblowing will continue to rise. The increase in these cases is also being driven by the introduction of more stringent regulation and guidance governing whistleblowing procedures.

 

““It is crucial that companies respond very quickly and in an appropriate manner to a whistleblowing allegation to understand the facts behind it and ensure the best outcomes are achieved. Many companies find that using a third party investigator provides them with a level of reassurance that the right decisions have been made. This can help to limit financial and reputational damage, and where appropriate, recover or avoid losses.”

 

Kroll also requested information³ under the Freedom of Information Act from the Serious Fraud Office, which reported that it had received 350 phone calls to its confidential number in the quarter of 2012, and another 288 reports by email or post.

 

Kroll recommends the following dos and don’ts to businesses faced with a whistleblower incident:

 

DOs

• Respond fast – the first 24 hours is critical. Form a senior response team and ensure that the incident is considered by staff who are independent of the management team whose conduct has been questioned. This is often why external consultants are useful.
• Assess the situation and credibility and gravity of the alleged issues before launching a full investigation
• Keep a lid on it! Discretion is essential to minimise damage
• Identify and secure evidence
• Consider office and information security
• Prepare and activate communication plans (internal and external)

 

Dont’s

• Tamper or contaminate potentially important evidence
• Make announcements either internally or externally before knowing the full facts
• Start interviewing people too early
• Jump to conclusions and take action too early; remember many whistleblower allegations are incorrect