Monthly Archives: November 2015

Schrems & The Collapse of Safe Harbor: What Are the Alternatives to EU Data Collection?

In the second part of a Front-Line  video interview, Jo Sherman, CEO, EDT, shares her views on how organizations can comply with new EU regulations in the context of the recent Schrems decision, and the collapse of safe harbor. As Jo shares, not only can the data collection tools be brought on site, but there are significant advantages in using EU resources and platforms to conduct internal investigations. As Jo reflects, the solutions are available for organizations to comply by “bringing the tools to the data.” Jo can be contacted via [email protected] or via www.discoveredt.com

Myths and Masks of Legislative Policy for Whistleblower Protection

Myths and Masks of Legislative Policy for Whistleblower Protection

Today’s guest post is by Wendy Addison, Founder and Owner of SpeakOut SpeakUp Ltd.

What has become clear is that no matter which country you reside in, which industry you work in, whether you are male or female,  legislative protection for whistleblowers is falling short on realising its intentions.

In Jordan, on October 15th, while training the Jordanian anti-corruption commission on the protection of whistleblowers, I learned that protecting whistleblowers in Jordan can result in sweeping, grand gestures involving security agents who provide the informant with a new identity, place of work, and relocation. When challenged on how protection would work against the more common, nuanced forms of retaliation, I was informed that evidence would be gathered to prove a causal relationship between the whistleblowing and the retaliation. ‘How would you gather that evidence?’ I asked the anti-corruption team. ‘We would simply ask the manager why the whistleblower was being victimised”, was the reply. Very trusting;  however like all appellants, trust is tied to our ability to know the true intentions of those who are asked to bear witness.

Furthermore, concern was raised that if the anti-corruption team were to offer all informants protection, they would be swamped by too many applications. This lead to the much often debated area of filtering and resources.

LEGISLATIVE PROTECTION FOR WHISTLEBLOWERS

Research conducted by Nancy M. Modesitt reveals that even though there is legislative support for greater whistleblower protections, it does not appear that employers share that sentiment. 82% of employee whistleblowers reported retaliation in the form of  being fired, suffering significantly altered employment responsibilities, or resigning under duress.

The book, Whistleblowing and Mental health: A New Weapon for Retaliation? co-authored by Dr Kate Kenny and Professor Marianna Fotaki, which will be available electronically in November 2015, collates current research and outcomes highlighting that there is still much work to do.

It is true to say that retaliation comes in many different forms and that retaliation is most difficult to prove and measure. Watch a 1.43 min video on nuanced retaliation here.

It is not only corporations that react strongly to whistleblowers. Regulators often fail to react positively to whistleblowers due to political pressure. Why do so many employers and those with oversight authority react negatively to whistleblowers? One leading plaintiffs’ attorney in this area of the law believes that employers’ negative responses are due to simple human nature here. This is correct – read my blog on understanding how rebel resentment, partnered with our own propensity to reject those who speak out,  results in the reality that, “No one likes to be told that she may have violated a law”, as US Attorney Stephen Kohn  suggests (here). Additionally, evidence confirms that corporate culture often instils the fear of reporting improper or illegal behaviour.

Could one of the reasons that no one appears to have spoken out at Volkswagen in the face of the recent emissions scandal be due to the policies and process that lacked any realistic connection to human behaviour, as discussed in our prior blog here.

Whistleblowers often find that they are often unable to provide sufficient evidence to prove that their whistleblowing was a contributing factor in retaliation.

The prima facie case, which is the predominant method of proving retaliation for engaging in whistleblowing, is typically articulated as follows. The plaintiff must establish that: (1) he/she engaged in protected behaviour, such as reporting unlawful activity; (2) he/she was discriminated against,  and (3) there is a causal connection between the protected activity and the discrimination. Of these three requirements, the causal connection was the one that produced the most difficulty for whistleblowing plaintiffs.

The Inability to prove causation is the single largest reason that whistleblowers lose their case

A common theme that might account for courts’ apparent hostility to employees in whistleblower cases is that courts dislike having to delve into the minutia of the reasons for an employee’s termination. The courts dislike of playing the role of a super-human resources department puts whistleblowers in a position akin to employment discrimination plaintiffs.

Policy Partnered with insights from Human Behaviour

Is it merely because whistleblowers are still seen as ‘snitches’, despite the recently positive media portrayals? Is it because whistleblowing plaintiffs have personal characteristics that make them less likeable to judges? These questions are important because even if the legal standards are brought into alignment with causation in other contexts, if judges are predisposed against whistleblowers, a purely legal correction may not solve the problem.

Indeed, any legislative policy is wholly dependent on human behaviours and attitudes to be effective. Without the engagement of people, policies and processes remain mere scaffolding.

Personally, I would like to see the shaping of whistleblowing legislative policy partnered with our inbuilt responses to the world. Knowledge about human behaviour can be translated into viable interventions to help solve many issues. Behavioural insights teams (BITs), aka ‘Nudge units’  are being engaged by governments in order to create new standards of ‘best practices’ by dovetailing policy with social sciences.

Watch  here this 1.48 video of Varun Gauri, Senior Economist, Development Research Group of the World Bank making this salient.

The OECDs’ November 2015 report (here) on behavioural informed approaches toward regulatory design and enforcement communicates that there are  “gains from the use of behavioural science in the design of policy themselves that could be integrated into existing regulatory tools. Behavioural science has great potential in defining the problems that governments may be seeking to address in the first instance.”

In line with the above I would like to use this blog to nudge policy and regulatory departments to engage with their country-specific behavioural insights teams/nudge units to partner for best practice in whistleblower protection. See  1-minute video on International BIT teams including what they do (here).

Additional Links: The Special Rapporteur’s report to the UN General Assembly in 2015 on the Protection of Sources and Whistleblowers (here)

Unanswered Questions about Dodd-Frank Retaliation Claims (here)

Australian Anti-Bribery & Compliance Trends

Australian Anti-Bribery & Compliance Trends

Today we welcome Ted Williams, Partner, Piper Alderman. Ted, can you share some of your background and experience?

TW: Thank you, Richard, for the opportunity to engage with your community, and it was a pleasure to meet you in New York during my recent visit. Richard, I am a lawyer with 25 years’ international experience, having held partnerships in European and Australian law firms.

I have a background in construction, infrastructure and resource development. Richard, I have advised on projects in Australia, United Kingdom, United States, Ireland, Finland, United Arab Emirates, Saudi Arabia, Iran, Singapore, India, Indonesia, Papua New Guinea and New Zealand. From 2007 to 2014 I was General Counsel at Thiess Pty Ltd one of Australia’s largest construction and mining companies with a turnover exceeding $5B involving projects throughout the Asia Pacific region.

I advise Australian and International clients in governance, fraud and corruption control, third party ABC diligence, internal investigations, law enforcement investigations and white collar crime.

Thank you. Ted, what is the current state of anti-bribery compliance and enforcement in Australia?

TW: Australia has a strong domestic record in anti-bribery and corruption compliance and enforcement. Six of Australia’s eight States and Territories have permanent anti-corruption commissions with broad powers. Since the 1990s, there have been a number of high-profile investigations, prosecutions, convictions and enforcement actions relating to government officials involved in alleged corruption. Public scrutiny is robust and brings about firm government actions. For example in New South Wales in 2014 the government cancelled significant coal mining licences alleged to have been awarded corruptly by government ministers.

By contrast, Australia’s approach to foreign bribery and corruption has been fairly timid. This is due to a lack of agency resources and coordination and laws which are quite narrow and do not focus on controls. Since laws were introduced in 1999, Australia has prosecuted only two foreign corruption cases.

Recent increases in resourcing, co-ordination and high profile investigations are yet to translate into prosecutions. A Senate inquiry is now under way as to the effectiveness of Australia’s foreign anti-corruption laws.

How does this differ from prior years?

TW: Since the early 90s there has been a strong public focus on domestic corruption issues; however, it was not until the late 2000s, with cases such as the AWB Ltd (formerly Australian Wheat Board) Iraq Oil for food scandal that risks in respect of foreign corruption were broadly recognized. In 2011, a bank note printing business, Securency, part owned by the Reserve Bank of Australia was prosecuted for bribes paid through agents in Indonesia, Vietnam and Malaysia (link here).

Public scrutiny of these and cases such as the 2015 SEC “declination” in respect of BHP Billiton’s Beijing Olympic Games hospitality program have brought increased recognition within Australian firms of the risk of failing to meet world best practice standards, despite the lack of Australian prosecutions (link here).

Similarly, continued high levels of foreign direct investment into Australia from countries such as the United States has exposed Australian companies to the current compliance standards of their foreign partners. This has been a wake-up call, particularly when considering how best to respond to extensive FCPA due diligence enquiries as to the Australian companies’ systems and controls.

Strong public scrutiny of such cases, and the severe reputational impacts which follow have brought about an increased compliance focus. The strong nexus between Australian and US firms through investment, resource projects and Free Trade Agreement has also contributed.toward this focus.

What are the greatest challenges facing Australian companies who have business teams in low integrity regions who are tasked with growing the business?

TW: The Asia-Pacific region is heavily exposed to corruption risk. Businesses operating in this region often deal with systemic localized corruption in areas such as the award of public contracts and concessions, immigration, customs, transport, logistics, and approvals. The fact that these risks are not as pervasive in Australia (and that Australian laws do not focus on corruption prevention controls) often means that entry into new markets occurs without the proper understanding of risks and inadequate controls.

This has led to companies entering new markets being exposed to ‘unforeseen’ risks which are unlikely to be adequately identified in compliance set to the requirements of Australian law.

An example of Australian law being unclear in its compliance expectations arises when considering the defence provided in respect of “facilitation” payments. The law permits “minor” payments for “expediting” “routine” “minor” government actions where proper “records” are kept. There is no jurisprudence or guidance to assist companies to understand the limits of this defence.

The resulting disconnect between compliance and operations exposes a company to far greater risks than under Australian law, particularly when considering the exposure of Australian companies to foreign laws, notably the FCPA, and the focus of such laws on controls and procedures.

An example is the Australian engineering company GHD which lacked third due diligence and fraud prevention controls when entering into an Indonesian reconstruction project. A failure to apply effective controls led to allegations of inappropriate payments to officials and fraud. Sanctions included a one-year debarment from World Bank projects.

To bridge this gap many Australian companies are seeking to set their compliance systems to best practice standards, consistent with the expectations of US law as well as the UK Bribery Act.

How does compliance need to evolve in Australia?

TW: A focus beyond mere rule setting and on ensuring adequate risk assessment and effective controls is key. Many companies now understand this, although the approach is far from universal.

There is a growing perception that Australian laws are out of step with countries such as the US and the UK in circumstances where the extra-territorial effect of these laws means that Australian companies have significant exposure to prosecution under foreign laws.

In April 2015, the Australian Senate commenced an inquiry into the effectiveness of Australian anti-foreign corruption law enforcement (link here) This coincides with the Australian Securities and Investment Commission (Australia’s SEC equivalent) announcing a focus on corporate culture in terms of its enforcement approach (link here).

Media reports around the inquiry have focused on concerns as to the adequacy of Australian laws (link here).

Ted, from your experience, what is Australia’s role in the global anti-bribery enforcement community, e.g. OECD, international cooperation, etc.

TW: Australia’s contribution in terms to global anti-bribery enforcement is growing, although it has been more a follower than a leader.

The OECD’s 2012 Working Group on Bribery’s Phase 3 report as to Recommendations for Further Combating Bribery of Foreign Officials in International Business Transactions expressed “serious concern” as to the lack of foreign bribery convictions. It noted perceived premature closure of investigations; “in practice” avoidance by corporations of criminal liability; low levels of coordination between law enforcement agencies and a failure to pursue false accounting cases.

The OECD’s April 2015 follow-up of its 2012 Report was lukewarm in its assessment of progress. It noted “good progress” in areas including law enforcement policy and operations, more thorough investigations and the establishment of a Fraud and Anti-Corruption Centre to better coordinate government agencies. However the report also said that before it could be satisfied that its 2012 recommendations had been fully implemented, the Group “would like to see” an increase in enforcement to determine such things as: whether the use of corporate liability provisions have been enhanced,  and whether false accounting was being vigorously pursued. The report also sought explicit prohibitions on the improper influence of economic, political and foreign relations concerns as regards to the exercise and discretion of prosecutors to bring indictments.

Overall there is a concern that the Australian Governments unequivocal foreign anti-bribery rhetoric has not been translated into action. From a compliance perspective, this manifests in Australian laws being less relevant than international laws, e.g. FCPA, in terms establishing foreign anti-corruption systems and controls. Considered in the context of increasing international trade and an international focus on the Asian Pacific Region (through trade agreements such as the Trans-Pacific Partnership and the China-Australia Free Trade Agreement) this should be of concern to Australian companies and their partners, both as regards reputation and exposure to foreign law.

Very interesting Ted. It sounds like a very fluid situation in terms of the increasing resources from prosecutors and investigators, while at the same time trying to ‘stand-up’ compliance efforts. Is there anything you would like to add, and how can people get in touch with you?

TW: Richard, as you can see, 2016 is shaping to be a formative year in terms of the future of Australia’s foreign corruption laws with high profile prosecutions under way and the Senate inquiry due to hand down its findings in July. A Federal election is also due to be held on a date between August 2016 and January 2017.

Mindful of current risks under foreign laws and the continuing public focus many Australian firms are moving now to better ensure effective best practice compliance.

I regularly advise companies on risk, the establishment of effective systems, third party due diligence and investigations. I would be very happy to be contacted as regards any queries which your readers may have. My email address is [email protected]

Ted