South Africa

Time to sweeten the deal for whistleblowers?

By Greg Nicolson 30 January 2015

There are many people who witness corruption and malfeasance. They know its impact on society, and want to improve the system. Yet they don't report it. It comes at great risk, personally and professionally, let alone financially. The deputy public protector has a plan. He suggests adding a sweetener… Money. By GREG NICOLSON.

Whistleblowers in the US had a profitable 2014. According to the Securities and Exchange Commission, they took home $435 million, with another $170 million shared among three people involved in a case against Bank of America. The payments related to the almost $6 billion the state recovered through the False Claims Act. It allows a whistleblower to take legal action in the name of the state against anyone who defrauds the government. If the suit is successful, there’s a bounty – 15-30% of what’s recovered.

Mostly, the claims have focused on government procurement and the healthcare and financial services industries. But there’s also a case underway against disgraced cyclist Lance Armstrong, launched by former team mate Floyd Landis, for defrauding the government into sponsoring the US Postal team while Armstrong was doping. While Landis could be in for a cut, it will be nowhere near the $104 million whistleblower Bradley Birkenfeld won in 2009 when he helped the state recover $780 million from UBS for helping clients avoid taxes.

Speaking on Wednesday at the launch of the Anti-Intimidation and Ethical Practices Forum (AEPF) in Johannesburg, deputy public protector Kevin Malunga said perhaps South Africa needs a similar system.

Whistleblowers, he explained, face intimidation, harassment, dismissal and violence in retaliation for speaking out. Mpumalanga government official Jimmy Mohlala was killed after he exposed alleged corrupt practices in a World Cup project. In North West, unionist and African National Congress (ANC) member Moss Phakoe was killed in Rustenburg shortly after trying to expose alleged corruption in the municipality.

My simple premise ultimately is that we really have not made it worth people’s while to be whistleblowers […] It is [merely] something you do for the love of your country, out of patriotic fervour,” said Malunga. You might expose corruption or fraud because you’re honest, have national pride and want to see improved services, but for many people that doesn’t outweigh the risks involved.

The deputy public protector noted the incentive system in the US and said South Africa should seriously consider payments for whistleblowers who help the state recover money. Currently, the Protected Disclosures Act is undergoing amendments and Malunga suggested legislators should look at including incentives for whistleblowers into the law.

As False Claims Act payouts continue to increase in the US, the system has come under criticism. Writing in the New York Times, Steven Davidoff Solomon said, “In one of the recent Bank of America cases, Robert Madsen was a real estate appraiser at LandSafe, a subsidiary of the bank. He participated in what amounted to widespread appraisal fraud involving 14 homes. He then developed a conscience and filed the whistleblower action, which led to an award of $56 million, based on the bank’s $16 billion settlement of investigations into its sale of toxic mortgage securities.”

He quotes Bloomberg’s Matt Levine, “$56 million for 14 water damaged houses! That’s a cool $4 million per house […] Is it too obvious and cynical to point out the optimal course of conduct here, from a strictly personal-financial perspective? (That is: Sign up to do bad stuff. Do bad stuff. Call the FBI. Profit.)”

Malunga, however, suggested potential incentives in South Africa could be much lower than what’s paid the US. On Wednesday, he suggested incentives of R5,000, R10,000 and R50,000, depending on the gravity of the fraud against the state.

Corruption Watch executive director David Lewis said on Thursday, “Whatever you do to protect them, being a whistleblower, particularly in a serious case, is going to be a pretty scary and unpleasant business […] It’s never easy, but it’s very laudable.”

Corruption Watch hasn’t taken a view on financial incentives for whistleblowers but Lewis thinks it should be considered. In the US, he said it encourages much well-intentioned but useless information, as well as ill-intentioned information from people wanting to make a buck. Essentially, it encourages chancers. “Certainly whistleblowers generally suffer some serious financial loss for what it is they do […] Either they have legal fees or they lose jobs or they lose contracts; they are harassed or victimised.” Lewis said there should be a formula to cover these costs and perhaps financial incentives as well.

Looking at the amendments to the Protected Disclosures Act, Lewis said protection for whistleblowers needs to be expanded. Currently it protects them from discrimination and victimisation in employment-related circumstances, but it’s not only employees who are whistleblowers and the workplace isn’t the only space where they can are vulnerable. “It would make a difference if they were treated like heroes,” Lewis said. If people who blew the whistle on corruption were celebrated by their communities as heroes, it would make victimisation more difficult.

While it might be a big step for the legislation to introduce financial incentives for whistleblowers, other moves are under way to expose corruption. The African Centre for Investigative Reporting recently launched afriLeaks, an online platform allowing users to share sensitive information securely and anonymously. That information is then channelled to your choice of one of 19 media partners across the continent, including South Africa’s Mail & Guardian, for journalists to investigate.

Simply, the country needs more brave people willing to stand up against corruption. Initiatives like afriLeaks will help. But perhaps some people out there need a greater incentive. DM

Photo by Reuters.

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