American’s greatest living playwright died yesterday as Sam Shepard passed away from Lou Gehrig’s disease. According to his obituary in the New York Times (NYT) “In Mr. Shepard’s plays, the only undeniable truth is that of the mirage. From early pieces like “Chicago” (1965), written when Mr. Shepard was in his early 20s and staged in the margins of Off Off Broadway, to late works like “Heartless” (2012), he presented a world in which nothing is fixed. In plays like “True West” (1980), “Fool for Love” (1983) and the Pulitzer Prize-winning “Buried Child” (1978), he dismantled the classic iconography of cowboys and homesteaders, of American dreams and white picket fences, and reworked the landscape of deserts and farmlands into his own shimmering expanse of surreal estate.” His plays brought a “feeling of uncertainty” that “was translated into dialogue of an uncommon lyricism and some of the strangest, strongest images in American theater.”

Although more reluctantly, he was a laconic movie star; a worthy successor to Gary Cooper in such roles as Days of Heaven (1978), The Right Stuff (1983) and Baby Boom (1987). In The Right Stuff he portrayed one of the underlying book’s heroes, fighter and test pilot Chuck Yeager. For this role he received an Oscar nomination. Perhaps the great tribute came from his fellow actor Ed Harris who was quoted as saying, “I loved Sam. He has been a huge part of my life, who I am, and he will remain so.”

Sam Shepard seems an appropriate introduction into today’s topic of whistleblowers, their unmasking and retaliation which is currently being discussed in the United Kingdom. It all stems from the actions of Barclay’s Chief Executive Officer (CEO) Jes Staley and his attempts to unmask an internal whistleblower. The matter involved a letter forwarding allegations against another Barclays officer, Tim Main, who Staley was instrumental in bringing to Barclays. They had a long time professional friendship which began when they both worked together at JP Morgan. The anonymous tipster alleged Main had a history of substance abuse in his past. Staley initially order the company’s security department to unmask the whistleblower.

This initial attempt was rebuffed as inappropriate. Staley then made a second request to the corporate security department who involved the United States Inspection Service. Nothing came from this use of US authorities and at some point, thereafter a Barclays employee notified the inappropriate conduct (ironically through the internal company hotline) to the Board of Directors who commissioned an internal investigation.

This type of direct CEO involvement in a clearly unethical, if not illegal, act is troubling to any international business, compliance professional or company employee. To have a CEO engage in behavior which is so clearly outside the norms of any espoused behavior is beyond troubling. I guess Staley had not had time to read the part of the Barclays’ Code of Conduct (the Barclays Way) which states, “No employee will experience retaliation in any way as a result of reporting an issue in good faith.”

Yet in the UK, this action may undo attempts to protect and compensate whistleblowers who bring forward credible information of wrong-doing. In a Financial Times (FT) The Big Read article, entitled “Whistleblowers Count the Cost, Martin Arnold and Caroline Binham reported that there is concern Staley’s actions have softened efforts to have whistleblowers who report wrongdoing step forward. They quoted “Dino Bossi, former head of investigations and whistleblowing oversight and policy at Barclays” who described “Staley’s actions as “completely inexcusable”. He adds: “It takes years to build the right trust and culture and it can be destroyed with a single act.””

The article went on to note, “The Financial Times has spoken to more than two dozen regulators, investors, bankers, lawyers and whistleblowers about Mr Staley’s actions. Many of them believe he has damaged confidence in the principle of whistleblower protection, which is vital if people are to be encouraged to come forward.” Finally, Jo Keddie, a partner at Winckworth Sherwood LLP, stated, ““Using a senior position to try and interfere, wrongly, in a whistleblowing investigation or seeking to identify a whistleblower whose identity should remain anonymous or confidential, goes against the tenor and spirit of the SMR.” [SMR is a report designation.]

To try and undo some of the damage caused by Staley’s forays, Barclay’s has hired a “Whistleblower Champion” who is non-executive Board member who also chairs the Board’s Audit Committee. Even now Barclay’s Chairman, John McFarlane, has complained “there are too many baseless complaints from unhappy employees.” When both a CEO and Chairman have such ideas on the propriety of hotline complaints, one might wonder if there will ever be any credible hotlines reports coming forward. As the head of the UK Financial Conduct Authority (FCA) noted, “whistleblowers need to be confident that this is a thing you can do, and do safely.”

Staley, for his part, pled ignorance that his actions were in violation of any laws, industry norms or even company policy. It certainly says quite a bit about the ethical nature of a company’s culture when the CEO claims he was unaware his actions violated the Code of Conduct. The FT piece ends with a parable from Ian Foxley, a whistleblower against Airbus who fled for his life from Saudi Arabia. Foxley said, ““Whistleblowers are branded as outside the pale; they’re not to be trusted, they’re not part of the team: that is the current marketing of whistleblowers in this country, and it needs turning on its head.”” More ominously, Foxley noted, “I think whistleblowers are the boys who tell the emperors they’ve got no clothes on. What Hans Christian Andersen never tells you is what happened to the little boy.”

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

 

In an article entitled “How to Launch and Operate a Legally-Compliant International Workplace Report Channel” or in compliance parlance, a hotline, author Donald Dowling of the law firm of White and Case, provided a useful guide to help navigate the challenges of setting up a multi-national whistleblower’s hotline, such as is required under the FCPA and UK Bribery Act. His article “analyzes the six categories of laws that can restrict whistleblower hotlines abroad, focusing on compliance.” The six categories are:

  1. Laws Mandating Whistleblower Procedures

This group of laws “comprises mandates that require setting up whistleblower hotlines in the first place.” This includes the US Sarbanes-Oxley (SOX) as well as other jurisdiction laws which generally protect whistleblowers from retaliation but do specifically require any hotlines be set up on a company wide basis. Dowling also found a couple of countries, Norway and Liberia, which require general receiving and processing of “public interest disclosures.”

  1. Laws Promoting Denunciations to Government Authorities

This category of laws generally related to legal requirements for the reporting of illegal acts to government authorities in two ways. First, these laws encourage whistleblowing to government which then compete with employer hotlines by enticing internal whistleblowers to divert denunciations from company compliance experts and over to outside law enforcers who indict white collar criminals. This first approach is found in Dodd-Frank, which offers bounties. Second, these “laws that require (as opposed merely to encourage) government denunciations rarely except corporate hotline sponsors. These laws therefore force hotline sponsors to divulge hotline allegations over to law enforcement.” This second approach is found in SOX which “requires an employer to offer internal hotline procedures”.

  1. Laws Restricting Hotlines Specifically

This category is exemplified by European data protection laws which act to restrict companies’ freedom to launch and operate reporting programs. Dowling believes that these laws are based upon the fact that Europeans “see hotlines as threatening privacy rights of denounced targets and witness”. Also this would seem to be in response to the totalitarian past from the World War II era. The author identifies what he termed “the four biggest hurdles” set up to frustrate hotlines in EU jurisdiction. They are “(1) restrictions against hotlines accepting anonymous denunciations; (2) limits on the universe of proportionate infractions on which a hotline accepts denunciations; (3) limits on who can use a hotline and be denounced by hotline; and (4) hotline registration requirements.

  1. Laws Prohibiting Whistleblower Retaliation

This category will be familiar to US compliance practitioners through the applications of US laws such as SOX, Dodd-Frank and numerous state whistleblower statutes. Additionally, the author lists numerous foreign jurisdictions which have such laws. But here he believes that the key is communication because in many countries and foreign jurisdictions, there is no tradition of protection of persons who make reports against superiors so that an “employer needs to overcome worker fear of reprisal for whistleblowing.”

  1. Laws Regulating Internal Investigations

Typically laws on internal investigation do not impact hotlines because a hotline is a “pre-investigation tool.” However, the author believes that No. 4 above, communication by the employer is critical to complying with laws that enact procedural safeguards for persons under investigation. Heavy-handed communications about a hotline could blow back against employers in claims by employees that “an employer rigged the investigation process.” So companies should ensure that communications about hotlines do not convey an “overzealous approach to complaint processing and investigations.”

  1. Laws Silent on, but Possibly Triggered By, Whistleblower Hotlines

Here the author recognizes that the title of this category “is necessarily vague and determining which laws fall into it is difficult.” Nevertheless, he writes that the most “likely candidates are data protection laws silent on hotlines and labor laws imposing negotiation duties and work rules.” Regarding the former, the author argues that hotlines are not databases but conduits for the transmittal of information. He acknowledges that EU data privacy laws reject this distinction and treat hotlines as if they were databases where information is stored. He does not identify other jurisdictions which yet take this aggressive approach but he believes this may become a trend. The labor law issue is also tricky and may turn on the interpretation of whether the institution of a hotline is viewed as substantive change in working conditions under a union-management labor agreement and therefore subject to collective bargaining.

There are several key inquiries you should make for your hotline. What jurisdiction are you in and what is the binding law or laws which will govern you going forward. Must you confine your hotline reporting to specific topics or is it open to all issues? Can anonymous allegations be brought forward in the jurisdiction in question. Do you have a hotline staffed in-house or do you use an external third party vendor? Finally, must you disclose hotline data to government regulators?

Three Key Takeaways

  1. You must understand the jurisdiction you are in and the laws which govern your hotline.
  2. Can you use information which is reported anonymously?
  3. Must you disclose any data to government regulators?

In this episode, I visit with Steven Durham, a partner in the law firm of Labaton Sucharow. The firm is one of the leaders in the SEC Whistleblower practice. Durham describes his background and how he got to the firm. He relates the Whistleblower Practice at Labaton, what is your role and how Jordan Thomas worked to create the firm’s whistleblower practice after leaving the SEC. He then  relates what the SEC Whistleblower program is and how has it worked to pay out over $150MM in bounties through this spring. Durham then discusses how the SEC Whistleblower office facilitates the SEC’s mission to protect investors, why whistleblowing benefits society and corporate America and how firms like Labaton assist the SEC in its practice. We conclude with a discussion of where Durham sees SEC Whistleblower program going under the Trump Administration.

For more information on Steven Durham, the law firm of Labaton Sucharow and its whistleblower practice, check out the firm’s website by clicking here.

Employment separation and layoffs can present some unique challenges for the compliance practitioner. Employees can use layoffs to claim that they were retaliated against for a wide variety of complaints, including those for concerns that impact the compliance practitioner. Yet there are several ways that operationalization will help to protect your company as much as possible.

Before you begin your actual layoffs, the compliance practitioner should work with your legal department and HR function to make certain your employment separation documents are in compliance with the Securities and Exchange Commission (SEC) requirement regarding Confidentiality Agreement and Separation Agreement language which purports to prevent employees from bringing potential violations to appropriate law or regulatory enforcement officials. Such documents must not have language preventing an employee taking such action. But this means more than having appropriate or even approved language in your CA, as you must counsel those who will be talking to the employee being laid off, not to even hint at retaliation if they go to authorities with a good faith belief of illegal conduct. You might even suggest, adding the appropriate language to your script so the person leading the conversation at the layoff can get it right and you have a documented record of what was communicated to the employee being separated.

When it comes to interacting with employees first thing any company needs to do, is to treat employees with as much respect and dignity as is possible in the situation. While every company says they care (usually the same companies which say they are very ethical), the reality is that many simply want terminated employees out the door and off the premises as quickly as possible. At times this will include an ‘escort’ off the premises and the clear message is that not only do we not trust you but do not let the door hit you on the way out. This attitude can go a long way to starting an employee down the road of filing a claim for retaliation or, in the case of FCPA enforcement, becoming a whistleblower to the SEC, identifying bribery and corruption.

Treating employees with respect means listening to them and not showing them the door as quickly as possible with an escort. From the compliance perspective this could also mean some type of conversation to ask the soon-to-be parting employee if they are aware of any FCPA violations, violations of your Code of Conduct or any other conduct which might raise ethical or conflict of interest concerns. You might even get them to sign some type of document that attests they are not aware of any such conduct. I recognize that this may not protect your company in all instances but at least it is some evidence that you can use later if the SEC or Department of Justice comes calling after that ex-employee has blown the whistle on your organization.

I would suggest that you work with your HR department to have an understanding of any high-risk employees who might be subject to layoffs. While you could consider having HR conduct this portion of the exit interview, it might be better if a compliance practitioner was involved. Obviously, a compliance practitioner would be better able to ask detailed questions if some issue arose but it would also emphasize just how important the issue of FCPA compliance, Code of Conduct compliance or simply ethical conduct compliance was and remains to your business.

Finally, are issues around hotlines, whistleblower and retaliation claims. The starting point for layoffs should be whatever your company plan is going forward. The retaliation cases turn on whether actions taken by the company were in retaliation for the hotline or whistleblower report. This means you will need to mine your hotline more closely for those employees who are scheduled or in line to be laid off. If there are such persons who have reported a FCPA, Code of Conduct or other ethical violation, you should move to triage and investigate, if appropriate, the allegation sooner rather than later. This may mean you move up research of an allegation to come to a faster resolution ahead of other claims. It may also mean you put some additional short-term resources on your hotline triage and investigations if you know layoffs are coming.

The reason for these actions are to allow you to demonstrate that any laid off employee was not separated because of a hotline or whistleblower allegation but due to your overall layoff scheme. However it could be that you may need this person to provide your compliance department additional information, to be a resource to you going forward, or even a witness that you can reasonably anticipate the government may want to interview. If any of these situations exist, if you do not plan for their eventuality before you layoff the employee, said (now) ex-employee may not be inclined to cooperate with you going forward. Also if you do demonstrate that you are sincerely interested in a meritorious hotline complaint, it may keep this person from becoming a SEC whistleblower.

Three Key Takeaways

  1. Treat departing employees with dignity.
  2. Make sure your separation documents meet SEC requirements regarding disclosures re: whistleblowing.
  3. You must check your hotline and anonymous reporting systems to make sure you do not lay off a whistleblower.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

Show Notes for Episode 51, for the week ending May 5, the Cinco de Mayo Edition

Over some breakfast tacos and Mexican coffee, Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss:

  1. Uganda considers a demand side response to corruption. See Tom’s article in Compliance Week. What are the rationales for anti-corruption legislation? See Tom’s post on the rationales underlying the FCPA on the FCPA Compliance Report.
  2. Why due diligence investigations still need the human element. See Scott Shaffer’s article in FCPA Blog.
  3. Kara Brockmeyer joins Debevoise & Plimpton LLP. See Tom’s article in the FCPA Blog.
  4. What has been the fate of whistleblowers at Wells Fargo. See James Stewart considers in his Common Sense column in the New York Times.
  5. Federal jury convicts former Guinea mining minister of laundering bribes. See article in the FCPA Blog.
  6. Astros lead the AL with the second best record in baseball. What does Tony Parker’s injury mean for the Spurs/Rockets playoff series?
  7. The Financial Reporting Council (FRC) investigates KPMG on its audits of Rolls Royce for the firm’s failure to detect bribes paid by the company. See article in the FCPA Blog.
  8. Listeners to this podcast can received a discount to Compliance Week 2017. Go to registrationand enter discount code CW17TOMFOX.