Whistleblowing: out in the cold

Bradley Birkenfeld’s resignation letter numbered 19 words.

The stories of whistleblowers are often told in letters, whether they be emails, policy documents or scribbled notes. When a scandal emerges, it sits atop a mountain of paperwork which together forms a larger, often more disturbing, picture.

Birkenfeld’s case includes complaints to his company’s whistleblower protection unit, letters to his managers, emails to senior executives, and ultimately his resignation letter.

Birkenfeld’s resignation, in itself, means little. But following the eventual $780m (£460m) settlement between his employer, UBS and the US Department of Justice, it is now viewed through a different lens. He is a whistleblower.

“I will say that without Mr Birkenfeld walking through the door of the Department of Justice in the summer of 2007, I doubt as of today that this massive fraud scheme would have been discovered by the United States government,” US tax division attorney Kevin Downing told a Florida court in August 2009.

“That investigation now has resulted in not only changing the way in which we obtain foreign evidence from banks in Switzerland, it has caused the Swiss government to come and enter into new tax treaties with the United States government.”

But Downing wasn’t congratulating Birkenfeld, he was trying to put him behind bars.

Like so many others who choose to speak out, Birkenfeld had placed himself in an impossible position. He arrived in the United States from Switzerland, where he had lived for the previous 15 years, and he was prepared to name names.

His former employer had marketed tax evasion schemes to US citizens, essentially peddling a form of global tax fraud.

But, if Birkenfeld divulged information without the protection of a subpoena he would likely be sentenced to jail in Switzerland.

He also had other, more serious, mitigating factors. According to the prosecution, he returned to the United States intending to “earn money by disclosing the wrongdoing of others”. In doing so, he failed to disclose the wrongdoing he perpetrated himself.

“That’s why we are seeking jail time,” Downing said.

“We cannot have people, US citizens, engage in that kind of fraud scheme, come back here and put half the leg in the door and disclose the wrongdoing of others.”

He was handed a 30-month sentence and a $30,000 (£19,000) fine.
Birkenfeld’s case is an extreme example of what seems to be a truism in the stories of most whistleblowers. They end badly.

Travel travails

General definitions of the term whistleblower seem woefully inadequate. Depending on the dictionary you read a whistleblower can be defined as an individual “who informs on someone or puts a stop to something” or a “conscious, responsible citizen, who reports about the committed crime to the court”. However, neither of these definitions seem to apply to Iain Stewart.

A former internal auditor for holiday group MyTravel, Stewart approached The Times in 2002 with accusations of accounting irregularities.

At the time, MyTravel had admitted to a £50m black hole in its accounts, due in part to its use of “aggressive” accounting methods.
Stewart had been fired six years earlier after a series of disciplinary

hearings. He’d been with the company three years at the time, and was escorted off the premises by a manager.

When he later contacted The Times his concerns revolved around the accounting for a Spanish hotel, which he believed was operating “black” accounting systems.

The Times quoted internal memos which revealed that there were concerns about the company’s accounting system.

Looking back now, Stewart says he approached the newspaper “to put the boot in and to clear my name”.

He remembers his time at MyTravel, auditing the finances of Spanish hotels. “I went out to do some work in Majorca, the computers weren’t working. It was very Fawlty Towers,” he claims.

“Naively, I just galloped on and thought everything was fine. I thought I was doing a good job.”

He admits he pursued his former employer for compensation following his dismissal and says that since the story was published “my career died”. He still suffers depression, which nearly cost him his eyesight, and has struggled to hang on to his marriage. “I had a lot of difficulty getting work,” he says.

“In the past people would ask ‘did you work for MyTravel?’ and I would say ‘I’m proud to say I was fired’.”

Serial whistleblower

Marta Andreasen, on the other hand, could be said to have made a career from whistleblowing. The Argentine-born Spanish accountant caused a minor stir at the Organisation for Economic Co-operation and Development (OECD), where she headed the accounting division in October 1998. However, her tenure came to an abrupt end when she reported serious problems with the OECD’s accounting systems. She was dismissed by the organisation and, in response, threatened to take her case to the European Court of Justice.

The OECD later admitted its accounts were “archaic” but said Andreasen’s dismissal was unrelated.

Andreasen was subsequently appointed chief accountant of the European Commission. But by August 2002, she was dismissed again after exposing the parlous state of EU accounts, which she famously compared to those of scandal-ridden energy company Enron.

“Unlike the issues surrounding Enron and WorldCom, where you can at least trace transactions and accounts, you cannot do so within the EU accounts as there is no system in place for tracing adjustments and changes to figures presented,” she said in 2002.

In her book, Brussels Laid Bare, she later wrote: “Indeed, possibly no other case than mine has shown better how easily a bureaucracy – without any kind of external constitutional mechanism to correct or qualify its procedures – can become a tyranny”.

She attracted huge column inches in newspapers across Europe and, by December, the EU had agreed to overhaul its accounting computer system, which lay at the heart of Andreasen’s claims.

She later said that her dismissal and decision to go public with her accusations was not due to any faults with whistleblower legislation, but rather the people who applied it.

“My experience is that it is not so much to do with the legislation, but how it is put it into practice. It is when it is put into practice that the protection fails,” she said.

“If you have to go to your boss, it might be problematic if the subject has to do with your boss.”

From the European Union she was recruited by the UK Independence Party (UKIP) and served as its treasurer and later an MEP in the European Parliament.

In 2009 her whistleblowing instincts re-emerged and she resigned as treasurer after discovering “certain breaches in the procedures that I have implemented”.

She remains an MEP with the party, but is now seeking a position at the European Anti-Fraud Office.

In many ways she represents a more positive side of what can happen to a whistleblower, but still admits that speaking out about issues is a difficult life choice that often ends badly.

“The story of whistleblowers, most of the time, I would say in 99% of cases, ends up badly for the whistleblower.”

The aftermath

After the tempest dies down, an eerily similar fate seems to befall whistleblowers. Poor work prospects and often depression can follow as they attempt to steer a path forward. The act of whistleblowing itself is often protected, but there is little follow up help for the difficult issues ahead. Fred Altford, in his book Whistleblowers: Broken Lives and Organisational Power quoted one former whistleblower who said he lamented the decision speak out.

“If I had to do it again, I wouldn’t blow the whistle for a million dollars. It ruined my life... I stood up against the big corporation and lost. I didn’t just lose my job. I lost my house and then I lost my family.” he said.

“My boss, the one who told me to lie to the FBI. He got a promotion. You know what I do now? I deliver pizza.”

Whistleblowers in the UK are protected from victimisation or discrimination from employers, providing they make a make a “qualifying disclosure” (see page 16). But after the event, they live lives in the shadow of their grand revelations and face an industry which might be better off for their disclosure, but not necessarily supportive of the means by which it made its way into the public domain. Whistleblowing, it seems, is not good for your career.

Birkenfeld continues to serve time behind bars. His case has been taken up by the US-based National Whistleblowers Centre, which has a list of 21 notable whistleblowers on its site, most of which were either harassed or fired in the process of speaking out. Birkenfeld, in his sentencing submission, felt he was motivated by a desire to right wrongs he perceived in UBS. “When I sensed that this was wrong, this conduct, I wanted to make sure that I came forward fully to cooperate with the US authorities and the US agencies,” he said.

Few would doubt the good whistleblowing can do for the public at large, but for those faced with the impossible choice, in their dark moments they must wonder – is it worth it

lehman brothers: for whom the whistle blows

More recently there was another major scandal and and the emergence of another whistleblower. Lehman Brothers, the US bank which collapsed in September 2008, was the subject of a scathing report last month by Anton Valukas, examiner for the US Bankruptcy Court. Contained within the nine-volume report was an accusation Lehman Brothers was manipulating its balance sheet position by using “accounting gimmicks”.

Valukas alleged the bank used repurchase transactions to remove toxic assets from the balance sheet, improving its leveraging ratio and painting a distorted picture of the bank’s financial position. Some of the claims boiled down to statements made by Lehman’s senior vice-president of the finance division, Matthew Lee, who wrote to senior managers outlining six concerns including that “tens of billions of dollars of unsubstantiated balances, which may or may not be ‘bad’ or non-performing assets or real liabilities.” The letter was allegedly passed on to Lehman’s auditors, Ernst & Young, who went on to meet with Lee.

On June 12, 2008, senior partners with E&Y allegedly met with Lee, when he alleged that “at the end of the second quarter 2008, Lehman moved $50bn in assets off its balance sheet using [repurchase] transactions.” According to the report, E&Y did not adequately act on the claims.

Ernst & Young said it had investigated Lee’s memo but found “the allegations were unfounded and there were no material issues identified… We never concluded our review of this matter, because Lehman went into bankruptcy before we completed our audit”.

E&Y later said, in a letter to its clients, when informed of Lee’s letter, “our lead partner promptly called the audit committee chair; we also insisted that Lehman’s management inform the Securities and Exchange Commission and the Federal Reserve Bank of the letter. E&Y’s lead partner discussed the whistleblower letter with the Lehman Audit Committee on at least three occasions during June and July 2008.”

Lee later lost his job and, through his lawyer, now claims this was connected to his disclosure.