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.