Learning from bank whistleblowers

A review of Kate Kenny's book Whistleblowing published in The Whistle (Newsletter of Whistleblowers Australia), No. 101, January 2020, pp. 3-5

Reviewer: Brian Martin

Rudolf Elmer worked for the Swiss private bank Julius Bär for over 15 years. He started as an auditor and then in 1994 became chief operating officer at Julius Bär’s Cayman Islands branch. He came across suspicious financial structures in the branch that enabled tax avoidance and possibly criminal activity. He went to his superiors in the bank. They didn’t want to know. He went to tax authorities in Switzerland. They didn’t want to know either. He went to the Swiss federal prosecutor, again with no result. He went to numerous journalists in Switzerland. They weren’t interested. He eventually learned that banking secrecy, which enabled corruption, was sacred in Switzerland, and no one in the country was willing to expose problems.

Rudolf Elmer

Rudolf finally found a receptive audience — in other countries. Journalists in Britain saw him as a hero. Government bodies outside Switzerland were interested too, for good reason. Tax avoidance via Swiss banks was costing them billions of dollars in lost revenue.

Even with international support, Rudolf’s path was difficult, to say the least. Like other whistleblowers, his employer did everything possible to discredit him. As well as losing his job, he was arrested and charged with stealing bank documents, and spent 200 days in prison. His career was destroyed. His family members were harassed by private investigators.

For those who have been following stories about corruption in financial services, Rudolf’s story will not be surprising, except perhaps for the severity of the reprisals he suffered. The recent banking royal commission highlighted corrupt practices in Australian financial services. It also made more visible the vital role that whistleblowers have played, as well as the failure of regulators to deal with serious problems.

Jeff Morris’s story is instructive. He reported problems to managers within the Commonwealth Bank, then went to the regulator, the Australian Security and Investments Commission. His reports went nowhere. It was only when he made contact with politicians and journalists that his concerns started to generate some pressure for change. This is all described in journalist Adele Ferguson’s revealing book Banking Bad. Although Jeff was vindicated — his claims and his courage are now widely recognised — the saga took a terrible toll on him, destroying his career and damaging his health and relationships. (You can read more of Jeff’s story in this issue of The Whistle.)

Jeff’s story is all too common. It has been replicated in countries around the world. If you want to learn more about financial services whistleblowing, turn to Kate Kenny’s new book Whistleblowing: toward a new theory.

Kenny interviewed finance-sector whistleblowers from Britain, Ireland, the US and Switzerland. One of them, mentioned above, was Rudolf Elmer. Their stories have remarkable similarities.

Nearly all of them worked in large financial organisations, in compliance positions in which they were expected to look for irregularities and violations of procedures. In other words, it was their job to detect and report problems. They didn’t initially think of themselves as whistleblowers because, in a literal sense, by making reports they were simply doing their jobs. Some of them were legally required to report any problems they discovered. The majority of the individuals she interviewed had

been employed in watchdog roles; their formal job description involved finding and highlighting incidents of wrongdoing, whether this was as an internal auditor, a risk manager, a compliance officer, or an anti-money laundering officer. All occupied a senior position in their organization. (page 6)

In the past two decades, there have been massive levels of malpractice in financial services. Some of this malpractice, including making loans to customers who have no prospect of paying them off, directly led to the global financial crisis. Unknown to most of the public, there were warnings from the inside, perhaps not enough of them, but still a lot of them. But no one in authority seemed to want to know.

For those employees who reported problems, what happened next is familiar. Their reports were ignored. In some cases, their reports were greeted favourably but nothing changed. Alternatively, they immediately suffered reprisals. The experience of Eileen Foster, who headed the fraud unit at large US mortgage lender Countrywide Financial, is instructive:

It was then that Eileen began to hear more and more stories about internal whistleblowers being punished and sometimes fired for raising concerns. In fact, internal reporting channels were used to identify and isolate potential whistleblowers rather than deal with the problems raised. In effect, people who were just doing their job — protecting Countrywide from potential prosecution as well as protecting the money-borrowing public — were being watched, singled out, and punished. As she would later note, she believed that Employee Relations was “engaged in the systematic cover-up of various types of fraud through terminating, harassing, and otherwise trying to silence employees who reported the underlying fraud and misconduct.” Staff in Employee Relations, she said, had “the ultimate power to silence the whistleblower. They were the controlling factor. Without them, it wouldn’t work.” (page 64)

Going to government regulators was often the next step. Again, the most common result was being ignored. For example, in Ireland the regulator used “light touch” methods to deal with problems, which meant relying on companies to report their own problems, and giving warnings but undertaking no prosecutions even for the worst abuses. Olivia Greene, who tried to expose loan practices that were putting banks at risk, learned to her detriment that light-touch regulation meant no action would be taken. The consequence of this regulatory inaction was collapse of the Irish financial sector, which was bailed out by the government at massive cost to future generations of Irish taxpayers.

Reprisals from their employers and unresponsive regulators: what next? All the individuals in Kenny’s study were high-profile: their stories had been covered in the media. Journalists sometimes were the first people to take their concerns seriously. Media coverage made an enormous difference in transforming them from traitors into heroes.

One of Kenny’s most valuable insights is to highlight the importance of the whistleblower identity. An identity, or role, is a category like mother, neighbour, graduate, commuter or employee. It is a label that captures some facet of one’s relationship to other people and to social systems, and each label comes along with a set of assumptions. People have images in their head of what it means to be a mother, neighbour and so forth. The labels matter because they shape the way we think about ourselves and others.

To be called a whistleblower is to be given a particular label. To see oneself as a whistleblower is to adopt an identity for oneself. For the financial sector employees who had come under attack for doing their jobs, the label of whistleblower was not natural. It was applied to them by others, and then sometimes they adopted it. The whistleblower label and identity helped them understand their actions and to value what they had done.

Kenny notes that in the face of the relentless attack on their credibility by their employers, the individuals she studied adopted the role of professional. Referring to their professional competence provided a way of defending against denigration. In most cases, though, they did not seek out the label and role of whistleblower. That was thrust upon them, by employers or the media.

The role or identity of whistleblower has advantages and disadvantages. In the face of continual devaluation, it validates one’s actions. On the other hand, it positions a person as intentionally setting out to expose problems, with the connotations of being a malcontent or stirrer, which was far from the previous identity adopted by these financial employees.

Kenny devotes considerable attention to the psychological side of whistleblowing. She notes that during the process by which whistleblowers are ostracised by co-workers, fired, referred to psychiatrists and sometimes disowned by others, they sometimes take on this experience of exclusion in their own psyches. In other words, they start thinking about themselves in the same way that their antagonists treat them. They start doubting themselves. After all, if everyone else in the company supports the management view that nothing’s wrong, then it’s natural for them to start doubting their own observations and their interpretations of documents.

You can read Kenny’s book Whistleblowing mainly for the stories of high-profile financial sector whistleblowers, gaining an insight into their experiences. This is straightforward, and is a valuable treatment, especially in showing the enormous power of banks and the incredible difficulties facing those whose job it is to try to save banks from their own folly.

There is another side to the book, indicated by the subtitle: Toward a New Theory. Kenny draws on the ideas of social theorists Michel Foucault and Judith Butler to interpret the experiences of whistleblowers. A key idea is that people are not isolated, independent individuals, but psychologically intertwined with others. People’s sense of their own selfhood derives from society.

Whistleblowing is commonly assumed to be a practice carried out by an autonomous individual acting alone. It is no such thing. Through striving for recognition, the whistleblower finds herself outside herself, caught up in the reflections granted by other people and by wider societal norms. She is not a bounded entity but rather a porous, radically social self. One person may happen to blow the whistle, but this is frequently the result of a series of dialogues both internal and external with communities of other people. Whistleblowing is not the act of an individual; it is an intrinsically collective phenomenon, even when it appears as though only one person is speaking out. (pages 211–212)

Kenny hopes that this insight into the construction of people’s sense of self can provide guidance for the challenges facing whistleblowers.

If you are a fan of Foucault and Butler, you will be able to appreciate Kenny’s application of their ideas to whistleblowing. Otherwise, you may find her use of theory unsatisfying.

It is important to understand the dynamics of whistleblowing. From a scholarly point of view, this is worthwhile as an intellectual exercise. From a practical point of view, it is worthwhile if there is a payoff in terms of how to help organisations and societies respond better to warnings about dysfunction. The trouble is that there are dozens of different theoretical perspectives that might be used to interpret the whistleblowing experience, and some of these have more obvious applicability, for example the idea that power tends to corrupt or the idea that people identify with their organisations and display antagonism towards out-groups.

Kenny notes that managers try to turn the focus on the whistleblower and away from the concerns they raise. Curiously, though, her book Whistleblowing also has this focus. There have been hundreds of books about whistleblowers. Perhaps we need a few more about non-whistleblowers, those who know about corruption and keep quiet.

Kenny says that “society” is complacent about whistleblowers: people know that whistleblowers pay a penalty for their actions, but simply accept this as the way things are. I have to disagree. No doubt some people accept the usual scenario as inevitable, but others are upset and enraged by the injustice, which is one reason whistleblower stories are so newsworthy. It will be a great day when the media are uninterested in whistleblowing because it quietly leads to positive change, without a thought for reprisals. Just don’t hold your breath.

Kate Kenny

Kate Kenny, Whistleblowing: toward a new theory (Harvard University Press, 2019)

Brian Martin is editor of The Whistle.

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