Reporting a crime is not a crime

Dr Mary Young

UPDATE: Since publishing this blog on 26th November 2015 the Swiss Federal Court in Bellinzona has sentenced HSBC whistleblower Herve Falciani to five years in prison.  Mr Falciani, who was tried in absentia, was charged with data theft, industrial espionage and violation of Swiss banking secrecy laws.  More here

This is an edited version of the editorial written for Tax Justice Focus – The Whistleblower Edition by Mary Alice Young of the University of West England.

Finance in general and offshore centres in particular thrive by maintaining a tight control of information. In recent years they have been rocked by a series of large-scale data breaches made possible by employees in the sector. But those who speak out still face significant risks. If the interests of the general population are to prevail over those of a small minority of banking insiders we will have to change our attitudes towards whistleblowers.

Offshore jurisdictions are in the business of making life difficult for whistleblowers through formal legislation and through the informal enforcement of social codes; the unwritten rules of conduct and the herd mentality that affect those who work in the financial sector.

To borrow from hackers’ slang, hostility to whistleblowers is a feature, not a bug; it is an attractive part of the financial secrecy package which offshore jurisdictions peddle to clients. Cases such as Rudolf Elmer’s, one of Swiss banking’s earliest whistleblowers, illustrate how offshore financial centres create hostile environments for whistleblowers through the availability of financial secrecy laws.

Financial secrecy laws matter when it comes to those who commit financial crimes and frauds. In 2004, Jerome Schneider, arguably the United States’ most prolific facilitator of tax evasion schemes, was sentenced to six months in prison by a federal judge in San Francisco for peddling tax evasion schemes during the 1970s and 1980s; an operation which was only possible because of the strict financial secrecy offered by offshore banks.

At the beginning of February 2015, an international collaboration of news outlets and investigative journalists exposed the Hong Kong and Shanghai Banking Corporation as a bank which assists transnational organised criminals in hiding their money and helps the wealthy elite evade taxes; again an operation aided by the existence of strict financial secrecy laws in offshore financial centres (read more about the HSBC investigation here).

Laws that assist criminals in tax dodging and money laundering also deter employees and others from reporting such activity. For example, under the terms of the 2009 revision of Section 5 of the Cayman Islands’ Confidential Relationships (Preservation) Law an individual found to be breaching secrecy laws faces an eight year prison sentence.

If secrecy laws act as a deterrent against whistleblowing they are in effect operating as a universal gagging order that prevents employees from reporting unlawful or immoral activity to the relevant regulatory authority. These laws also lend official sanction to the idea that whistleblowers are enemies of both state and society.

They amplify a natural tendency to react angrily or fearfully when presented with challenges to the narratives preferred by dominant groups. Indeed, a quick glance at the thesaurus unearths a huge array of degrading and negative nouns associated with what is actually a noble act, including; traitor, turncoat, weasel, snitch and sneak. Anything other than a servile desire to please the employer is treated as doublecrossing and defecting.

According to the Tax Justice Network, financial secrecy legislation is a driver and enabler of financial crime; meaning that financial secrecy laws create criminogenic environments. From this edition of the Focus, we can see that not only are financial secrecy laws conducive to crime, but they are hostile to those people who believe in a fair, just and equitable system of democratic banking in the twenty-first century.

There are certain protections afforded for whistleblowers under UK law. The UK Government states that, “[a]s a whistleblower you’re protected by law – you shouldn’t be treated unfairly or lose your job because you ‘blow the whistle’.” This sits uneasily with the existence of draconian laws protecting financial secrecy in territories over which the UK government claims sovereignty.

Life isn’t easy for whistleblowers anywhere. In the offshore world tailored legislation can make things even more hazardous. People who speak out risk their careers, their place in society, their health, and sometimes their lives. This is the price people currently pay for acting honestly and honourably. But the world needs many more whistleblowers if we are to combat the corruption that is endemic in the financial sector.

It is time to alter the balance of risk and reward so those who dare to break social convention and speak out are better protected. In part this is about changes in legislation. But in part it is a matter of learning to distrust our natural inclinations. A whistleblower is not a stool pigeon or a traitor. A whistleblower is someone who speaks up for the public interest.