Vulnerabilities, obstacles and risks in reporting financial crimes: Conundrum of whistle-blowers
Introduction
As financial crimes have expanded both in terms of their volume and diversity and increasingly become transnational, so have the legal instruments which aim to counter them. The United Nations’ (UN) and the European Union’s sanctions regimes (European Commission, n.d.a.; EU Sanctions Map, 2019; UN, n.d.), asset freezing and confiscation orders, minimum standards imposed by international organisations such as the Financial Action Task Force (FATF) (2012),[1] the Organisation for Economic Co-operation and Development (OECD, 2018a, b, c), have all had a trickling effect on reforming not only national legal regimes but also the role of private actors in enforcing these legal provisions. The transposition of these developments in the form of legal requirements and/or policy developments have created new criminal offences (e.g. tax fraud and evasion, insider dealing, to name a few) whereby, if found guilty, defendants might sec their right to liberty restricted by punitive sanctions, including prison sentences. This trend in turn brought new challenges for law enforcement agencies. For example, diverse approaches to corporate liability for financial crimes in different countries can pose challenges for cross-border or international cooperation in investigation and prosecution. In addition, attributing liability and/or culpability to a person who is suspected of financial crime requires a higher threshold for admissible evidence in criminal proceedings. This is even more complicated when one tries to attribute the crime to a corporation rather than a person. Accordingly, we have also witnessed not only a trend whereby the requirement for intent has diminished in certain contexts but also an emergence of the creation of strict liability offences (e.g. failing to prevent briber)', tax evasion and/or money laundering). Arguably, as a consequence of these trends, we have also seen the emergence of negotiated justice mechanisms vis-a-vis deferred prosecution agreements which are conducted as a ‘quasi-sanctions’ regime, sometimes, without the involvement of the judiciary (e.g. in the United States of America).
Qualified information and reliable evidence are necessary for pre-arrest investigation and initiating prosecution and in securing the conviction of criminal activities generally.[2] In the context of financial crimes, traces and trails of financial crimes and transactions (hereafter financial information) through legitimate/ formal as well as informal institutions are crucial components in establishing any wrongdoing (European Commission, 2018a). While it is inherently difficult to detect and produce evidence to prosecute financial criminals, it is known that the preferred medium both for financial crimes and laundering the proceeds of such crimes is often legitimate financial institutions (Masciandaro, 1999; Gill and Taylor, 2004; Sikka, 2007). Subsequently, a number of professionals in these institutions knowingly or otherwise hold the key to such crucial information. Hence, they have a legal duty to act as crime detection and prevention agents within the national anti-money laundering (AML), counter-economic crime and tax regulation regimes. This is often done by reporting suspicious or actual criminal activity to the relevant state authorities be they financial intelligence units or law enforcement agencies. It is clear that such professionals are dual-enablers in the context of financial crimes whereby they facilitate criminal activities and/or assist criminal prosecution of such crimes. While the importance of these enablers in countering financial crimes cannot be disputed (even though the success rate of convictions emanating from these key professionals in relation to financial crime in some EU countries is extremely low: Eurostat, 2013),[3] some of the biggest financial crime schemes involving major financial institutions (e.g. UBS, HSBC, SwissLeaks, LuxLeaks, the Panama Papers, EULUX Leaks and DanskeLeaks) have come to the surface not by the reports of such enablers who have a legal duty to report, but by whistle-blowers who disclose crucial information in the public interest (Srividhya and Shelly, 2012).[4] Generally speaking, a person who in good faith informs the public and the relevant authorities about any illegal, corrupt and/or malfeasant activity is called a whistle-blower (Glazer and Glazer, 1991: p. 4).[5] While it is clear that whistle-blowers perform an important role in countering financial crime, there has been very' limited analysis of the cases in which they have been instrumental for unfolding the crimes involved. Accordingly, this chapter aims to critically analyse some of the most recent and controversial financial crime cases, namely the SwissLeaks and LuxLeaks cases, both of which involved whistle-blowers.
The purpose of these case studies is to investigate the following issues:
- • What were the role, status and legality of the actions of the whistle-blowers involved?
- • Were the whistle-blowers anonymous or self-identifying when giving intelligence for tax crimes?
- • How and why did the evidence and information disclosed by the whistleblowers lead to prosecution of them and the financial institutions involved?
- • How do jurisdictions involved in these cases (Switzerland and Luxembourg) hinder the fight against financial crime?
In doing so the chapter identifies a number of contentious areas of the law in these jurisdictions and provides potential solutions to overcome them.
- [1] These have been amended several times and the Information on updates made to the FATFRecommendations can be found here: http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html [Accessed 24 June 2019].
- [2] The right to a fair and public hearing under Article 6 of the ECHR applies in relation tocriminal charges and disputes concerning civil rights and obligations. Furthermore, pursuantto Article 47 of the EU Charter of Fundamental Rights, such rights apply to all types of proceedings relating to rights and freedoms arising from EU law.
- [3] For a detailed analysis of AML-related convictions rates across the EU see, Eurostat (2013).
- [4] It is important to note that there is an important difference between whistle-blowers andinformants: informants use disclosure to clarify their own role in the malfeasant activity or toreduce their liability’. Whistle-blowers, on the other hand, act because of the public interestand the common good at stake, which includes performing legal duties and enforcement ofthe law.
- [5] Glazer and Glazer (1991) define a whistle-blower as one who: (a) acts to prevent harm toothers rather than to himself or herself; and (b) possesses evidence that would convince areasonable person.
