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Whistleblowers playing greater role in corporate scandals

Posted by: Laurence Simons 06/03/13

Two men huddle in a greasy spoon cafe, with the collars of their coats turned up and fedoras pulled low over their faces. The jukebox is playing, the pavements outside are slick with rain. One of the men takes a sheaf of files from under his coat and slides it across the table. The other nods, takes the folder, and leaves without saying a word. The jukebox is still playing.

Unfortunately, the advent of electronic communication and the decline in fedora sales means that corporate whistleblowing has lost some of its noirish lustre in recent years - but this hasn't stopped in-house lawyers from coping with increased numbers of allegations about misconduct within businesses.

According to the ninth annual survey of in-house legal counsel by the law firm Fulbright & Jaworski, 37 per cent of companies dealt with a would-be informer over the course of 2012.

About three-quarters of the allegations sparked an internal investigation and almost half led to a regulatory probe, indicating the weight typically given to these claims, reports the Financial Times.

While it is unfortunate that none of these whistleblowers asked the recipient of the information to meet them at the 14:30 at Southwell, wearing a red carnation in their suit pocket, it is apparent that recent attempts to crack down on fraud have tightened up investigatory procedures and created more opportunities for prospective informants.

"They've had to set up more infrastructure to deal with whistleblowing. Maybe we are starting to see the fruits of that proactive approach," said Lista Cannon, a Fulbright partner

In the US a culture of whistleblowing is more established, largely because informants can receive monetary rewards from American government agencies, including the Securities and Exchange Commission. Some 80 per cent of US firms faced allegations over the last 12 months, the Fulbright survey found.

Regulatory investigation is becoming more common in Britain, though, with 44 per cent of UK companies reporting an increase in this kind of activity throughout 2012. Firms may yearn for the glory days when they got away with making a pinkie promise that they wouldn't embezzle anything, but the current climate is likely to see more bodies set up to ensure regulatory frameworks are being adhered to.

The survey comes against a backdrop of high-profile enforcement cases, with the financial sector especially affected by recent events such as the Libor price-fixing scandal.

With a slew of further legislation expected in 2013, it's possible that this could be another busy 12 months for in-house lawyers dealing with corporate governance issues.