1. WHISTLEBLOWER UPDATE BY GEORGE MARK PRESIDENT, ICS CONSULTING PARTNERS Association of International Bank Auditors 2 nd Annual Compliance Seminar June 14, 2012

2. What is Whistleblowing? Legal Definition: The disclosure by a person, usually an employee in a government agency or private enterprise, to the public or to those in authority, of mismanagement, corruption, illegality, or some other wrongdoing. Dodd- Frank Definition: Section 15 U.S.C. §78u-6(a)(6) of the Dodd-Frank Act defines “whistleblower” as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission [SEC], in a manner established, by rule or regulation, by the Commission [SEC] SEC Definition: A whistleblower is someone who, alone or jointly with others, provides information to the SEC relating to a possible violation of the federal securities laws that has occurred, is ongoing or is about to occur (Rule 21F-2(a)).

3. Short Legal History Whistleblower Protection Act of 1989 2002 Sarbanes Oxley 2002 Whistleblower Protection Act of 2007 Dodd Frank Act of 2010 State Guidelines of Interest  New York  New Jersey  Connecticut

4. Whistleblower Protection Act (WPA)of 1989 The intent of the legislation was to: Strengthen and improve protection for the rights of Federal employees, to prevent reprisals, and to help eliminate wrongdoing within the Government by mandating that employees should not suffer adverse consequences as a result of Prohibited personnel practices; And establishing that while disciplining those who commit prohibited personnel practices may be used as a means by which to help accomplish that goal, the protection of individuals who are the subject of prohibited personnel practices remains the paramount consideration

5. Sarbanes-Oxley Whistleblower Regulations Section 806, commonly referred to as the SOX whistle-blower provisions, provides a cause of action to employees of public companies who allege that they were retaliated against for disclosing any conduct that the employee reasonably believes violates any provision of federal law relating to fraud against shareholders. Some highlights: Makes it illegal to "discharge, demote, suspend, threaten, harass or in any manner discriminate against" whistleblowers Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers Require board audit committees to establish procedures for hearing whistleblower complaints Allow the secretary of labor to order a company to rehire a terminated employee with no court hearing Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings

6. Whistleblower Protection Enhancement Act of 2007 On March 9, 2007, the House Committee on Oversight and Government Reform reported H.R. 985 (110th Cong.) H.Rept. 110-42, the Whistleblower Protection Enhancement Act of 2007, which would amend the Whistleblower Protection Act (WPA) by providing protections for certain national security, government contractor, and science-based agency whistleblowers, and by enhancing the existing whistleblower protections for all federal employees.

7. The Dodd-Frank Wall Street Reform and Consumer Protection Act Signed into law by President Obama on July 21, 2010, includes several new whistleblower protections available to employees and others: Mandatory Rewards. In a unique new approach to encouraging whistleblowing activity, Dodd-Frank provides a mandatory reward to those who voluntarily provide original, independently derived information to the Securities & Exchange Commission (“SEC”) or the Commodity Futures Trading Commission (“CFTC”) relating to violations of the securities laws. Whistleblowing to the New Bureau of Consumer Financial Protection. The Act also provides broad protection to employees who provide information or testimony to the newly created Bureau of Consumer Financial Protection within the Federal Reserve system.

8. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Continued) Extends SOX Protections. Dodd-Frank extends the whistleblower provisions of Section 806 of the Sarbanes-Oxley Act of 2002 to cover employees of certain affiliates and subsidiaries of publicly traded companies. Extends False Claims Act Protections. Finally, the Act amends and clarifies the False Claims Act (“FCA”) to provide a cause of action to “an employee contractor, agent or associated others” against whom an adverse employment action has been taken because of lawful actions undertaken to stop a violation of the FCA.

9. Tri-State Area New York Labor Law §740 & Civil Service Law §75-b public and private employers Public and private employers cannot discipline or take retaliatory action against employees who disclose or threaten to disclose activities, policies or practices that violate laws or regulations or threaten public health or safety. New Jersey §34:19-3 et seq. and case law public and private employers The Conscientious Employee Protection Act (CEPA) prohibits a public or private employer from taking retaliatory action against an employee who discloses or threatens to disclose to a supervisor or public body an activity, policy or practice that the employee reasonably believes is in violation of a law or rule; or provides information or testimony to a public body investigating a violation; or objects to or refuses to participate in an activity, policy or practice that the employee reasonably believes is a violation of law, fraudulent or criminal, or is incompatible with a clear mandate of public policy related to health, safety, welfare or protection of the environment. Connecticut §§31-51m & 4- 61dd public and private employers It is unlawful for a public or private employer to discriminate against an employee, including discharge, discipline or penalty, for reporting to a public body a violation or suspected violation of any state, federal or local law. Employees knowingly making a false report are not protected and can be discharged.

10. What is the difference between a leaker and a whistleblower? No legal distinction, however, Former Department of Justice Director of Public Affairs – Matt Miller says the difference between a leaker and a whistleblower is important: "The difference between a leaker and a whistle-blower is important," Miller writes. "Leaks of classified information can endanger American soldiers and intelligence officers and expose sensitive national-security programs to our enemies. Whistle- blowers expose violations of law, abuse of authority, or a substantial and specific threat to public health or safety." Miller says critics are wrongly suggesting that all leakers are do-gooders trying to bring government malfeasance to light, when, in fact, more mundane personal or policy motives are often behind the leaks.

11. Incentives (Financial) Dodd-Frank – 10% to 30% of amount collected for violations of federal securities law if monetary sanctions exceed $1 million IRS – Mandatory awards of 15% to 30% of amount collected if amounts exceed $2 million. Discretionary awards authorized below the $2 million mark Disincentives (Personal) Fear of retribution Loss of reputation Social ostracism Compromise career advancement Loss of Job Waiting period for award Anonymous employees fear discovery

12. Ethics Resource Center (ERC) Report December 2010 Specific Forms of Retaliation Experienced as a Result of Reported Misconduct Other employees gave you a cold shoulder 60% Your supervisor or management excluded you from decisions and work activity 62% You were verbally abused by your supervisor or someone else in management 55% You almost lost your job 48% You were verbally abused by other employees 42% You were not given promotions or raises 43% You were relocated or reassigned 27% Any other form of retaliation 20% You were demoted 18% You experienced physical harm to your person /property 4%

13. Basic Elements of a Good Whistleblowing Policy Corporate culture that supports ethical, law-abiding behavior (Starts at the Top) Independent administration and investigations Effective Communication of the Whistleblower policy to all employees Absolute protection of the whistleblower’s identity Recognition of whistleblowers who wish to be identified A meaningful internal award Establish a Fraud Hotline

14. FDIC Guidance on Implementing a Fraud Hotline The FDIC provided guidance to financial institutions on implementing a fraud hotline to minimize potential and actual fraud risks as part of a bank's governance and enterprise risk management program. The FDIC encourages financial institutions to consider the benefits of implementing a fraud hotline as a confidential communication channel to identify fraud and reduce fraud-related losses. The Association of Certified Fraud Examiners – in its "2004 Report to the Nation" – stated that organizations without mechanisms to report fraud suffered financial losses that were more than twice as high as organizations with anonymous fraud- reporting mechanisms. Awareness of the fraud hotline by employees, customers, contractors, service providers, suppliers and other third parties is an important component in ensuring a hotline's effectiveness. Confidentiality of tips reported on fraud hotlines must be guaranteed to ensure that those reporting suspected wrongdoing can do so without fear of retribution or reprisal.

15. Major Problems with Current Whistleblower Policies: Failure to adequately communicate whistleblower policies No meaningful reward for the internal whistleblower No guarantee of anonymity Inability to communicate with anonymous whistleblowers Lack of independent investigation of whistleblower complaints (complaints referred to internal audit, compliance, inside counsel – who may not be seen as being independent)

16. International Bank Case Study As reported March 2012 in Various Press Accounts Whistleblower Joseph Insinga suing IRS for not being paid a reward. Joseph A. Insinga was the ultimate whistleblower. The former executive with a Dutch bank says he divulged to the Internal Revenue Service details about how for years his employer helped U.S. companies dodge taxes.Internal Revenue Service Insinga had a 31-year career in banking and joined Rabobank as a finance specialist in 1990. He said he told IRS officials about the bank’s misdeeds on behalf of a variety of U.S. companies from the late 1990s until 2004. Now Insinga is taking tax authorities to court for failing to give him a reward that he says he is owed by the federal governmentreward Press accounts from 2008 reported that Joseph Insinga assisted the IRS as it scrutinized Rabobank's promotion and financing of numerous transactions worth billions of dollars that helped shelter the U.S. income of nearly 100 major companies. Those companies and others used Rabobank as a third-party intermediary to engage in discounted accounts receivable sales and prohibited intermediary midco transactions. Insinga filed a whistleblower claim with the IRS in 2007, a year after Congress passed a law to help the government uncover tax cheats by encouraging informants to come forward.

17. Those with inside information could receive up to 15 to 30 percent of any taxes, fines, penalties and interest the IRS collected from a taxpayer who was illegally sheltering taxes, usually a corporation. Several of the companies under scrutiny settled with the government, including $425 million for General Mills and almost $180 million from Cardinal Health. Do the Math: 15% of $606 million = $90.9 million 30% of $606 million = $181.8 million Insinga, was shocked when the IRS Whistleblower Office told him no award would be immediately paid because it was getting more information from field offices on possible other sources behind the investigations Stephen Whitlock, director of the agency’s whistleblower office, has said that the time frame for payouts is five to seven years, because the government cannot make an award until all outstanding taxes have been collected and appeals by the taxpayer are resolved. The IRS official in charge of his case said the government remains “open for an award determination,” according to a letter sent to lawyer Andrew Carr in February. But three months earlier, the same official had indicated that an award was unlikely based on “other sources” of information that the IRS received about Rabobank’s dealings with U.S. corporations, according to documents filed with the lawsuit.

18. Is Whistleblowing Working? Ethics Resource Center’s (ERC) annual National Business Ethics Survey (NBES), widely considered the U.S. bench­mark on ethics, found that the share of workers who report negative behavior rose to 63 percent in 2009, a solid gain from 58 percent in 2007. (December 2010 report) Between 2000 and 2009 about 59 percent of employees on average said that they observed and reported misconduct, usually to an internal company authority. That’s encouraging because a lot of misconduct is being challenged. But it also means that there is still much work to do because over the decade, four in ten employees who witnessed workplace misconduct did not typically report it.

19. QUESTIONS? George Mark President, ICS Consulting Partners “A Higher Level of Confidence” 1350 Broadway, Suite 602 New York, NY 10018