White-collar crime may be alive but there are some people dedicated to fighting it. Meg Winton sat down with lawyer Stephen M. Kohn to discuss the role of whistleblowing in combatting corruption.
Top whistleblower lawyer Stephen M. Kohn paid Jersey a visit last week to appear at KYC360’s annual forum.
The compliance services provider, which has a focus on anti-money laundering, welcomed a number of international speakers and experts, including Mr Kohn, to its event.
He is strong in his belief that “whistleblowers have proven themselves to be the single most important source for detection of white-collar crime”.
Considered a leader in his legal field, Mr Kohn has pioneered changes in whistleblowing laws and protections and spearheaded first-of-their-kind cases, securing compensation for whistleblowers and eye-watering sanctions for wrongdoers.
His notable cases include representing Bradley Birkenfeld, who exposed a huge tax evasion scheme at UBS. He received $104m in compensation – the largest amount ever to have been awarded to a whistleblower at that time.
Mr Kohn also fought for Howard Wilkinson, who blew the whistle on a $230bn money-laundering scheme at Danske Bank, the largest scheme in history with links to the Russian government.
“Without whistleblowers, you pretty much cannot enforce the laws,” he said. “Once the crime is predicated on intense secrecy, how do you ever detect it?”
Mr Kohn’s practice focuses on using the most powerful whistleblower laws, which he played an integral role in creating, to fight financial crime in a transnational context.
Though based in the US, he explains that these laws must stretch beyond American soil to truly target criminals.
“The financial system is international; money flows from one country to another,” he said. “Pretty much any publicly traded company in the world that permits US investors is covered by American whistleblower laws, including companies traded on the London Stock Exchange, Paris or Hong Kong.”
As part of its commitment to support whistleblowers worldwide, the US government offers healthy compensation – 10-30% of what is paid back by the criminal – if a case is successful.
Mr Kohn explained: “To make whistleblowing work, you must convert it to a rational economic activity. You have to make it profitable.”
“When I started my practice, reward laws didn’t exist. The laws today hold wrongdoers accountable, generate millions and billions of dollars in both restitution to the victims and in payments to the government, and the awards are paid from the money obtained from the wrongdoer, nothing from the taxpayer.”
As well as a financial incentive, whistleblowers are guaranteed protection and anonymity, so much so that some of Mr Kohn’s clients remain employed and undetected at the companies on which they blew the whistle.
The international application of these laws and the guaranteed support for those who come forward mean the US welcomes whistleblowers from around the world to use their laws and resources to get justice.
In recent years, the UK has been one of the top producers of whistleblowers heading to the US to build a case, despite “taking the lead in opposing award laws worldwide”.
Mr Kohn said: “Between 2011 and 2021, under the Foreign Corrupt Practices Act alone, whistleblowers from 132 different countries filed claims. The largest country with whistleblowers coming to the US was the UK. My US cases are more advanced and difficult to prove than the ones from Europe because there is a culture of deterrence that has settled into the US but not Europe.”
But Mr Kohn is hopeful this could soon change following a statement from the Serious Fraud Office that spoke in favour of awarding whistleblowers financial compensation.
“The same regulators who were telling us we shouldn’t offer awards are now turning the corner changing their minds,” shared Mr Kohn, who describes the new whistleblower laws as “the most radical transnational, anti-corruption laws ever passed”. They are, he adds, designed to leverage whistleblowers to ensure full compliance across the industry.
Mr Kohn explains: “If a company learns through internal compliance or processes that there has been a violation of law, they have 120 days to report it voluntarily to benefit from no criminal prosecutions and reduced fines and penalties. If they don’t, they will suffer.
“The whistleblower can obtain an award whether the company voluntarily discloses or not.”
He added: “Anyone working in compliance or audit can obtain an award even if the information they give to the government is what they’ve learned by being a compliance official.
“If the company doesn’t turn itself in within those 120 days, all its compliance personnel can file for awards, not only for the underlying fraud, but for a failure of internal controls.”
With Jersey having been commended in its latest Moneyval evaluation for its effectiveness in preventing financial crime. Is this endorsement enough?
Mr Kohn has his doubts: “Without a sophisticated whistleblower programme, you do not have a good AML,” he reflected.
“You can have an excellent programme on paper, but it’s about what’s in practice. That’s why the whistleblower law is so important.”
Mr Kohn poses the question: “Why should anybody care about financial crime?”
There may have been over $100bn in sanctions, with probably $1tn saved in deterrence, and over $12tn still undeclared in Swiss bank accounts, but does the average person feel the effect of this? Unlikely.
This is why Mr Kohn argues that financial impact isn’t the top priority when tracking down these criminals.
“White-collar crime is considered the most dangerous criminal activity,” he shared, “as these are crimes of the elite, government officials, rich, well-educated people.
“It causes a disintegration of social trust, cynicism and gives rise to authoritarian regimes. The average person loses faith in democracy because it looks like all these people are getting away with it. The financial impact is secondary to the long-term social detriment.”
Mr Kohn and the US are leading the way for progressive, effective whistleblowing laws, but it’s not a fight they can continue alone.
“My biggest fear is that other countries don’t join in because it’s not that hard to take away whistleblower rights,” he said. “It’s imperative for other countries to step up, because it works in generating large income from wrongdoers and combatting corruption.”
