Sucheta Dalal :Whistleblowing: Can it work?
Sucheta Dalal

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Whistleblowing: Can it work?  

June 10, 2003

The 8th Balasubramaniam Memorial Lecture --Corporation Bank Officers Organisation



“Whistle blowing in banks: how can it be effective?


By Sucheta Dalal




The subject of my lecture is “Whistle blowing in banks: how can it be effective?

But the real question is, why do we have so few of them? And does their intervention really work?

The short answer to these questions is yes—a whistle blower’s courage makes an invaluable contribution to society.

That is exactly why Time Magazine named three whistleblowers – all women – as its Persons of the Year 2002.

They were: Sherron Watkins, the woman who warned that Enron’s strange contracts could "implode in a wave of accounting scandals".

Coleen Rowley, the FBI agent whose internal memo pointed out how the bureau had ignored important clues to the September 11 bombing of the World Trade Centre. And Cynthia Cooper, the internal auditor who had alerted the WorldCom board about accounting irregularities that later erupted into a major scandal.

The actions of these women exposed many more accounting scandals in corporate America and pointed to the need for a mechanism to ensure that voices of dissent are properly heard. 

That is why, the newly enacted Sarbannes Oakley legislation, which has tightened disclosure rules in America, has granted specific protection to whistle-blowers.

India too has followed America’s example. The Narayana Murthy Committee on Corporate Governance set up by the Securities and Exchange Board of India (SEBI) has recommended that whistle blowers must be protected; and be heard by the independent directors on the board.  I was a member of this committee.

As bankers, your question really is – Would the banking industry have seen fewer scams if there were more whistle blowers within your system?

My answer is again an emphatic --Yes.

Every scam from Harshad Mehta to CRB and on to Ketan Parekh has seen banks being ripped off by a few top officials colluding with scamsters. Or, in some cases colluding with industrialists who were scamsters.

Did other bank officials know what was going on? Again, yes. Plenty of bankers knew exactly what was happening but nobody spoke out. They were often unwilling to jeopardise cushy jobs in chasing what was right and just. My point is borne out by CBOO’s circular of October 2000.

I made this point to office bearers of the AIBEA too. In my view, banks have worker directors on the board. Yet, they have seldom been able to prevent fraud or release information to the public.

I myself have obtained leaks of Reserve Bank inspection reports leading to corrective action, without jeopardising anybody’s career. So why wasn’t AIBEA able to do something similar more openly? I asked.

AIBEA did react. In fact, they did something wonderful. They decided to challenge the Reserve Bank of India’s banking secrecy rules by simply publishing the list of wilful defaulters of all banks. By doing so, they defied the RBI to act against them.

This act of courage – a collective whistle blowing exercise, if you will, had the desired impact. The Reserve Bank not only did not dare act against the powerful bank union for violating secrecy rules, but it saved face by voluntarily publicising the defaulters list by posting it on its official website. You must remember, that before the AIBEA published the list, the RBI had ignored repeated requests by the Chief Vigilance Commissioner, N.Vittal, to publicize bank defaulters’ names. 

But before AIBEA’s bold action there were already plenty of scandals. Indian Bank had eroded its networth twice over and had to be bailed out. At least six nationalised banks were declared “weak” and there was a debate about their future. Canbank Mutual Fund’s Canstar scheme had been looted by scamsters and some extremely shady operators had gained control over Nedungadi Bank, Sikkim Bank and even Bank of Rajasthan.

Even more recently, there were no whistle blowers in Madhavpura Mercantile Cooperative Bank or all those cooperative banks in Gujarat and Maharashtra that were involved with Ketan Parekh or Home Trade.

Similarly nobody alerted regulators about Global Trust Bank when Ketan Parekh, Shankar Sharma (of First Global) and all their cronies were busy moving several hundred crores of rupees from one account to another, several times during one working day.

I understand that Corporation Bank itself went through a phase where some of your officials seriously debated whether they should blow the whistle. The October 2000 circular, in fact reads like a warning to top management and CBOO members. I am told that there was eventually no need for decisive action.

Potential whistle-blowers’ biggest worry is that archaic service rules can be invoked against them and the system provides them no protection. Unfortunately, that is true.

In America, it is NGOs such as the National Whistleblower Center in Washington ( that help, guide and support whistleblowers.

People who feel inclined to expose wrong-doing in their organisations approach the NGO – they are advised about the best course of action, they are warned about the repercussions and often helped with legal aid when things get sticky. But the fact is that whistle blowing is not the fun thing that it sounds. It requires a lot of courage and there is often a huge personal cost to be paid.

The National Whistleblower Centre says, people who decide to blow the whistle have one thing in common -- a strong sense of right and wrong. And they follow that belief even if it means that they end up being fired, ostracized by friends and co-workers, are accused of having a grievance against their employer or even worse – of trying to profit from their accusations.

And I am saying this inspite of the fact America, many parts of Europe and other developed countries have laws to protect whistle blowers.

Most American states have made retaliatory dismissal of a whistleblower actionable as a tort. In the occasional successful case, like that of Adrienne Andersen – a jury trial leads to substantial punitive damages.

But remember, that for every Erin Brokovich who successfully fought the system, there is a Karen Silkwood who paid with her life.

This is not an exception but a rule. Companies not only sack whistleblowers, but also sue them, threaten them and tarnish their reputations. Please notice that all the three women who made it to the cover of Time Magazine as persons of the year, have lost their job.

But that is the bad news. And I am not here to discourage you. Let me narrate a couple of exceptionally courageous stories as well. The most heart-warming one is that of George Couto, a Marketing Executive of the pharmaceutical giant, Bayer AG.

Thanks to Couto’s effort, Bayer AG pleaded guilty to a criminal charge last month (April 2003), involving a scheme to overcharge the American Medicaid programme for the antibiotic Cipro.

It also paid up a $257 million fine, after Couto exposed how Bayer used to re-label the drug Cipro and sell it to another pharmaceutical company called  Kaiser Permanente with a different drug identification number, so that it could claim more money from the Medicaid programme. 

Tragically, when Bayer finally confessed to its crime, Couto was no longer alive. He died of pancreatic cancer in November 2002, a little before Bayer’s confession. His story is reported in the April 21 issue of Corporate Crime Reporter.

It says: “On February 9,1999, George Couto a Bayer corporation Marketing Executive was attending a compulsory ethics training programme at the Bayer office in Connecticut.

The training session started out with a video address by Helge Wehmeier, the head of Bayer’s US operations.

He told the executives that  “everyone is expected to obey the law—not only the letter of the law but the spirit of the law as well”. He told them, ‘You will never be alone in adhering to the high standards of the law” and “should you feel prodded, speak to a lawyer, or call me. I am serious about that”.

The employees who knew about how Bayer was cheating the US government out of almost $ 100 million burst out laughing.

But Couto decided that he had to do something about it. Especially about the hypocrisy of top management. He wrote a one-paragraph memo to his boss asking how the company reconciled the Medicaid Scheme with the company’s expectation to adhere to the spirit and letter of the law. No one replied to his note. 

So he went to a law firm, which agreed to represent him and filed a lawsuit against Bayer in early 2000. He also quit the company soon after. In April 2002, the 39-year-old Couto was diagnosed with pancreatic cancer and knew he would die before the trial began. But he didn’t want the evidence to die with him. His lawyers then fought a hard battle to have his testimony recorded on videotape  in August 2002, along with a extremely tough cross-examination by Bayer’s lawyers of the dying man.

That videotape made all the difference. It also showed what an extraordinary person Couto was. Bayer knew that when the tape was played before a jury, there was little chance of them winning.

Couto died in November 2002. And in April, Bayer quietly pleaded guilty and paid a  $ 5.5 million criminal fine and $ 251 million to settle Couto’s case under the False Claims Act.

This is the stuff that real whistle blowers are made of.

We also have the case of our very own whistle-blower --Atul Tirodkar. Most of you would have heard about this man, who, during the Ketan Parekh scam of 2001, exposed how the Bombay Stock Exchange’s high profile President, Anand Rathi, had been accessing sensitive market information from the surveillance department.

The funny thing is that Tirodkar did not consciously set out to be a whistle blower. He was just doing his job correctly. Every phone conversation in the surveillance department is taped and Tirodkar, when he heard about Rathi’s call to his juniors, impounded the tapes in order to protect them and made copies to give to the authorities.

The BSE immediately suspended him and made enormous efforts to terminate his services.

In fact, but for support from the media and the capital market regulator, he would have been sacked. The BSE even fabricated charges against him. They accused him of dereliction of duty, absenteeism and even having links with the underworld. These fabricated charges were leaked to CNBC and played ever hour as an exclusive report. Later an independent inquiry by a single judge was instituted.

Many of us supported Tirodkar through this enormous ordeal. Finally, things began to change. The single judge inquiry exonerated him completely. But some influential BSE directors again prevailed on the Judge to give the exchange an exit option by offering him a honourable discharge with compensation.

Fortunately, Tirodkar decided to fight on.

Then the Joint Parliamentary Committee began to hear the matter and heard his testimony. Stunningly enough, MPs cutting across party lines supported him. They condemned Tirodkar’s suspension in the strongest terms and asked that he be reinstated.

So this story had a unique happy ending. Unlike the women on the Time magazine cover, our whistle-blower has proved a point, aided a clean up at the stock exchange and even got his job back.

Having said that, it is not surprising that few people want take the Tirodkar route. It is tough and may not always have such a happy-ending.

But that does not mean that you should avoid exposing wrong-doing. I’d suggest one of two alternatives routes.

The best one is the collective route where you fight through your trade union. It is happening right now in Mumbai. The Mahanagar Telephone Nigam Ltd.(MTNL) employees union has been holding demonstrations accusing its top brass of deliberately sabotaging its Dolphin and Garuda services (cellphone and wireless and local loop) in order to help private operators grow at MTNL’s cost. I am certain that Telecom Minister Arun Shourie will hear their voice and act on it.

The second route is to approach the media. Choose  your journalist and publication with care. Ensure that you have all the facts and documents to back what you are saying. And try and expose the organisation in the media without coming out in the open. That is a practical way of doing things and happens most regularly in India.

I have personally had people put their jobs on the line by trusting me with information that could get them sacked and in serious trouble. Some people think that going to the media against their organisation is a violation of their conduct rules. Personally, I disagree. I firmly believe that in the Indian context, the greater common good is best served by taking a sensible and practical approach.

The Corporation Bank Officers Organisation, should carry forward this discussion by creating a regular structure to encourage whistle-blowing by your members and work out how you can assist in exposing their grievances. The website of the National Whistleblowers Centre in the USA could provide the roadmap for setting up a similar cell within the CBOO.

It is my belief that unless employees of an organisation feel a strong urge to protect it from scamsters, there will be new scams every year. The effort to prevent them has to start within organisations – not outside.

Let me end with my favourite quotation by British Parliamentarian Edmund Bruke:"All that is necessary for the triumph of evil is for good men to do nothing".

14 June 2003, Bangalore.

-- Sucheta Dalal