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Dublin: 11 °C Wednesday 22 October, 2014

Column: Whistleblowers in banking are doing the right thing – but not for themselves

Former trader Nick Leeson finds that those who try to expose problems in the banking sector and would be heroes anywhere else are made pariahs in their world.

Nick Leeson

WE ARE ALL taught the difference between right and wrong in our formative years. We build on this basic training as we enter school and encounter different situations and circumstances. Many times we have all thought: Should I tell or is it better left alone? Should I wait for someone else to tell and remove myself from the difficult decision? Shall I just hope that things will work out for the best?

Many times it amounts to not much more than teenage angst but as we embark on a business career, the decisions become much more difficult and the impact far more serious.

Confronted by these basic tests of our honesty and integrity we all react in very different ways. In many different industries, the decision is clear-cut, the risk encountered by not doing something presents clear physical danger. In that case, the right thing to do is an easy decision as it removes the threat of physical risk.

Our behaviour though is very much influenced by our surroundings, what we see happening and how other people behave. In my own case I was directly influenced by what I had seen before. My fear of failure was heightened by an industry that was competitive in the extreme but I had also seen a large number of minor transgressions pass by undetected.

It’s important to point out that I dramatically failed those tests of my honesty and integrity when working for Barings in Singapore. It’s not something that I am proud of. In fact, I am deeply embarrassed by them and I use the experience and memory to make sure that I don’t make the same stupid decisions in the future.

But the initial foray into the irregular use of an error account was something that I had seen happen many times in the past. It doesn’t excuse in any way, shape or form my actions but may give an insight into my easy digression across the line from good to bad.

I have spoken in a variety of locations over the last few weeks and have met a number of very interesting people. A number of them are people who would be described as ‘whistleblowers’, the dictionary definition runs something like this:

A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities (misconduct) occurring in a government department, a public or private organisation, or a company. The alleged misconduct may be classified in many ways; for example, a violation of a law, rule, regulation and/or a direct threat to public interest, such as fraud, health/safety violations, and corruption.

As long as the allegations are found to be truthful the effect is distinctly positive and for the better good of all.

As such, you would imagine therefore that the behaviour should be encouraged. The opposite would appear to be true in the world of banking.

As an industry whose survival relies on customer confidence, when something is wrong they prefer to keep it firmly behind closed doors. The risk of a knock to reputation outweighs most other forms of risk until it reaches such a magnitude that it cannot be ignored any more. Only then does it reach the public domain as in Allfirst, Société Générale or more recently UBS.

So another worrying trend is developing in banking. As an industry that is premised on financial innovation that occurs with terrific speed and complexity, if something is wrong an early warning is needed in this sector more than anywhere else. You would imagine that a whistleblower would be encouraged.

I know of two fairly recent examples, very different in their circumstances but both very similar in their outcomes, in which very senior risk managers both raised concerns about the large banking organisations where they worked.  Both were ignored and while one was sacked as a consequence, the other resigned rather than have his integrity questioned or face legal consequences himself.

Banking is a reasonably closed industry and the other more lasting similarity between both cases is that neither of those would-be whistleblowers can find work within the industry. They did the right thing – but in banking, it was not seen as the correct thing to do. I clearly did wrong and am regarded as a pariah by many within the walls of banking but the same is true for both of these individuals where doing the right thing seems to hold the same punishment. If we do not encourage the right type of behaviour, it will not happen! Banking should be cleaning up its act rather than circling the wagons.

In a week where two elected leaders of government were forced to fall on their sword for the way they mishandled the financial crises in their respective countries and as the SEC in America handed down a record fine to the insider trader, Raj Rajaratnam in a civil case, the more official barometer for behaviours is called into question in Ireland, justice is still not being served.

Ireland may be ahead of the curve as regards its recovery but reminds massively behind the curve in finding people accountable. It is unexcusable.

Read more columns by Nick Leeson for TheJournal.ie>

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