US$104m UBS informant urges Swiss to back whistleblower law

[GENEVA] Bradley Birkenfeld, the banker awarded US$104 million by the US for revealing how he helped UBS Group AG hide assets for rich Americans, has a message for Swiss lawmakers wrangling over the draft of the nation's first whistleblowing law: "stop living in the past."

Birkenfeld won a record Internal Revenue Service whistleblower award in 2012 after serving most of a 40-month sentence for his part in the tax-evasion schemes.

His testimony, in contravention of Swiss banking secrecy, triggered a US probe that's reaped more than US$5 billion in penalties from wealth managers in the Alpine country.

"We have to make some changes in Switzerland - it's long overdue," Birkenfeld, a 50-year-old American, said last week in a phone interview. "The environment there is hostile toward people exposing corruption."

The role of whistleblowers in Switzerland was back in the spotlight on Tuesday as the court case resumed of a former Nestle SA executive, who claims she was fired after alleging there were lapses in food safety.

The Nestle case comes as political parties spar over proposals that some say risk undermining the corporate confidentiality that helped lure hundreds of multinationals to Switzerland.

Swiss lawmakers, after deliberating for more than a decade, sent draft whistleblowing legislation back to the Justice Ministry in September.

Even the reworked law will fall short of the protection given to whistleblowers in the US and the UK, said Daniel Jositsch, a Social Democratic Party lawmaker pushing for stronger employee rights. The legislation will probably oblige employees to go first to their employer with allegations of wrongdoing, he said.

"Here in Switzerland, the government says 'thank you for informing us but now we must prosecute you,"' according to Jositsch, who said a compromise deal will be an improvement on the current situation, which affords whistleblowers little protection. "It's absurd that secrets are being protected in Switzerland."

Another high-profile whistleblower Herve Falciani, a former computer worker at HSBC Holdings Plc's Geneva private bank, was found guilty of corporate espionage in absentia by a Swiss court in 2015 and given a five-year prison sentence for trying to sell client data.

While the French, British, Spanish and Italian governments used the HSBC account data to track down tax dodgers, Swiss prosecutors said the data leak created "diplomatic crises for Switzerland and third-party pressure on banking secrecy."

A spokesman for HSBC in Geneva said that Falciani didn't report any concerns to his line manager or an employee whistleblower hotline. HSBC agreed in June to pay 40 million Swiss francs (S$55.2 million) to close an investigation by Geneva prosecutors into related allegations of money laundering at its Swiss private banking unit. Falciani, like Birkenfeld, has said he tried to raise his concerns with the bank.

Nestle Case UBS declined to comment.

In the Nestle case, Yasmine Motarjemi, a former food safety director, said the company is counter-suing her for violations of professional secrecy. Nestle, based in Vevey, Switzerland, has denied Ms Motarjemi's allegations that the world's largest foodmaker ignored her warnings about product safety. The company declined to comment further.

While British retailer Tesco Plc and Volkswagen AG have in recent weeks acknowledged the debt they owe to whistleblowers, Switzerland doesn't yet accept their role as a catalyst for change.

The Swiss Parliament may debate the new draft law in the second half of this year, said Jositsch. As it stands, the proposed legislation is flawed, according to the nation's antitrust regulator.

FLAWED LEGISLATION

"It's a law that's timid compared with international standards," Vincent Martenet, president of Switzerland's Competition Commission and a professor of constitutional law at the University of Lausanne, said in an interview. "We are for the protection of whistleblowers as it's an important tool to ensure the detection of cartels."

The draft law would require employees to allow companies 60 days to give notice they were taking a claim seriously. Absent that notice, employees could contact a government agency or authority with the information. The government would then have two weeks to respond. If it does not, the whistleblower could go public. The employee would be entitled to six months' severance, but would not necessarily keep his job.

The latest draft would be "even worse" than having no law, said Martin Hilti, executive director of the Swiss office of Transparency International, which compiles a Corruption Perceptions Index that focuses on the public sector worldwide.

CORRUPTION RANKING

While Switzerland dropped two places to seventh in last year's ranking, "it's the Swiss private sector where the situation is bad," said Mr Hilti, who wants lawmakers to raise compensation for fired workers to 12 months pay and to allow whistleblowers to report wrongdoing anonymously. "You're not protected against discrimination, against getting fired and you even risk prosecution."

Officials at the Swiss Justice Ministry declined to provide details on revisions to the draft law.

While most international companies operating in Switzerland have procedures for whistleblowers, they do so voluntarily and base them on global standards resulting from anti-corruption legislation in nations like the US or the UK, according to Susanne Hofmann, head of PricewaterhouseCoopers's Swiss legal compliance practice.

BETTER IMAGE

It could be beneficial to pass whistleblower legislation, said Penelope Lepeudry, a partner in forensic services at Deloitte in Geneva. Having a law "will give a better image of Switzerland as a place to do business," she said.

Still, Ms Lepeudry said few nations can compete with levels of protection provided in the US where the 2002 Sarbanes-Oxley Act states that anyone who retaliates against a legitimate whistleblower faces as long as 10 years in prison.

Birkenfeld, who once smuggled diamonds for a bank client in a tube of toothpaste, is happy to offer advice to lawmakers pondering the new law.

"There's a whole litany of companies in Switzerland that should be embracing this not fighting it," said Birkenfeld who spent part of his cash on a Porsche with a license plate bearing an old UBS marketing slogan "You and Us.". "Switzerland has to come to the 21st century and stop living in the past."

BLOOMBERG