Whistleblowing Is a Key Regulatory Tool

Corporate scandals are often the impetus for greater regulation. The Enron, Worldcom, and Arthur Andersen revelations led to the Sarbanes-Oxley Act, and the excesses of the financial sector paved the way for the Dodd-Frank Wall Street Reform and Consumer Protection Act. Regulators on both sides of the Atlantic made changes in the wake of the Volkswagen emissions scandal. Yet a critical lesson for lawmakers and regulators to learn in the wake of corporate scandals is not just that we need more—or better—rules, but that effective enforcement requires agencies to encourage people to come forward when laws are being ignored. Whistleblowers inside an organization have been the driving force for blowing the lid off of the Enron, Worldcom, UBS tax fraud, and FBI crime lab scandals. Outsider Harry Markopolos repeatedly warned the U.S. Securities and Exchange Commission (SEC) about Bernie Madoff, but no action was taken until Madoff’s sons called law enforcement.…

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