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Whistle-blowers earn rewards

Published: 29 Sep. 2013, 21:39

Last year, the U.S. Internal Revenue Service gave a reward of $104 million to an ex-UBS banker, Bradley Birkenfeld, for squealing on tax dodging secrets of his wealthy clients. The exposure resulted in the Swiss bank paying a fine and additional fees of about $708 million. It was the largest reward in history for the IRS, which gained unexpected information on thousands of tax-evading accounts.

Korean government institutions and private companies are waking up to the value of whistle-blowers and the information they can provide, and are starting to offer financial rewards as high as the winning prize in many lotteries, ranging from as high as 2 billion won ($1.8 million) to 3 billion won.

The Ministry of Strategy and Finance expanded its rewards last year from 100 million won to up to 1 billion won and is currently examining the idea of going up to 2 billion won next year.

The Financial Services Commission plans to raise its reward cap from a current 100 million to up to 2 billion won for whistle-blowers who report on stock trading manipulation. In August, the commission raised the cap for insurance fraud from 100 million won to 500 million won. For whistle-blowers who report about market shenanigans such as price-fixing, the Fair Trade Commission expanded its top reward from 2 billion won to 3 billion won.

In the past, whistle-blowing on North Korean spies, which now has a maximum reward of 500 million won, used to be the gold standard.

But financial crimes such as tax dodging, stock manipulation and price-fixing are of more concern to society than anything an agent from the North can do.

The rise in rewards also reflects the current government’s effort to tap into the underground economy as a source of new tax revenues.

But financial crimes are also often very clever and technical, either involving accounting or computers, which makes the cheaters ever more difficult to catch.

“Offshore tax evasion is on the rise, for example,” said Kim Yo-seong, director of Investigation Intelligence Division at National Tax Service, “but it is extremely difficult to hunt it down without whistle-blowers due to the number of countries involved in the process. That’s why many countries are making changes in their whistleblowing rewards to encourage more inside information.”

In 2006, the United States completely abolished the ceiling on rewards for reporting tax evasion. The government amended related laws to allow rewards up to 30 percent of the criminal fines levied on the evaders. The bigger the fish that’s caught, the larger the reward for the whistle-blower.

The United Kingdom has no official reward policies, but it does offer rewards at the government’s discretion, the tax service said.

Higher rewards definitely attract more significant information.

“Most sources with top-secret information such as large-scale price-fixing are high-level executives from large conglomerates,” said Roh Sang-seop, an official at the Fair Trade Commission. “The FTC raised the cap to the point where the reward could finance someone’s post-retirement life, which will bring us high-quality information.”

To get the big rewards, whistle-blowers have to provide solid evidence like internal documents and the amount of money involved in tax dodging.

In the case of uncovering collusion by a cartel, the criminal fine should exceed 100 billion won for the whistle-blower to receive 3 billion won as a reward.

The NTS spent 2.1 billion won on rewards for 126 whistle-blowers, or an average of 16.7 million won per person. Only two received rewards higher than 100 million won.

Prizes for reporting insurance fraud is even smaller, averaging about 600,000 won, while the biggest ever was 126 million won.

That leads to questions about upping the prizes. The National Assembly’s Strategy and Finance Committee wrote that “it could be less effective to raise the rewards for whistle-blowers on tax dodging” in a tax law review released in April.

Yet, authorities insist rewards promote whistle-blowing. As rewards rose so did the number of informants.

This year alone, the NTS received 12,147 confidential reports through the end of August, up 60 percent compared to the same period last year.

A large insurance company recently reported that it has been receiving triple the number of whistle-blowing reports in the two years since it started offering prizes of up to 1 billion won.

BY CHO MIN-GEUN [[email protected]]