New EU Whistleblowing Directive Aims to Boost Transparency and Combat Fraud
The European Union has introduced a new whistleblowing directive aimed at combating fraud and increasing transparency within the private and public sectors. The directive requires companies with more than 50 employees or municipalities with over 10,000 inhabitants to establish internal reporting channels and procedures for following up on reported incidents.
Why the Directive is Needed
A recent survey by PwC’s Global Economic Crime and Fraud Survey found that nearly half of reported fraud cases resulted in losses of over $100 million. The same survey revealed that insiders were the perpetrators in 43% of these cases, while customers, third-party vendors, and senior management are also significant threats to businesses.
Key Features of the Directive
- Requires companies with more than 50 employees or municipalities with over 10,000 inhabitants to establish internal reporting channels
- Provides a safe and secure mechanism for individuals to report suspected wrongdoing within their organizations
- Each EU member state will be required to designate a competent authority responsible for introducing an external reporting channel
Impact on Businesses
The directive is expected to have a significant impact on businesses, particularly those in the financial services and consumer markets sectors where customer fraud is a major concern. Many employers will need to implement new processes to comply with the regulations.
Third-Party Vendors: A Growing Concern
A recent survey found that third-party vendors are becoming increasingly risky for companies, with one in five respondents citing them as the source of their most disruptive external fraud. However, Luxembourg stands out as having a high level of sophistication when it comes to third-party due diligence, with 51% of respondents reporting that they have a documented, risk-based due diligence and ongoing monitoring process.
The Benefits of the Whistleblowing Directive
The Whistleblowing Directive is expected to play a crucial role in preventing and detecting fraud within the private and public sectors. By providing a safe and secure mechanism for individuals to report suspected wrongdoing, the directive aims to increase transparency and accountability within organizations.
The Costs of Fraud
A recent survey found that fraud losses are complex and can have far-reaching consequences for businesses. The costs of direct financial loss or costs due to fines, penalties, response, and remediation can be significant, but some costs are not easily quantified, including brand damage, loss of market position, employee morale, and lost future opportunities.
Conclusion
The Whistleblowing Directive is expected to play a crucial role in combating fraud and increasing transparency within the private and public sectors. By providing a safe and secure mechanism for individuals to report suspected wrongdoing, the directive aims to protect businesses from financial losses and reputational harm.