Financial Crime World

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New EU Whistleblowing Directive Requires Companies with Over 50 Employees to Implement Internal Reporting Channels

The European Union has introduced a new whistleblowing directive that requires companies with over 50 employees to establish internal reporting channels and procedures for detecting incidents. Additionally, each EU Member State will designate a competent authority to introduce an external reporting channel.

Protecting Whistleblowers

The directive aims to protect whistleblowers who report suspected wrongdoing within their organizations, while also providing a safe and secure way for them to do so. It is expected that many employers will need to implement new processes to comply with the requirements.

Fraud Hotspots

According to PwC’s 2020 Global Economic Crime and Fraud Survey, nearly half of reported incidents resulting in losses of over $100 million were committed by insiders. The survey also found that fraud can come from various sources, including customers, third-party vendors, and even senior management.

  • Customer Fraud: 26% of respondents reported customer fraud as the source of their most disruptive external fraud.
  • Third-Party Fraud: One in five respondents cited vendors/suppliers as the source of their most disruptive external fraud.
  • Senior Management Fraud: Fraud committed by senior management was found to be a significant threat, with 26% of respondents reporting that it was a major problem.

Consequences of Fraud

The consequences of fraud can be severe and far-reaching. According to PwC’s survey, the top causes of direct losses were:

  • Antitrust
  • Insider trading
  • Tax fraud
  • Money laundering
  • Bribery and corruption

The average loss due to fraud was $42 billion, with 43% of reported incidents resulting in losses of over $100 million.

The Importance of Whistleblowing

Whistleblowing can play a crucial role in detecting fraud and preventing it from occurring in the first place. According to the survey, nearly 3 in 10 organizations that experienced fraud were also accused of perpetrating a fraud.

In Luxembourg, only 5% of respondents reported being accused of fraud, corruption, or other economic crime. However, this is still a significant issue for local businesses, which can suffer from reputational harm and lost business as a result of fraudulent activity.

Conclusion

The new EU whistleblowing directive is an important step in promoting transparency and accountability within companies. By implementing internal reporting channels and procedures, employers can help prevent fraud and protect their employees, customers, and reputation. The consequences of fraud can be severe, so it’s essential for businesses to take proactive steps to detect and prevent fraudulent activity.