Whistleblowing Pension Funds David Loxton Michael Dokakis Pension

Whistleblowing & Pension Funds David Loxton Michael Dokakis Pension Lawyers Association

INTRODUCTION • Would you blow the whistle? • What are the options in context of discovering wrong doing? • Do nothing? ; • Report internally; • Report externally. • Consequences of each option - No win situation;

Continued • Where does your duty lie? • Act in best interest of organisation: ― Report; ― Don’t report. • Simple example: Nurse sees incorrect procedures used for blood transfusions / patients die of HIV • In who’s interest should she act? • The Hospital? • The patient’s? • The general public? • Moral consequences of decision;

Continued • Report externally – to whom? • • Police? Lawyer? Corruption watch? etc. … • Consequences of blowing the whistle • Unless married to CEO, generally hounded out of organization and all ancillary consequences. • What motivates whistleblowers? • Hero or Traitor?

Continued • Reprisals the norm; • Legislation the answer?

The need for whistleblowing • Environment in South Africa – scandal after scandal; • Certain organisations - leadership is complicit in the cover-up of individual or group wrong doing; • Leadership can be actively involved; • Do whistleblowers actually need protection?

Definition of whistleblowing • What is whistleblowing? • Whistle blowing is not an opportunity to settle scores or lodge a grievance against an employer. A grievance has an element of personal interest and does not affect the wider public.

What have we seen in the pension fund arena? • Fidentia; • Ovation; • Gavhalas surplus stripping exercise; • Bophelo beneficiary fund;

What can we extract from these scandals? • Extremely difficult to detect; • Usually an insider; • Sometimes individuals make mistakes; • Often aggrieved employee/spouse; • Sometimes an outsider such as the auditor or contractor; • Whistleblowing seems to be the best tool for exposing wrongdoing.

The legislative environment • Some countries provide protection; • Some even provide an inducement;

Protected Disclosures Act • Protects employees; • Administered by the Department of Justice; • Aims to protect an employee from occupational detriment; • Must be a protected disclosure; • Provides remedies for employees if they are subject to occupational detriment; • It aims to eradicate criminal and irregular activity; • Applies to private bodies and organs of state.

Who is protected? • Employees including: • • Temporary workers; Contractors; Agents or; Anyone providing a service to employer.

Triggers • Employee has reason to believe that an employee or employer has or is likely to be committing or will commit: • • Criminal offence; Legal offence; Miscarriage of justice; Act endangering health and safety of individual; Unfair discrimination; Act endangering the environment; Concealment of any act referred to above.

Continued • Remember has to be a protected disclosure; • What qualifies as a protected disclosure? • Employer; • Where jurisdiction exists: • • Public protector; Human rights or Gender Equality Commission or Auditor General; Prescribed body; (In good faith and substantially true). • Legal representative to obtain legal advice.

General disclosure • Disclose to any person such as police, press, person working for an organisation that keeps watch over the private or public body; • For example: believe would be prejudiced if disclosed to employer • Previously made to employer, no action; • Impropriety is exceptionally serious.

Important points • Good faith and substantially true; • No personal gain.

Other Acts • • Companies Act Section 159; Financial Sector Regulations Act; Some portions of the FAIS Act relating to auditors and compliance officers; POPI IT Act; FICA; Pension Funds Act; Certain professions also have reporting requirements e. g. : auditors and accountants;

Continued • FD of company who is a CA, may have to disclose fraud to the authorities under the code of professional conduct for CA’s; • Know legislation govern your industry e. g. : • • • Long Term Insurance Act; Short Term Insurance Act; Tax and Administration Act; Prevention and Combating of Corrupt Activities Act; Promotion of Access to Information Act; • By way of example: PRECCA compels reporting of corruption or crime of dishonesty in excess of R 100 000, 00 rand.

Pension Funds Act – Disclosure Obligations • Obliged to report matter that may prejudice fund or members; • Section 7 A – Board Members; • Section 8 – Principal Officer; • Section 9 – Auditor; • Section 9 A – Evaluator; • Section 13 B – Administrator (material matter); • Obligation to report reason for removal;

Whistleblowing protection in terms of PFA • Section 9 B (2) – The following may make disclosures to the Registrar will qualify as protected disclosure: • • Principal officers; Board Members; Valuator; Deputy Principal Officer; Other Officer; Employee of Fund; Employee of an Administrator.

Continued • May not suffer any occupational or other detriment; • What is occupational detriment? ― discipline; ― dismissal; ― demotion; ― refuse reference; ― denied appointment.

Penalties and Offences • Fine not exceeding R 10 000, 00; • Imprisonment not exceeding 10 years; • Section 13 B licenses?

Continued • Section 13 B (10) requires the administrator to inform the registrar without undue delay when it becomes aware of any material matter relating to the affairs of the fund, which in the opinion of the registrar may prejudice the fund or the member; • Is this protected? • Can the administrator obtain protected disclosure? • Is the PFA requiring a juristic person to inform the regulator? • What is material?

What are the protections • If you make a protected disclosure, you are protected from: • Occupational detriment/victimization; • Employer cannot subject you to a civil claim for breach of confidentiality, if there is criminal wrong doing, or if there is a substantial contravention or failure to comply with a law; • Any civil or criminal or disciplinary proceedings flowing from whistleblowing, which is prohibited by any law, oath, contract, practice or agreement, requiring him/her to maintain confidentiality or otherwise protecting the disclosure of information with respect to a matter; • Remember the exclusion does not apply if you are involved; • If you act in bad faith, you could be fired, imprisoned or both.

Remedies • Order that is just and equitable; • Payment of compensation; • Payment of damages; • Order to remedy (specific performance); • For employees automatically unfair dismissal.

Process for reporting • Information circular PF 1 of 2018; • Must specify if confidential or anonymous; • Section 22 (2) of the Financial Services Board Act applies; • Report must state if made under Section 9 B; • Also cover Section 7 A, 8, 9, 9 A and 13 B obligations.

Some Examples • Sasol Pension Fund matter; • Dumisa Hlawula sued Sasol for unlawful dismissal; • Served on Sasol Pension Fund as a Sasol employee and as a whistleblower used protected disclosures to complain to the Financial Services Board (now the Financial Sector Conduct Authority) about the Sasol Pension Fund; • SPF a defined benefit fund; • Complaints related to fruitless and wasteful expenditure incurred by the principal officer for a visit to the US; • Reportedly visit was to attend at the 63 rd Annual Western American Pension Conference for sustainability;

Continued • There was no such conference; • Trip costs approximately R 100 000, 00; • Not only was there no pension conference, but the trip to San Francisco took place over a weekend and the principal officer’s son lives in San Francisco; • Sasol Group Ethics Office found that the request to attend the conference was false and misleading; • Principal Officer had failed to provide proof of registration of the conference; • The trip could not be considered as a business trip;

Continued • No arrangements had been made to meet the Chairman of Calpers, one of the world’s largest pension funds, which would have been a most useful contact; • Interestingly enough, the disciplinary hearing was only into charges of unsatisfactory work performance, alternatively acting contrary to the Sasol Code of Ethics; • Found guilty of unsatisfactory work performance and given final warning; • So guilty employee gets final warning, whistleblower gets dismissed.

Conclusion • Obligations to report exist; • Consequences for whistleblowers possibly still outweigh obligations to report; • Is the protection for whistleblowers effective; • What more can we do to encourage whistleblowers? David Loxton – Africa Forensics & Cyber Cell: 083 459 8790 Email: dave@africafc. co. za & loxton@mweb. co. za Micheal Dokakis Cell: 083 459 2421 Email: dokakism@aforbes. co. za & mwmaduke@gmail. com