Why Mandatory Corruption Reporting Requirements May Prove Counterproductive

Whistleblowers who report on and expose illegal acts in their workplaces are invaluable to fighting corruption. In Israel, as I stressed in a previous post, the recognition of the importance of whistleblowers has led to the adoption of several (unsatisfactory) legal instruments which are designed to encourage whistleblowers to step forward. These instruments are mainly about rewarding or protecting those employees who have dared to report on illegalities despite the personal and professional risks associated with their coming forward. An important example of such a positive instrument is Israel’s Protection of Workers (Exposure of Offenses and of Harm to Integrity or to Proper Administration) Law,  which establishes a whistleblower-friendly mechanism for seeking damages from employers who engage in unlawful retaliation .

But some argue that positive incentives are insufficient. In 2019, the Israel Democracy Institute (IDI), one of the country’s leading research institutes, published a policy paper in which the authors (Professor Mordechai Kremnitzer and Yazid Ershied) argued that negative incentives—that is, the threat of sanctions for those who fail to report corruption in their workplaces—should also be employed. More specifically, the authors propose that Israel’s disciplinary law include a provision that requires any public employee who, in his or her official capacity, has formed a “substantial suspicion” that an act of corruption has taken place to report on it “as soon as possible” to a newly established governmental unit which would address corruption in the public sector. The authors claim that adoption of such a mandatory reporting requirement, if backed by the credible threat of sanctions, would increase the number of reports by public officials who observe corruption. (The sanctions recommended by the authors would be disciplinary rather than criminal, as criminal sanctions in their view would be disproportionate and consequently ineffective.)

The IDI paper is the most thorough and impressive piece written on proposals to adopt a mandatory reporting requirement on corruption in Israel. But while the authors list some good reasons for adopting such a requirement, they fail to consider how their proposal would interact with the phenomenon of “delayed reporting.” Employees are often reluctant to report suspected corruption right away, but eventually become willing to report it. In other words, for entirely understandable reasons, it often takes whistleblowers some time and contemplation before they are finally ready to report on illegalities. When one takes this fact into account, it becomes apparent that the IDI paper’s proposed mandatory reporting requirement might prove counterproductive, for two reasons:

  • First, the threat of disciplinary sanctions may actually deter many potential whistleblowers from ever stepping forward, rather than encouraging them to report earlier. Consider a potential whistleblower who has observed wrongdoing but is reluctant to come forward right away; she needs time to work up the courage to report. Would the threat of disciplinary sanctions for failing to report “as soon as possible” induce this whistleblower to report earlier? Probably not. If she doesn’t report at all, the odds that the authorities will find out about the wrongdoing, or her failure to report it, are very low. What the threat would do, though, is discourage this potential whistleblower from reporting at all after she has delayed for too long. After all, an employee who reports wrongdoing, but only after a delay, would open herself up to disciplinary sanctions for failing to report more promptly, whereas if she keeps quiet, she is unlikely ever to be found out. Given that potential whistleblowers already face so many disincentives to reporting, the law should welcome whistleblowers at any point, rather than threatening them with punishment if they report later than would have been ideal.
  • Second, the risk of disciplinary sanctions may also deter employees with potentially relevant evidence from cooperating with law enforcement authorities once a corruption investigation is underway. Imagine the police questioning employees of a department they believe was tainted with corruption. If a mandatory reporting requirement is adopted, employees who have information about corruption that occurred in their department would face two options when questioned by police: First, the employees could falsely state that they knew nothing about illegalities in their workplace. Second, they could cooperate, telling the investigators what they knew or suspected. We would hope that employees would choose the second option. But if admitting to police that they knew about possible corruption and didn’t report it would expose employees to the possibility of disciplinary sanctions under the mandatory reporting law, many employees might rationally choose to feign ignorance, especially since the risk of being caught and punished for lying is usually quite low. Once again, the difficulties associated with detecting employees who knew about corruption but remained silent render a mandatory reporting requirement counterproductive.

If adopting a mandatory reporting requirement carries significant risks, what else can be done to encourage public employees to report on corruption? The answer, I believe, lies in strengthening the positive incentives for whistleblowers, which are currently very limited in Israel (and in many other countries). Encouraging, protecting, and rewarding whistleblowers, rather than threatening to punish those who don’t report right away, is likely to be the more effective anticorruption strategy.

14 thoughts on “Why Mandatory Corruption Reporting Requirements May Prove Counterproductive

  1. Guy, thanks for your very thoughtful piece! I agree that the carrot seems to be a better approach than the stick for corruption reporting for all the reasons you mentioned. I also wonder whether a mandatory reporting regime would ever be able to define terms like “substantial suspicion” and “as soon as possible” with enough clarity and certainty that the regime would even work. The United States seems to struggle with this very issue in the FCPA Corporate Enforcement Policy context, where vagueness in terms and benefits discourages participation in the first place.

  2. Thank you very much for this great post, Guy! I totally agree that creating those negative incentives to potential whistleblowers might be detrimental to the discovery of corrupt acts in Israel. However, I also think straightening the current positive incentives might be counterproductive as well in some cases. If this positive incentives are taken too far, I fear that whistleblowers would have perverse incentives to report not only relevant information, but anything really. This creates not only a problem of data processing for those in charge of gathering and analyzing that information and eventually could be counterproductive if the agencies in charge do not have enough resources to do so. In addition, reporting something that might be suspicious just in case might also make agencies use resources in vain. I am of course sharing this opinion without being familiar with Israel so maybe these concerns do not really raise an issue in Israel.

    • Thank you very much for your comment, Astrid! I agree with you that positive incentives that are “too strong” may indeed send the wrong message to public employees and encourage them to file false reports. However, against this message, one has to weigh the costs associated with whistleblowing (which must be even higher when employers or colleagues know or suspect that the “whistleblower” has actually falsely accused his or her colleagues of corruption), as well as the potential high costs that the public employee will incur if he or she is caught lying.

      • Thank you, Guy! Yes, I agree, I guess it ends up being sort of a cost benefit analysis for all those playing a role.

  3. Hi Guy! Though I agree with your larger points on how adding the temporal requirement might disincentivize quality whistle-blowing, I’m wondering if the reality of the ground might blunt the proposal’s harshest effects. If Israeli prosecutors have a great deal of discretion in applying such a policy, one could imagine that the punitive elements might only be applied to more complicit whistleblowers or perhaps corrupt incidents where immediacy of evidence is of great import. That being said, though another “stick” in the arsenal might be useful in combatting the aforementioned specific instances of corruption, I’m hesitant to hand another penalizing tool carte blanche,

    • Thank you very much, Jaylia! I completely agree that prosecutorial discretion may indeed curb some of the potential adverse effects of a mandatory reporting requirement. However, the important question is how this requirement would influence the behavior of potential whistleblowers. In other words, even if potential whistleblowers (who did not report on corruption right away) are aware that there are some cases where delayed reporting would not be disciplinarily prosecuted – would they take the risk of stepping forward late, knowing that there is some chance that they themselves would be disciplinarily prosecuted?

  4. Guy, thank you for this great post! I couldn’t agree more that positive incentives may be the best way to increase reporting on corruption. Another supplement to your article may come from organizational behavior and psychology theory, and in particular the work of Tali Sharot. Her book, The Influential Mind, demonstrates that if you want your employees to do something—either as complex as whistleblowing or as simple as washing their hands—positive incentives and rewards induce compliance far more than negative ones. The threat of punishment most often only induces paralysis, and even rejection of the behavior managers are seeking to encourage. In the context of whistleblowing, which as you mention is so high-stakes, I wonder if that sort of paralysis would be even greater.

    • Thank you for this great recommendation, Brooke. I’ll be sure to check this very relevant book out, which happened to be authored by a scholar who is a graduate of my alma mater. 🙂

  5. What an interesting post, Guy! I think that you offer a very thoughtful perspective here on the unanticipated consequences of introducing negative incentives to whistleblower schemes. I agree with your perspective that introducing penalties for failure to report could lead to a culture of fear or underreporting – making people afraid of the consequences of failing to act seems like it would inhibit their willingness to continue to engage with the reporting system. I wonder if establishing a positive reporting culture could further improve whistleblowing, alongside your suggestion about improving incentives. Establishing clear reporting channels and positive norms around whistleblowing seems like it could help ensure robust reporting, essentially norming the desired behavior.

    • Thank you very much for your comment, Mayze. I generally agree with your approach. While there are clear processes for reporting on corruption in Israel’s public sector, it would be very interesting to check how many public employees are actually aware of them and know what they have to do if they want to report on corruption. The authors of the IDI paper raise some interesting recommendations for improving the relevant mechanisms within the public sector.

  6. Now that the IDI’s policy paper is about two years old, have you found that the proposal has had a real impact on the conversation surrounding anticorruption in Israel? Is this a reform that the government is seriously considering? I completely agree with your critiques and wonder if politicians have expressed similar concerns.

    • Thank you, Jennifer. As far as I know, despite having been published by a respectable research institute, the proposal hasn’t received much attention yet, nor has it encouraged elaborate discussion. Given the COVID-19 pandemic and the political instability in Israel (where there were four national legislative elections in just two years), this lack of attention to this specific proposal is quite understandable.

  7. Guy, fantastic post! I absolutely agree that negative incentives are likely to fail in motivating whistleblowers. But I am curious about what additional positive incentives you might recommend? For instance, is there a way to strengthen anonymity for whistleblowers to the point where a whistleblower is not identifiable and would feel comfortable exposing corruption?

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