Corporate fraud is so bad, this Mumbai startup plans to make money protecting whistleblowers

Supporters of whistleblowers march in Santa Monica’s seventh annual Fourth of July parade in Santa Monica, California, July 4, 2013. REUTERS/Jonathan Alcorn (UNITED STATES –…
Supporters of whistleblowers march in Santa Monica’s seventh annual Fourth of July parade in Santa Monica, California, July 4, 2013. REUTERS/Jonathan Alcorn (UNITED STATES –…
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Corporate scams from Satyam to NSEL to Lilliput have given investors and other stakeholders sleepless nights in recent years. There are others, though, who see a business opportunity in the widespread problem.

Almost three-quarters of senior executives recently surveyed in India consider fraud, bribery and corruption a significant concern. An astounding 69% of India’s companies were affected by fraud, which cost them an average 1.4% of their annual revenues, according to the recent Global Fraud Report from the Economist Intelligence Unit and Kroll, a US risk consultancy.

A few recent cases of corporate fraud have highlighted the prominent role courageous whistleblowers can play. For instance, Dinesh Thakur, a former Ranbaxy executive, submitted evidence to the US government on the company’s use of fraudulent data to get approval to sell generic drugs, key evidence that led the company to pay a $500 million fine. Jay Palmer, a consultant with Infosys, blew the whistle on the company’s illegal scheme to use temporary visas to bring Indian staff to the US to work on long term contracts, resulting in US federal investigations and a $34 million fine.

But such instances are rare, as it is dangerous for these individuals to come forward in India. There have been innumerable instances of whistleblowers being killed or threatened or sidelined in their company.

Integrity Matters, a Mumbai start-up, has created software it thinks may help. Available for the introductory price of 150 rupees ($2.50) for every employee in a company per year, the software is a homegrown version of international whistleblower programs like GlobalLeaks. But its creators say it differs in one crucial detail—whistleblowers lodge complaints to a website and server maintained by Integrity Matters, not one controlled by the company they are complaining about.

Co-creator Yatish Mamniya is a graduate of Carnegie Mellon University who studied information security policy and management and worked for over a decade in the area of cyber security. His partner (and brother) Nirav Mamniya is a chartered accountant and graduate from the Indian School of Business. Whistleblowers can report wrongdoing online, through their website, completely anonymously. Managers in participating companies will be alerted to the complaint, then be able to see an audit trail to see what action was taken.

Anyone, from suppliers to clients to employees can lodge complaints about a company that signs up. Integrity Matters suggests they don’t use their work computer, head to an internet cafe and rely on a browser like Tor, which masks your online identity. Complaintants will get an access code and updates about how the complaint is being handled if they check back in on Integrity Matters’ website.

About 60% of corporate frauds are detected via anonymous tip-offs from people with knowledge of wrongdoing, Yatish told Quartz, but many more are not reported for “fear of detection and retaliation.”  For example, “suppliers fear loss of business if they report” bribe demands from the procurement team of a client.

Two different government policies could bring Integrity Matters both business and scrutiny in years to come. The new companies bill passed in 2013 and the capital markets regulator Sebi have made it mandatory for listed companies to have a whistleblower policy in place and companies in India are scrambling to add them. Integrity Matters has signed up two major clients so far, each with over 1,000 employees.

On the other hand, an act pending in Parliament which makes it mandatory to reveal the identity of whistleblowers who provide tips about fraud in public sector companies and government programs, which could create problems for Integrity Matters and other whistleblower programs. Yatish said Integrity Matters so far is only dealing with private companies, which are not covered by the act.

How much Integrity Matters helps to improve the corporate governance remains to be seen. Bigger competitors have introduced similar anonymous reporting programs, like a phone hotline-based one from KPMG.

Ultimately, the biggest hurdle to registering whistleblower complains may not be employees ability to report, but the company managers’ response. After all, reporting a problem will do little good if the most powerful people in the company are involved.