Bob Connolly     [email protected]

In late 2019 the European Union issued a Directive requiring comprehensive and coherent protection of whistleblowers.  The twenty-seven Member States have until December 2021 to incorporate the Directive into their national legislation.  The member states are required to provide protection from retaliation for whistleblowers but not a system of monetary reward.  Conversely, in the United States, Senator Amy Klobuchar recently proposed sweeping antirust reform legislation including a proposal to “establish a bounty system to reward criminal whistleblowers for providing evidence in antitrust cases resulting in the collection of a criminal fines.” Cartel Capers, February 4, 2021, Senator Klobuchar Unveils Wide-Ranging Antitrust Reform Legislation.  The lack of whistleblower rewards, at least for cartel whistleblowers, is a missed opportunity to reenergize cartel detection and further deter their formation in the first place.

Background

The DIRECTIVE (EU) 2019/1937 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 October 2019 on the protection of persons who report breaches of Union law covers potential whistleblowers across many sectors and potential infractions including whistleblowers who report breaches of competition law:

• Preamble Paragraph 17:

“Specifically, the protection of whistleblowers to enhance the enforcement of Union competition law, including concerning State aid, would serve to safeguard the efficient functioning of markets in the Union, allow a level playing field for business and deliver benefits to consumers. As regards competition rules applying to undertakings, the importance of insider reporting in detecting competition law infringements has already been recognized in the leniency policy pursued by the Commission under Article 4a of Commission Regulation (EC) No 773/2004 (27) as well as with the recent introduction of an anonymous whistleblower tool by the Commission. Breaches relating to competition law and State aid rules concern Articles 101, 102, 106, 107 and 108 TFEU and rules of secondary law adopted for their application.”

The nature of the protection for whistleblowers is set forth in the Directive:

• Protection Measures, Article 19–Prohibition of Retaliation

Provides Member States “shall take the necessary measures to prohibit any form of retaliation against persons referred to in Article 4, including threats of retaliation and attempts of retaliation including in particular in the form of: (a) suspension, lay-off, dismissal or equivalent measures; (b) demotion or withholding of promotion; (c) transfer of duties, change of location of place of work, reduction in wages, change in working hours; [and a lengthy list of other forms of retaliation.]

The EU Directive does not discuss why the provision of a potential monetary award for whistleblowers is not part of the Directive.  An article in the Wall Street Journal, March 15, 2021, by Mengqi Sun, With Its Whistleblowing Directive, EU Charts a Different Course From U.S. offers possible explanations behind the decision not to make potential whistleblower rewards part of the required EU scheme for whistleblower protection:

“European authorities are seeking to set up a minimum standard for whistleblower rules across EU member states, but they don’t favor paying for tips—a key part of an SEC program widely seen as a success.”  The article discusses two reasons why the EU may not favor providing the potential for whistleblower rewards:

• Financial rewards are unnecessary “because the main factors that drive people to blow the whistle are moral considerations, such as concerns over fairness or others’ well-being, rather than pragmatic or personal ones, such as job satisfaction or career benefits.”
• “Julia Arbery, a partner at global advisory company StoneTurn in Germany, said the EU might be concerned that paying for tips would clash with another part of its agenda: improving organizations’ internal compliance. “The idea behind the EU directive is to encourage individuals to report internally from organizations, and only should they feel like the internal reporting is not helpful, should they go outside,” Ms. Arbery said.”

My Thoughts

             I think the EU Directive is severely weakened by not proving for a potential whistleblower reward for cartel exposure (though individual members may provide for a monetary award and some already do). The EU recognizes the enormous risks whistleblowers take:

“Whistleblowers shouldn’t be treated unfairly or lose their job because of their actions, but as a general rule, whistleblowers who report wrongdoing do so at considerable personal risk and pay a high personal and professional price.

There are huge asymmetries between whistleblowers and corporations or national authorities. Corporations will use all the tools at their disposal to hit back against whistleblowing, from invoking trade secret law, to inquiries into individual motives for public interest whistleblowers. The cost of legal proceedings alone reveals the huge imbalance of power.” (here).”

It is unfortunate to recognize the tremendous risk and expense and whistleblower takes and yet not provide an avenue for potential compensation.  Simply putting a whistleblower back to the position, they had before they blew whistle–if they can prove retaliation–would seem to provide little incentive for coming forward.  This is currently the situation in the United States with the recent passage on the Criminal Antitrust Anti-Retaliation Act.  see “On Dec. 23, 2020, the Criminal Antitrust Anti-Retaliation Act (the “Act”), finally became law Cartel Capers, February 1, 2021.  Providing a whistleblower reward is a needed incentive so that if retaliation is successful, yet not readily provable, the whistleblower can have financial resources to deal with the fall out.  Moreover, the award of a whistleblower payment by the EU or United States gives credibility to the whistleblower to show they expressed valid concerns and they are not just a troublemaker, crackpot, or disgruntled employee.

Another reason that just being a good citizen likely would not be enough to encourage a potential whistleblower is the expense involved.  Anyone exposing a cartel is likely to be interviewed many times, and perhaps by many authorities in different locations.  It would likely be a big mistake to engage with the authorities without counsel.  The cooperation could span many years and jurisdictions.  The whistleblower will have attorney fees–likely very significant fees.  It is asking a bit much for a good citizen to come forward and also take on the financial burden.

The second possible objection mentioned in the WSJ article to whistleblower rewards is a concern that this might undermine corporate compliance programs.  My view is the opposite. A robust whistleblower program with a potential bounty would be a strong incentive to increase internal compliance measures.  The increased threat that a cartel could be exposed by whistleblower should lead companies efforts to insure there is no cartel on which to blow the whistle, or if there is, it is uncovered by the compliance program. At least with respect to cartels, public policy should favor the whistleblower to come to the authorities first because there may be opportunities for covert investigation such as consensual monitoring, wiretaps, and/or search warrants/dawn raids. The Antitrust Division now recognizes serious compliance program in its charging decisions.  If the target company had a vigorous compliance program despite the breach, the Antitrust Division may even, should they choose to, offer the whistleblower’s company Corporate Leniency to break an investigation wide open.

Note:   The UK’s Financial Conduct Authority is also encouraging whistleblowers to come forward, but also without the potential for a monetary reward.  See, Wall Street Journal, Mengqi Sun, March 26, 2021, U.K. Financial Regulator Pushes for More Whistleblowing.  However, the UK’s Competition and Markets Authority “offers financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.”