Maggio 14, 2019

Towards new EU whistle-blowing rules

Any employee of a European company, large or small, who is privy to illegal or grotesquely immoral or manipulative behavior that circumvents the intent of the EU law and wants to blow the whistle is either an ill-advised hero or a fool. Or perhaps both. That is because the extent of whistle-blower legal protection throughout the 28 EU countries is lopsided  or, in the case of 18 EU countries, non-existent.

The infamous Luxleaks case where PricewaterhouseCoopers employees leaked details of sweetheart tax rulings for multinational companies that outgoing European Commission President Jean-Claude Juncker negotiated in his former role as prime minister and finance minister of Luxembourg is a case in point. Although both were eventually acquitted after initially being charged and convicted by a Luxembourg court, it was a three-year legal nightmare that ruined careers and drained their finances.      

Another high profile example of the perils of blowing the whistle on illegal behavior is that of Howard Wilkinson who raised the red flag on $200 billion of Russian money laundering via Danske Bank’s Estonian branch. The U.K. national alerted management and Danish financial regulators as early as 2013 about the suspicious activity but it was not until the middle of 2018 the financial institution and the authorities took up the case. 

Although Wilkinson has not face legal woes his position in the company certainly has not been enhanced.

However a change to the lack of legal protection for whistle-blowers is on the way.  In the last session of the current five-year term of the European Parliament the EU took a big step towards establishing an effective legal whistle-blower framework for all member states when lawmakers gave their assent to a proposal first put forward in 2018. The new law requires all companies with 50 employees or more than 10 million euros in turnover to set up a three-tiered internal reporting regime for whistle-blowing of any EU law violation or “reasonable suspicion” of an impropriety.

Just as important – if not more so – the legislation, which needs to be rubber stamped by the EU Council of Ministers in the coming months, also allows employees to circumvent the internal company reporting regime and go straight to the media or legal authorities. Bypassing the internal company reporting regime, which was not in the original European Commission proposal, was a legal right  successfully lobbied for by advocacy group Transparency International (TI). Its arguments were taken up by the European Parliament, especially those on the center-left side of the political spectrum, in negotiations with EU member states.

Despite TI hailing the agreement as establishing a legal foundation that will give whistle blowers confidence they will not be walk the career plank by reporting illegal or suspect activities, the new law does have small and large companies worried. Especially when it comes to tax adviser firms that do not have the same professional legal professional confidentiality privilege that lawyers have with their clients. 

Further compounding the concerns of the tax advisers as well as other company officials is the legal gray area involving the scope of the directive. It states that  whistle-blowers reporting  “reasonably suspicious behavior” or “potential breaches” are entitled to legal protection.  

But what happens to if an employee goes straight to the media with “reasonably suspicious behaviour” or “potential breaches” of the law but the allegations  prove unfounded? 

Answers to that question will likely come from the European Court of Justice, according to EU diplomats who have worked on the legislation.

“How do you define what is suspicious behaviour” one EU diplomat said. “This is a legal gray area that will inevitably trigger legal challenges in national courts which will then referring these questions to the  EU high court”.