In April 2019, the European Parliament passed a landmark Whistleblowing Directive instructing European Union (EU) countries to enact greater protections by shielding whistleblowers from retaliation and creating “safe channels” to report violations of the law. This Directive is the first effort to create a common minimum whistleblower standard across the EU.
Before the passage of this Directive, whistleblower laws were handled by the 27 individual member states, 13 of which currently do not have any law in place. For those that do have existing whistleblower laws, they are generally weak and missing key components for whistleblower protections. The Netherlands, for example, passed the Whistleblowers Authority Act in 2016 which created a House for Whistleblowers where public and private sector employees could report wrongdoing. This law, however, is not comprehensive as it lacks (1) penalties for employers who retaliate against whistleblowers, (2) provisions to reinstate a whistleblower, and (3) compensation for financial loss due to whistleblowing.
The need for stronger whistleblower laws was highlighted by a series of scandals such as the Panama Papers, Cambridge Analytica, and Danske Bank, in all of which whistleblowers played a key role in bringing wrongdoing to a light. Additionally, in 2017, the European Commission released a report estimating the EU lost between EUR 5.8 billion to 9.6 billion (US $6.4 to $10.7 billion dollars) in public procurement alone due to the lack of whistleblower protections across the EU.
Now, all EU states are required to transpose the Whistleblowing Directive into their national law by December 17, 2021. For countries such as Austria, Spain, Denmark, and Greece, this means enacting the first whistleblower laws within their countries. For those who have existing laws such as the Netherlands, France, and Hungary, they will need to strengthen their laws in order for them to meet the standard of the Whistleblowing Directive.
The National Whistleblower Center (NWC) has been closely involved in advocating for the existence and implementation of the Whistleblowing Directive. The initial drafts proposed in 2018 would have led to completely ineffective protections, requiring whistleblowers to report internally and thus forcing the sharing of incriminating information with those perpetrating crimes.
In two letters addressed to the Presidents of the European Parliament and the European Commission, NWC explained the grave risks that come with internal reporting requirements. NWC argued that type of language “undermines the rule of law, violates international anti-corruption conventions, [and] violates U.S. securities laws applicable to numerous European companies.” Additionally, in November 2018, Stephen M. Kohn, then Executive Director and now Chairman of the Board, testified before the European Parliament. Among other things, Kohn’s testimony exposed efforts to create a loophole for those committing tax law violations. NWC also joined a coalition of 80 international organizations calling for the European Council and the Member States to remove the mandatory internal reporting regime.
Fortunately, the final directive contains no tax loophole and ensures that whistleblowers are permitted to report wrongdoing to outside authorities. However, there is still ambiguity in the requirements that could potentially leave whistleblowers unprotected. To ensure each EU country’s whistleblower law is robust and effective, in September 2020, NWC, partnered with Whistleblowing International, the European Center for Whistleblower Rights, and the international whistleblower law firm Kohn, Kohn & Colapinto, LLP, wrote to each member country providing guidance and recommendations which include:
- Expanding whistleblower protections to cover disclosures permitted under international anticorruption conventions signed by Member States;
- Adopting language and procedures that have proven effective in protecting whistleblowers when implementing Articles 6-7, 11, 14-16, 19-21, and 23-24;
- Narrowly interpreting Article 22 in order to ensure that whistleblowers are not chilled from making disclosures and their confidentiality is maintained;
- Enacting whistleblower reward laws to combat specific legal violations, including foreign bribery, money laundering, tax evasion, government procurement fraud, and ocean pollution.
The Importance of Reward Laws
Whistleblower reward laws are highly effective and have a proven track record of success across countries. Since the introduction of the False Claims Act in the United States in 1986, whistleblower cases have brought in over $42.5 billion to the U.S. Treasury. Of that amount, whistleblowers received $6.4 billion in rewards. In South Korea, the National Tax Service maintains two reward programs which allow individuals with significant information on tax law violations to report. Since 2012, the number of cases has increased each year and whistleblowers have been awarded $44 million dollars.
As part of the European Union’s Whistleblower Directive, NWC strongly recommends each Member State include whistleblower reward provisions within their laws. Member States should also ensure that their citizens can fully participate in whistleblower reward laws enforced by other nations, such as the United States, Canada, and South Korea.
The reason that whistleblower reward laws are so successful is because they minimize the downsides of whistleblowing like potential retaliation and loss of income, while at the same time maximizing the utility of whistleblower disclosures to law enforcement agencies. Benefits of rewards laws include:
- They incentivize confidential reporting of crimes directly to the relevant law enforcement agencies that are capable of utilizing the evidence to initiate a successful investigation and prosecution.
- They promote the filing of high-quality information as a whistleblower’s compensation is predicated on the quality of information provided. An award is only paid if the whistleblower’s original information results in a successful enforcement action.
- Taxpayers do not pay for any whistleblower rewards. These rewards are a percentage of the monies actually obtained by the government from the wrongdoer. Without the original information provided by the whistleblower, the government would not have had the evidence necessary to trigger an investigation and the successful prosecution.
- Because rewards are only predicated on successful enforcement actions, there is little or no incentive to turn in frivolous allegations.
However, during Europe’s first trial with whistleblower reward laws in 2019, four people who applied for a monetary reward under Lithuania’s new whistleblower law did not receive payment. Their requests were denied even though they had been granted whistleblower status and made valid reports that assisted authorities in an investigation. These rejections could disincentivize Lithuanians from coming forward with future information and emphasize the importance of including mandatory rewards under law.
With the implementation of the EU Directive only one year away, now is the time for European law makers to make amends and change course. That’s why the National Whistleblower Center is working to educate and convince lawmakers to go beyond the current Directive and include whistleblower reward provisions in their national laws. By incentivizing whistleblowers with mandatory rewards, it will encourage more people to report misconduct and create more success in fighting corruption.
Educating Potential Whistleblowers in the European Union
As one of the largest consumer markets in the world, as well as the base of operations for many companies, the potential for fraud in the European Union is high. That’s why, in addition to its policy work, NWC has partnered with EU-based nonprofit Whistleblowing International, to launch the European Whistleblower Protection and Reward Project. This project aims to educate company insiders and others in the EU about how they can confidentially disclose information about illegal activities to authorities and qualify for financial awards under U.S. and other laws.
One current educational campaign is centered around improving prosecutions for violators of the International Convention for the Prevention of Pollution from Ships, otherwise known as MARPOL. MARPOL is the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental causes. With a few exceptions, MARPOL enforcement in Europe is massively underachieving in terms of the number of investigations and prosecutions of illegal ship discharges, the level of criminal civil penalties for violators, and reporting of pollution data. Enormous volumes of ship waste are unaccounted for, suggesting it is being dumped overboard while at sea – but with the ships often deep in international waters, this is hard to prove. Whistleblowers on these ships are in the best position to expose crimes.
Education surrounding accounting and money laundering fraud are another focal point for NWC in Europe. In 2013, Howard Wilkinson, a former employee of Danske Bank, confidentially raised concerns over an illegal money laundering scheme with billions of dollars reportedly flowing from Russia and other former Soviet states, through Estonia and to major banks such as Deutsche Bank and JP Morgan. This case has been under international investigation and continues to this day. Mr. Wilkinson is represented by NWC founder and Chairman of the Board, Stephen Kohn.
In 2012, Bradley Birkenfeld, another whistleblower represented by NWC founder Stephen Kohn, made history when he obtained the largest whistleblower reward ever given to an individual whistleblower for reporting tax fraud to the U.S. Internal Revenue Service (IRS). Mr. Birkenfeld was the first international banker to blow the whistle on illegal offshore accounts held in Switzerland by U.S. citizens. His disclosures resulted in recoveries of $780 million dollars in civil fines and penalties and over $5 billion dollars in collections from U.S. taxpayers who held illegal accounts. The Swiss government was forced to change its tax treaty with the United States in order to turn over names of more than 4900 American taxpayers who held these accounts.
By educating members of the European Union about their rights under whistleblowing laws, those with information regarding financial fraud may be more inclined to step forward and disclose this information to authorities. However, European whistleblowers do not need to wait until the Whistleblowing Directive takes effect on December 17, 2021 to be covered under law. Currently, thousands of non-U.S. citizens are taking advantages of U.S. whistleblower laws such as the Dodd-Frank Act, Foreign Corrupt Practices Act, and False Claims Act to make disclosures regarding violations of tax fraud, ocean pollution, securities violations, accounting fraud, and more. You can learn more about guidance for whistleblowers outside the U.S. here.