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New Commission proposal for more whistleblower protection: more of the same for competition law?

In a press release of 23 April 2018, the EU Commission announced the proposal of a new Directive that is set to introduce new, EU-wide rules for the better protection of whistleblowers. The press release underlines the importance of whistleblowers in uncovering breaches of EU law, as demonstrated by recent scandals, such as Dieselgate, Panama Papers, or Cambridge Analytica. Without enhancing the protection of whistleblowers, harm to the public interest may not be detected and prevented, or only less so.           
From a competition law point of view, neither the mechanism of whistleblowing, nor the need to make this mechanism attractive to its addressees is news. The leniency policy of offering a reduction or even waiver of fines to cartel members who self-report the cartel before its detection by the authority has been properly introduced as far back as 1996 in the ‘Commission Notice on the non-imposition or reduction of fines in cartel cases’ and has only been strengthened after that (see e.g. the 2002 Notice and 2006 Notice). Ultimately, both the leniency mechanism and the proposed Directive share the same goal: to facilitate the detection of certain breaches of EU law. Nevertheless, the press release explicitly adds EU competition law as one of the areas covered by the proposal.

The question therefore arises, what the new proposal has to offer EU competition law and whether it has the potential to positively influence the competition leniency programme.

What does the proposed Directive cover?

 There are already mechanisms in place for the protection of whistleblowers in some EU Member States. According to the Commission’s proposal, however, the protection is only partial and only applies in certain sectors. Due to spill-over effects a lack of whistleblower protection in one Member State can have on other ones, the EU Commission considers action at EU level necessary. The Directive is envisaged to achieve a more comprehensive protection of whistleblowers and will strengthen enforcement in favour of general public interests.

In order to do so, the Directive seeks to set common standards of protection throughout the EU and prescribes mechanisms and obligations for employers for internal procedures to address any reports by whistleblowers, as well as obligations regarding time limits within which authorities and undertakings alike have to address these reports.

The proposal divides the Directive in 5 Chapters, of which chapters II – IV are substantially most relevant. Chapter II (Articles 4 and 5) ultimately aims at legal entities setting up internal reporting channels and establishes the obligation to follow-up on reports. Chapter III (Articles 6 – 12) deals with authorities’ external reporting channels and follow-up procedures and Chapter IV (Articles 13 – 18) sets out minimum standards for protection of whistleblowers and of persons concerned by the reports.

Based on the difference in quantity of provisions between the different Chapters, one can already see that the Commission sees the Directive’s centre of gravity rather in the latter area of external reporting channels; this is also reflected in the proposal’s objectives and the Commission’s press release. They focus strongly on the recent scandals mentioned above, in which the whistleblowers came forward to the press and/ or authorities, i.e. external reporting channels. One must mention, however, that Chapter IV requires the use of internal channels first, to prevent harmful false reports. Only if the internal channels do not work or are not to be expected to work (which would arguably be the case in scandals like Dieselgate), are external channels to the authorities or the media to be used.

What does it offer EU competition law?

But what has the proposed Directive to offer to enhance or support the competition leniency mechanism? The Directive is strongly aimed at individuals coming forward. Leniency applications, however, are made by an undertaking as a whole. At first glance, the establishment of internal reporting channels does, therefore, seem less relevant in a competition law context. The proposal somewhat reflects this, by directly pointing rather towards the benefits of external reporting channels to the authorities. In Recital 15, which deals with competition, the Commission points out that

‘[t]he  introduction  of  whistleblower  protection  at  Member  State  level would increase  the  ability  of  the  European  Commission  as  well  as  the  competent authorities in the Member States to detect and bring to an end infringements of Union competition  law.’

While this may not be wrong, it is put forward here that, at closer investigation, establishing internal reporting channels for whistleblowers is precisely the area in which the Commission’s proposed Directive can offer an added value to the leniency mechanism.

First things first: particularly in large undertakings, it is entirely conceivable that individual employees engage in cartel activity (e.g. regarding their specific product area) without the upper management being aware of this. While one could theoretically imagine that an individual employee within an undertaking comes forward to the authorities and reports a breach of competition law, it seems highly unlikely that this will happen in practice. In line with the proposed Directive, internal channels would in any case have to be used first and would need to prove insufficient to address the breach. Given the economic attractiveness of a successful leniency application, it seems unlikely that the management of an undertaking, once aware of a breach of competition law, would not act on this report.     
Perhaps more importantly, it seems unlikely that the mere protection from retaliation is sufficient as incentive for an individual to address the authorities or media, especially since, given internal compliance programmes and training, employees should be aware of the leniency mechanism and the interest their employer must have in pursuing this route. It us also unlikely that whistleblowing on a breach of competition law promises the same public recognition as the whistleblowers in the examples mentioned by the Commission experienced, further lowering any incentive an individual employee may have to use external reporting channels.

With regard to setting up internal reporting channels, as has been pointed out, the Directive is also set to cover whistleblowers within an organisation and envisages obligations to demonstrate adequate follow-up on whistleblowers’ reports on part of the organisations, however.        
This could, combined with adequate compliance training, turn the employees of an undertaking into compliance monitors of each other. Should the participation in a cartel have been decided on a relatively high corporate level, this may make things rather uncomfortable for the management level. However, in very large undertakings where it may be difficult to keep an eye on all goings-on at all levels, explicitly extending the whistleblower mechanism and, of course, especially the protection, to inside of an undertaking may prove a very valuable and important step to enhance internal detection of cartels within a big corporate group.        
This would then, ultimately, go hand-in-hand with the already existing leniency mechanisms of EU competition law and may contribute to yet more leniency applications being made.

Based on these considerations, there are two main points to consider for undertakings in addition to implementing the safeguards and obligations ultimately based on the Directive:

  • There may little still be too little incentive for staff of an undertaking to internally report a breach of EU competition law. Adequate protection from retaliation may not be enough to encourage an individual to report a possible breach. It might be advisable for an undertaking to install an internal incentive for employees, involving some kind of gratification, for detecting and reporting a breach of EU competition law internally.
  • More importantly, it is yet another reason for undertakings to invest in compliance systems, and broad and frequent training of their employees on EU competition law and compliance.
    This is also a good argument for the authorities to encourage the use of (and investment in) strong compliance systems without giving in to the calls for a full ‘compliance defence’, as is sometimes demanded by undertakings and law firms (see e.g. here)

So, is the proposal a great step forward for competition leniency applications?

One thing must be underlined: while the functioning of the internal market and competition in relation to it is mentioned throughout the proposal, it is not the area in which the proposed Directive would have most influence, nor does it seem intended to be.      
To answer the question of overall contribution to the leniency mechanism, we must, again, recall what the competition leniency mechanism seeks to achieve, i.e. for the authorities to gain sufficient knowledge of a cartel to have it terminate and to enforce sanctions against its members.

The proposed Directive may indeed further help to achieve this aim, as has been pointed out above.

However, the competition leniency programme, unlike the whistleblower mechanism, only works because of the strong incentive the gratification of reduced fines offers. It is doubtful whether the Directive will strengthen the underlying encouragement for using this mechanism and lead to a further incentive for the undertakings to report the cartel. It is the undertakings themselves who apply for leniency. They would not need the protection the new Directive revolves around. There may be retaliation from the other cartel members. However, this relation is necessarily of economic nature and could be addressed through other mechanisms. This is not the kind of retribution the Directive seeks to provide protection from. Further, the current incentive – the waiver or reduction of deliberately high turnover percentages of fines – has served the purpose of the leniency mechanism well in the past. There is no pressing need for further incentive to use the EU competition law leniency mechanism.

Nevertheless, the new proposal may ultimately lead to more cartels being detected internally, provide an even stronger motivation for undertakings to introducing compliance programmes and training, and may therefore, subsequently, lead to more leniency applications being made and breaches of EU competition law detected and penalized.

 

About the Author

Anja Naumann

Anja Nauman

Anja finished her LL.M. in International Business Law at Queen Mary University with Distinction in Sept 2015. After working at the Competition Law department of an international law firm in Düsseldorf she re-joined Queen Mary University in September 2016 to undertake a PhD in EU Competition Law and public health regulation.


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