The EC New Alert Mechanism to Detect Cartels: A Teaser Before a European General Framework for Whistleblowing

by Kramer Levin Naftalis & Frankel LLP
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Whistleblowing has been part of the U.S. legal tradition, if not since the resolution passed by the Continental Congress in 1778, at least since the adoption of the 1863 False Claims Act. With regard to the disclosure of antitrust violations, the well-known 2013 Criminal Antitrust Anti-Retaliation Act reinforced whistleblower protections for employees who report information to federal prosecutors. 

Whistleblowing is a much more recent development in the European Union (EU), but an increasing number of member states are adopting relevant laws, and the practice has begun to be addressed by the EU legislature.
 
Trade secrets and immunity of whistleblowers
 
The first-ever EU legislation to mention whistleblowers with a view toward protecting them against retaliatory measures is the EU Trade Secrets Directive of June 8, 2016, which ensures the protection of undisclosed know-how and business information against their unlawful acquisition, use and disclosure. Against the current context of cyberattack threats, this Directive was approved by a rather large majority of 503 of the 766 members of the EU Parliament, and was subsequently unanimously approved by the Council.
 
In the aftermath of Snowden’s recent revelations, the notorious Luxleaks scandal and the publication of the Panama Papers, it comes as no surprise that the issue of whistleblowing was a major point of controversy during the parliamentary debate. This debate resulted in the adoption of Article 5 b of the Directive, which obliges member states to ensure that trade secrets’ protective measures are dismissed where the alleged acquisition, use or disclosure of a trade secret was carried out by a whistleblower “for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest.”
 
This provision, being part of a directive (versus a regulation directly applicable in all member states), requires national implementation and provides member states the discretion to define the legal framework applicable to whistleblowing.
 
The recent French anti-corruption law and whistleblowing
 
The legal framework for addressing whistleblowing in France is set forth under the December 2016 Act on Transparency, and Fight against Corruption (SAPIN II Act), and the Decree implementing this law published on April 20, 2017. This legislation greatly enlarges the scope of whistleblowing which may relate to all kind of misdemeanors, including anti-competitive practices. It also sets up a general status for whistleblowers. According to this new harmonized status, a whistleblower is exempt from the application of sanctions or from retaliation measures for having duly disclosed confidential information on the functioning of his/her company or on the conduct of employees or managers. In case of a dispute between a whistleblower and his/her company on the application of the new regime of whistleblowing, it is up to the company to prove that the sanction inflicted or any other measure taken against the employee concerned is justified based on concrete elements.
 
However, the following criteria must be met to allow the whistleblower to benefit from this protective status:

  • The whistleblower can only report on facts that he or she knows personally, without any intermediary.    
     
  • The whistleblower must be “disinterested.” This implies on the one hand that he or she must not act in pursuit of financial incentives, and on the other hand that he or she cannot have a regular activity of disclosure of misconduct or alert.
     
  • The whistleblower must act in a “bona fide manner.”

With regard to the procedure of whistleblowing, the SAPIN II Act integrates into French law the European Court of Human Rights (ECHR) case law’s established principles. In line with the 2008 case Guja v. Moldova, whistleblowers must respect a three-step scale: the SAPIN II Act states that (i) the alert reporting “shall be brought to the attention of the direct or indirect supervisor, or to the employer or to a contact designated by him”; (ii) in the event of inertia by the employer, the whistleblower may petition the authorities, e.g., administrative authorities (labor inspectors, for instance), courts or even professional bodies; and (iii) as a last resort, in the event the authorities abstain from processing the case beyond a period of three months, the whistleblower may make his or her report public.
 
EU new antitrust hotline and the necessity to reinforce companies’ compliance programs
 
The fundamental principles derived from the ECHR’s case law are usually applied in the different EU member states where whistleblowing is becoming a common practice in the public and private sectors. In response, the EU Commission (EC) is currently contemplating the drafting of a directive to harmonize whistleblowing national legal frameworks.
 
In parallel, in her field of competence, Mrs. Margrethe Vestager, the competition EU commissioner, decided to launch, on March 16, 2017, the first-ever EU whistleblowing mechanism as a tool to alert about cartels and other antitrust violations (http://europa.eu/rapid/press-release_IP-17-591_en.htm).

The specificity of this mechanism is that it is totally anonymous. To protect anonymity, the system is encrypted and managed by an external service provider.
 
Anonymous mechanisms dedicated to antitrust alerts have been established in a few member states, such as Germany since 2012, Denmark and Romania. But other countries are quite reluctant to accept such anonymity.
 
This is the case in the U.K. In principle, anonymous whistleblowers who report antitrust violations to the Competition and Markets Authority are not accepted. However, whistleblowers are assured that their identity is not disclosed to third parties. In France, there is no alert system specifically dedicated to the disclosure of antitrust violations, but the SAPIN II whistleblowing system based on the recommendations of the National Data Protection Authority requires whistleblowers to reveal their identity, which, as in the U.K., may not be revealed to anyone else; the  law “ensures the strict confidentiality of the authors of the alert” but also of “the persons targeted by it and the information gathered by all the recipients of the alert.” This provision is based on the idea that identification of whistleblowers is a necessary safeguard against malicious accusations. In addition, one may wonder whether a judge could legally authorize visits and seizures in the course of an investigation solely based on anonymous denunciations. In this event, such an order would certainly be challengeable.

Apart from the fact that EU member states have different views concerning anonymity versus identification of whistleblowers, the new EC alert tool created to facilitate the collection of evidence of antitrust practices raises serious concerns.
 
Indeed, this system risks jeopardizing leniency programs. Once the EC is alerted about a cartel by a whistleblower, how will it be possible for companies which provide proofs of the practices to the EC to benefit from immunity? The EC should urgently clarify the issue to ensure legal certainty.
 
In any case, to avoid suffering detrimental consequences of such a mechanism, which would make it very easy for competitors or former employees, for instance, to report real or alleged antitrust violations, companies must consider as a priority putting in place efficient internal compliance programs, including hotlines.

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