Sanctions whistleblowing plays a pivotal role in ensuring companies adhere to international regulations, allowing employees to safely report violations without fear of retaliation.
People who work for an organization are often the first to know about sanctions violations. They are, therefore, in a privileged position to inform those who can address the problem. That is the reason why many countries or institutions have introduced comprehensive regulations to support and protect whistleblowers in companies.
EU, UK, US, and China Sanctions Whistleblowing
EU Sanctions Whistleblower Tool
The EU Sanctions Whistleblower Tool is a secure online platform, which whistleblowers from all around the world can use anytime to anonymously report past, current, or planned EU sanctions violations. The information reported can relate to sanctions violations, their circumstances, or the individuals, companies, and third countries involved, which are not publicly known but are known to the whistleblower.
As guardian of the EU treaties, the European Commission is in charge of monitoring the implementation and enforcement of EU sanctions across the EU. However, formal investigations into possible sanctions violations are performed in the competent EU Member State(s) by national competent authorities such as financial authorities, customs agencies and public prosecutors. Therefore, when a report is filed using the EU Sanctions
Whistleblower Tool, the assigned case officer at the European Commission – which manages the EU Sanctions Whistleblower Tool – will first of all examine the report and conduct a preliminary inquiry into the reported sanctions violation.
During this process, the European Commission is fully committed to protecting the identity. Therefore, when filing the report, the whistleblower can choose to remain anonymous or to provide his contact details. Other than that, he is especially encouraged to not share any further personal information.
Even if he should provide such identifying information in the report by accident, they will be removed by the Commission before the details of the reported case of sanctions violation are shared with third parties for investigation. If the whistleblower’s anonymity cannot be guaranteed despite the removal of all personal information and the whistleblower has not agreed to disclose his identity, the report will not be shared.
The whistleblower can also set up a secure inbox to follow up on the report, so that the case officer at the commission may contact the whistleblower using the secure inbox to seek clarifications, ask for further information, and keep the whistleblower informed about the progress in evaluating the reported violation.
If the European Union considers that the information provided is credible, it will share the anonymized report and any additional information gathered during the internal inquiry with the national competent authorities in the relevant Member State(s). Following on that, the competent authorities at the member states can start the investigations. Nevertheless, the Commission may subsequently provide further assistance to the investigation, as needed, and periodically follow up on the investigation until a conclusion is reached.
Even if there should be a leak, the whistleblowers are protected through the directive 2019/1937. This directive requires Member States to provide whistleblowers working in the public and private sectors with effective channels to report breaches of EU rules confidentially, but also establishing a robust system of protection against any kind of retaliation. This applies both internally (within an organization) and externally (to a competent public authority). Member States had to transpose the necessary measures to comply with the Directive’s provisions by 17. December 2021.
UK and Whistleblowing
In the UK, Whistleblowers are protected by the “Public Interest Disclosure Act 1998” (PIDA), which means that they may obtain a remedy if they are hurt, suffer detriment or are dismissed because they have blown the whistle in the public interest. This is enforceable through an Employment Tribunal. PIDA was introduced to encourage and give workers the legal support to speak up if they have concerns about wrongdoing in their workplace. It makes provision for the subject matter of the disclosure, the motivation and beliefs of the worker, and the person(s) to whom the disclosure is made.
The “Financial Conduct Authority” (FCA) has a special (“prescribed”) role under the PIDA. Under PIDA, if a whistleblower makes a report to a prescribed person – such as the FCA – they will potentially qualify for the same employment rights as if they had made a report to their employer. If they do qualify, reporting to the employer directly is not required.
To qualify for these rights, the worker must have a reasonable to belief that: (1) the matter being reported falls in general within the remit of the prescribed person, as described in the second column of the Schedule to the Prescribed Persons Order headed “Description of matters” and (2) the information reported is substantially true.
Those reportings of wrongdoing happening in the workplace by an individual or a firm to the FCA can be done at any time via their web form. Sufficient information can be any suggestion that firms have poor sanctions controls, suspected breaches of the sanctions regime, actual breaches on the sanctions regime and any method the person believes is used by firms or individuals to breach the sanctions regime.
After handing in the report, the whistleblower will be assigned to a dedicated member of the whistleblowing team as his case officer. The case officer can arrange to speak with the whistleblower or even meet him in person to talk about his concerns. However, his identity will be protected during the whole process as well as the (later) ongoing investigations.
Besides those measures, in 2023 the FCA announced that they are taking further steps to encourage and protect whistleblowers. They are planning to provide whistleblowers with more detail on what has been done with the information they provided, or reasons for taking or not taking action against a company or an individual. Additionally they will start to engage with the UK Department for Business and Trade to support a review of whistleblower legislation to enhance the wider whistleblowing system and are also trying to improve the use of whistleblowers’ information across the FCA.
US and Whistleblowing
In the US, the situation is a little bit different. One of the main difficulties lies in the fact that there is no single law for the protection of a whistleblower but rather many different laws, which differentiate for example between federal and private employees.
In securities law the so-called “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank Act) supplemented the “Securities Exchange Act of 1934” (Exchange Act) inter alia to Rule 21F entitled “Securities Whistleblower Incentives and Protection”. Hereafter the U.S. Securities and Exchange Commission is required to make payments to whistleblowers who voluntarily provide information regarding violations of federal securities laws, provided that this later results in successful action by the Commission summing up in a fine of more than 1 million US Dollars and associated successful sanctions leads.
Payments to these whistleblowers range from 10-30 percent of the fines collected. In order to protect the whistleblowers themselves, the Dodd-Frank Act and the Commission’s Whistleblower Guidelines standardize confidentiality mechanisms, such as the possibility of sharing such information anonymously – with the involvement of a lawyer. At the same time, employers are prohibited from taking adverse action against such whistleblowers.
Besides that, the US Department of Labor has five agencies that specialize, among other things, in enforcing laws relating to whistleblowing. The two central authorities are the “Occupational Safety and Health Administration” (OSHA) and the “Wage and Hour Division” (WHD). OSHA focuses on safe working conditions and ensures that whistleblowers do not face sanctions within the company for reporting violations of worker protection, consumer product and food safety, environmental protection, health insurance, transportation services, or fraud and other financial crimes.
The aim of the WHD is to comply with labor law standards and, for example, enforce compliance with minimum wages, payment of overtime, and compliance with regulations for the employment of minors, regardless of the residence status of the respective employees. The other three authorities dedicated to whistleblowing issues primarily cover special areas, such as the mining industry, veterans, or contracts with the federal government.
Furthermore, the US federal government provides special protections for federal employees in whistleblowing cases. This dates back to the “Whistleblower Protection Act” (WPA), which was enacted in 1989 and addressed the rights of public employees to report legal violations, mismanagement, waste of public resources, abuse of power, and threats to public health and safety reports.
This law was accompanied by Executive Order 12731 in 1990, which required all federal public employees to report waste, fraud, abuse, and corruption. In 2012, the WPA was supplemented by the “Whistleblower Protection Enhancement Act (WPEA)” and closed some legal loopholes. In this way, the rights and protection of whistleblowers in this area in particular were further strengthened.
Overall, it is in this area possible to blow the whistle anonymously and on a confidential basis, even if the sanctions for violations of this and in the event of adverse measures against such whistleblowers are often criticized in practice as not being sufficient. A separate set of rules applies to employees of the Secret Service, which provides for different mechanisms in the event of whistleblowing.
China and Whistleblowing
In the last few years, the Chinese government has highlighted several times the need for public companies to implement an internal whistleblowing system. For example, in September 2019 the State Council released the “Guiding Opinions on Strengthening and Standardizing In-process and Ex-post Regulation” (Guiding Opinions). They required both central government ministries and provincial governments to establish whistleblower protection systems.
In May 2020, the Chinese government introduced the “Civil Code of the People’s Republic of China” (Civil Code), which obliges organizations and enterprises to prevent workplace sexual harassment by carefully investigating complaints of sexual misconduct by employees, implicitly encouraging whistleblowing.
Furthermore, China has an enforceable regulation specifically designed to encourage and reward whistleblowing. In July 2021, China’s “Ministry of Finance” (MOF) and “State Administration for Market Regulation” (SAMR) issued Interim Measures for Rewards for Whistleblower Reports of Major Violations in the Field of Market Regulation (the Measures), which became effective in December 2021.
The Measures provide that a whistleblower will be awarded a monetary sum, of up to 157,000 US Dollars when certain conditions are matched. These conditions are: (1) the whistleblowing report must be related to a major violation of the law (for example violations leading to substantive punishments such as suspension or shutdown of production and business, revocation or cancellation of licenses, and criminal prosecution), (2) SAMR is not already aware of the contents of the report, and last but not least (3) the whistleblower reports are substantiated upon investigation, and the cases have been closed.
The Measures set relatively low thresholds for qualifying as a whistleblower. In general, a whistleblower must be a natural person to qualify; a whistleblower cannot be a legal person, a government official, a professional investigator paid by other parties, a participant in the wrongdoing, or an intellectual property owner directly harmed by any wrongdoing involving infringement of such intellectual property.
The Measures also discourage fraudulent reporting due to the option of the Chinese government to withdraw a reward if it determines that the whistleblower forged materials or concealed material facts. It may also hold the whistleblower criminally liable in serious cases.
China also has whistleblower protection mechanisms. An employer that retaliates against a whistleblower may be liable for administrative as well as criminal penalties. The whistleblower may also be entitled to reinstatement of employment (with back pay), or alternatively, compensation that is twice the statutory severance pay that the employee would have been entitled to under a lawful dismissal.
Final Thoughts
Whistleblowing plays an indispensable role in maintaining transparency and ensuring adherence to regulatory frameworks, especially in areas of sanctions violations. Systems and tools like the EU Sanctions Whistleblower Tool are evidence of global recognition of the importance of facilitating secure channels for whistleblowers. From the comprehensive European approach to the multifaceted regulations in the US, the focused legislative acts in the UK, to the emerging recognition and systems in China, there’s a global trend towards offering protection and often incentives to those who courageously report wrongdoings.
While the modus operandi varies across regions, the fundamental principle remains consistent: empowering individuals to report malpractices without fear of retaliation. It’s imperative that as societies evolve, the systems and protections for whistleblowers are continually refined to ensure their efficacy and integrity.
