8 mars 2022

Hear the whistleblower before it’s late

France is upgrading its regulation on whistleblowers protection after a new law was passed on February 8, 2022, that further implements the Directive (EU) 2019/1937 of the European parliament and of the council on the protection of persons who report breaches of Union law. The recent law which notably contains several amendments to the French Labour Code to further protect whistleblowers from sanctions or discrimination also brings out two major changes likely to have a significant impact on companies with 50 employees and more also discussed during the parliamentary works as being major changes to the current regulation, the recent law softens considerably the requirement that a person should act in a disinterested manner to benefit from protection as a whistleblower and it waives the obligation for whistleblowers to first report any event through an internal reporting channel.

Less restrictive conditions apply to claim protection as whistleblowers

The current situation. Pursuant to article 6 of French bribery and transparency act of December 9, 2016, known as Loi Sapin II, one condition for a whistleblower to benefit from protection is to have acted disinterestedly. Being rather general, the term employed has been criticized as too vague and creating uncertainty as to whether a whistleblower who may have a certain interest in disclosing facts would still benefit from full protection against severance, discrimination or prosecution for the divulgation of confidential information. As a result, anyway, such condition was possibly discouraging reports from individuals who felt that their protection as whistleblowers could be challenged at some point.

What will change. The recently adopted regulation will not any more require that an individual reporting an event be disinterested to benefit from protection as a whistleblower but simply that such individual has acted without direct financial consideration. This waives the restriction that whistleblowers are disinterested and does not even preclude financial consideration as long as such financial consideration is indirect.

Reporting internally first ceases to constitute a mandatory option for whistleblowers

The current situation. Article 8 of French bribery and transparency act of December 9, 2016, institutes a hierarchy in terms of fraud reporting where, unless in the event of a material and imminent hazard or the risk of an irreversible damage, internal reporting is a mandatory initial step in terms of fraud reporting. As such, internal reporting is a preliminary reporting phase which observance conditions protection as a whistleblower. The fact that internal reporting is mandatory for whistleblowers does not entice companies to adopt efficient and robust internal fraud reporting processes, which is one of the reasons the mandatory nature of such initial internal reporting is criticized. As it stands, however, this mandatory initial internal reporting provided naturally access to early fraud detection.

What will change. The recently adopted regulation results in a complete revision of Article 8 of French bribery and transparency act that notably puts an end to the hierarchy of reporting channels built on the predominance of internal reporting. Internal reporting becomes an option for whistleblowers and the amended Article 8 even insists that internal reporting may be an option when whistleblowers « appreciate that such channel provides the means to effectively remedy the violation and that they are not at risk from reprisals ». This wording clearly conveys the meaning that internal reporting is subsidiary unless built on efficient internal procedures that notably protect the identity of whistleblowers.

And so, what consequences?

The amended French bribery and transparency act (Loi Sapin II modifiée) is likely to lead to an increase of the number of disclosures by whistleblowers while, at the same time, fewer disclosures will be available to companies before being disclosed in court or to local competent authorities.

As a result, companies that have not implemented robust internal reporting procedures may find it difficult to take advantage of early fraud detection and may expose their reputation unnecessarily.

One of the consequences of the reform is that companies which want or need to stay ahead in terms of fraud detection will have to set up efficient internal reporting channels and procedures which simply means making such channels attractive to whistleblowers who, otherwise, will avoid initial reporting and turn directly to courts and competent authorities without the companies involved knowing.

Companies have better stay ahead in terms of fraud detection

Not only early fraud detection enables better fraud management and provides better case handling upon formal disclosure to anti-bribery authorities and courts, but it builds reputation on trust among employees, clients and providers. Early detection effectively gives a chance to management and company officers to assess the fraud and take preemptive actions.

On the other hand, the cost and reputational damage associated with late fraud detection constitute a powerful enticement for companies to adopt solutions that enable early fraud warning and assessment.

Keeping ahead in terms of fraud detection now clearly implies to set up internal reporting channels and follow-up procedures deemed attractive to whistleblowers to deter them from staging court or public disclosure.

But what can be an attractive internal channel for whistleblowers?

From a legal standpoint, the provisions of Article 9 of Directive (EU) 2019/1937 say it all and, in a nutshell, it is a matter of confidentiality, independence and competence.

In addition, useful guidelines are provided by the French Anti-Corruption Agency (AFA) and such guidelines should not be neglected, especially when you are a company officer or a member of the board of directors. Such guidelines constitute soft-law recommendations which compliance with may contribute to the demonstration of good faith and reasonable efforts in the event liabilities and potential charges arise upon the disclosure of a significant fraud. It is important to emphasize that the responsibility for setting up an appropriate internal reporting channel and a fraud assessment procedure ultimately lies on the officers and board members.

The 4 recommendations I would think of when setting up an internal reporting channel begin by a very paradoxical one which is to rely on an independent person outside the staff of the company (not to be confused with external reporting channels which designate courts of justice, competent authorities and ultimately the public):

Ludovic Doutreleau

Partner, Switzerland