Enforcing EU law: the case of the whistle-blower

In 2017 the European Commission, in its Communication on ‘EU law: better results through better application,’ stressed that: “[e]ffective enforcement of EU rules – from the fundamental freedoms, food and product safety to air quality to the protection of the single currency – matters to Europeans and affects their daily lives […]. Often, when issues come to the fore […] it is not the lack of EU legislation that is the problem but rather the fact that the EU law is not applied effectively.” In order to increase available enforcement mechanisms to promote effectiveness, the European Commission sought an approach to enabling indirect enforcement via private actors, in legislation on the protection of whistle-blowers, proposed in 2018. By October 2019, the Directive on the protection of persons who report breaches of Union law (henceforth referred to as the Directive) was adopted. The Directive is the first EU horizontal piece of legislation on the protection of whistle-blowers.

The Directive (Article 1) aims to enhance enforcement of EU law, via the use of whistle-blowers in specific areas where a lack of enforcement and breaches have been acknowledged as potentially leading to serious harm to the public interest. Due to his or her proximity to important information on possible wrongdoings, the whistle-blower is often in a privileged position to report breaches. The purpose of the Directive (recital 5) is to set common rules on the protection of whistle-blowers as well as the standard threshold for establishing an allegation, both of which will assist national and Union enforcement systems in acting on actual or potential breaches. This mechanism will allow for a more uniform approach to the detection, investigation, and prosecution of breaches of Union law in specific sectors as listed in Article 2 of the Directive, which include, inter alia, the area of financial services, the protection of environment, and consumer protection.

Providing legal protection for whistle-blowers has a long and influential history in other legal systems, namely the US. Relevant US legislation, namely the Sarbanes-Oxley Act (SOX), has contributed to a growing appeal for similar legislation in Europe. When SOX was implemented, US companies in Europe were also forced to adopt internal whistle-blowing structures. In the US, the whistle-blower is considered a de facto private enforcement mechanism by which employees may pressure companies to properly enforce US law by unilaterally involving legal authorities, a well-known tool in the Anglo-Saxon legal tradition. Dating back to the 13th century, the use of qui tam writs provided the basis for today’s private enforcement, through which an English king allowed private citizens to sue another who was defrauding the Crown for the benefit of compensation. Centuries later the US later introduced the False Claims Act (FCA) under the Lincoln administration. The FCA was intended to combat fraud against the federal government’s budget during the Civil War by providing incentives to citizens to sue in the name of the State. The tradition of private enforcement continues via other legal instruments utilizing de facto whistle-blowers such as elements of the Securities and Exchange Commission and Internal Revenue Service’s programs. Such programs encourage the effective enforcement of regulations by protecting private intervention in the form of alerting state authorities to misconduct.

While a valuable step toward recognizing a private enforcement mechanism in whistle-blowing, the Directive is not without challenges. First, the material scope of the Directive (Article 2) is limited to areas which are deemed by the European Commission as lacking meaningful enforcement. In practical terms, this means that Member States transposing the Directive must approach whistle-blowing by implementing two separate laws: one transposing the Directive (thus covering the areas of EU interest) and one covering the other areas not included. Providing two distinct legal protection regimes may create a lack of clarity in which whistle-blowers are not afforded a standard level of protection, but rather depend on the designated subject area of the reported issue. A far more optimal approach would be to have one national law comprising all areas subject to whistle-blowing, modeled from the Directive. Nevertheless, as Member States are not bound to provide such a law, enforcement for protecting whistle-blowers itself is inconsistent between and within Member States.

Furthermore, the Directive failed to establish an EU Whistle-blowers Office, which would have signaled the formal legitimacy of the whistle-blower. Though limited in its competence to introduce such an office, the Commission failed to consider or debate alternative approaches to a comparable initiative. The establishment of a formal office would provide guidance and security to the whistle-blower who takes personal risk to navigate the legal hurdles present in reporting breaches of EU law, for no personal gain. In addition, the Whistle-blowers Office would assist Member States in the implementation of the Directive to clarify inconstancies in the coordination of cross-border matters.

To conclude, the importance of this new EU legal instrument on the protection of whistle-blowers is undeniable. For the first time, whistle-blowers are confirmed by EU law as legitimate, private enforcers of the law and are offered commensurate legal protection. Despite valid enthusiasm for the Directive and its foreseen benefits, the problematic aspects of the Directive will be apparent during the transposition (until 17th December 2021) and its use in the years to come. New solutions and adaptations will be needed to ensure its effectiveness, and the aforementioned comments should be taken into consideration.

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Author: Dimitrios Kafteranis

Dimitrios Kafteranis is a PhD candidate at the Faculty of Law, Economics and Finance of the University of Luxembourg and member of the Doctoral Training Unit on Enforcement in Multi-Level Regulatory Systems. His research is on the legal protection of whistle-blowers in the EU banking and financial sector.

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