Whistleblowing: Just whistle or better orchestrate your business?
Czech companies will soon have a new whistleblowing obligation. They will have to receive and investigate whistleblower reports within their organisation and protect whistleblowers from retaliation. The official aim is to facilitate whistleblowing and thereby help protect public interests such as environmental protection, food quality, tax payment, etc.
Author of the article: ARROWS (Mgr. Vendula Růžková, LL.M., MBA and Mgr. Jiří Halaburt, LL.M., office@arws.cz, +420 245 007 740)
The introduction of a whistleblowing process can be conceived formally and only on paper meet the necessary minimum. Or the whistleblowing process can be approached positively, a functional and effective system can be put in place and employees can be persuaded to address problems internally first. This way, the employer can resolve the impending disagreement on its own, without involving the authorities (and the media!). And as a result save money, improve their processes, for example in purchasing, quality control or waste management, and protect their reputation.
Where do we stand with legislation?
The obligation to introduce a whistleblowing system is based on the EU Whistleblowing Directive (Directive 2019/1937). This is already in force and effective. In the Czech Republic, it will be specified in the new Whistleblower Protection Act, which is currently being discussed by the Chamber of Deputies.
The Czech Republic missed the deadline for the adoption of the law (17 December 2021). Therefore, it can be expected that the bill will be discussed relatively quickly, probably by the end of 2023, and the deadline for compliance with the new law will be short.
The Whistleblowing Law is also the subject of a fairly strong debate. There will probably be an extension of its scope in Parliament to other areas or the inclusion of an obligation to receive and deal with anonymous whistleblowing. It is therefore advisable to monitor the legislative developments at least in the main points.
Who will be affected by the new law?
The obligations arising from this new regulation will not be limited to selected sectors. They will affect all employers, authorities and local authorities. They will all have to respond to complaints, whether they come to them directly or indirectly. And, in particular, to protect whistleblowers from retaliation, which we describe below.
But a number of bodies will have significantly more obligations, notably the introduction of a comprehensive whistleblowing process.
Which entities in particular will be involved?
- Any employer with more than 50 employees.
- Public procuring entities (except municipalities) with up to 10,000 employees and legal entities with fewer than 50 employees.
- All entities under the regime of the Act on Certain Measures against the Legalization of Proceeds of Crime and Financing of Terrorism (AML Act) regardless of the number of employees, i.e. banks, insurance companies, real estate agencies, financial product intermediaries, payment institutions, leasing providers, exchange offices, etc.
What will whistleblowers "blow the whistle" on?
The Directive and the draft Bill set out 14 areas in which a whistleblower will be able to report a potential breach and the organisation will be required to investigate the report within specified time limits, take remedial and corrective action where appropriate and ensure that the whistleblower is protected from retaliation.
What are the main areas of concern?
- The provision of financial services, financial market activities,
- corporate taxation,
- compliance with the rules on the prevention of money laundering and terrorist financing (AML),
- consumer protection, product quality,
- environmental protection,
- Competition, public procurement and public auctions,
- protection of personal data,
- ensuring the security of electronic communications networks and information systems (cyber security).
This is by no means all. The draft law extends this to the range of all crimes that a legal entity can commit. And the parliamentary amendment also covers all offences attributable to a legal person.
So the law will actually apply to everyone.
What will be the main obligations?
The organisations listed in the previous section will be required to implement a comprehensive whistleblowing process. This must include, in particular:
- A channel for confidential whistleblowing (a dedicated app or dedicated email, complete with organisational and technical security measures to ensure that whistleblowing is protected).
- Appoint an investigator to receive, address and propose corrective actions. This can be an internal person, an external person, or in some cases the investigator can be shared within the group.
- Prevent retaliation against the whistleblower or others, e.g., cohabitants or employees who helped prepare the report. Retaliation includes termination or reduction in salary, but also includes, for example, transfer to another place of work, not being allowed to attend training, being ordered to undergo a medical examination, etc.
- Inform employees about the whistleblowing process and its rules, provide regular training.
- Set up and document a process for receiving, investigating and recording whistleblowing.
Risks? Not just fines!
The bill introduces fines. For the whistleblower, the investigator and most importantly the regulated entity itself. How much?
A whistleblower can be fined up to CZK 50,000 for a knowingly false report, a report made with the intention of harming someone else.
An investigator who also internally discloses information about the whistleblower or otherwise jeopardizes the investigation of the report may be fined up to CZK 100,000.
A regulated entity that fails to implement a functioning whistleblowing system, even though it is required by law to do so, can be fined up to CZK 1,000,000. However, we must add to this the risk that employees who do not have the opportunity to report their suspicions internally or who do not trust the internal system will send their reports elsewhere, to the authorities or to the media. Even so, they will be protected from reprisals.
What can we help you with?
- Assessing whether and to what extent the new law will affect you,
- setting up a whistleblowing process or verifying that the process in place meets the requirements of the law,
- preparing documentation, especially employee information, internal regulations, whistleblower agreements, etc.,
- preparation and implementation of training for employees,
- setting up conditions and contracts for sharing the investigator within the group of companies,
- monitoring the development of the legislative process and analysing the impact of changes on your company.