In July 2016, Germany amended the German Act on Financial Services Supervision (Finanzdienstleistungsaufsichtsgesetz – “FinDAG”) and created whistleblower protections for employees of all companies subject to the supervision of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”). BaFin, when formed in 2002, was one of the largest financial supervisory agencies in Europe. BaFin was created to supervise the banking, securities, and insurance sectors in Germany and ensures the stability of a European financial market. After major responsibility for banking oversight shifted to the European Central Bank in 2014, BaFin became more focused on its enforcement provisions. In 2016, it opened a new office dedicated to corporate whistleblowers in order to encourage business insiders to expose wrongdoing prohibited by the BaFin regulations and relevant European Union (“EU”) ordinances and directions.
Prior to the amended FinDAG, there was no German legislation expressly dedicated to whistleblower protection. Individuals had to piece together portions of other laws (the German Data Protection Act, the German Labor Protection Act, the German General Equal Treatment Act, and the German Works Constitution Act (“Four Acts”)) in an attempt to gain any protection under existing legislation. In theory, the Four Acts provided protection against unfair dismissal and discriminatory treatment. In reality, the Four Acts often left whistleblowers exposed to liability under labor and criminal laws.
The enactment of the German whistleblower protection law appears to be largely reactionary. In 2011, the European Court of Human Rights convicted Germany for restricting whistleblowers’ freedom of expression. This conviction, coupled with a rise in corruption and fraud, prompted the BaFin to reform its approach to whistleblowing. Recognizing the importance of whistleblowers, in 2016, BaFin implemented explicit whistleblowing protections for the first time in modern German history.
Who Can Be A Whistleblower Under Current German Law?
Under Section 4 of the FinDAG, a whistleblower is defined as an employed individual or contractor with specific knowledge of a company’s internal matters who reports potential or actual misconduct by a company that is under the supervision of the BaFin. Companies that fall under the supervision of the BaFin include, but are not limited to: banks; financial services institutions; capital management companies; insurance companies; and stock listed companies subject to the German Securities Trading Act.
What Protections Can A Whistleblower Receive under German Law?
Prior to the amended FinDAG, whistleblowers could be prosecuted for breaching the duty of loyalty to their employers or damaging their employers’ reputation. The amended FinDAG shields whistleblowers from all liability as long as they did not intentionally or negligently submit an untrue report. Whistleblowers are also afforded confidentiality. BaFin can reveal a whistleblower’s identity if the whistleblower consents to the disclosure. BaFin can also disclose the whistleblower’s identity if it is necessary to conduct further investigations or proceedings.
Blowing The Whistle In Germany
Whistleblowers may report misconduct internally, pursuant to their employers’ internal reporting mechanisms, or directly to the BaFin. In July 2016, BaFin established a central point of contact for whistleblowers to report supervisory violations. Whistleblowers can submit their reports of misconduct to BaFin by mail, e-mail telephone, or in person. As of January 2017, whistleblowers may also submit their report anonymously through an electronic reporting platform.
The Take Away
The amendment of the FinDAG to include whistleblower protections was considered by many to be revolutionary, given that previously, whistleblowers faced criminal liability or civil liability under labor laws for blowing the whistle. As of 2016, whistleblowers may report misconduct under the protective umbrella of freedom from liability and the added measure of confidentiality similar to American whistleblower statutes. Unlike the United States, however, German whistleblowers do not receive a financial reward for reporting alleged wrongdoing. Also, the FinDAG whistleblowing protections apply only to those who blow the whistle on activities that fall under the BaFin’s supervision or similar ordinances of the EU. Persons with knowledge of misconduct by German companies registered with the United States Securities and Exchange Commission (“SEC”) have the option of filing a report with the SEC. While many Germans are pushing for broad whistleblowing reform, it seems unlikely to happen in the near future. It raises the question, does Germany truly believe reform is unnecessary, or is financial wrongdoing the only fraud the country is interested in exposing through whistleblowing at this time?