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23 September 2021

Whistleblowing as protection against corporate criminal liability and damage to property and reputational damage

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Author: Robert Nešpůrek, HAVEL & PARTNERS

The EU Directive on the protection of persons who report breaches of Union law will enter into force on 17 December 2021, but the implementing bill currently passing through the Parliament will be, most likely, not adopted before the October parliamentary elections and due to the necessity of re-introduction of the bill, we may expect some short delay with the final implementation. On the other hand, the current bill shows us the legislator’s thoughts on certain deviations from the Directive. For instance, as regards material scope, not only breaches of Union law in the areas prescribed by the Directive are to be reported in the Czech Republic, but also (i) breaches of legal regulations in general and (ii) possibly unlawful conduct having the characteristics of a criminal offense or misdemeanour. The draft bill also decreases the threshold of 50 workers prescribed by the Directive for entities in the private sector so that the law should apply to employers with more than 25 workers. In addition, it does not work with gradual adoption as in the Directive, but prescribes a single mandatory deadline for all the obligated entities to set up an internal reporting system by 31 March 2022.

On all accounts, correct implementation of a whistleblowing system, as required by the Directive and the implementing bill, must be understood as part of an organisation’s risk and compliance management.

However, we believe that although it is a regulatory obligation, the introduction of a whistleblowing system can be beneficial to an organisation if handled correctly. The aim should be to create a system that the whistleblower trusts so that the internal communication channel is their first choice. This will give managers or owners a chance to learn about potential problems in the organisation before they start making the headlines. For the whistleblower, the option to make a safe report within the organisation could be a way to remedy a problem they have learned about without causing damage to their employer. Indeed, we should not think of the typical whistleblower as an enemy - in countries where whistleblowing is more common, it is a person who wishes to make things better. If whistleblowing is a well-designed as part of internal processes and is supported by management, such an optimal result can be achieved.

Let’s now take a closer look at what you can gain by implementing a functional whistleblowing hotline:

Reducing the risk of corporate criminal liability

A model compliance management system, which includes a functional whistleblowing system, is recognised by the methodology of Czech Republic public prosecutor offices as an example of measures that can avert corporate criminal liability. It should be emphasised that the mere set-up of compliance programmes and formal introduction of a whistleblowing system is not enough. Instead, the organisation must be able to demonstrate that it promotes, enforces, and adequately monitors these instruments within its personnel structure, and that it is fully prepared to respond to identified deficiencies in the event of a breach.

Protecting your reputation

If the whistleblower has confidence that nothing will happen to them if they make an internal report and that the matter will indeed be investigated, this reduces the likelihood of them going public with their report to the Ministry of Justice or becoming entitled to publish their report in the media or on social media. This prevents major damage to your organisation’s public image and helps protect your trade secrets.

Preventing financial damage

If you identify a problem early, it is more likely to be resolved internally quickly and efficiently before it escalates. This can limit the actual damage (such as the costs of product recall), avoid financial penalties (but sometimes more serious penalties such as a ban on activity), a loss of profit due to damaged reputation, compensation claims and finally legal costs.

Staying in control of decision-making

Any manager will be pleased if they can manage sensitive matters internally, without the intervention of journalists or even public authorities. If you are the first to know about employee complaints, you will be able to manage such matters within the legal boundaries on your own, i.e. investigate and possibly resolve them without the involvement of external parties.  The truth is that once problems are made public, they can live a long life of their own, and unfortunately, often regardless of their veracity.

Complying with your statutory duty

The implementation of whistleblowing will become a statutory duty and the law will punish inconsistency in implementation with high fines amounting to millions of Czech crowns.

Enhancing compliance

Whistleblowing complements the general structure of an organisation’s compliance and risk management function by giving it an effective tool to discover potential deficiencies and areas for improvement that are commonly identified through lengthy and costly audits.

Strengthen your credibility as a socially responsible company

The introduction of whistleblowing is gradually becoming a standard for companies with a high ethical business culture, which will be increasingly required by investors, shareholders, your business partners (especially international), in public procurement, and also by potential employees.

You might think that you already deal with your internal problems without a whistleblowing hotline. This is certainly a sign of well-functioning relationships within the organisation. But are you sure that you are aware of all cases that you could resolve effectively? Whistleblowing need not be about changing how you solve problems, but it can serve as a useful complement to what you already do in your company. If an opportunity presents itself, why not take advantage of it?

FairWhistle

In order to help our clients to comply with the new regulations, we have designed a comprehensive solution for implementing and managing whistleblowing systems, which we call FairWhistle. We are ready to tailor the entire system (also in view of the fresh ISO 37002 guidance), select the right reporting channels, including a modern web platform from renowned technology partners, prepare all documentation, including appropriate internal communication and training, and then provide support in assessing and investigating reports and act as a “dedicated person” as required by the proposed implementing law. The objective is to help our clients reduce risk and administrative burden, build ethical organizations and increase their reputation in the marketplace.

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