Scope of the Act
The Act regulates the protection of all persons who, in connection with their professional activities or in the run-up to their professional activities, become aware of legal violations and pass these on to so-called “reporting channels” (Hinweisgeberstellen). The Act is intended to protect such whistleblowers from discrimination and reprisals (Section 36 HinSchG). The goal is to make it easier for such persons to expose misconduct and thus contribute to overall compliance, including and in particular by companies that employ them. This is noteworthy in that there has been no comprehensive and uniform whistleblower protection system in Germany before. At the same time, it certainly fits into the trend toward increasing compliance efforts in companies that has been underway for several years.
In contrast to the underlying EU Directive, not only reports and disclosures of violations of EU law are covered, but also violations of a large number of provisions of German law, which are listed in detail in Section 2 HinSchG. The common denominator of all these provisions – which range from criminal offenses and certain misdemeanors to provisions of product safety, environmental and radiation protection law – is that they affect the public interest or particularly relevant to security and fundamental rights. Since this also includes the protection of free competition, the Act also covers violations of German and European antitrust law as well as the EU’s recently enacted Digital Market Act (“DMA”).
The Federal Cartel Office as an External Reporting Channel
This is where the German Federal Cartel Office (FCO) comes in. Effective immediately, the authority will assume the function of an external reporting channel and has published a press release to this effect. In concrete terms, this means that all violations of German and European antitrust law as well as the DMA can be reported to the BKartA through its existing electronic whistleblower system. All relevant information can be transmitted securely via a web-based tool. A publicly appointed and sworn expert certifies that the system guarantees the anonymity of the whistleblower, meaning that if it is used properly, it is impossible to trace the information back to the individual whistleblower. Independently of this system, information on relevant violations of law can also be submitted by simple e-mail, telephone, letter or in a personal conversation (see here and here).
Companies of a certain size are also required to set up internal reporting channels and to provide specific addresses and contact persons for the reporting and disclosure of violations. In many cases, this will already be the case as part of general corporate compliance efforts, but is now mandatory for all companies with generally 250 or more employees (and, as of December 17, 2023, also for all companies with 50 to 249 employees). Certain financial companies must even set up an internal reporting office regardless of the number of employees (Section 42 (1) in conjunction with Section 12 (2) HinSchG).
However, every whistleblower has a right of choice: Instead of internal ones, he or she can contact external reporting channels directly. Section 7 HinSchG provides some guidance to the effect that in cases where a violation can be effectively remediated internally, reporting to an internal channel is to be given priority. However, there is no legal obligation for a whistleblower to do so. In particular, the "bypassing" of internal reporting channels does not result in the whistleblower losing the protection to which he or she is entitled under the Act. For antitrust, this right of choice is further strengthened by the fact that the whistleblower can actually turn to the FCO at any time – even if an internal report has already been made and the company concerned is still in the process of internal remedial action (Section 22 (1) sentence 2 HinSchG). In this respect, the whistleblower – with the support of the FCO – may actually thwart concrete compliance and remedial measures by the company.
The HinSchG and the FCO’s Leniency Program - a Tense Relationship
This, in turn, exacerbates a significant tension in compliance practice. While the Act does not introduce any fundamental legal innovations for cartel prosecution, it does intensify the “rat race” between internal and external whistleblowing – with significant effects on antitrust compliance and cartel enforcement. The FCO's leniency program remains unaffected by the Act (Section 4 (3) HinSchG). For the FCO, this program is an important instrument for the detection and prosecution of cartels and companies can use it to avoid a cartel fine altogether by cooperating extensively with the authority in the form of a "self-indictment". Given the dramatic increase in the size of cartel fines, this is an important aspect both financially and in terms of holistic compliance efforts.
The problem is that such immunity from fines presupposes that the company is the first cartelist to submit evidence to the FCO which at least permits the issuance of a search warrant by the competent district court in Bonn. If, however, the FCO already has so much information that it can prove the offense by other means, immunity from fines is excluded. It is obvious that well-informed whistleblowers can provide the prosecutors with just that kind of "information advantage". The greater the incentive for potential whistleblowers to bypass internal whistleblowing channels and to report their information directly to the FCO, the lower the probability of a successful leniency application by the affected company – with the consequence of high fines if the suspicions reported are eventually confirmed.
Practical implications for companies
From a company's point of view, the case is therefore quite clear: In order to keep all options open with regards to possible cartel violations, companies must create countervailing incentives. The better, more transparent and accessible internal reporting systems ("speak-up tools") are, the lower the risk of external reports.
This, in turn, requires low-threshold access to internal reporting, a strong "tone from the top" (which must express management's clear disapproval of all antitrust violations), and the creation of a trustworthy compliance environment. This should consistently encourage potential whistleblowers to report incidents internally, while strengthening their confidence in the company’s remediation processes and protection from personal retaliation. In this way, the comprehensive resolution of compliance incidents involving key knowledge holders remains possible, and a prudent decision can be made on any further action to be considered, including the filing of a leniency application. This can also have tangible benefits for whistleblowers: To the extent they derive their knowledge from their own cartel participation, they may also be personally threatened with a cartel fine. A leniency application filed by the company (which is usually also submitted on behalf of responsible employees) can eliminate that risk.
All of this shows that both the internal reporting processes and the accompanying communication as well as the leniency application itself will become even more important in the future. The Act substantially strengthens the position of whistleblowers across all sectors. It is obvious that this will lead to an increase in suspicious activity reports, regardless of the size of a company. In this respect, an increase in internal and external reporting is to be expected, not only, but also and especially with regard to antitrust law. This is likely going to increase the pressure on companies to consider the pros and cons of leniency applications even more carefully – especially considering that the President of the FCO, Andreas Mundt, has expressly encouraged all persons with knowledge of antitrust violations to report to his authority:
"We encourage all potential whistleblowers to make use of the protection provided by the new Whistleblower Protection Act and contact us whenever they suspect that violations of competition law have been committed in their professional environment. Passing on their information will help to effectively expose and prosecute cartels and other violations of competition law. "
This may lead to massive financial and reputational risks. Now more than ever, companies are therefore well advised to prevent these risks by establishing robust compliance systems and reliable internal reporting mechanisms. Our services provide comprehensive support in these endeavours, ranging from the creation of customized training materials, speak-up and case management policies to legal tech tools for internal reporting systems (under our ELTEMATE brand) and complex forensic investigations.
Authored by Christoph Wünschmann, Christian Ritz and Florian von Schreitter.