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Whistleblowing Michael Sheehan, Global Co-Chair - Employment.

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1 Whistleblowing Michael Sheehan, Global Co-Chair - Employment

2 Scenario 1 Eric is an assistant Vice-President and senior accountant for a publicly traded company with over $3.5 billion in annual revenues. Eric is well-liked in his department; he has very strong relationships with co-workers, and considers many of them to be close, personal friends. His duties include reviewing and approving any expenses over $50,000 before payment. Recently, Eric refused to process payments for an “advertising” event held at the Atlantis Resort in the Bahamas. The five-day event included only a single one-and-one-half hour business meeting. Expenses for the $350,000 Atlantis event included: Eric sent an directly to the CFO, his boss. In that , Eric expressed his belief that these costs needed to be charged as income to attending employees (who brought spouses or guests) and that any other treatment would result in a misstatement and tax fraud. Mermaid Greeters - $2,000 “Limbo” and “Fire” - $2,350 Costumed Pirates/Wenches - $3,000 Tattoo Artist - $5,000 Chair decorations - $2,500 Hotel rooms - $1,000/night. 2

3 Scenario 1 While the company was investigating Eric’s allegations, another accountant, Joan – who was not Eric’s direct report – made a claim for sex discrimination after she was denied a promotion. While investigating her claims, Human Resources uncovered the following facts: Eric hosted (and paid for) a weekend party at his lake house for the accounting department; after many hours of drinking, members of his department went skinny dipping in his pool - including Eric and Joan Eric frequently texts co-workers, including Joan, personal text messages Eric pursued other women in accounting -- but not Joan -- by sending them gifts and taking them on several weekend getaways, though those relationships appeared consensual and none of those women complained. 3 DateText July 20, 2012“Sleep well and hopefully have a naughty dream.” August 4, 2012“Love u M” October 22, 2012“In your pj’s yet?” October 26, 2012“Mahalo, beyotch!” December 4, 2012“Miss you already. Do you miss me?” January 14, 2013“Miss me?” January 18, 2013“I’m only wearing a belt” January 28, 2013“Hey sexy lady” April 6, 2013“You’re smooth and creamy…like peanut butter”

4 Scenario 1 The CFO now wants to fire Eric, saying his social antics are an embarrassment if not a liability; his tax fraud assertions are not material even if PwC comes back agreeing with him; and Eric’s report to him about Atlantis was no more than Eric doing his job. 4

5 Whistleblowing in the News 5

6 6

7 Employers face a delicate balancing act in responding to the potential for whistleblowing in their organization  Every business risks inadequate systems or corruption leading to dangerous or criminal behavior.  Where such risks arise, usually the first people to suspect will be those who work in, or with, the organization.  Whistleblowers have consequently been instrumental in revealing serious corruption and fraud in organizations and preventing mistakes from leading to disasters.  While it is clearly in the interests of the employer to be forewarned about serious issues before they become public, or cause harm, there is always a risk of unfounded allegations of wrongdoing.  Publicity about corporate misconduct impairing the brand 7

8 Employers face a delicate balancing act in responding to the potential for whistleblowing in their organization  Every business risks inadequate systems or corruption leading to dangerous or criminal behavior.  Where such risks arise, usually the first people to suspect will be those who work in, or with, the organization.  Whistleblowers have consequently been instrumental in revealing serious corruption and fraud in organizations and preventing mistakes from leading to disasters.  Whilst it is clearly in the interests of the employer to be forewarned about serious issues before they become public, or cause harm, there is always a risk of unfounded allegations of wrongdoing.  Publicity about corporate misconduct impairing the brand Over 30 countries have now adopted some form of specific whistleblower protection, but it varies significantly in its scope and effect. Where legal protection exists, it has two major aspects: (1)Developing a robust complaint procedure, and (2)Genuinely protecting the whistleblower. Over 30 countries have now adopted some form of specific whistleblower protection, but it varies significantly in its scope and effect. Where legal protection exists, it has two major aspects: (1)Developing a robust complaint procedure, and (2)Genuinely protecting the whistleblower. 8

9 Austria Belgium Brazil United States Australia China Denmark France Germany Hong Kong Hungary India Italy Japan Mexico Netherlands Singapore South Africa Sweden Thailand UAE United Kingdom Little or no protection Some protection through general laws Express protection Saudi Arabia Qatar Malaysia Indonesia South Korea Whistleblower Protection Ratings Across the Globe 9

10 Austria Belgium Brazil Australia China Denmark France Germany Hong Kong Hungary India Italy Japan Mexico Netherlands Singapore South Africa Sweden Thailand UAE United Kingdom Little or no protection Some protection through general laws Express protection Saudi Arabia Qatar Malaysia Indonesia South Korea Whistleblower Protection Ratings Across the Globe United States 10

11 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 11 International Law

12 U.S. Law 12 Express protections Numerous federal and statute statues of general application, as well as state common law, protect those who report fraud on the government or complain about violations of federal anti-discrimination laws, federal statutes that specifically apply to protect public sector employees and subcontractors As a general matter, employees may not be fired or subject to any other unfavorable job action (disciplined, transferred, denied a raise or benefits, hours reduced, demoted, suspended, etc.) because they have exercised any right afforded to them under one of the laws that protect whistleblowers. Numerous federal and statute statues of general application, as well as state common law, protect those who report fraud on the government or complain about violations of federal anti-discrimination laws, federal statutes that specifically apply to protect public sector employees and subcontractors As a general matter, employees may not be fired or subject to any other unfavorable job action (disciplined, transferred, denied a raise or benefits, hours reduced, demoted, suspended, etc.) because they have exercised any right afforded to them under one of the laws that protect whistleblowers. The Occupational Safety and Health Act 1970 (“OSHA”) protects those who have reported or complained about workplace safety and health issues The Corporate and Criminal Fraud Accountability Act 2002 (Sarbanes-Oxley – “SOX”), as expanded by the Wall Street Reform and Consumer Protection Act 2010 (“Dodd-Frank”), protects securities law related whistleblowers The Affordable Care Act protects those blowing the whistle on issues related to healthcare reform Most of these laws are enforced/administered by the DOL or OSHA.

13 13 Express protections Protected Whistleblowers: All of the statutes with whistleblower provisions protect employees of companies covered by the applicable statute, and some statutes also cover employees of contractors and subcontractors who work for the covered company. For example, Sarbanes-Oxley protects employees of certain publicly traded companies and companies with certain reporting requirements with the Securities and Exchange Commission (SEC), as well as their contractors, subcontractors, and agents. Protect Disclosures: Protected activities typically include initiating a proceeding under, or for the enforcement of, any of the statutes with whistleblower protections, or causing such a proceeding to be initiated; testifying in any such proceeding; assisting or participating in any such proceeding or in any other action to carry out the purposes of those statutes; complaining about a violation. For example, Sarbanes-Oxley protects covered employees who report alleged violations of the federal mail, wire, bank, or securities fraud statutes, any rule or regulation of the SEC, or any other provision of federal law relating to fraud against shareholders. U.S. Law

14 States with a common law public policy exception States without a common law public policy exception WA OR CA NV AZ UT ID MT WY CO NM AK HI TX OK KS NE SD ND MN IA MO AR LA MS AL GA FL SC NC TN KY IL WI MI IN OH VA WV PA NY ME VT NH MA CT RI NJ MD DE Asadi v. G.E. Energy LLC, 720 F.3d 620 (5th Cir. 2013) Limits Dodd-Frank to those who report to SEC Asadi v. G.E. Energy LLC, 720 F.3d 620 (5th Cir. 2013) Limits Dodd-Frank to those who report to SEC Liu v. Siemens A.G., Case No. 13-CV-317, slip op. (SDNY. Oct. 21, 2013) Dodd-Frank Act’s whistle- blower provision does not apply to conduct outside the U.S. Liu v. Siemens A.G., Case No. 13-CV-317, slip op. (SDNY. Oct. 21, 2013) Dodd-Frank Act’s whistle- blower provision does not apply to conduct outside the U.S. 14 U.S. Law

15 SOX/Dodd-Franks Issues Reversing the district court and holding that SOX’s whistleblower protection is limited to employees of publicly traded companies and does not extend to employees of a publicly traded company’s contractors and subcontractors 15 Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC

16 SOX/Dodd-Franks Issues Recent interpretations have pushed that envelope wide open: to include complaining about improper sexual behavior that might have used company resources 16 Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes. What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes.

17 SOX/Dodd-Franks Issues No punitives. Murray v. TXU Corp., 2005 WL , (N.D. Tex. June 7, 2005) No punitives. No non-pecuniary damages. Walton v. Nova Info. Sys., 514 F. Supp. 2d 1031, 1035 (E.D. Tenn. 2007) “[M]ental anguish damages, future earnings and benefits, and exemplary and punitive damages,” not available under SOX as a matter of law. Hemphill v. Celanese Corp., 2009 WL (N.D. Tex. 2009) $22,000 awarded to SOX plaintiff for “pain, suffering, mental anguish, the effect on her credit, and the humiliation that she suffered.” Kalkunte v. DVI Financial Services, Inc., ARB No , ALJ No (ARB Feb. 27, 2009) $75,000 to SOX plaintiff for “emotional pain and suffering, mental anguish, embarrassment, and humiliation”), Brown v. Lockheed Martin Corp., Arb. No , ALJ No SOX (ALJ Jan. 15, 2010) 17 Whether SOX permits damages other than make-whole relief is in dispute. The ARB thinks that it may award compensatory damages while the courts, so far, do not see that in the statute. Obviously, the collateral issue is jury trial: no compensatory damages = purely equitable = bench trial Whether SOX permits damages other than make-whole relief is in dispute. The ARB thinks that it may award compensatory damages while the courts, so far, do not see that in the statute. Obviously, the collateral issue is jury trial: no compensatory damages = purely equitable = bench trial Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes. What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes.

18 SOX/Dodd-Franks Issues In an action brought under the Federal Railroad Safety Act, the Court held it lacked jurisdiction to enforce the Secretary’s preliminary order requiring Union Pacific Railroad Company to reinstate one of its employees. Solis v. Union Pacific Railroad Co., No. 12-cv (D. Idaho, Jan. 11, 2013). SOX requires charges to be filed with OSHA, which makes a preliminary “cause” decision. While the claimant can proceed to a hearing before an ALJ regardless of that decision (and with his own counsel: no NLRB type prosecutor regardless), a cause decision triggers an automatic order to reinstate. Those orders, however, may not be enforceable but noncompliance also may have risks (e.g., can the ALJ or ARB draw adverse inferences from that or amp up damages because of that?). SOX requires charges to be filed with OSHA, which makes a preliminary “cause” decision. While the claimant can proceed to a hearing before an ALJ regardless of that decision (and with his own counsel: no NLRB type prosecutor regardless), a cause decision triggers an automatic order to reinstate. Those orders, however, may not be enforceable but noncompliance also may have risks (e.g., can the ALJ or ARB draw adverse inferences from that or amp up damages because of that?). Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC Who is the employer? Does SOX apply to employees of contractors of covered employer (publicly traded companies)? – Supreme Court has granted cert in Lawson v. FMR LLC What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes. What whistleblowing is covered? SOX is not a general whistleblowing statute but is limited to violations of a short list of federal statutes. 18 Whether SOX permits damages other than make-whole relief is in dispute. The ARB thinks that it may award compensatory damages while the courts, so far, do not see that in the statute. Obviously, the collateral issue is jury trial: no compensatory damages = purely equitable = bench trial Whether SOX permits damages other than make-whole relief is in dispute. The ARB thinks that it may award compensatory damages while the courts, so far, do not see that in the statute. Obviously, the collateral issue is jury trial: no compensatory damages = purely equitable = bench trial

19 SOX/Dodd-Franks Issues “There is simply no indication that Congress intended the Anti-Retaliation Provision to apply extraterritorially. Liu urges that it would be illogical for the overseas employees of publicly-traded companies not to be protected for whistleblowing activities, but the Supreme Court has warned against "divining what Congress would have wanted if it had thought of the situation before the court." Liu v. Siemens A.G., Case No. 13-CV- 317, slip op. (SDNY. Oct. 21, 2013). 19 Neither SOX nor Dodd-Frank apply extraterritorially with respect to whistleblowers who work overseas.

20 SOX/Dodd-Franks Issues Motion to dismiss denied; “I do not believe it is unambiguously clear that the Dodd-Frank Act’s retaliation provision only applies to those individuals who have provided information relating to a securities violation to the Commission, and have done so in a manner established by the Commission….Such a reading seems inconsistent with the goal of the Dodd-Frank Act, which was to “improve the accountability and transparency of the financial system,” and create “new incentives and protections for whistleblowers.” Kramer v. Trans- Lux Corp., Case No. 11-CV-1424, (D. Conn. Sept. 25, 2013). 20 Neither SOX nor Dodd-Frank apply extraterritorially with respect to whistleblowers who work overseas. Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy

21 SOX/Dodd-Franks Issues Motion to dismiss denied; “I do not believe it is unambiguously clear that the Dodd-Frank Act’s retaliation provision only applies to those individuals who have provided information relating to a securities violation to the Commission, and have done so in a manner established by the Commission….Such a reading seems inconsistent with the goal of the Dodd-Frank Act, which was to “improve the accountability and transparency of the financial system,” and create “new incentives and protections for whistleblowers.” Kramer v. Trans- Lux Corp., Case No. 11-CV-1424, (D. Conn. Sept. 25, 2013). 21 “We conclude that the plain language of §78u–6 limits protection under the Dodd– Frank whistleblower-protection provision to those individuals who provide ‘information relating to a violation of the securities laws’ to the SEC. § 78u–6(a)(6). Asadi did not provide any information to the SEC; therefore, he does not qualify as a ‘whistleblower.’” Asadi v. G.E. Energy LLC, 720 F.3d 620, (5th Cir., July 17, 2013). “We conclude that the plain language of §78u–6 limits protection under the Dodd– Frank whistleblower-protection provision to those individuals who provide ‘information relating to a violation of the securities laws’ to the SEC. § 78u–6(a)(6). Asadi did not provide any information to the SEC; therefore, he does not qualify as a ‘whistleblower.’” Asadi v. G.E. Energy LLC, 720 F.3d 620, (5th Cir., July 17, 2013). Neither SOX nor Dodd-Frank apply extraterritorially with respect to whistleblowers who work overseas. Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy

22 SOX/Dodd-Franks Issues Arbitration ban does apply retroactively. An arbitration clause is intended to specify a forum for dispute resolution, not to affect substantive rights. Given the supposedly “procedural” character of the prohibition on mandatory arbitration for SOX retaliation claims, the court concluded that Dodd-Frank’s whistleblower amendments “should also be applied to conduct that arose prior to its enactment.” Pezza v. Investors Capital Corp., 767 F.Supp.2d 225 (2007). “[T]his court finds that the Dodd–Frank Act's SOX provisions are not retroactive…. A retroactive application of Dodd–Frank's SOX provisions would not merely affect the jurisdictional location in which such claims could be brought; it would fundamentally interfere with the parties' contractual rights and would impair the “predictability and stability” of their earlier agreement.” Henderson v. Masco Framing Corp., 2011 WL (D.Nev. 2011). 22 Dodd-Frank also extends the statute of limitations under SOX; permits claims to go straight to court; and allows double back pay (which, like ADEA, argues against compensatory/punitive damages). Dodd-Frank also bans requiring SOX or Dodd-Frank claims to be arbitrated; the debated question has been whether that is retroactive. Dodd-Frank also extends the statute of limitations under SOX; permits claims to go straight to court; and allows double back pay (which, like ADEA, argues against compensatory/punitive damages). Dodd-Frank also bans requiring SOX or Dodd-Frank claims to be arbitrated; the debated question has been whether that is retroactive. Neither SOX nor Dodd-Frank apply extraterritorially with respect to whistleblowers who work overseas. Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy

23 SOX/Dodd-Franks Issues “Employees involved in investigation work who then report wrongdoing within their agency are currently only protected in two situations. Those situations are “(1) where the disclosure is made outside of normal reporting channels and (2) where the disclosure is not one that is normally a part of the job.” These protections are very limited in scope and encourage employees to report wrongdoing to outside sources instead of those within their agency. By limiting the protection of employees to cases where a issue was reported to an outside source, employees are encouraged to forgo reporting instances of wrongdoing to their supervisors and, instead, speak to outside sources. This can create a feeling of distrust between employers and employees that is not conducive to a healthy work environment. Dodd-Frank also extends the statute of limitations under SOX; permits claims to go straight to court; and allows double back pay (which, like ADEA, argues against compensatory/punitive damages). Dodd-Frank also bans requiring SOX or Dodd-Frank claims to be arbitrated; the debated question has been whether that is retroactive. Dodd-Frank also extends the statute of limitations under SOX; permits claims to go straight to court; and allows double back pay (which, like ADEA, argues against compensatory/punitive damages). Dodd-Frank also bans requiring SOX or Dodd-Frank claims to be arbitrated; the debated question has been whether that is retroactive. An amazing percentage of these claims seems to come from employees in compliance or legal. This triggers the potential of the “duty speech” defense: if X reported only matters that it was his/her duty to report, then X is not a whistleblower. This has a history in court cases involving retaliation claims under other statutes (e.g., HR mgr reporting FLSA problems to C suites) but is still up in the air under these statutes. An amazing percentage of these claims seems to come from employees in compliance or legal. This triggers the potential of the “duty speech” defense: if X reported only matters that it was his/her duty to report, then X is not a whistleblower. This has a history in court cases involving retaliation claims under other statutes (e.g., HR mgr reporting FLSA problems to C suites) but is still up in the air under these statutes. Neither SOX nor Dodd-Frank apply extraterritorially with respect to whistleblowers who work overseas. Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy Who exactly is protected under anti-retaliation provision of Dodd-Frank is less than clear because it defines “whistleblower” narrowly but then includes an anti- retaliation clause that is unconnected to that definition. A recent 5 th Cir. decision clarifies – Asadi v. GE Energy 23

24 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 24 International Law There is significant global variation in the extent to which different jurisdictions have developed their national laws to provide whistleblowing reporting channels, to ensure reports are followed up, to protect whistleblowers against retaliation and to strengthen accountability. There is a strong cultural element which influences how different jurisdictions respond to whistleblowers.

25 Global Differences – Need for Legislation Europe USA In the US, the ‘at will’ model of employment dominates and employees have little protection against the termination of their employment. Most European countries have a ‘for cause’ model of employment - an employee can only be terminated with good reason. This provides some protection for whistleblowers in that internal disclosures at least will seldom justify dismissal. External disclosure is, however, more problematic as it may involve disclosure of confidential information which is likely to be considered to be serious misconduct. 25

26 Global Differences – Cultural Differences Europe USA 26

27 Traitor: 34%Whistleblower: 55% 27 Global Differences – Cultural Differences

28 Europe USA There remains a cultural hostility towards whistleblowing, particularly anonymous whistleblowing. This can be attributed in some countries towards an emphasis on the importance of privacy, and in others to historical factors leading to distrust of ‘informers’. In countries such as Germany and France, a stigma remains attached to anonymous informing and a mistrust of anyone who could be considered to be an informant. 28

29 Global Differences – Cultural Differences Europe USA There remains a cultural hostility towards whistleblowing, particularly anonymous whistleblowing. This can be attributed in some countries towards an emphasis on the importance of privacy, and in others to historical factors leading to distrust of ‘informers’. In countries such as Germany and France, a stigma remains attached to anonymous informing and a mistrust of anyone who could be considered to be an informant. The European emphasis generally is on protection of personal data, due process and a presumption of innocence for those whom a whistleblower accuses of wrongdoing, which does not sit well with US-led use of whistleblowing hotlines and anonymity. “The greatest rogue in the whole land is, and will remain, the informer.” - August Hoffmann von Fallersleben ( ), author of the German national anthem 29

30 Global Differences – Financial Incentives United Kingdom USA Based on the existing position in the US, the UK Government is currently seeking views on whether a system of financial incentives for whistleblowers should be implemented. This approach is favored by the head of the UK Financial Conduct Authority, which regulates financial institutions in the UK. Further developments in UK whistleblowing law may well be driven by pressure to regulate the financial services sector. At present, under UK legislation, the only existing “incentive” is the possibility for a participating offender to be given a reduction in prison sentence or immunity from prosecution principally under the Serious Organized Crime and Police Act Under Dodd-Frank a whistleblower whose complaint leads to a judicial or administrative action resulting in sanctions exceeding $1 million USD is entitled to a monetary award of no less than 10% and no more than 30% of the monetary sanction in the collected action. The rewards for whistleblowing to the SEC regarding violations of the Securities and Exchange Act are the same. Whistleblowers under Sarbanes-Oxley, as expanded by Dodd-Frank, may also recover double back pay awards.

31 Global Differences – Financial Incentives EuropeUSA Offering “bounty” to employees to blow the whistle is not a device which is used commonly in other countries. There are no such incentives in the Netherlands, France, Japan, Hong Kong or Germany. Indeed, in Germany, offering financial incentives for employees to blow the whistle would be seen critically in Germany as they might lead to denunciation of other employees. 31 Under Dodd-Frank a whistleblower whose complaint leads to a judicial or administrative action resulting in sanctions exceeding $1 million USD is entitled to a monetary award of no less than 10% and no more than 30% of the monetary sanction in the collected action. The rewards for whistleblowing to the SEC regarding violations of the Securities and Exchange Act are the same. Whistleblowers under Sarbanes-Oxley, as expanded by Dodd-Frank, may also recover double back pay awards.

32 Global Differences – Financial Incentives China USA In China, legislation provides that if the whistleblowing is true, the labor security administration will offer financial incentives to the whistleblower who has provided important clues or evidence for investigating material violations of labor security laws, regulations or rules. In anti-corruption and anti-bribery cases, the anti-corruption bureau, an internal organization in the people’s procuratorate, may offer financial incentives to encourage whistleblowing. 32 Under Dodd-Frank a whistleblower whose complaint leads to a judicial or administrative action resulting in sanctions exceeding $1 million USD is entitled to a monetary award of no less than 10% and no more than 30% of the monetary sanction in the collected action. The rewards for whistleblowing to the SEC regarding violations of the Securities and Exchange Act are the same. Whistleblowers under Sarbanes-Oxley, as expanded by Dodd-Frank, may also recover double back pay awards.

33 Global Differences – Confidentiality and Settlements EuropeUSA Public scrutiny of whistleblowing issues is far less of a hot issue in the rest of Continental Europe. In the Netherlands, provisions on confidentiality can be contractually agreed under the Criminal Code, and violation of a confidentiality obligation imposed by the employer is punishable, but not if the employee assumed in good faith that the public interest required the disclosure. In Germany, France and the Netherlands, the parties can settle claims provided legal provisions governing the validity and enforceability of settlements agreements are complied with. In France, as in the UK, any sort of gagging clause, however, is likely to be null and void. In Germany, there is a general legal obligation on employees to not disclose the employer’s business secrets. This obligation may be extended by the employment contract to all facts of which the employee receives knowledge during his employment so long as the employer is able to prove a legitimate interest in such extended confidentiality obligations. In the US, employers are not permitted to implement contractual restrictions on whistleblowing and, in fact, since the passage of Dodd-Frank, Sarbanes-Oxley claims are exempt from mandatory arbitration agreements, although all other employment related claims may be subject to arbitration. To settle a Sarbanes-Oxley whistleblower case, the parties to the agreement must obtain the written approval of the Department of Labor. Settlement agreements cannot be entered into unless they are fully reviewed by the DOL and the DOL finds that their terms are in the public interest and are fair, adequate, and reasonable. 33

34 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 34 International Law

35 Express protections 35 The law in China is silent as to whistleblowing procedures. Do we need to care about a whistleblower termination in a jurisdiction that has no laws protecting employees from termination? A sales team within a U.S. pharmaceutical company with operations in Shanghai is selling the Company's products to a hospital located in Nanjing. Simon, a member of this sales team, is instructed by his District Manager to organize a trip to Las Vegas for the doctors at the hospital. During the 7 day trip, only one day is planned for a medical conference. Each doctor will be given $1,000 by the Company for gambling while in Las Vegas. The entire cost of the trip will be covered by the Company. Simon believes the trip violates the Company's anti-bribery policy. Simon checks the Employee Handbook, but there is no whistle-blower procedure. Accordingly, he informs the Regional Manager, who tells Simon he must proceed as instructed, or face disciplinary action. Intimidated both by the potential breach of the anti-bribery policy and the pressure from his Regional Manager, Simon stops going to work to avoid performing the assignment. Eventually, he is fired due to continuous absence from work. Simon files a suit against the Company with the Shanghai Labor Dispute Arbitration Commission, for illegal termination of employment. A sales team within a U.S. pharmaceutical company with operations in Shanghai is selling the Company's products to a hospital located in Nanjing. Simon, a member of this sales team, is instructed by his District Manager to organize a trip to Las Vegas for the doctors at the hospital. During the 7 day trip, only one day is planned for a medical conference. Each doctor will be given $1,000 by the Company for gambling while in Las Vegas. The entire cost of the trip will be covered by the Company. Simon believes the trip violates the Company's anti-bribery policy. Simon checks the Employee Handbook, but there is no whistle-blower procedure. Accordingly, he informs the Regional Manager, who tells Simon he must proceed as instructed, or face disciplinary action. Intimidated both by the potential breach of the anti-bribery policy and the pressure from his Regional Manager, Simon stops going to work to avoid performing the assignment. Eventually, he is fired due to continuous absence from work. Simon files a suit against the Company with the Shanghai Labor Dispute Arbitration Commission, for illegal termination of employment. International Law

36 36 Express protections The Whistleblower Protection Act (WPA) protects workers who disclose “reportable facts” A worker must make the disclosure to the employer, an administrative body or a third party.  Employer: protected if worker believed they were reporting a reportable fact.  Administrative body: protected if worker had reasonable grounds to believe they were reporting a reportable fact.  Third party: protected if worker had reasonable grounds to believe they were reporting a reportable fact and:  that they will be dismissed or subject to other disadvantageous action if they make their disclosure to the employer or administrative body;  that evidence supporting the reportable fact might be concealed, counterfeited, or altered if they report it to the employer the worker was requested by the employer, without any justifiable reason, not to report the reportable fact to the employer or administrative body;  that some damage to the life or body of an individual; OR  the worker does not receive notice from the employer regarding the commencement of an investigation into the reportable fact within 20 days from the day they made the report in writing or the employer does not investigate without any justifiable reason. International Law

37 37 Some protection through general laws Germany does not have any specific legislation protecting whistleblowers from dismissal. Whistleblowers are, however, protected by general employment laws under the Dismissal Protection Act (DPA). The DPA provides that employees may only be terminated “for reason.” Blowing the whistle internally in relation to a matter of legitimate concern would not generally be a valid reason for termination of employment. However, blowing the whistle externally, without trying to resolve the issue internally first, with the potential consequence of damaging the employer’s reputation, may be a valid reason for termination. Such whistleblowing may be justified, however, if the employee is reporting a criminal offense committed by the employer. International Law

38 38 Some protection through general laws An Employee had been working in a geriatric nursing home, where many patients were bedridden, disorientated, and/or generally dependent on special assistance. In 2002, the Medical Review Board of the Health Insurance Fund established there were serious shortcomings in the daily care provided by the nursing home, which were caused by a shortage of staff. Subsequently, the Employee regularly reported to the management that the staff were overburdened and therefore had difficulties carrying out their duties. After the employer did not change the situation, the Employee lodged a criminal complaint against the nursing home for aggravated fraud and requested the public prosecutor to examine the circumstances of the case under all its relevant legal aspects. The employer terminated the Employee’s contract as a consequence of the criminal complaint. An Employee had been working in a geriatric nursing home, where many patients were bedridden, disorientated, and/or generally dependent on special assistance. In 2002, the Medical Review Board of the Health Insurance Fund established there were serious shortcomings in the daily care provided by the nursing home, which were caused by a shortage of staff. Subsequently, the Employee regularly reported to the management that the staff were overburdened and therefore had difficulties carrying out their duties. After the employer did not change the situation, the Employee lodged a criminal complaint against the nursing home for aggravated fraud and requested the public prosecutor to examine the circumstances of the case under all its relevant legal aspects. The employer terminated the Employee’s contract as a consequence of the criminal complaint. An employee must believe an underlying complaint is true in order to qualify for protection. Is the test subjective (pure heart/empty mind) or objective (would a reasonable human believe that)? In advising managers on termination, how can employers read the minds of whistleblowers? International Law

39 39 Some protection through general laws The German labor courts rejected the employee's claim and found that the applicant had frivolously based the criminal complaint on facts that she could not prove. However, the European Court of Human Rights found that the applicant was entitled to lodge a criminal complaint against her employer based on her freedom of expression (according to Article 10 of the European Convention of Human Rights). International Law An employee must believe an underlying complaint is true in order to qualify for protection. Is the test subjective (pure heart/empty mind) or objective (would a reasonable human believe that)? In advising managers on termination, how can employers read the minds of whistleblowers?

40 40 Express protections The UK has specific legislative protection for whistleblowers in the workplace. This is provided through the Employment Rights Act 1996 (ERA). Further reforms are currently the subject of consultation. As the law stands, it is unlawful for an employer to subject a worker to a detriment because they have made a protected disclosure. Only disclosures which relate to specific categories of information are covered by the legislation. The information disclosed must, in the reasonable belief of the worker, be made in the public interest and tend to show that one of following categories of wrongdoing has occurred, is occurring, or is likely to occur:  a criminal offense  breach of any legal obligation (which can include an obligation contained in a contract of employment)  miscarriage of justice  danger to the health and safety of any individual  damage to the environment  the deliberate concealing of information about any of the above. The legislation encourages internal disclosure to an employer or other responsible person as the primary method of whistleblowing. Dismissal of an employee on the grounds they have made a protected disclosure is automatically unfair. International Law

41 41 Express protections Former Employee heard senior managers joking about inflating the rates that were paid to individual contractors engaged by the Bank on a specific project (i.e., that they were getting “kickbacks" from the contractors). The Employee dutifully reported this. An investigation was conducted by outside counsel and determined that the employee’s complaints were 100% incorrect: there was no more substance here than the Loch Ness Monster. When the Employee was later laid off, he complained that he had been released for raising his concerns which amounted to a protected disclosure on the basis that they showed an alleged commission of a criminal offense Former Employee heard senior managers joking about inflating the rates that were paid to individual contractors engaged by the Bank on a specific project (i.e., that they were getting “kickbacks" from the contractors). The Employee dutifully reported this. An investigation was conducted by outside counsel and determined that the employee’s complaints were 100% incorrect: there was no more substance here than the Loch Ness Monster. When the Employee was later laid off, he complained that he had been released for raising his concerns which amounted to a protected disclosure on the basis that they showed an alleged commission of a criminal offense What if it turns out that the whistleblowing employee was dead wrong? International Law

42 42 Express protections The law was amended this summer. Individuals only have to satisfy the court that they have made a disclosure which is in the "public interest," which is defined as follows: It is not dispositive that the underlying complaint is untrue. The amended law provides that any individual with a “reasonable belief” that the disclosure is “in the public interest” satisfies the definition of whistleblower regardless of whether it is ultimately proved to be untrue. Reporting kickbacks such as this would satisfy this requirement, even if later proved to be inaccurate. The law was amended this summer. Individuals only have to satisfy the court that they have made a disclosure which is in the "public interest," which is defined as follows: It is not dispositive that the underlying complaint is untrue. The amended law provides that any individual with a “reasonable belief” that the disclosure is “in the public interest” satisfies the definition of whistleblower regardless of whether it is ultimately proved to be untrue. Reporting kickbacks such as this would satisfy this requirement, even if later proved to be inaccurate. International Law What if it turns out that the whistleblowing employee was dead wrong?

43 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 43 International Law Originally a US phenomenon, whistleblowing hotlines have proved more controversial in Europe. Hotlines allow employees to report their concerns anonymously, by telephone or , about possible violations of corporate rules by their co-workers. From the would-be whistleblower’s perspective, the benefits of being able to report corporate malpractice anonymously are self-evident. However, anonymous reporting poses significant problems for employers in investigating those reports and taking appropriate action.

44 Hotlines Under Sarbanes-Oxley, all companies listed on US stock exchanges are required to adopt a code of ethics for senior financial officers. Hotlines and mandatory reporting rules are now “best practice” in the US, although Sarbanes-Oxley does not specifically require employers to force employees to report on fellow co-workers or managers. It remains unclear whether the foreign subsidiaries or branch offices of US-listed companies need to comply with these requirements of Sarbanes-Oxley (and the supplemental provisions of the Dodd-Frank Act). There is limited case law on this issue and the law that does exist is in conflict. The norm, however, is for US-listed multi-national companies to adopt corporate compliance hotlines not only in the US, where the obligation arises, but also for their operations in other countries. This is problematic. A series of court cases in France, Germany and Sweden demonstrate that the legality of whistleblowing hotlines in these European countries is questionable largely on the basis that they contravene European data protection regulations. Both the courts and data protection regulators of certain European countries have resisted the introduction of such hotlines. 44

45 Hotlines - Limitations The limits placed on whistleblowing hotlines tend to fall into four categories: Restrictions against hotlines accepting anonymous reports. Limits on the types of wrongdoing about which hotlines can accept reports. Limits on who can use the hotline or be reported via the hotline. Hotline registration requirements. 45

46 Hotlines - Solutions. 46 Use one worldwide hotline that complies with both European and Sarbanes-Oxley obligation Use two hotlines – one for Europe and one for the rest of the world Implement hotlines which are tailored for each jurisdiction’s individual restrictions Do not implement hotline reporting in Europe based on view that foreign subsidiaries do not need to comply

47 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 47 International Law Given the different cultural and legal approaches to whistleblowing across the globe, multi-national employers must ensure they tailor their policies according to their global footprint

48 Implementing a Global Approach WHY HAVE A ROBUST WHISTLEBLOWING PROCESS? ■ Good business and risk management and good corporate governance ■ Deter malpractice and avoid wrong-doing thus maintaining or improving performance ■ To protect staff, customers and the public ■ To meet the expectations of regulators ■ By encouraging employees to raise matters internally, it avoids the potential for external disclosure ■ It can reduce financial losses ■ Letting employees know that wrong-doing will not be tolerated can improve staff morale ■ Demonstrating a commitment to good governance is likely to enhance the employer’s reputation and increase investor confidence 48

49 Implementing a Global Approach 49

50 Implementing a Global Approach 50

51 Implementing a Global Approach 51

52 U.S. Law Global Differences Whistleblowing Hotlines Implementing a Global Approach Our Agenda 52 International Law

53 Scenario 1 Eric is an assistant Vice-President and senior accountant for a publicly traded company with over $3.5 billion in annual revenues. Eric is well-liked in his department; he has very strong relationships with co-workers, and considers many of them to be close, personal friends. His duties include reviewing and approving any expenses over $50,000 before payment. Recently, Eric refused to process payments for an “advertising” event held at the Atlantis Resort in the Bahamas. The five-day event included only a single one-and-one-half hour business meeting. Expenses for the $350,000 Atlantis event included: Eric sent an directly to the CFO, his boss. In that , Eric expressed his belief that these costs needed to be charged as income to attending employees (who brought spouses or guests) and that any other treatment would result in a misstatement and tax fraud. Mermaid Greeters - $2,000 “Limbo” and “Fire” - $2,350 Costumed Pirates/Wenches - $3,000 Tattoo Artist - $5,000 Chair decorations - $2,500 Hotel rooms - $1,000/night. 53

54 Scenario 1 While the company was investigating Eric’s allegations, another accountant, Joan – who was not Eric’s direct report – made a claim for sex discrimination after she was denied a promotion. While investigating her claims, Human Resources uncovered the following facts: Eric hosted (and paid for) a weekend party at his lake house for the accounting department; after many hours of drinking, members of his department went skinny dipping in his pool - including Eric and Joan Eric frequently texts co-workers, including Joan, personal text messages Eric pursued other women in accounting -- but not Joan -- by sending them gifts and taking them on several weekend getaways, though those relationships appeared consensual and none of those women complained. 54 DateText July 20, 2012“Sleep well and hopefully have a naughty dream.” August 4, 2012“Love u M” October 22, 2012“In your pj’s yet?” October 26, 2012“Mahalo, beyotch!” December 4, 2012“Miss you already. Do you miss me?” January 14, 2013“Miss me?” January 18, 2013“I’m only wearing a belt” January 28, 2013“Hey sexy lady” April 6, 2013“You’re smooth and creamy…like peanut butter”

55 Scenario 1 The CFO now wants to fire Eric, saying his social antics are an embarrassment if not a liability; his tax fraud assertions are not material even if PwC comes back agreeing with him; and Eric’s report to him about Atlantis was no more than Eric doing his job. 55

56 Scenario 2 The investigation into Joan’s allegations of sexual harassment proved: While Eric certainly engaged in some inappropriate behavior, the evidence regarding the skinny dipping, etc. was sketchy and unreliable. The texts, viewed in context, revealed what appeared to be a mutual relationship. Joan’s credibility – in light of other evidence – came into question. As a result, Eric was admonished for his poor judgment, was counseled as to what is appropriate behavior, but was not removed from his position. At the same time, Eric became more vocal about his complaints of accounting irregularities. Eric sent a detailed letter to the internal audit committee. 56

57 Scenario 2 The human resources investigation into Joan’s allegations of sexual harassment proved: While Eric certainly engaged in some inappropriate behavior, the evidence regarding the skinny dipping, etc. was sketchy and unreliable. The texts, viewed in context, revealed what appeared to be a mutual relationship. Joan’s credibility – in light of other evidence – came into question. At the same time, Eric became more vocal about his complaints of accounting irregularities. Eric sent a detailed letter to the internal audit committee. 57

58 Scenario 2 Meanwhile, Eric’s boss, the CFO, is complaining that Eric has become disruptive, his work product is unreliable, and he has an increasing amount of absenteeism. Eric’s boss wants him fired. 58 The investigation into Joan’s allegations of sexual harassment proved: While Eric certainly engaged in some inappropriate behavior, the evidence regarding the skinny dipping, etc. was sketchy and unreliable. The texts, viewed in context, revealed what appeared to be a mutual relationship. Joan’s credibility – in light of other evidence – came into question. As a result, Eric was admonished for his poor judgment, was counseled as to what is appropriate behavior, but was not removed from his position. At the same time, Eric became more vocal about his complaints of accounting irregularities. Eric sent a detailed letter to the internal audit committee.

59 Scenario 2 59 Meanwhile, Eric’s boss, the CFO, is complaining that Eric has become disruptive, his work product is unreliable, and he has an increasing amount of absenteeism. Eric’s boss wants him fired. The investigation into Joan’s allegations of sexual harassment proved: While Eric certainly engaged in some inappropriate behavior, the evidence regarding the skinny dipping, etc. was sketchy and unreliable. The texts, viewed in context, revealed what appeared to be a mutual relationship. Joan’s credibility – in light of other evidence – came into question. As a result, Eric was admonished for his poor judgment, was counseled as to what is appropriate behavior, but was not removed from his position. At the same time, Eric became more vocal about his complaints of accounting irregularities. Eric sent a detailed letter to the internal audit committee.

60 Scenario 3 During the course of the investigation, the internal audit committee learns that Eric has lodged a complaint with the SEC, because Eric copied the Audit Committee on his complaint. 60

61 61


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