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Tilburg University Law School International Business Law

Tiina Suun ANR: 303681

Does the whistleblower protection regulation in the Estonia’s private sector have to be re-evaluated in order to provide efficient protection to employee whistleblowers?

Master thesis

Supervisor: Vladimir Mirkov

Number of words: 18 897

Tilburg 2014

Table of contents 1.

Introduction ..................................................................................................................................... 4

2.

Literature review ............................................................................................................................. 7

3.

Introduction to whistleblower protection and reward programs...................................................... 9

4.

5.

3.1

What is whistleblowing? ......................................................................................................... 9

3.2

Whistleblower protection regulations and reward programs ................................................. 10

3.2.1

United States of America............................................................................................... 10

3.2.2

United Kingdom ............................................................................................................ 12

3.2.3

Rest of the world ........................................................................................................... 13

3.2.4

European Union ............................................................................................................. 13

3.3

Are whistleblowers protected from retaliation in Estonia? ................................................... 15

3.4

Public’s perception towards whistleblowing and whistleblowers in Estonia ........................ 16

Why is the existing regulation in Estonia inefficient? ................................................................... 17 4.1

Perception of whistleblowing ................................................................................................ 17

4.2

Fear of retaliation .................................................................................................................. 17

4.3

Inefficient regulation ............................................................................................................. 17

4.4

How to solve the issues?........................................................................................................ 18

Protection against retaliation ......................................................................................................... 21 5.1

Whistleblowing hotlines ........................................................................................................ 21

5.2

Internal codes of conduct....................................................................................................... 23

5.2.1

Estonian corporations and internal codes of conduct governing whistleblowing ......... 24

5.2.2

How is internal whistleblowing perceived?................................................................... 25

5.2.3

How is internal whistleblowing perceived in the United Kingdom? ............................. 26

5.3

Facilitating external whistleblowing ..................................................................................... 26

6.

Cultural and ethical aspects of whistleblowing ............................................................................. 29

7.

Other means whistleblowers could use to protect themselves against retaliation ......................... 31 7.1 7.1.1 7.2

8.

9.

The Employment Contracts Act ............................................................................................ 31 Where to turn to in case of an Employment Contracts Act claim? ............................... 32 The Equal Treatment Act ...................................................................................................... 33

Reward programs .......................................................................................................................... 35 8.3

What is a reward program?.................................................................................................... 35

8.4

What are the main incentives to provide rewards for whistleblowers? ................................. 35

8.5

Objections to the reward program ......................................................................................... 36

Survey............................................................................................................................................ 38 2

9.1

Conducting the survey ........................................................................................................... 38

9.2

Would whistleblowers choose to speak out? ......................................................................... 38

9.3

Internal and external whistleblowing .................................................................................... 39

9.4

Perception of whistleblowers ................................................................................................ 40

9.5

Fear of retaliation .................................................................................................................. 40

9.6

Internal compliance mechanism or external regulation? ....................................................... 41

9.7

Offering rewards.................................................................................................................... 42

9.8

Whistleblowing hotline ......................................................................................................... 42

10.

Changes needed to be made in order to facilitate efficient regulation ...................................... 44

10.1

Whistleblower hotline ........................................................................................................... 44

10.2

Internal regulation ................................................................................................................. 45

10.3

External regulation ................................................................................................................ 46

10.4

Reward program .................................................................................................................... 47

11.

Conclusion ................................................................................................................................. 49

12.

Bibliography .............................................................................................................................. 54

13.

Annex ........................................................................................................................................ 58

3

1. Introduction Over the past few years, the interest in the concept of whistleblowing has grown all over the world. Whistleblowing is recognized as an effective tool to discover illegal or unethical conduct in corporations, both in public and private sectors. However, with blowing the whistle, several negative consequences may follow for the informant, such as dismissal, ridicule and exclusion due to it being an unwanted behaviour by the wrongdoer(s). To eliminate the risk of retaliation, high emphasis is being put on the protection of whistleblowers to incentivize corporate insiders to disclose information about wrongful behaviours. The benefits of such a cost and time efficient monitoring mechanism are being widely recognized and therefore several countries are re-evaluating or establishing new regulations to incentivize and protect potential whistleblowers from retaliation, in order to raise the number of disclosures about illegal or unethical activities. However, most of the existing regulations today cover the public sector employees only. After the Enron Corporation imploded in the US, with that additional illegal activities of other companies came to light that affected the whole world. As a result, legislators in the United States took the step to widen the whistleblower protection regulation to cover private sector employees. This was meant to motivate private sector employees to report wrongdoings in their early stages and prevent the happening of similar disasters. As the private sector corporations are growing and gaining more influence in society, widening the whistleblower protection regulation to cover private sector has become one of the central aspects why the whistleblower protection regulations need to be re-evaluated. A whistleblower is usually someone inside the corporation (or government agency), who has witnessed illegal or unethical activities being carried out by someone else in the same corporation and reports about the activity to the managers inside the corporation or to authorities outside the corporation. However, some concerning aspects accompanying the process emerge. Whistleblowers are afraid to sacrifice their personal or professional interests and face dismissal, ridicule or other kinds of retaliation because of their disclosure. Therefore, how can legislators make sure whistleblowers maintain the incentive to report illegal or unethical activities and with that limit the ability of managers or other employees to manipulate the reporting of a crime? Advanced whistleblower protection laws that protect whistleblowers against retaliation and in specific cases reward them for reporting the illegal or unethical activities solve both of these problems. Whistleblowers have the incentive to report 4

wrongdoings because they can count on the protection or reward from the external or internal authorities and corporations have the incentive to conduct less illegal or unethical activities due to the heightened risk of being reported. To look into the topic in more details, Estonia is chosen as a case study to analyse the effects of an absent regulation to protect whistleblowers in the private sector. The reason behind the choice is my personal interest in Estonian legislature and whistleblowing regulations in general. It is interesting to analyse and study how whistleblowing could be advanced in that country and if it is necessary to re-evaluate the existing regulations. Another aim of this thesis is to analyse how the existing laws that today cover only public sector whistleblowers’ protection could be advanced. The questions which will be answered include: which are the most efficient ways to protect and motivate whistleblowers? Would Estonia benefit from the adoption of the United State’s external disclosure approach or would the United Kingdom’s approach of advanced internal compliance mechanisms be a more suitable option? What changes would have to be made in order to facilitate the changes? Would re-evaluating the existing regulation and widening it to cover the private sector employees provide incentives for (future) whistleblowers to report criminal or unethical activities within the corporation? Which options do the private sector whistleblowers have today to protect themselves from dismissals or discrimination? How is whistleblowing and whistleblowers perceived by a varied group of Estonians? The analysis is carried out by examining a variety of articles written about the effectiveness of whistleblower protection and reward programs. To support the theory and gather more detailed information about Estonia, a survey was carried out among Estonians to collect data about the attitude towards whistleblowing and the efficiency of different methods used to incentivize whistleblowers. The thesis begins with an introduction, which is followed by a literature review, discussing the research already carried out in the field of whistleblower protection regulations. A brief introduction to the history and the present situation of whistleblower protection laws and reward programs in the United States, in the European Union and specifically in Estonia follows. The main paragraph describes the different approaches that can be taken to regulate whistleblowing and protect whistleblowers from retaliation, ranging from internal compliance mechanisms to anonymous hotlines. With every approach the benefits and shortcoming of the specific approach are discussed and the applicability to efficient whistleblower protection is analysed. The discussions of alternative methods, such as bringing an action to court or to a labour dispute committee to contest an 5

unwarranted dismissal or discriminative behaviour after blowing the whistle, follows. Finally, the results of the survey are brought out and analysed and steps needed to take in order to effectively implement the changes in the regulations are discussed. The final section concludes.

6

2. Literature review As the issue of efficient whistleblower protection and especially reward programs for blowing the whistle are a relatively new issue in Europe, there is not a lot of academic research carried out on the matter. Transparency International has carried out two researches, about the whistleblower protection laws: in Europe1 in general and specifically in Estonia2. These two papers set the guidelines for possible amendments in the existing whistleblower protection regulations and specifically recommend the whistleblower protection regulation to cover private sector employees as well, who at the current moment are basically not protected from retaliation. The fact that a single act would be more efficient in protecting whistleblowers than individual paragraphs in numerous acts is clearly argued by Mary K. Ramirez3. By her, the legal structure matters and therefore changes need to be carried out with the current situation where individual paragraphs regulation whistleblowing are scattered between different acts. The most sophisticated whistleblower protection regulation, the Public Interest Disclosure Act of 1998, is examined and explained in details by James Gobert and Maurice Punch in their article4 about whistleblower regulations. The UK clearly leans towards incentivizing whistleblowers to disclose information internally, in order to protect the corporation from possible reputational damages and to give the corporation an opportunity to remedy the wrongdoings without external intervention. Internal regulation is believed to lead to a healthy corporate culture. Whistleblowing is an issue that is closely tied with the concerns of organizational ethics. Susan L. Ray5 analyses the problems potential whistleblowers face in their decision to disclose information and what has to be done inside the corporation to minimize the ethical dilemmas employees face. The potential whistleblower must weigh all the pros and cons that are associated with blowing the whistle and make the decision to disclose information for the

1

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009 2 M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013 3 M.K. Ramirez, „Blowing the whistle on whistleblower protection: A tale of reform versus power“, University of Cincinnati Law Review, 76 U. Cin. L. Rev. 183, United States of America, 2007 4 J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000 5 S. L. Ray, „Whistleblowing and Organizational Ethics“, Nursing Ethics 13(4), Edward Arnold Ltd, 2006

7

right moral reason and reasoning. In order to incentivize employees to take the step and blow the whistle, the corporation has to create a moral community that is transparent and supportive of employees who make the choice to blow the whistle. Finally, Prof. Dr. Holger Fleicher and Dr. Klaus Ulrich Schmolke critically analyse the efficiency of reward programs in the European Capital Markets Law6, giving an impartial and general view on the necessity of adopting the reward programs in Europe, which can in turn be applied to Estonia when questioning whether to adopt the US approach of rewarding whistleblowers to ensure a higher number of disclosures. The main advantages of the reward programs are cost efficiency, increased investor confidence and social welfare. On the other hand, the number of unreliable disclosures may rise and the effectiveness of internal compliance programs may be weakened if the external whistleblowing is favoured.

6

H. Fleischer, K. U. Schmolke, “Financial Incentives for Whistleblowers in European Capital Markets Law? – Legal Policy Considerations on the Reform of the Market Abuse Regime”, ECGI - Law Working Paper No. 189/2012, 2012

8

3. Introduction to whistleblower protection and reward programs 3.1 What is whistleblowing? Whistleblowing is defined by Transparency International7 as disclosure or reporting of wrongdoing, including but not limited to corruption; criminal offences; breaches or legal obligation; miscarriages of justice; specific dangers to public health, safety or the environment; abuse of authority; unauthorised use of public funds or property; gross waste or mismanagement; conflict of interest; and acts to cover up any of these. As a result, the person who discloses or reports the above mentioned wrongdoings is considered a whistleblower. Why is it also necessary to have whistleblowers in the private sector? There are many companies in the world with growing influence, which means the illegal or unethical actions could have a far more serious impact on the society today than they would have had a few years ago when the initial whistleblower protection regulations were adopted. This explains why the early whistleblower protection regulations covered the public sector workers only. Nowadays, with the growing number of companies, authorities do not have the resources or time to monitor the legality of actions of people inside every single business unit. Employers and employees are aware of this shortcoming and that can potentially incentivize them to carry out illegal activities more willingly, especially when there is a probability of a large financial gain. The threat of “getting caught” is relatively low due to the work overload of the respective authorities. Therefore, the best way (and most cost efficient) for the authorities is to motivate employees or other company insiders to signal the wrongdoing they have witnessed, to blow the whistle. However, for the disclosure to be efficient in stopping or eliminating wrongful activities, the whistleblower does not necessarily need to turn to the outside authority. Within a growing corporation, where the managers and executives have no time to monitor every single employee in every subsidiary, an inside disclosure to the respective body or the head managers/executive will go a long way in starting an internal investigation. This way the corporation can remedy the wrongdoing before the illegal or unethical conduct has the possibility of affecting third persons and the larger public and before the external authorities are involved. While trying to find synonyms for the term “whistleblower”, the first coming to mind are “a rat”, “a snitch”, “a traitor”. From this, an easy conclusion can be drawn to explain why the attitude towards a whistleblower might not always be positive within the corporation. 7

Transparency International, „International principles for whistleblower legislation“, European Commission, 2013, page 4

9

Potential whistleblowers are often reluctant to notify relevant bodies within the company („internal“ whistleblowing) or to a regulatory authority („external“ whistleblowing) because they fear for their own future professional advancements – ridicule, dismissal, suspension and blacklisting. To combat the above mentioned concerns, legislators and the courts must provide a legal environment favourable to reporting illegal activities, either internally or externally, in order to foster the willingness to blow the whistle.8 Whistleblowing is a wanted and favoured behaviour by the authorities and the company managers and owners. As a result, to incentivize the potential informants to disclose information, the whistleblower must be granted some benefits in return, such as protection against retaliation or even a reward. In order to efficiently protect and reward whistleblowing, legislators have come up with a variety of whistleblowing protection laws and more recently, a whistleblowing reward program. Whistleblowing is considered to be the most effective tool for fraud detection and has been identified as a strong fraud prevention factor, as the high risk of being reported by a whistleblower deters the potential perpetrators.9 Current measures used to increase whistleblowing are: effective protection against retaliation for informants, statutory obligation to report illegal behaviour, the imposition of fines for a failure to report illegal behaviour and financial incentives in form of a reward for informants.10

3.2 Whistleblower protection regulations and reward programs 3.2.1 United States of America The reason to look into the whistleblower regulation in the United States is that the history of whistleblowing regulations starts in the US, as the first laws governing whistleblowers protection were adopted there. The first whistleblower law was the False Claims Act (FCA), passed during the Civil War.11 This is considered the legal cornerstone in developing whistleblower protection. The act was enacted in 1863 and was meant to encourage private citizens to sue on behalf of the United States to address fraudulent practices of companies

8

H. Fleischer, K. U. Schmolke, “Financial Incentives for Whistleblowers in European Capital Markets Law? – Legal Policy Considerations on the Reform of the Market Abuse Regime”, ECGI - Law Working Paper No. 189/2012, 2012, page 2 9 P. Ayagre, J. Aidoo-Buameh, “Whistleblower reward and systems implementation effects on whistleblowing in organisations”, European Journal of Accounting Auditing and Finance Research Vol.2, No. 1, United Kingdom, 2014, page 82 10 H. Fleischer, K. U. Schmolke, “Financial Incentives for Whistleblowers in European Capital Markets Law? – Legal Policy Considerations on the Reform of the Market Abuse Regime”, ECGI - Law Working Paper No. 189/2012, 2012, page 2 11 R.A. Johnson, “A Piercing Look at Whistleblowing”, The Centre for Association Leadership, United States of America, 2004

10

supplying the federal government with deficient goods during Civil War.12 The law is still in effect today, with some minor changes. The most significant whistleblower statute targeted federal workers – the Whistleblower Protection Act (WPA), passed in 1987, with amendments in 1989 and 1994. According to WPA, federal agencies were required to establish hotlines to report waste, fraud and abuse. For the first time in 2002, the Sarbanes-Oxley Act provided whistleblower protection from retaliation to the large numbers of private-sector employees working in publicly traded companies. The previous laws had protected federal workers, therefore the public sector workers only. The bill was passed after Enron Corporation imploded. After Enron, there were many revelations about other companies' fraudulent activities, giving a further incentive to reevaluate existing regulations.13 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 extended the bounty model on the federal level to those who bring financial and securities fraud to light14 – it enhanced and expanded pre-existing protections and bounty incentives to encourage whistleblowing on a whole new level. Before the Dodd-Frank Act, the award of a bounty was left to the discretion of the Securities and Exchange Commission (SEC) and applied only in insider trading cases. Dodd-Frank Act also added a new anti-retaliation provision to the Securities Exchange Act of 1934, prohibiting actions taken against whistleblowers. The Act mandates that in any judicial or administrative action brought by the Securities and Exchange Commission resulting in sanctions exceeding $1 million, the SEC shall pay an award between 10 and 30 percent of the monetary sanctions imposed. Additional requirements set that the information must have been provided voluntarily, the information must have been original and must have led to a successful enforcement of the action. 15

12

M.K. Ramirez, „Blowing the whistle on whistleblower protection: A tale of reform versus power“, University of Cincinnati Law Review, 76 U. Cin. L. Rev. 183, United States of America, 2007, page 5 13 R.A. Johnson, “A Piercing Look at Whistleblowing”, The Centre for Association Leadership, United States of America, 2004 14 G.C. Rapp, “States of Pay: Emerging Trends in State Whistleblower Bounty Schemes”, South Texas Law review, Vol. 54, United States of America, 2012, page 2 15 J. M. McLaughlin, “Corporate Litigation: Dodd-Frank and Whistleblower Protection: Who Qualifies?”, Simpson Thacher & Barlett LLP, 2013, page 2

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3.2.2 United Kingdom The first ever comprehensive whistleblower law passed in the EU was the United Kingdom’s Public Interest Disclosure Act and it is widely considered to be the strongest in Europe and among the best whistleblower protection regulations in the world.16 As mentioned, whistleblower protection is governed by the Public Interest Disclosure Act (PIDA) of 1998. The act aims to promote internal whistleblowing but does not compel the whistleblower to take their concerns to the appropriate regulatory body outside the corporation.17 PIDA creates a framework for whistleblowing within the private, public and voluntary sectors. The persons covered by the act are not limited to employees, but also independent contractors, home workers and trainees. The disclosure of information will qualify for protection if the informant believes in its correctness, making the list of types of disclosure rather inclusive. The act distinguishes between three recipients of information – the whistleblower’s superior or employer, the authorised regulator or agency and the wider public audience, such as the media and the police.18 The internal whistleblowing is favoured, since it is only fair that the employer gets the opportunity to remedy the wrongdoing without the external bodies interfering. Since the organisation cannot correct problems which it is unaware of, the prime reason to motivate whistleblowers to report their concerns it to kickstart the internal correction processes. The whistleblower is protected as long as he acted in “good faith”.19 Disclosures to regulatory bodies are regarded as the non-preferred mode of proceeding, instead of reporting internally. This fact is backed up by the heavier burden of proof that must be satisfied to qualify the employee’s disclosure for protection - the employee must reasonably believe that the matter falls within the jurisdiction of the prescribed person to whom the report is to be made and that the disclosure is “substantially true”.20 The external whistleblowing faces the most stringent requirements. In order for the whistleblower to be protected under the PIDA, besides the requirements of acting in good faith, disclosure being

16

M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 10 17 J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000, page 42 18 J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000, pages 38-40 19 J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000, page 40 20 J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000, page 42

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based on reasonable belief and being substantially true, the whistleblower must also not act for personal gain.21 3.2.3 Rest of the world Outside the United States, whistleblowing is treated as a trans-cultural policy – there is a high level of international mimicry among countries. So far this repetition is confined to countries that share similar legal concepts and institutions. For example the New Zealand Act is a copy of the South Australian Act (New Zealand Whistleblower Protection Act, 1994). The UK’s regulation was followed to a substantial extent in the Irish Bill (Whistleblowers Protection Bill, 1999). The United Kingdom law was also followed to a substantial extent in the South African statute and the languishing Nigerian Bill. Japanese Cabinet Office, in considering private sector whistleblowing protection legislation, was also influenced by the United Kingdom.22 Whistleblower protection is now recognized as part of international law. In 2003, the United Nations adopted the Convention Against Corruption. In 1999, the Council of Europe ratified its Civil Law Convention on Corruption. This Convention is a binding legal authority on most European governments. Article 9 of this Convention explicitly requires, as part of their internal domestic law, that European governments provide "appropriate protection" for employee whistleblowers. There is a huge contrast between the advancement of the United States and the United Kingdom legislation and whistleblower protection regulations in other countries in the world. However, the rest of the world is starting to realize the potential of whistleblowing as a tool to fight fraudulent activities and as a result, different whistleblowers protection laws are being drafted and enacted following the United State’s and United Kingdom’s example. 3.2.4 European Union Even though the importance of whistleblowers, the insider informants, to combat fraudulent activities is widely recognized, most European countries do not have a legal protection regime in place to protect whistleblowers from retaliation. In fact, only four European Union Member States have legal frameworks for whistleblower protection that are considered advanced. Those Member States are Luxembourg, Romania, Slovenia and the United Kingdom. Besides

21

J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000, page 44 22 W. De Maria „Whistleblower Protection: Is Africa Ready?“, Wiley & Sons, Ltd. Published online in Wiley Interscience, Australia, 2005, pages 221-222

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these four Member States, 16 European Union Member States have partial legal protections for employees who report wrongdoing. The remaining seven Member States have either very limited or no legal frameworks to protect whistleblowers from retaliation. The provisions that are in place in the Member States are not often efficient. Many provisions contain loopholes and exceptions, which results in employees who believed they would be protected from retaliation under certain provision, find out after blowing the whistle, that they are not protected by these provisions after all. Due to these kinds of inconsistencies, employees throughout Europe face the risk of retaliation, which deteriorates the motive to blow the whistle. This leads to taxpayer money, public property, environmental resources and lives themselves being at risk, if potential whistleblowers are deterred to report the illegal or unethical activities that they have witnessed inside the corporation. Fortunately, several EU countries in recent years have taken steps to turn the situation around and strengthen whistleblower rights to protection, including Austria, Belgium, Denmark, France, Hungary, Italy, Luxembourg, Malta, Romania and Slovenia. Transparency International urges all European Union Member States to adopt comprehensive whistleblower protections into their legislation. The European Commission should follow the call by the European Parliament in October 2013 and submit a legislative proposal establishing an effective and comprehensive whistleblower protection programme in both public and private sectors in the Member States. Because whistleblowing carries professional and personal risks to the whistleblower, there is an urgent need to revise whistleblower protection laws in the European Union countries and adopt the respective regulations in Member States where they do not exist yet.23 There have been many serious scandals in Europe in recent years that might have been prevented or their effect lessened if the corporation insiders would have come forward with the information to expose the problems. This is where the inadequate whistleblower protection regulations play a huge role – employees do not have the incentive to risk their professional or personal life for the sake of providing information about illegal activities to the managers, external authorities or media. Even though the EU aspires to lead the world in human rights, individual liberties and justice, the inadequate whistleblower protection regulations in the Member State do not meet the international standards of efficient whistleblower protection. Only two of the European Union

23

M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 5

14

Member States have ratified the United Nation’s Convention Against Corruption. What is worse, most of the regulations adopted in the Member States today do not live up to the European Union’s Charter of Fundamental Rights. A majority of regulations fall short of standards and guidelines issued by the Council of Europe, the Organisation for Economic Cooperation and Development (OECD), and other international organisations, among them nongovernmental organisations (NGOs), such as Transparency International.24

3.3 Are whistleblowers protected from retaliation in Estonia? Estonia’s existing laws include partial provisions and procedures for public sector whistleblowers. As a result, the situation is slightly better than in some European Member States, which have not adopted whistleblower protection regulations at all. However, the situation does not come close to for example the United Kingdom’s whistleblower protection regulation, which is considered one of the most advanced in the world. Currently, Estonia has a very narrow legal framework for whistleblower protection and there is no stand-alone whistleblower law. Anti-Corruption Act which was updated in June 2012 and took effect in April 2013 is the only notable regulation that deals with whistleblowing. The update of the Anti-Corruption Act states the prohibition from withholding information about acts of corruption and bribery by the public officials. Disciplinary measures are allowed if this is violated.

The names of the whistleblowers are kept confidential, unless the

whistleblower report incorrect information intentionally. Such action triggers criminal penalties for the whistleblower according to the Anti-Corruption Act. The disclosure to the media and NGOs is not permitted. The law also applies when public officials disclose wrongdoing in the private sector. Estonia’s law on personal data protection allows whistleblower mechanisms to be set up in the private sector only if required by specific regulation. The modest improvement to the Anti-Corruption Act is the only change made to Estonian whistleblower protection regulation recently and there is no apparent momentum among the political leadership to improve whistleblower protections and procedures. For example, lawmakers have not yet required government agencies to develop and enforce internal whistleblowing systems.25 The above mentioned mostly governs the protection of public officials and as a consequence, there is basically no regulation governing the private sector employees’ protection from retaliation. 24

M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 7 25 M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 40

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In a 2012 survey, only 1 per cent of citizens and business owners, and 13 per cent of civil servants who had personally experienced corruption, actually reported the cases to authorities.26 Such findings confirm the strong psychological burden related to coming forward in Estonia, as citizens are reluctant to disturb their organisation´s microclimate and are afraid of psychological pressure.27 This is a clear indication that whistleblower laws have to be revised and advanced to raise the per cent of people who after experiencing, for example, corruption, would report the authorities or superiors in the corporation about this illegal activity.

3.4 Public’s perception towards whistleblowing and whistleblowers in Estonia The public is perceived to have negative impressions of whistleblowing – it is associated with reporting on people in order to harm them. In one respective survey, 74 per cent of the surveyed said they would not react when witnessing bribery. However, there are indications that opinions in Estonia may be changing. At least cases in which lives may be in danger, citizens are more willing to report them. Due to the strong misconceptions and lack of meaningful or consistent political support, there will be not many improvements made in the whistleblower procedures in Estonia. Before changing the laws, resources should be devoted to educate and inform the public of whistleblowing cases and how effective whistleblowing is to detect and prevent corruption, fraud and mismanagement. In the private sector, companies should be informed of how advanced whistleblowing systems can improve their internal risk management. 28

26

M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 18 27 M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 41 28 M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013, page 41

16

4. Why is the existing regulation in Estonia inefficient? 4.1 Perception of whistleblowing To determine the attitude among Estonian citizens towards public sector corruption and blowing the whistle on such cases, a study was carried out which revealed that 80.5% of the questioned people have a positive attitude towards whistleblowers (that meaning they would definitely approve or probably approve). However, 10,9% of people have a very negative attitude towards whistleblowing, meaning they would definitely or probably disapprove of the action (Corruption-free Estonia, 2012)29. This provides valuable insight to the fact that Estonians are positively minded and understand the value and necessity of whistleblowing by giving their approval in most of the cases. For the whistleblowing phenomenon to be effective, the approval and positive attitude of the society is very important. Otherwise, the potential informant would probably abstain from blowing the whistle if the aftermath would be disapproval and derogation.

4.2 Fear of retaliation When it comes to the fear of retaliation, 43,1% of the questioned people believe it is possible to report the illegal acts without retaliation following. On the contrary, 45,5% believe that it is impossible to report corruption without sanctions following (Corruption-free Estonia, 2012). From these statistics a conclusion can be drawn that the current situation is not in favour of whistleblowing. Namely, the fear of retaliation is currently the biggest hurdle for whistleblowers. People who have experienced illegal activities might feel that it is not worth it to jeopardize their personal lives and careers. In order to create an efficient system of whistleblowing, whistleblowers need to be protected from sanctions and retaliation. Only reevaluating the laws would not be enough to bring awareness of whistleblowers’ rights and protections. For that reason, the society needs to be educated on this matter and the state needs to provide precedents on whistleblowers being protected from retaliation. Only this would weigh the statistics in favour of more people not fearing retaliation and as a result gaining an incentive to report the wrongdoing to the internal or external authorities.

4.3 Inefficient regulation According to Jaanus Tehver, the chairman of the board of Corruption-free Estonia, the Anticorruption Act of Estonia mentions the protection of the informant of a corruption case but the

29

Transparency International Korruptsionoivaba Eesti, „Ühing: Korruptsioonist teavitajad vajavad paremat kaitset, kuid hoiakud juba paranevad“, pressrelease, November 2013

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regulation is insufficient in protecting the rights and interests of the whistleblower.30 The Anti-Corruption Act addresses the public sector corruption and as a result, does not provide any protection to private sector whistleblowers. However, paragraph 5 section 531 of the act provides that the informant is protected if the object is a corruption case that took place in the private sector. This allows the informant to stay anonymous (unless the reporting is motivated by personal gain or other illegal motives) and file and action if he is discriminated due to the reporting. There are no other protections available to whistleblowers than the guarantee on anonymity and reversed burden of proof applied by courts.32 The subject of the regulation still remains a public sector employee, as a consequence granting no rights or protection to private sector whistleblowers. When the private sector is taken into account, the regulation that can be applied to whistleblowing cases is limited to two paragraphs in Estonia’s Penal Code and the Witness Protection Act. Paragraph 306 in the Penal Code states that the penalties for non-disclosure of criminal offences in the first degree (including some cases of bribery) are punishable by a “pecuniary punishment or up to 5 years of imprisonment”. Paragraph 307 of the Penal Code states that the failure to report the same offences can be punished. In addition, the Witness Protection Act protects witnesses before, during and after court proceedings in case of a chance of unlawful influence.33 The Witness Protection Act, as a consequence, only applies if the matter has been taken into court. However, the thought of starting a court proceeding might abstain informants from reporting the witnessed illegal or unethical behaviours even further – the costly procedure and being protected only as a witness in a court proceeding does not create further incentives for whistleblowers. This act is not directed to whistleblowers and does not mention whistleblowing, thus the application of this regulation to whistleblower protection cases is highly questionable.

4.4 How to solve the issues? In order to protect whistleblowers, would a unified regulation solve the current issues? The current situation where there are very few paragraphs in different acts does not help to create certainty and transparency on the issue of protection. As it was revealed in the survey by

30

Transparency International Korruptsioonivaba Eesti, „Eesti kuulub korruptsioonist teavitajate kaitse osas ELi keskmike hulka”, press release, November 2013 31 Anti-corruption Act, RT I, 29.06.2012, 1 32 L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 5 33 L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 6

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Corruption-Free Estonia, potential whistleblowers do fear sanctions and retaliation. In order to limit this fear, a single and comprehensive act, stating the rights and obligations of a whistleblower and consequences for providing false information, would go a long way in creating trust and confidence in the society. People who do not have extensive knowledge or experience in law are usually unaware of the different acts and unable to understand different regulations, let alone search for specific paragraphs in different acts that provide the answers to their questions. This will in turn lead to people choosing not to use their rights because of high uncertainty and high costs of legal advice. If the employees are not sure if and how they will be protected after they report a wrongdoing inside the corporation or to an authority outside the corporation, they will probably abstain from reporting and choose to stay silent. Staying silent is the easiest and most risk free option for the employee. As whistleblowing is recognized as an effective tool to fight corruption and other criminal behaviours in a corporation, as a consequence staying silent is definitely not the outcome that authorities and the society would prefer. For that reason, it is of utmost importance to set clear rules and boundaries to whistleblower protection in order to incentivize informants to provide information about illegal activities inside a corporation. Despite the fact that there are some regulations in place that (indirectly) protect corporate whistleblowers, changes need to be carried out in order to create an efficient regulation that supports the reporting of illegal behaviours. However, there have been some steps taken towards regulating the private sector when it comes to whistleblowing. The leniency program on cartel agreements which amended the Penal Code, Code of Criminal Procedure and Competition Act was passed by the Parliament and came into effect in 1th of June 2013. These amendments were aimed to reduce penalties for competition crimes for the party that supplies the authorities with information about the illegal behaviour (e.g. cartel agreements). However, these amendments do not address the concerns of private sector whistleblowing in general, since they are rather specific. Despite the concerns, it is still believed that these amendments will help incentivize private sector whistleblowers to help discover and investigate competition crimes.34 A large number of the illegal or unethical conducts can be defined as corruption. There are no detailed surveys conducted in Estonia about how problematic is corruption in the private

34

Juhan Parts, „Seletuskiri konkurentsiseaduse muutmise ja sellega seonduvalt teiste seaduste muutmise seaduse eelnõu juurde“, Tallinn, 2012 and L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 7

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sector, what kind of corruptive transactions are carried out and what is the influence of corruption on the private sector. The corruption surveys state simply that corrupt behaviour is more accepted by private sector employees than by public officials which is the result of private sector employees being less informed.35 Consequently the public has to be informed of corruption, its effects on economy and the importance of detecting such illegal activities. However, being less informed cannot be the reason to stay silent and not act upon wrongful actions. Private sector employees need the same regulation and protection as is provided to the public sector employees so that they could contribute fully in the process of fighting illegal actions. Corporations are growing bigger and need closer monitoring. Corporation insiders have access to the daily operations and transactions of the corporation, as a result being more likely to experience illegal activities. Business should be conducted on fare grounds, for that reason the insiders who have noticed wrongful behaviour should be incorporated to the regulation to incentivize them to report the activities and to be protected from retaliation. Widening the whistleblower protection and incentives to report on private sector employees represents an effective opportunity for the authorities to receive tips on illegal activities with the least cost.

35

Estonian Ministry of Justice, „Anti corruption strategy 2008-2012“, Tallinn, 2008, page 14

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5. Protection against retaliation There are different ways to protect whistleblowers from retaliation and as a result, motivate informants to disclose information about illegal or unethical conduct inside a corporation. The different methods and their effectiveness to protect and motivate whistleblowers are discussed in the sub-paragraphs below.

5.1 Whistleblowing hotlines One way to receive disclosures about illegal or unethical behaviours inside a corporation from insiders is to set up a hotline. In June 2004, a telephone hotline was opened in Estonia for citizens to leave anonymous tips about corruption cases. The number of calls in 2004 was 38 and has decreased ever since. The hotline was publicly announced at the time it was opened, but there have been not later advertisements to bring awareness about the hotline. This could be the main reason why people do not call the hotline and the number of report received has declined since the opening of the hotline. The potential whistleblowers need to be encouraged to report crimes by bringing awareness of a possibility to disclose information and at the same time staying anonymous. The fact that the number of calls was the highest the year the hotline was opened proves that public announcements and media coverage do play a role in people’s awareness, possibly even creating extra incentives to pick up the phone. There is a record of only one criminal proceeding being started based on a tip in 2007.36 The low number of criminal proceedings could be due to misleading or unwarranted tips. In a way, an anonymous hotline is a good platform for people to start sharing unwarranted claims, since the anonymity provides a cover for possible negative consequences for such actions. For that reason, opening a telephone hotline to incentivize people to report criminal activity is not the most effective way to gather information. The possibility of misleading or unwarranted tips is too high in order to spend resources on following up on all the disclosures that have been received. On the other hand, if the number of tips is very low, the probability of people providing sensible information is that much higher, because if people are calling a hotline that has not been publicly announced for years, they are probably also not acting opportunistically and have serious information to share. In the United Kingdom, Public Concern at Work (PCaW, a legal advice centre designated by the Solicitors Regulation Authority) runs an advice providing and whistleblowing line. The 36

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 8

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line is managed by experienced and qualified lawyers. The main idea of this hotline is not to gather tips about illegal or unethical behaviour as is the goal of the hotline opened in Estonia, but to provide confidential and practical advice on how to properly raise concerns with the employer organisation. It is believed that genuine concerns are raised openly rather than anonymously, again contrasting the aims of the Estonian whistleblowing hotline which was to grant anonymity.37 This is why the hotline provides also an advice service, so that the employees could get information about how to openly raise their concerns and not just report information through a phone and hide behind the anonymity. However, the number of claims of illegal or unethical behaviour to the whistleblowing hotline in the UK has increased from 157 in 1999/2000 to 1761 in 2009. This is a sharp rise in the number of reports, whereas in Estonia the calls to the hotline have been decreasing every year after the hotline was opened. In addition, employees reported more than 9000 claims alleging victimisation for whistleblowing – 70% of those claims were settled or withdrawn without any public hearing. Of the remaining 30%, 78% were lost by employees and only 22% won.38 Despite the aim of the hotline to provide advice before blowing the whistle, the majority of calls to this specific hotline are made after the concern has been raised – 66% of cases in 2009. In Estonia, the goal of opening the hotline was to encourage people reporting the illegal activities in the first place.39 The majority of calls to the UK whistleblowing hotline, which was 44%, came from the private sector. However, the majority of all the concerns went ignored.40 Similarly, in Estonia only one investigation was opened based on a tip to the hotline, suggesting most of the tips were ignored. However, the probable success of the hotline in the UK (proved by the increasing number of concerns reported) can be attributed to the advice providing function of the line. The line does not function as a “tip collector” but as a genuine and practical advice provider, which is important to people who have not had experience with reporting illegal or unethical behaviour to either internal or external authorities before. In order to make the hotline work, Estonia should follow the example of the United Kingdom – by providing advice to callers and by encouraging reporting without staying anonymous (to increase the chance of action taken following the tip). A hotline that is not advertised and that only accepts anonymous hints is not an effective way to incentivize whistleblowers to report wrongdoings 37

Public Concern at Work home page, Individual Advice, Advice Line Public Concern at Work, „Where’s Whistleblowing now? 10 years of legal protection for whistleblowers“, March 2010, page 4 39 Public Concern at Work, „Where’s Whistleblowing now? 10 years of legal protection for whistleblowers“, March 2010, page 10 40 Public Concern at Work, „Where’s Whistleblowing now? 10 years of legal protection for whistleblowers“, March 2010, page 11 38

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and that is made clear by the statistics of declining numbers of callers and a single investigation started following a tip to the hotline in Estonia.

5.2 Internal codes of conduct Another way to incentivize whistleblowers and provide a regulation for the whistleblowers to rely on is to issue ethics codes or codes of conduct inside a corporation. In Estonia, only a few public and private sector organisations have such above mentioned internal compliance mechanisms.41 Encouraging internal whistleblowing has a huge advantage for the corporation: the superiors can react on a report from an insider by starting internal investigation and correcting the wrongdoing. This way the danger of the corporation’s reputation being damage is dodged, because when the insider would turn to the media or other outside parties, the reputation of the corporation could easily be damaged. However, this is not the only objective of developing an internal whistleblowing program. The other objectives include encouraging the employees to contact the internal authorities about ethical and legal violations they might have come across so that the action can be taken as soon as possible to resolve the problem and to let employees know that the organization is serious about following the internal codes of conduct.42 Therefore the internal code of conduct is the first step towards a transparent regulation for whistleblowers in the private sector. In order for the internal regulation to work effectively, employees must be informed how and where to report their concerns internally. Employees have to be aware of the applicable procedures to be able to report their concerns in order to incentivize them to report in the first place. Secondly, the employees must believe that their concerns will be taken seriously and an investigation will follow. Thirdly, and possibly most importantly, the employees must feel confident that they will not experience retaliation if they use the internal whistleblowing opportunity.43 Research suggests that many whistleblowers are retaliated against and for that reason adopting an internal code of conduct could at least minimize the chances of that happening inside a single corporation, especially when there are no general regulations on whistleblowers protection on the state level. The internal code of conduct would therefore give guidance to an employee who has some ethics concerns and possibly save a corporation 41

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 9 42 L. Ravishankar, „Encouraging Internal Whistleblowing in Organizations“, Santa Clara University, 2003 43 T. Barnett, „Why Your Company Should Have A Whistleblowing Policy“, Louisiana Tech University Sam Advanced Management Journal, 1992, pages 37-42

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from litigation if otherwise the whistleblower would choose to file an action to court based on retaliation taken against him. Internal code of conduct governing whistleblowing protection should also set clear guidelines for the personnel on how to deal with the claims and how the investigation has to be carried out. However, alongside the internal code of conduct a general unified regulation to protect whistleblowers should be adopted. This would set up guidelines for the internal codes of conduct and the procedure in general, creating security and confidence in employees. An unified regulation on the state level is also necessary to prevent uncertainty and major differences between different internal regulations. 5.2.1 Estonian corporations and internal codes of conduct governing whistleblowing Today, only the Police and Border Guard Board and the Tax and Customs Board in Estonia have adopted internal systems to regulate whistleblowing. However, both of these organizations are public organisation. The Police Board has introduced several internal documents that include the obligation to inform the superior or the Police Control Department if any fraudulent activities are detected. The Tax and Customs Board has internal procedure rules that regulate whistleblowing. The rules include that it is compulsory for board officials to notify the head of internal audit department of criminal activities. However, the Tax and Customs Board regulation does not make it obligatory to report illegal behaviour, but there are ethics trainings carried out that motivate to report.44 The reason for only these two organisations having an internal regulation in place could largely be due to the fact that one of the main goals of both of these organisations is to discover and fight criminal activities, especially fraud and corruption. As a consequence, these organisations have to have a nearly flawless organisational build up if they aim to be respected in the society. While trying to discover and discipline criminal activities in the society, the possibility of criminal activities inside the organisation has to be brought to the lowest level possible. An organisation that has problems following the law and abstaining from carrying out criminal acts is not fit to take on the responsibility of punishing third parties for illegal activities. Therefore incentivizing the insiders to report illegal behaviour that they come across is yet again the most effective and least cost method to grant the lawfulness of the organisation’s operations.

44

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 10

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There is no data on codes of conduct that regulate whistleblowing in organisations in the private sector in Estonia, however the main goal of this internal regulation is the same in both sectors. The only difference from public sector organisations could be the lack of hierarchy in the private sector. In the public sector, there is usually a higher level that conducts control on the lower level units and would as a consequence be more motivated to carry out an investigation after a report. That could also be an extra incentive for the informants since the existence of a “control” body gives the whistleblower confidence that the report will be followed up and investigated. For example there are many separate police departments in Estonia and whistleblowers can turn to either the superior of the department or the Police Control Department that acts as the highest control body in the Police and Border Guard Board, governing all police departments in the country. 5.2.2 How is internal whistleblowing perceived? All of the few questioned company representatives in Estonia favoured reporting of criminal activities inside the organisation, mainly to the superior or to the internal control/audit units or personnel units. Going outside the organization is regarded as unacceptable behaviour.45 This gives grounds to believe that such internal regulations are necessary and would incentivize whistleblowers to report criminal behaviours more, since the attitude towards such inside reporting seems to be much more accepted by the company representatives than reporting to external authorities, which could cause reputational damage to the company. The few companies that have stronger internal whistleblowing regulation are either part of an international corporation or are partly publicly owned.46 According to the Chartered Institute of Internal Auditors, internal audit plays a central role in effective whistleblowing procedures. Whistleblowing is considered an essential safety valve and should be part of the internal control environment. The UK Corporate Governance Code, which applies to companies listed on the London Stock Exchange, says: “(C.3.S) The audit committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other issues. The audit committee’s

45

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 11 46 L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 19

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objective should be to ensure that arrangements are in place for the proportionate and independent investigation of such matter and for appropriate follow-up action.”47 5.2.3 How is internal whistleblowing perceived in the United Kingdom? In the UK, 8 out of 10 claimants first raised their concerns about an experienced unlawful or unethical behaviour internally with their employer. Employees are giving their employer(s) an opportunity to address the concerns first and as a result, more needs to be done to make whistleblowers feel supported and confident, avoiding the necessity of a Public Disclosure Act claim.48 An organization’s whistleblowing procedures should encourage individuals to disclose concerns before these concerns become a serious problem, damaging an organisation’s reputation through negative publicity, regulatory investigation, fines and/or compensation. In November 2013, Public Concern at Work’s Whistleblowing Commission published a report making recommendations to improve whistleblowing across UK workplaces. The primary recommendation was a draft Code of Practice (code of conduct) detailing whistleblower arrangements in the workplace.49 This proves that in the UK a lot of emphasis has been put to encourage whistleblowers to report internally instead of externally and therefore adopting an efficient code of conduct in every organisation. In order to achieve a healthy corporate culture, effective internal whistleblowing arrangements must be prioritized. The organizational culture should encourage people to speak out without fear of retaliation.50 Organizations must have a clear regulation in place to incentivize whistleblowers to speak out and be confident that their concerns will be taken seriously and no sanctions would follow the reporting. Internal whistleblowing is seen as the key element for a healthy organisation and is for that reason valued highly.

5.3 Facilitating external whistleblowing When it comes to external whistleblowing, the legislators have adopted/should adopt a general act that covers both private and public sector whistleblowing and motivates the employees to turn outside the corporation, instead of reporting internally. On the contrary to the UK’s motivation of internal whistleblowing, for example, the United States takes a different approach. In the US, the whistleblowers are strongly encouraged to report the illegal 47

I. Peters, „Whistleblowing and Corporate Governance. The role of internal audit in whistleblowing“, Chartered Institute of Internal Auditors, report, 2014, page 4 48 Public Concern at Work, „Where’s Whistleblowing now? 10 years of legal protection for whistleblowers“, March 2010, page 6 49 I. Peters, „Whistleblowing and Corporate Governance. The role of internal audit in whistleblowing“, Chartered Institute of Internal Auditors, report, 2014, page 6 50 I. Peters, „Whistleblowing and Corporate Governance. The role of internal audit in whistleblowing“, Chartered Institute of Internal Auditors, report, 2014, page 7

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or unethical conduct they have witnessed to an external authority, the Securities Exchange Commission. The latest amendments to the Dodd-Frank Act, which covers whistleblowing, widen the protection of whistleblowers to private sector employees in cases of securities laws violations, permit the SEC to pay monetary awards for successful tips and create a cause of action for retaliation when an individual suffers sanctions. The definition of a whistleblower is expanded and would for that reason also include an individual who filed only an internal complaint at the company and did not turn to the SEC as the external authority. Following a number of rulings by lower courts, the Fifth Circuit stated that there is only one category of whistleblowers: individuals who provide information relating to securities law violation to the SEC. A federal court in the Northern District of California subsequently dismissed a DoddFrank retaliation claim and concluded that because the employee only turned to the management of the organization and never reported to the SEC, the anti-retaliation provision of Dodd-Frank did not apply. The Fifth Circuit’s decision is the leading authority on the applicability of Dodd-Frank’s anti-retaliation provision. However, several district courts outside the Fifth Circuit have adopted the opposite view, that the provision also protects whistleblowers who did not report to the SEC.51 Even though there is a lot of confusion on the issue, the leading opinion implies that the protection does not cover internal whistleblowers. This conveys a powerful message of the difference of UK and US regulation – the US regulation is more oriented to external whistleblowing whereas the UK approach values advanced internal regulations and incentivizes whistleblowers to report internally, giving the company an opportunity to investigate and mitigate the wrongdoings before the authorities and the public is informed. This explains why the US has the longest history of advanced whistleblowing protection laws on the federal level and does not simply resort to internal regulations of public and private corporations. When it comes to the Sarbanes-Oxley Act and the discussion of whether the act implies only to public companies and as a consequence gives an opportunity for private companies to go unpunished for retaliating against an employee, the Supreme Court held in its Lawson decision that Sarbanes-Oxley extends whistleblower protection to employees of privately held contractors who perform work for public companies. The same decision makes clear that

51

N. Morgan, M.J. Sheehan, G.P. Alexander, „Courts confirm: Dodd-Frank whistleblowers must report to the SEC, Dodd-Frank whistleblower protections do not extend to conduct outside the US“, DLA PIPER, November 2013

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private companies have to comply with the compliance programs and policies that the public companies have implemented as a result of Sarbanes-Oxley. That being the case, to minimize lawsuits under the Sarbanes-Oxley Act, there are some proactive steps to be taken. One and probably the most important of them is for private companies that contract with public companies to implement internal compliance programs and employee hotlines that employees can use to report suspected violations which are not limited to reports of suspected violations of federal securities laws. Despite the encouraging of whistleblowers to report internally, SEC has clearly expressed that they are actively looking for agreements which provide benefits to employees if they agree to not report their concerns to the SEC or the regulators.52 Therefore the company policies should support employees reporting their concerns, but should abstain from incentivizing employees not to report their concerns outside the company. This is a clear indication that reporting outside the company is valued and highly encouraged and cannot be prevented by any means. As a result, due to the cultural differences, Estonia would benefit from the United Kingdom’s approach. Since the issue of whistleblowing is relatively young and there is a lot of insecurity surrounding it, the employees should at first be motivated to either use a hotline to disclose their claims or report internally. Turning to authorities outside the corporation constitutes turning against the corporation and would not suit Estonia (or Europe in general), due to the focus on keeping relationships between employees and employers harmonious.

52

K.T. Fogt, M. MacPhail, M.L. Will, „U.S. Supreme Court Expands SOX Whistleblowing Protection as SEC Cautions Companies Against Incentivizing Employees to Keep Complaints Internal“, Faegre Baker Daniels LLP, March 2014

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6. Cultural and ethical aspects of whistleblowing The culture in Estonia has not facilitated whistleblowing. There have been a few corruption surveys carried out that have addressed the questions of would people who witness corruption activity be willing to disclose the information externally and if not, then why. The 2004 year survey concluded that while witnessing a case of bribery, 74% of respondents would react passively. The most common reasons for that were not knowing where to report, thinking the whistleblowers would be the participants who would suffer the most as a result, not being sure that the conduct being carried out is corruption and finally, that there is no point in reporting as the participants would not be tried in court.53 The surveys were focused on corruption, but as corruption covers a wide range on illegal activities, it is definitely a reliable statistic to be applied to whistleblowing in general. As a result, the general attitude towards whistleblowing is uncertainty and fear according to the analysed statistics. In order to overcome these problems, employees in private corporations (just as well as public officials) should be educated about how and where to report their concerns, that there is no need to fear retaliation as there is a reliable regulation in place to protect whistleblowers, describe the situations that should definitely be reported in order to maintain a healthy corporate culture and provide precedents and information about successful whistleblowing cases. As a consequence, to blow the whistle or not is usually not an easy decision for the employee. The potential whistleblower faces a clash of values, like loyalty to clients or to own integrity versus loyalty to the organization, the public, professional standards, family and friends. The potential whistleblower must weigh all the pros and cons that are associated with blowing the whistle and make the decision to disclose information for the right moral reason and reasoning. Whistleblowers are usually people who are devoted to their work and organization and sympathetic to the system. In order to be confident that their disclosure will be taken seriously and retaliation won’t follow, the potential whistleblowers need internal support, communication and value systems to be in place to not lead them to external whistleblowing.54 In order to create a moral space to incentivize employees to bring forward ethical concerns, the organization must build a “moral community” where there is no gap between what the 53

L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009, page 12 54 S. L. Ray, „Whistleblowing and Organizational Ethics“, Nursing Ethics 13(4), Edward Arnold Ltd, 2006, pages 439-441

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employees know is the right thing to do and what they actually do. In order to create an ethical climate in a corporation, everyone should be able to participate in the articulation of values and in making decisions on how to put those values into practice.55 As a result, it is important that while adopting an internal code on whistleblowing within a corporation, the employees are introduced to the new regulation and benefits and ethics of whistleblowing. Employees could also benefit from workshops where whistleblowing is discussed in depth to form positive attitude towards whistleblowing and whistleblowers inside the corporation. The detailed regulation would raise the confidence levels in employees and they would also, on the other hand, be accustomed with the procedure that needs to be followed and where to turn to for effective whistleblowing.

55

S. L. Ray, „Whistleblowing and Organizational Ethics“, Nursing Ethics 13(4), Edward Arnold Ltd, 2006, pages 441-442

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7.

Other means whistleblowers could use to protect themselves against retaliation

Whistleblowing is not the only reason why people need to be protected from discriminating behaviour or for example unwarranted dismissals from a job. For that reason the legislators in Estonia have come up with means to protect people from the above mentioned situations. Two of the acts that potentially have the most influence in regulating the situations that are most often encountered by whistleblowers who suffer retaliation at a working place are the Equal Treatment Act (2008) and the Employment Contracts Act (2008).

7.1 The Employment Contracts Act The Employment Contracts Act56 of 2008 sets the boundaries for dismissals. Unwarranted dismissals are one of the most feared forms of retaliation towards an employee who has blown the whistle and for that reason the Employment Contracts Act is an important regulation to protect employees as well as whistleblowers from dismissal. The act sets clear requirements for a warranted dismissal. The employee has a right to cancel the employment contract ordinarily at any time.57 However, the employer has the right to cancel an employment contract extraordinarily only for reasons arising from the employee. The reasons include: inability to perform his/her duties due to his/her state of health over four months, inability to perform his/her duties due to insufficient working skills, despite a warning disregarding employer’s reasonable instructions, despite a warning being at work while intoxicated, losing the employer’s trust by committing theft, fraud or another similar act, bringing about a third party’s distrust in the employer, damaging the employer’s property wrongfully and to a significant extent or violating the obligation of maintaining confidentiality or restriction of trade.58 A lay-off is also considered as an extraordinary and lawful cancellation of the employment contract if the work volume has decreased or the work that the employee was doing has been reorganised.59 Therefore the requirements which have to be fulfilled in order for the employer to cancel the employment contract are clearly detailed and do not give an opportunity for the employer to cancel the employment contract unless there is a serious reason for it. Providing information

56

Employment Contracts Act, RT I 2009, 5, 35 Employment Contracts Act, §85 (1), RT I 2009, 5, 35 58 Employment Contracts Act, § 88 (1), RT I 2009, 5, 35 59 Employment Contracts Act, § 89 (1), RT I 2009, 5, 35 57

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to the management or the head office of the corporation or to authorities outside the corporation does not qualify as a valid reason for cancelling the employment contract. The only requirement that could be connected to whistleblowing activity is bringing about a third party’s distrust in the employer. In this case the person would have to provide authorities outside the corporation with false and damaging information. The aims behind protecting whistleblowers do and should not cover informants who intentionally and knowingly distribute false information. As a consequence cancelling the employment contract with an employee who damaged the reputation of the company should definitely be legal. The whistleblowers who provide useful information and kick start either an internal investigation inside a corporation or an investigation by the outside authorities need to receive benefits for their disclosures, e.g. protection from dismissals. There is a high certainty that employees who provide information about wrongful activities inside a corporation will not be lawfully dismissed because of the detailed regulation on dismissals by the employer. If the employer decides to cancel the employment contract because the whistleblower provided information about the corporations’ activities either internally or externally, the whistleblower has two ways to remedy the wrongful action taken against him or her. 7.1.1

Where to turn to in case of an Employment Contracts Act claim?

First option is to turn to the labour dispute committee, which is a pre-trial independent individual labour dispute resolution body.60 A labour dispute committee resolves financial claims under 10 000 euro61 and filing a claim to a labour dispute committee is exempt from state fees.62 The exemption from state fees and the 33 days average time of proceeding provides employees with a relatively fast and cost efficient way to claim damages for retaliation. In 2013, 92% of the applications (3231 applications received in 2013 and some of which had not reached a resolution in 2012) received by the labour dispute committee reached a resolution63, which shows that the employees (as well as employers) can be confident their claims will reach a resolution in a short period of time. The labour dispute committee is a cost efficient and simple possibility created for employees (and employers) to resolve disputes by filing a simple application (therefore no need for costly legal advice) and to receive a binding resolution that the employer (or the employee) has to respect and remedy the damages (if applicable).

60

Individual Labour Dispute Resolution Act, §10, RT I 1996, 3, 57 Individual Labour Dispute Resolution Act, §4, RT I 1996, 3, 57 62 Individual Labour Dispute Resolution Act, §9, RT I 1996, 3, 57 63 Töövaidluskomisjon, „Ülevaade 2013.a. töövaidlustest“, page 1 61

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The second option is to file for the court. In the court, the employee who has been retaliated against can claim damages (in the form of unpaid payments) or the cancellation of the dismissal (within 30 days of the declaration of cancellation).64 Because of the state fees, legal costs and timely proceedings, filing for court is not to most effective method if the dispute falls under the 10 000 euro threshold. If the whistleblower turns to the court or the labour dispute committee and either of the bodies establishes that the cancellation of the employment contract was unwarranted and for that reason void due to absence of legal basis, the employment contract has not expired by cancellation65. As a consequence, the employee retains his or her working relationship with the corporation and is as a result protected from unlawful dismissals.

7.2 The Equal Treatment Act The above mentioned regulations address and limit the possible unwarranted dismissals from a working place. However, they do not address the other major concern that the employees have when it comes to whistleblowing – the fear of negative and discriminative behaviour by fellow colleagues, managers or the society as a whole. The Employment Contracts Act, however, does have a single provision dedicated to protect employees from discrimination. §366 of the act states that “The employer shall ensure the protection of employees against discrimination, follow the principle of equal treatment and promote equality in accordance with the Equal Treatment Act and Gender Equality Act.” The Equal Treatment Act aims to treat the equals equally and the un-equals differently. Breaching this principle constitutes discrimination.67 When the whistleblowers activities are not respected in the corporation he or she will possibly be shamed, bullied or isolated by his or her colleagues or managers. This kind of “less favourable than others” treatment is defined as direct discrimination.68 The employee who has been discriminated because of his or her choice to inform either the managers, head offices or the authorities of illegal conduct in the corporation has the possibility of turning to court, a labour dispute committee or to the Gender Equality and Equal Treatment Commissioner, who will provide opinions on the case.69 The disputes are resolved by a court or a labour dispute committee where the discriminated party has the right to demand that the discrimination is discontinued and compensation paid for the damage 64

Employment Contracts Act, §105, RT I 2009, 5, 35 Employment Contracts Act, §107, RT I 2009, 5, 35 66 Employment Contracts Act, RT I 2009, 5, 35 67 M. Albrant, M. Meriorg, Ü. Papp, „Võrdle kohtlemise seadus käsiraamat“, Tallinna Tehnikaülikool õiguse instituut, Tallinn, 2012, page 16 68 Equal Treatment Act, §3, RT I 2008, 56, 315 69 Equal Treatment Act, §8, RT I 2008, 56, 315 65

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caused.70 As a result, there are regulations in place to protect employees from unwarranted dismissals and discrimination. However, the Equal Treatment act regulates the relationship between an employer and an employee, because the employer is in a different and rather influential position compared to the employee, which gives the employer possibilities to discriminate the employee upon term of his or her employment. There is no regulation that governs the relationships between colleagues and bans negative treatment. For that, the views and attitude towards whistleblowers and whistleblowing in the society have to be set or encouraged to be positive, respective and supportive. After all, whistleblowers are highly beneficial in the society to discover fraud and other illegal or unethical behaviour in corporations and should therefore be considered as doing a favour for the society by providing information about the above mentioned conducts.

70

Equal Treatment Act, §23-24, RT I 2008, 56, 315

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8. Reward programs 8.3 What is a reward program? The reward programs in place today focus on rewarding whistleblowers who turn to external authorities and disclose information about wrongdoings in a specific corporation. The reward, based on the US model for private sector whistleblowers, is comprised of a certain per cent of the fine (more than 1 million dollars in total) the corporation is ordered to pay after a successful prosecution following the report of a whistleblower (Dodd-Frank Act, Sec. 922). Therefore the reward programs mainly incentivize whistleblowers to report their findings externally, rather than internally, which is considered to be an essential element for maintaining a healthy corporate culture and climate. As a result, while analysing the suitability of a reward program in a certain country, emphasis has to be put on the general views and beliefs of corporate culture and the relationship between the employees and employers. Therefore, offering rewards for disclosures that lead to successful prosecution is one of the ways to provide incentives for employees to disclose information externally. However, the bounty program has numerous pros and cons that need to be examined before deciding whether to adopt the US model of motivating corporate insiders to report wrongdoings to the external authorities.

8.4 What are the main incentives to provide rewards for whistleblowers? As mentioned earlier, incentivizing employees to disclose wrongdoings in a corporation is the least cost method for the authorities by saving them time and money by not having to monitor corporations individually. Many of the wrongdoings might be hard to detect from the outside, as there is a much bigger chance a company insider will come across evidence of a wrongdoing as part of their daily activities. No special monitoring or investigation from external parties is therefore needed to detect wrongdoing if the potential whistleblowers are motivated enough to report the wrongdoing. Therefore the expected benefits have to outweigh the potential negative side effects in form of retaliation. In such a situation, the financial gain as an incentive is a powerful tool in outweighing the anticipated negative outcomes of blowing the whistle. Other benefits of adopting the reward program include a potentially higher number of disclosures by company insiders, which would lead to a higher clear up rate for corporate crime, through which investor confidence and social welfare would be

35

increased.71 In addition, the offer of a reward has a potential to incentivize an employee, who would otherwise choose to stay ignorant, to blow the whistle and bring an end to wrongful behaviour within the corporation. On the other hand, the offer of a monetary reward for a successful tip will keep corporations from engaging in illegal or unethical actions, because the number of motivated whistleblowers has increased and therefore the risk of being reported has increased equally. The offences carried out in the capital markets would probably have the biggest effect on third persons, as hundreds of people could lose their money in the name of shares and the decline in investor confidence could lead to struggling companies. This is the reason for the adoption of the Dodd-Frank Act’s reward program to reward whistleblowers who bring securities fraud to light. This is also why the European Commission has joined the quest to create a healthy capital market within and among the individual Member States, suggesting that Member States should grant a reward to whistleblowers who submit warranted information on market abuse.72 The Market Abuse Directive of 2003 brings attention to the usefulness of whistleblower reports as first-hand information to bring suspected market abuses to the attention of relevant government authorities. As a result, the Regulation aims to incentivize whistleblowers to disclose information by protecting them from reprisals and offering potential financial motivations. Stronger whistleblower protection and financial incentives are rated as highly efficient regulatory strategy, since it is the least cost method to receive information about wrongdoings from corporations without constantly monitoring them.73

8.5 Objections to the reward program Despite the positive aspects of offering rewards for whistleblowers, the reward program has faced a considerate amount of criticism. One of the main problems is that it is not known if offering financial gains to an informant would indeed raise the number of reports. It is believed that a monetary reward is not the only reason employees would report wrongdoing and therefore they would do so even without the rewards, out of loyalty or for example revenge. It is believed that the only major difference that the reward program would bring 71

H. Fleischer, K.U. Schmolke, „Financial Incentives for Whistleblowers in European Capital Markets Law? Legal Policy Considerations on the Reform of the Market Abuse Regime“, ECGI – Law Working Paper No. 189/2012, August 2012, pages 7-8 72 H. Fleischer, K.U. Schmolke, „Financial Incentives for Whistleblowers in European Capital Markets Law? Legal Policy Considerations on the Reform of the Market Abuse Regime“, ECGI – Law Working Paper No. 189/2012, August 2012, page 3 73 H. Fleischer, K.U. Schmolke, „Financial Incentives for Whistleblowers in European Capital Markets Law? Legal Policy Considerations on the Reform of the Market Abuse Regime“, ECGI – Law Working Paper No. 189/2012, August 2012, pages 4-5

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about is that an employee, who would have disclosed information about a wrongdoing internally, would then turn to the external authorities in hopes of getting compensated for the same act he or she would otherwise not be compensated for. Another, quite obvious objection is that financial gains may incentivize employees to report unwarranted and unreliable claims in hopes of landing a reward. As a result, the amount of claims will raise and considerably higher levels of administrative resources would be necessary to separate unwarranted claims from serious reports. This would, as a result, place a high burden on the authorities to follow up all the reports and to decide which ones to discard. As a result of a high workload, there is a risk that some serious claims might go unnoticed because of a heavy load of unreliable reports. The objection has also been raised that financial gains offered for external whistleblowing may weaken the effectiveness of internal compliance programs, which are very important to create a healthy corporate culture. Therefore the question that needs to be addressed in this point is, whether the ultimate goal is to maintain employee-employer relationships and give corporations an opportunity to remedy the wrongdoings without external interruption or to incentivize employees to report wrongdoings outside the corporation. These two approaches are very different from each other and as it comes out, the reward based system potentially eliminates or lessens by a considerable amount the effect of internal whistleblowing regulations. It is also believed that whistleblowers should be motivated by more effective protection against retaliation than government driven reward programs. Finally, the biggest issue when it comes to adopting a reward program is the cultural differences between different countries, mainly between the US and Europe. While the US motivates whistleblowers to take their claims outside the corporation, in Europe greater emphasis is placed on harmonious relationships between employees and employers. In Estonia, the employee-employer relationship is a topic of vigorous discussion and there are agencies that stand for employees’ rights and protection. Therefore, if the aim is to keep a harmonious atmosphere at a workplace, incentivizing external whistleblowing might not be the way to achieve it.74

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H. Fleischer, K.U. Schmolke, „Financial Incentives for Whistleblowers in European Capital Markets Law? Legal Policy Considerations on the Reform of the Market Abuse Regime“, ECGI – Law Working Paper No. 189/2012, August 2012, page 7-11

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9. Survey 9.1 Conducting the survey A survey was carried out among Estonian citizens to shed light to the attitudes towards whistleblowers and whistleblowing in the private sector corporations. Other aims included finding out how people would react if they came across wrongful or unethical behaviour in their working place, who would they most likely inform of such conduct, is the fear of retaliation a factor, if corporations’ internal regulation would be enough to protect whistleblowers efficiently and what are the attitudes towards the reward system and national hotlines for whistleblowers who want to stay anonymous. The survey was composed of a variety of “yes/no” questions and questions with the answers range of “definitely yes/probably yes/do not know/probably no/definitely no”. The questionnaire

was

distributed

to

one

of

the

most

popular

public

forums

(www.naistekas.delfi.ee) and to my Facebook “friends group”. The results were analysed after a month of uploading the questionnaire and the results are presented below. In the course of the above mentioned questionnaire, 77 people were questioned. 61% of the surveyed were 21-25 years old, with 9,1% being younger than 21 years old and 29,9% being older than 25 years old. As the majority of people who completed the questionnaire are 21-25 years old, there is a higher possibility to find out what is the attitude towards whistleblowing of the younger generation in Estonia, since they do not associate blowing the whistle with “KGB snitches” and also because the topic of whistleblowing has become more actual (featured in the news or newspapers) so people might be more aware of the benefits of whistleblowing. 63,7% of the people were working at the time of filling in the questionnaire, therefore there is a possibility that people had already come into contact with illegal or unethical conduct at a working place or with someone who blew the whistle and can therefore give more accurate answers than just speaking hypothetically.

9.2

Would whistleblowers choose to speak out?

While asked to concentrate on a hypothetical situation of coming across illegal or unethical conduct within a corporation and to evaluate the possible reaction, 65,1% of the people would “definitely” or “probably” not stay passive. 12.1% of people were unable to evaluate their reaction and 22,7% would “probably” stay passive. The majority of the questioned people

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would not stay passive, which is a positive outcome and suggests there are changes taking place in the society, as people choose to react rather than stay silent. The most popular (71,2%) reaction to witnessing wrongful or unethical behaviour at a workplace is to confront the perpetrator and try to convince him or her to stop the illegal or unethical activities and remedy the damage done. None have chosen the option to “definitely not” turn to the perpetrator and only 12.1% would choose “probably not” to confront the perpetrator. When it comes to informing the managers, executives or other high ranking officials within the corporation, 51,6% would choose to react accordingly. 48,5% either “do not know” how to react or would “probably not” turn to the above mentioned officials. Therefore the majority would inform the above mentioned subjects but the number of people who would not is still relatively high. In order to create an efficient system of whistleblowing and informing the corporation about wrongful conduct so the corporation could start an internal investigation and remedy the damages, the percentage of people who are willing to turn to their superiors needs to be higher. Employees need to have the confidence that they will be taken seriously and their info might prove highly important and serious. The outcome of the previous two questions is a good indicator that the surveyed people would prefer keeping the matter of dealing with wrongful or unethical conduct within the corporation. This is beneficial for the corporation and provides an opportunity to remedy the wrongful behaviour without external impact and possible reputation damages.

9.3 Internal and external whistleblowing To prove the fact that employees prefer keeping the matter inside the corporation, 55,4% would “probably not” or “definitely not” turn to the external authorities, such as the police or the Tax and Customs Board. Only 18,4% of people would “probably” or “definitely” turn to the above mentioned authorities. When turning to the media is concerned, 90,9% of the people who completed the questionnaire would “definitely not” or “probably not” inform media about wrongful or unethical conduct that they have witnessed inside the corporation where they are employed. The key element when it comes to choosing where to turn to with the information is by majority (96,9%) the severity of the wrongful or unethical action that has been witnessed. The

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more serious, the bigger is the chance that whistleblowers will turn to their superiors or even outside the corporation.

9.4 Perception of whistleblowers While the attitude within the corporation towards a whistleblower is considered, the outcome is far from one sided. 34,4% of the people who completed the questionnaire would “definitely not” or “probably not” have a positive attitude towards the colleague who blew the whistle and they would not acknowledge the steps taken by the informant. However, the majority (59,4%) would acknowledge the whistleblower and would have a positive attitude towards his or her choice to blow the whistle. This shows that there is still work to be done to educate people on the benefits of whistleblowing and change the attitudes from treating whistleblowers as traitors and snitches. Whistleblowers should be treated as attentive and courageous colleagues who chose not to stay silent when they came across illegal or unethical activities, contributing to a healthy corporate culture with limited illegal activities. 81,2% of the people who completed the survey would choose to “definitely not” or “probably not” staying ignorant towards the colleague who blew the whistle. 53,9% would “definitely not” or “probably not” have a negative attitude towards the colleague who blew the whistle. On the downside, 33,3% of the surveyed believe they would “definitely” or “probably” have a negative attitude towards the whistleblower, believing the whistleblower has breached the loyalty towards other colleagues and while turning outside the corporation, also towards the corporation as a whole. This is one of the main fears of whistleblowers – negative attitude from fellow colleagues or managers at a working place. This fear cannot be banished by regulating the relationships between colleagues by law and can only be lessened by educating employees in general. Employees and managers need to realize the benefits of (especially internal) whistleblowing to the corporation as a whole. Whistleblowers should be treated as doing a favour to the whole corporation and helping it to remedy the mistakes or wrongdoing before the authorities will, resulting in a possible reputational damage. As a result, negative attitude towards whistleblowing and whistleblowers should be kept minimal.

9.5 Fear of retaliation While considering the fear among employees of negative consequences following the whistleblowing, 56,7% believe that “definitely” or “probably” negative consequences to them personally would follow. Only 15% of the surveyed think that negative consequences would “definitely” or “probably” not follow. This number is worrying and describes well the biggest fear that accompanies whistleblowing – the fear of retaliation, dismissal or other negative 40

consequences. In order for the process of effective whistleblowing to be able to emerge, a simple regulation will not be sufficient to banish the fears of the future whistleblowers. Unwarranted dismissals can be (and are) regulated by law, but the attitude and perception of whistleblowing can only be changed by precedents, education and larger coverage by media of the benefits of whistleblowing.

9.6 Internal compliance mechanism or external regulation? 80% of the surveyed agreed that they would “definitely” or “probably” feel more confident and secure informing about an illegal or unethical behaviour, if the corporation they work in had an internal code to cover whistleblowing, either separately or within the general code of conduct of the corporation. The internal regulation would describe the events that need to be informed, who should be informed and which would protect the employee from discrimination, negative attitude and dismissals. The internal document can be used to educate employees about the benefits of whistleblowing and to bring awareness of the procedure and possibly lessen negative attitudes. As a consequence, an internal code that describes whistleblowing is highly valued among the people who completed the survey and would give them confidence and security to report the wrongdoing. Similar results appeared when asked if employees would feel more confident and secure reporting the wrongdoings if there was a detailed regulation issued at the state level. 40% believe the state regulation would “probably” give them confidence that retaliation won’t follow and 38,3% believe they would “definitely” gain security from a state regulation. As a comparison, 48,3% believe that an internal code in the corporation would “definitely” give them the needed security. Therefore even though the differences are not major, there is still a slight preference when it comes to the internal code in a corporation. 66,7% of the surveyed believe one of the above mentioned regulations would be enough to protect whistleblowers from retaliation. 81,5% people that completed the questionnaire are positive that Estonia needs a regulation (either state level or internal codes in corporations) that would detail the procedure of whistleblowing and protect the employee from retaliation. As a result, Estonia should issue rules and descriptions (in the form of a unified regulation covering whistleblowing) for every corporation to carry out an adoption of an internal code of conduct. The internal regulation would cover whistleblowing within the corporation and also state the whistleblower an opportunity to turn to external authorities. However, 76,8% of people have the opinion that provisions regulating whistleblowing process and protection should be added to the general code of conduct and therefore a separate document on whistleblowing inside a 41

corporation is not necessary. As long as clarity is taken into account, a single code is preferable, as long as the new added provisions are clearly introduced and explained to the employees.

9.7 Offering rewards When asked if an award would give employees an extra incentive to report the wrongdoing they have witnessed inside the corporation, the opinions are almost equally divided into two. 39,3% of the surveyed believe that an award won’t provide an extra incentive to report the wrongdoing, while 42,9 believe an award will motivate employees to report wrongdoings. The award could be a pre-determined sum of money or a certain percentage of the fine the corporation has to pay as a criminal sanction, the approach the US legislators have taken in the Dodd-Frank Act. However, 73,2% of the people that completed the survey agreed that offering an award as an incentive to motivate company insiders to come forward with knowledge of illegal or unethical behaviours, would rise the number of unwarranted and malicious report both internally and externally. The most worrying factor with malicious or unwarranted external disclosures by an employee is the possible reputational damage the corporation might encounter if the issue will be discussed by the wider public or the media. This kind of possible opportunistic behaviour does not have such consequences when the disclosure is made inside the corporation. One of the main consequences of opportunistic disclosures would be a possibly a higher workload for the authorities if they have to investigate unwarranted claims and possibly miss or discard the warranted claims.

9.8 Whistleblowing hotline When asked about the effects of a state wide hotline that would receive tips and grant anonymity for the callers, 50% of the people believe it would “probably” or “definitely” serve as an effective means to gather information about illegal or unethical behaviours inside corporations and at the same time protect employees by granting them anonymity. On the other hand, 28,5% believe an anonymous hotline would not be an effective means to gather information about wrongful activities inside corporations and 21,4% of the surveyed simply replied they “do not know”. Therefore while comparing the positive opinions about the effectiveness to the negative and neutral opinions about the issue, the results are basically divided. To decide if the hotline would work, the above mentioned statistics about the hotline in Estonia75 should be taken into account. The hotline has not received wide coverage in the public and the number of tips received by the hotline has been decreasing every year. One of 75

Thesis page 20

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the possibilities to rise to number of tips received by the hotline would be to advertise the hotline nationally and bring awareness about its existence.

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10. Changes needed to be made in order to facilitate efficient regulation A new or a re-evaluated regulation cannot be adopted without any additional procedures accompanying the changes, for example, starting from the most obvious, which would be informing the public about the respective changes or a new regulation through media or newsletters. It is clear that in order for the employees in both public and private sector to be motivated to provide information about wrongful behaviours in a corporation in Estonia, the existing regulations need to be re-evaluated and widened to cover the private sector employees as well. Estonian companies do not come close to the size and influence of the US companies today, which explains the advanced whistleblower protection regulations in place in the US, but that does not mean the company managers or other insiders do not carry out illegal or unethical conduct that may have an influence on the employees in the corporation or on the society.

10.1 Whistleblower hotline The anonymous whistleblower hotline is one way to gather information about wrongful behaviour inside a corporation. In order to boost the number of tips received by the anonymous hotline, the hotline’s existence has to be brought to the public’s attention. As the statistics showed, the number of calls made to the hotline was the highest during the year when the hotline was advertised publicly.76 Therefore, the hotline should either be advertised publicly more often than just once or brought to the attention of corporations individually, for example by informative brochures or e-mails which should be distributed to the employees or brought to their attention at a general meeting or posted on a board available for all the employees to be acquainted with. To boost the effectiveness and caller confidence, the hotline should, following the UK example, provide an additional service of not only accepting and following up received tips, but also advising whistleblowers on how to proceed if they have come across wrongful behaviours, where to report and if the information is worthwhile bringing to the attention of either the internal or external authorities. This way whistleblowers who are not confident could gain courage to indeed report the witnessed behaviours and not choose to stay silent because of uncertainty of how exactly to proceed with the information they came across. The hotline’s number should be featured on the homepage of the Labour Dispute Committee.

76

Thesis page 20

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10.2 Internal regulation Another, probably more efficient way of gathering information about wrongful activities inside a corporation is the internal reporting to a respective body or an official within the same corporation. The higher efficiency of receiving reports internally is expressed by the ability of the corporation to take action and start an internal investigation to remedy the wrongdoing. This way the corporation can avoid possible reputational damages and the external authorities save time and finances by not having to conduct a thorough investigation. The company insiders are more acquitted to the internal processes of the corporation and would therefore be more fit time and resources wise to detect and remedy wrongdoings. In order to motivate whistleblowers to disclose the information internally, an internal compliance method has to be adopted. This could be in a form of a specific code of conduct when it comes to witnessing illegal or unethical behaviour and how to proceed. It should in addition cover the protection from retaliation issue. The whistleblower protection could also simply form a section of the general code of conduct, to not confuse employees with several different documents. Legislators in Estonia should therefore come up with a framework of whistleblower protection, what steps need to be taken in order to report the wrongdoing and who to report to and make it compulsory for all corporations in Estonia. To save time and resources, corporations could adopt a template code of conduct that covers all the areas of whistleblowing. The Labour Inspectorate77, which is a government agency in Estonia that is in charge of, among other things, monitoring compliance with the legislation, should be in charge of monitoring the adoption of internal codes of conduct to regulate whistleblowing and that these internal regulations cover all the necessary aspects of efficient protection against retaliation. The Labour Inspectorate should in addition host workshops or in other ways educate the public and especially managers of a corporation, about the benefits of internal whistleblowing and the importance of adding paragraphs concerning whistleblowing to their internal code of conduct or adopting a separate internal regulation that covers whistleblowing. A slightly bigger amount of resources should be directed to the Labour Inspectorate by the government to carry out its additional tasks of monitoring compliance and bringing awareness to the public, either by news articles or workshops and seminars, especially in the initial years following the adoption of obligatory internal compliance mechanisms. After adopting a new internal regulation, the corporation should take care of the introduction of it to the employees. That could be done through a general meeting or by asking the employees to get acquainted

77

The Labour Inspectorate of Estonia homepage, General Information

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with the new regulation individually and afterwards answering questions if any employees should have something that was left unclear. To support the adoption of internal regulation, a unified external regulation needs to be adopted on the state level to set out clear guidelines and rules to whistleblowing procedures. It is necessary to limit the possibility of internal regulations having different and possibly contradicting rules to whistleblowing.

10.3 External regulation If motivating employees to blow the whistle externally is chosen as the desired method of gathering information about illegal or unethical behaviours within corporations, the whistleblower protection regulation has to be even stronger. The risk of retaliation when the employee discloses information to an outside authority within the corporation is much higher, due to the risk of reputational damage and ethical dilemmas of breaching the loyalty to the corporation and colleagues versus staying ignorant when witnessing illegal conduct being carried out. In order to facilitate external whistleblowing, a respective authority or body has to be set up that would deal with receiving the reports, analysing them, discarding the unwarranted disclosures and following up through investigation on the serious and warranted report that the whistleblowers have provided them with. However, there is the Labour Inspectorate in Estonia which is responsible for monitoring the compliance with legislation and has the duty of commencing criminal proceedings and carrying out urgent investigative actions.78 That fits well with the essential point of a regulatory authority which is responsible to receive and analyse and act upon disclosures from whistleblowers. The respective authority needs to both monitor the disclosures and if necessary, be able to take action and investigate the disclosures. As a result, there is no direct need for a separate authority that would deal with disclosures from whistleblowers. Adding another task to the Labour Inspectorate’s list of obligations will increase the workload, therefore there might be a need for an extra position to be created and extra staff member(s) to be employed to deal with whistleblowing related issues. However, as the few statistics composed on the willingness of Estonians to report unethical or illegal behaviours witnessed inside a corporation, the internal disclosure approach was highly favoured over disclosing information about wrongful behaviours to external authorities.79 As a consequence, there are reasons to believe that the workload of either a separate authority (agency) or the Labour Inspectorate will not be considerably higher due to 78 79

The Labour Inspectorate of Estonia homepage, General Information Thesis page

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the new task, because of the reluctance of Estonians to bring their claim outside the corporation to an external authority. This is probably an adequate reason to consider not creating a separate authority to receive disclosures of wrongful conduct from whistleblowers and instead add a set of tasks to the Labour Inspectorate. As with the internal whistleblowing, the benefits and procedures of external whistleblowing need to be introduced to employees and to the society. The potential whistleblowers need to be acquainted with the procedures that need to be followed, know who and how to turn to, how to make sure to stay protected from retaliation and why not stay ignorant and choose to report the witnessed wrongful activities. This could be achieved by workshops or seminars hosted by the Labour Inspectorate or the Ministry of Social affairs (under which the Labour Inspectorate belongs to). Society can also be educated by newsletters, news appearances and articles in national newspapers covering the procedures and protection of whistleblowers. Within the internal codes of conduct should also be stated the opportunity to turn to external authorities to disclose the information and the corporation should in any way discourage voicing the claims outside the corporation.

10.4 Reward program The reward program for private sector employees is the newest addition to whistleblower regulations, set up to incentivize even more whistleblowers to come forward. In order to adopt an effective bounty program, the legislators have to come up with a clear set of criteria that covers the size of the reward, how it is calculated and what kind of disclosures deserve to be rewarded. The most reasonable step would be to follow the example of the US – to reward disclosures that lead to a successful prosecution in court. The reward should be a certain per cent of the fine that the corporation has to pay, if the fine exceeds a certain threshold. This way the whistleblowers have clear expectations and the number of unwarranted disclosures is kept minimal due to the set of criteria that have to be fulfilled in order to be eligible for a reward. However, the reward program proves its necessity in the US due to a high number of huge and influential companies that have an influence on the whole world. On the contrary, Estonia is a small country with an even smaller number of corporations, not to talk about the influential ones. Therefore, the regulating and re-evaluating of existing regulations should start from deciding to widen the regulation to private sector employees and to facilitate both internal and external whistleblowing by the private sector employees. The reward program is not the only incentive for whistleblowers to report the information they have come across, therefore not adopting such a regulation will not decrease the number of potential disclosures. 47

Many of the potential whistleblowers will disclose information out of ethical reasons and therefore will report even if there was no reward on the horizon. In order to facilitate efficient whistleblowing, the attitudes of the public towards whistleblowing and whistleblowers need to be changed. This can be achieved by news articles or clips that are directed to the wider audience to educate people about the benefits of whistleblowing and maintaining a healthy corporate culture. Workshops could be carried out on the same purpose.

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11. Conclusion A whistleblower is a corporation insider who provides valuable information about illegal or unethical conduct within the corporation either to internal or external authorities. As a result, the corporation can kick-start an internal investigation or external authorities can investigate the corporation and its alleged illegal or unethical activities. Due to the benefits of time and cost efficiency related to insiders providing information about wrongful conduct inside the corporation, the approach towards whistleblowing has changed considerably. Legislators, authorities and corporations have acknowledged the benefits of whistleblowing and as a result, recognize the need to motivate whistleblowers to disclose information without any doubts and concerns. In order to incentivize employees to blow the whistle and not fear retaliation, the potential whistleblowers need to be protected and in some cases even rewarded for their disclosures. The world’s whistleblowers regulation history starts in the United States of America, where the first regulation to govern the process of whistleblowing was adopted during the Civil War. The second, most significant whistleblower protection statute, the Whistleblower Protection Act (1987) targeted federal workers. For years, the private sector employees were not protected from retaliation when blowing the whistle. As the private corporations grew, so did the need to widen this cost and time efficient approach to cover the private sector as well. It is a logical step, since the resources and time needed to efficiently monitor every big corporation, who could potentially cause a lot of harm to the wider public with its illegal activities, would prove too much for external authorities. Sarbanes-Oxley Act (2002) was the act that finally widened the protection to cover private sector employees who worked in publicly traded companies. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provided the possibility for private sector whistleblowers of receiving financial rewards for successful disclosures. On the other hand, United Kingdom’s whistleblower protection regulation, the Public Interest Disclosure Act (1988) is considered one of the most advanced whistleblower regulations in the world. It promotes internal whistleblowing and governs the public, private and voluntary sector employees. In Europe, only a few Member States have advanced regulations to protect whistleblowers, some have partial regulations and some lack a regulation all together. As a result, most of the regulations need to be re-evaluated to provide efficient protection and motivation to whistleblowers.

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In Estonia, which was chosen as a case study, public sector whistleblowers are protected by the Anti-Corruption Act and few other provisions scattered around separate acts. This leads to the conclusion that private sector whistleblowers are not protected from retaliation. Regulation is not the only aspect that needs re-evaluating, as statistics clearly show negative attitude towards whistleblowing and whistleblowers. 74% of the surveyed people would not react when witnessing corruption and 13% of civil servants and 1% of citizens and business owners who personally experienced corruption, actually reported the cases. Many of the illegal or unethical behaviours can be summed up as corruption and as a result the statistic is worrying. However, the attitudes are changing in Estonia, which can be read from the survey carried out for the purpose of this thesis, which concluded that only 22,7% would stay passive when witnessing illegal or unethical activities in their working place. Therefore the statement that the attitudes towards whistleblowing seem to be changing is true and to motivate whistleblowers even more, the existing regulations need to be critically re-evaluated. One way to provide incentives and protection to whistleblowers through anonymity is to establish national whistleblower hotlines that would receive tips and follow up on them, if necessary. The whistleblower would be protected by staying anonymous and as a result he will not have to worry about retaliation. An effective way to manage the hotline would be to adopt the United Kingdom’s approach and add an advice and counselling function to the hotline – the hotline would not only receive tips, but act as an advice line for whistleblowers who are unsure how to proceed with the information they have received, where to turn to and how to make sure they will not be retaliated against. 50% of the surveyed people to compose this thesis believe a national hotline would “probably” or “definitely” serve as an effective means to gather information about wrongdoings, therefore there is grounds to believe that after receiving wider coverage in the media, the hotline would serve its purpose effectively. Another, possibly the most effective way to incentivize and protect whistleblowers to disclose information is to establish internal compliance mechanisms in the form of codes of conduct within corporations. This method is highly beneficial to the whistleblower and the corporation – the corporation does not risk reputational damage and the whistleblower does not have to take the step to turn to external authorities which could lead to retaliation. This way, the corporation can take immediate steps to remedy the wrongdoings without external intervention. An internal regulation would provide a transparent regulation for whistleblowers in the private sector. Again, Estonia should adopt the UKs approach where the whistleblowing is considered an essential safety valve, of developing internal regulations to protect 50

whistleblowers. In the UK, internal regulation is seen as the core element of a healthy organisation. 51,5% of the people who completed the survey to compose this thesis would choose to disclose information about wrongful behaviours within the corporation internally, which indicates that the internal whistleblowing regulations in corporations would be highly effective in serving their purpose. 80% agreed they would feel more confident and secure to disclose information internally if the corporation had an internal compliance mechanism in place to protect whistleblowers. Alongside internal regulations an external unified regulation has to be adopted to provide general rules and regulations for the process of whistleblowing that need to be followed while setting up internal regulations. External whistleblowing can be incentivized by the adoption of a general act that cover whistleblowing on the state level and establishing a separate government agency that receives the claims and follows up on them. However, external whistleblowing requires a higher level of confidence and security in the process and protection of whistleblowers. As a consequence, external whistleblowing would not be a suitable option for Estonia to start with, because of the existing partial regulation and the negative attitude towards whistleblowing in the society. The public needs to be educated about the importance and benefits of whistleblowing to slowly start raising the number of disclosures. This can be done by creating confidence in employees that they will not face retaliation. As the survey conducted for this thesis showed, people are more likely to turn to internal authorities. Therefore, internal whistleblowing should be encouraged initially. In order to facilitate effective whistleblowing, changes only in the existing regulations are not enough. The issue of whistleblowing is closely connected to cultural and ethical aspects. It is necessary to educate people about the benefits of whistleblowing and through that change the mostly negative attitude towards whistleblowing and whistleblowers. Nowadays, one of the main reasons for employees to choose not to blow the whistle is the fear of retaliation. Therefore, positive attitudes from colleagues and managers would facilitate blowing the whistle more often and lower the fear of retaliation. As a result, a moral space to incentivize employees to bring forward ethical concerns has to be created. 56,7% of the people questioned for this thesis do fear retaliation, therefore the issue is actual and needs to be addressed. However, 53,9% believe they would not have any negative attitudes towards a colleague who blew the whistle, therefore the change is apparent in the society and needs to be brought further to give employees more confidence they will not be treated negatively among their colleagues. 51

However, there are other means for whistleblowers to protect themselves in Estonia. These include appealing a dismissal on the basis of the Employment Contract Act, which sets clear boundaries for dismissals. In case of an unwarranted dismissal, the possibilities are to turn to a Labour Dispute Committee or turn to the court. To contest discriminative behaviour (unwarranted negative behaviour compared to other colleagues), the Equal Treatment Act provides a basis to turn to either the Gender Equality and Equal Treatment Commissioner, the Labour Dispute Committee or to the court. Therefore, currently, whistleblowers are not completely unprotected from retaliation, but a unified regulation (either internal or external) would go a long way in providing transparency and security. When it comes to reward programs, critics cannot seem to agree. Reward programs are intended to incentivise external whistleblowing. Whistleblowing is the least cost method for the authorities and as a result, incentivizing whistleblowers with a monetary reward seems to serve its purpose. However, it is not known if offering rewards would indeed raise the number of reports. It is believed that employees who will report a wrongdoing do so usually out of loyalty or even revenge. The main difference that seems to be achieved with offering the reward is the raise in number of external whistleblowers. Another objective is that the rewards could potentially raise the number of unwarranted claims and the effectiveness of internal compliance programs would be weakened because more whistleblowers would turn to external authorities in order to be rewarded for the same information they would have provided internally. As a result, the reward program is more suited to the society that encourages external whistleblowing (the United States) and not to one that encourages internal whistleblowing and places emphasis on harmonious relationships between employees and employers (Europe). 42,9% of the surveyed people in order to compose this thesis believe that a reward would incentivize whistleblowers to disclose information, however 73,2% believe that a reward would raise the number of unwarranted disclosures. In order to facilitate efficient whistleblowing, the whistleblowing hotline needs to be advertised and an additional task needs to be added to it in form of providing advice. The internal compliance mechanisms template could be developed and offered to corporation by the legislators in order to grant an efficient adoption of transparent and detailed internal regulations. Employee workshops and national awareness campaigns need to be carried out to introduce the benefits of whistleblowing and the process of how and where to disclose the information. The public needs to be educated about how the whistleblowers can protect themselves against retaliation. 52

To sum up, a national hotline and internal compliance methods are essential for Estonia to motivate whistleblowers to blow the whistle. As the society in Estonia is more focused on harmonious employer-employee relationships, the external whistleblowing and reward programs are not the most suitable for Estonia at the current time. As the survey composed for this thesis states, employees are willing to blow the whistle and do it internally or through a hotline. As a result, the public’s attitude has changed and would facilitate effective whistleblowing and in order to give confidence and security to the employees, advertising the hotline and setting up rules for internal compliance mechanism would go a long way.

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12. Bibliography 1. Anti-corruption Act, RT I, 29.06.2012, 1. Available online at: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/530102013048/consolide 2. Employment Contracts Act, RT I 2009, 5, 35. Available online at: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/530102013061/consolide 3. Equal Treatment Act, RT I 2008, 56, 315. Available online at: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/530102013066/consolide 4. Estonian Ministry of Justice, „Anti corruption strategy 2008-2012“, Tallinn, 2008. Available online at: http://www.korruptsioon.ee/sites/www.korruptsioon.ee/files/elfinder/dokumendid/anti _corruption_strategy_2008-2012.pdf 5. G.C. Rapp, “States of Pay: Emerging Trends in State Whistleblower Bounty Schemes”, South Texas Law review, Vol. 54, United States of America, 2012, page 2 Available online at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207004 6. H. Fleischer, K. U. Schmolke, “Financial Incentives for Whistleblowers in European Capital Markets Law? – Legal Policy Considerations on the Reform of the Market Abuse Regime”, ECGI - Law Working Paper No. 189/2012, 2012 Available online at SSRN: http://ssrn.com/abstract=2124678 or http://dx.doi.org/10.2139/ssrn.2124678 7. Individual Labour Dispute Resolution Act, RT I 1996, 3, 57. Available online at: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/504112013010/consolide 8. I. Peters, „Whistleblowing and Corporate Governance. The role of internal audit in whistleblowing“, Chartered Institute of Internal Auditors, report, 2014. Available online at: http://www.iia.org.uk/media/537988/final_0795_iia_whistleblowing_report_30-114.pdf 9. J. Gobert, M. Punch, “Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998”, The Modern Law Review Limited, Blackwell Publishers, United States of America, 2000. Available online at: http://onlinelibrary.wiley.com/doi/10.1111/1468-2230.00249/abstract 10. J. M. McLaughlin, “Corporate Litigation: Dodd-Frank and Whistleblower Protection: Who Qualifies?”, Simpson Thacher & Barlett LLP, 2013 Available online at: http://www.stblaw.com/docs/default-source/cold-fusion-existing content/publications/pub1637.pdf?sfvrsn=2 54

11. Juhan Parts, „Seletuskiri konkurentsiseaduse muutmise ja sellega seonduvalt teiste seaduste muutmise seaduse eelnõu juurde“, Tallinn, 2012 Available online at: http://www.google.nl/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CEgQF jAF&url=http%3A%2F%2Fwww.koda.ee%2Fpublic%2FKonkurentsiseaduse_seletus kiri_27.06.2012.doc&ei=sxGXU8W5O8fjOazsgdgH&usg=AFQjCNHUNDgMBhrYF liVwx3IVJ-bIpaIHw&sig2=rfWyTcKdMVRZ1QNlszpGYQ (Comments about the proposed changes of the Estonian Competition Act and the changes of related acts) 12. K.T. Fogt, M. MacPhail, M.L. Will, „U.S. Supreme Court Expands SOX Whistleblowing Protection as SEC Cautions Companies Against Incentivizing Employees to Keep Complaints Internal“, Faegre Baker Daniels LLP, March 2014. Available online at: http://www.faegrebd.com/21341 13. The Labour Inspectorate of Estonia homepage Available online at: http://www.ti.ee/index.php?page=3& 14. L. Ravishankar, „Encouraging Internal Whistleblowing in Organizations“, Santa Clara University, 2003. Available online at: https://www.scu.edu/ethics/publications/submitted/whistleblowing.html 15. L. Saarniit, „Whistleblower Protection Assessment Report on Estonia“, Transparency International Estonia, Country Report, Estonia, 2009. Available online at: http://www.transparency.ee/cm/files/whistleblower_protection_assessment_report_on _estonia_1.pdf 16. M. Albrant, M. Meriorg, Ü. Papp, „Võrdle kohtlemise seadus käsiraamat“, Tallinna Tehnikaülikool õiguse instituut, Tallinn, 2012. Available online at: http://www.erinevusrikastab.ee/files/VKS_2012.pdf (Guidebook to the Equal Treatment Act of Estonia) 17. M.K. Ramirez, „Blowing the whistle on whistleblower protection: A tale of reform versus power“, University of Cincinnati Law Review, 76 U. Cin. L. Rev. 183, United States of America, 2007. Available online at: http://test.washburnlaw.edu/profiles/faculty/activity/_fulltext/ramirez-mary-200776universitycincinnatilawreview183.pdf 18. M. Worth, „Whistleblowing in Europe – Legal Protections for Whistleblowers in the EU“, Transparency International, 2013. Available online at: http://www.transparency.org/whatwedo/pub/whistleblowing_in_europe_legal_protecti ons_for_whistleblowers_in_the_eu

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19. N. Morgan, M.J. Sheehan, G.P. Alexander, „Courts confirm: Dodd-Frank whistleblowers must report to the SEC, Dodd-Frank whistleblower protections do not extend to conduct outside the US“, DLA PIPER, November 2013. Available online at: http://www.dlapiper.com/en/netherlands/insights/publications/2013/11/courtsconfirm-doddfrank-whistleblowers-must-rep__/ 20. P. Ayagre, J. Aidoo-Buameh, “Whistleblower reward and systems implementation effects on whistleblowing in organisations”, European Journal of Accounting Auditing and Finance Research Vol.2, No. 1, United Kingdom, 2014. Available online at: http://www.eajournals.org/wp-content/uploads/Whistleblower-Reward-and-SystemsImplementation-Effects-on-Whistleblowing-in-Organisations.pdf 21. Public Concern at Work, „Where’s Whistleblowing now? 10 years of legal protection for whistleblowers“, March 2010. Available online at: http://www.pcaw.org.uk/files/PIDA_10year_Final_PDF.pdf 22. Public Concern at Work home page, Individual Advice, Advice Line. Available online at: http://www.pcaw.org.uk/adviceline 23. R.A. Johnson, “A Piercing Look at Whistleblowing”, The Center for Association Leadership, United States of America, 2004. Available online at; http://www.asaecenter.org/Resources/EUArticle.cfm?ItemNumber=11602 24. S. L. Ray, „Whistleblowing and Organizational Ethics“, Nursing Ethics 13(4), Edward Arnold Ltd, 2006. Available online at: http://nej.sagepub.com/content/13/4/438.abstract 25. T. Barnett, „Why Your Company Should Have A Whistleblowing Policy“, Louisiana Tech University Sam Advanced Management Journal, 1992. Available online at: http://ethics.csc.ncsu.edu/old/12_00/basics/whistle/rst/wstlblo_policy.html 26. Transparency International, „International principles for whistleblower legislation“, European Commission, 2013. Available online at: http://www.transparency.org/whatwedo/pub/international_principles_for_whistleblow er_legislation 27. Transparency International Korruptsioonivaba Eesti, „Eesti kuulub korruptsioonist teavitajate kaitse osas ELi keskmike hulka”, pressrelease, November 2013. Available online at: http://www.transparency.ee/cm/artiklid/eesti-kuulub-korruptsioonistteavitajate-kaitse-osas-eli-keskmike-hulka (Estonia is “in the middle” when it comes to whistleblower protection in Europe)

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28. Transparency International Korruptsionoivaba Eesti, „Ühing: Korruptsioonist teavitajad vajavad paremat kaitset, kuid hoiakud juba paranevad“, pressrelease, November 2013. Available online at: http://www.transparency.ee/cm/uudised/uhingkorruptsioonist-teavitajad-vajavad-paremat-kaitset-kuid-hoiakud-juba-paranevad (Whistleblowers need better protection but the attitudes are already changing) 29. Töövaidluskomisjon, „Ülevaade 2013.a. töövaidlustest“. Available online at: http://www.ti.ee/public/files/T%C3%B6%C3%B6vaidlused_2013.pdf (2013 statistics on labour disputes in Estonia) 30. W. De Maria „Whistleblower Protection: Is Africa Ready?“, Wiley & Sons, Ltd. Published online in Wiley Interscience, Australia, 2005. Available online at: http://onlinelibrary.wiley.com/doi/10.1002/pad.343/abstract

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13. Annex Following is the translation (from Estonian to English) of the questionnaire composed to gather information to complete this thesis. Dear respondent, I am a master degree student in Tilburg University, the Netherlands and I am asking for your help to complete my master thesis. I am writing my thesis about whistleblowers, in more details about wether it is necessary to implement a separate whistleblowing protection and reward act in Estonia or would individual internal compliance mechanism (codes of conduct) be efficient. To analyse the matter, I need to know how many of you would be willing to report a witnessed illegal or unethical behaviour (accepting or giving bribes, fraudulent accounting, etc) to external authorities or internally and on what terms. I am focusing on the pricate sector, because until this day there is no regulation in Estonia that would regulate private sector whistleblowing. Public sector officials, for example, are partially protected by the Anti-Corruption Act and Criminal Act.

The outcome of this questionnaire will only be used to complete the thesis and all the answers will be presented anonymously. I hope you find the time to help me and complete my survey!

Tiina Suun 1. Gender -male -female 2. Age -15-20a -21-25a -26-30a -31-35a -36-40a -41-50a -51-60a 3. Currently -I am working -I am studying -I am working and studying -I am unemployed

4. Working experience -10a

Please concentrate on a hypothetical situation (despite the answers to the previous questions), that you are working in a (private) corporation and you come in contact with illegal or unethical behaviour during your daily work responsibilities.

5. I will choose to stay passive – it is not my duty to complain about others’ 58

conduct. -definitely not -probably not -I don’t know -probably yes -definitely yes 6. I would turn to the “perpetrator” and would try convince him/her to stop his/her behaviour /remedy his/her wrongdoing. -definitely not -probably not -I don’t know -probably yes -definitely yes 7. I would turn to my manager/employer. -definitely not -probably not -I don’t know -probably yes -definitely yes 8. I would turn to the police/another respective organisation outside the corporation. -definitely not -probably not -I don’t know -probably yes -definitely yes 9. I would turn to the media. -definitely not -probably not -I don’t know -probably yes -definitely yes

-definitely not -probably not -I don’t know -probably yes -definitely yes

How would you react if one of your colleagues decides to report the illegal or unethical behaviour?

11. I would have a good attitude towards it and I would acknowledge his choice. -definitely not -probably not -I don’t know -probably yes -definitely yes 12. I would stay ignorant. -definitely not -probably not -I don’t know -probably yes -definitely yes 13. I would react negatively – colleague has breached loyalty to other colleagues/managers/employers or while turning outside the corporation, to the corporation as a whole. -definitely not -probably not -I don’t know -probably yes -definitely yes The following concerns possible situations arising from whistleblowing.

10. I will choose where to turn to according to the severity/essence of the illegal/unethical conduct. 59

14. Do you fear that retaliation will follow the disclosure – negative attitude, dismissal, etc? -definitely not -probably not -I don’t know -probably yes -definitely yes

17. One of the above is efficient enough to protect whistleblowers against retaliations (that is either the internal regulation or a whistleblower protection act, both are not necessary). -yes -no

15. I would feel more confident if the corporation had an internal compliance mechanism in place, that has been introduced to employees and which describes in which cases the conduct needs to be reported, where to report and which would protect the whistleblower for retaliation. -definitely not -probably not -I don’t know -probably yes -definitely yes

18. A regulation (either external or internal) is necessary in Estonia to protect the private sector whistleblowers. -yes -no

16. I would feel more confident reporting the wrongdoing, if there was a general regulation adopted in Estonia (a separate act), which describes in which cases the conduct needs to be reported, where to report and which would protect the whistleblower for retaliation. -definitely not -probably not -I don’ t know -probably yes -definitely yes

19. There is no need for a separate internal act that covers whistleblowing, it is enough if the paragraphs governing whistleblowing are added to the general code of conduct within the corporation. -yes -no 20. Would a reward that would be offered for disclosing information, be a motivation to report the wrongful behaviour? -definitely not -probably not -I don’ t know -probably yes -definitely yes 21. Do you believe offering a reward will raise the number of unwarranted or malicious claims? -definitely not -probably not -I don’ t know -probably yes -definitely yes

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22. It is not necessary to offer a reward – the one who is willing to disclose information about wrongful behaviours will do it despite the reward. -definitely not -probably not -I don’ t know -probably yes -definitely yes 23. Would a national whistleblowing hotline be efficient to receive information about illegal or unethical behaviours and protect whistleblowers (by granting them anonymity)? -definitely not -probably not -I don’ t know -probably yes -definitely yes

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