Blowing the Whistle on Sarbanes-Oxley: Anonymous Hotlines and the Historical Stigma of Denunciation in Modern Germany

Abstract

The Sarbanes-Oxley Act requires listed US companies as well as non-US companies listed on a US stock exchange to establish procedures for dealing with confidential, anonymous employee submissions regarding questionable accounting or auditing matters. Companies failing to comply with these ‘whistleblowing’ requirements are subject to heavy sanctions. This paper examines the compatibility of whistleblowing requirements contained in the US Sarbanes-Oxley Act with German data protection, employment and constitutional law, and analyses the roots of the historical unease with and the stigma attached to whistleblowing schemes in Germany which result from its experiences with denunciation during the Third Reich and in the former GDR.

Notes

1 Testimony of Sherron Watkins before the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee on the financial collapse of the Enron Corporation, as recorded by the Federal News Service, available at http://www.apfn.org/enron/watkins2.htm (last accessed 30 November 2006).

2 CNIL Decision 2005-110 of 26 May 2005 (Group McDonald's France). See also CNIL Decision 2005-111 of 26 May 2005, English translations available at http://www.theworldlawgroup.com/newsletter/details.asp?ID = 1243487122005 and http://www.theworldlawgroup.com/newsletter/details.asp?ID = 1246367122005 (last accessed 30 November 2006).

3 ArbG Wuppertal on 15.6.2005, 5 BV 20/05, Neue Zeitschrift für Arbeitsrecht-Rechtrsprechung-Report 2005, 476. This decision was later confirmed on appeal, LAG Düsseldorf on 14.11.2005, 10 TaBV 46/05, BB 2006, 335 = Neue Zeitschrift für Arbeitsrecht-Rechtrsprechung-Report 2006, 81.

4 Section 406 (c) SOX.

5 Similar provisions are included in the regulations enacted by the two biggest US stock exchanges, NASDAQ and NYSE. See, for example, NYSE Listed Company Manual, section 303A(9) and NASDAQ Rule 4350(n).

6 M E Schreiber, J E Held, R T J Bond, R Dan, C Runte and K Flower ‘Anonymous Sarbanes-Oxley hotlines for multi-national companies: compliance with EU data protection laws’ in J J Huber (ed.) The Practitioner's Guide to the Sarbane-Oxley Act, Volume II, American Bar Association, American Bar Association, 2006, pp V-9-7.

7 Section 20 Securities Exchange Act of 1934.

8 Other examples of employee protection rules include the US False Claims Act (31 U.S.C. Sections 3729–33) designed to protect employees blowing the whistle on the unlawful obtaining and use by their employers of public monies and the UK Public Interest Disclosure Act 1998 under which any employee who is dismissed for reporting similar offences by his employer can be awarded unlimited damages. See Schreiber et al., op cit, note 6, p V-9-26.

9 J P Near and N P Miceli ‘Organisational dissidence: the case of whistle blowing’, Journal of Business Ethics Vol 4, pp 1–16, 1985. For an excellent description of the three elements, see B Hoppler ‘Whistleblowing—ein integraler bestandteil effektiver corporate governance’, Betriebsberater Vol 48, p 2623, 2005.

10 J Brinker Dozier and M P Miceli ‘Potential predictors of whistleblowing: a prosocial behavior perspective’, Academy of Management Review Vol 10, No 4, pp 823–836, 1985.

11 Near and Miceli, op cit, note 9.

12 M Weber The Theory of Social and Economic Organisation, Free Press, New York, 1947.

13 J V Jensen ‘Ethical tension points in whistleblowing’, Journal of Business Ethics Vol 8, pp 321–328, 1987.

14 R L Johannesen Ethics in Human Communication, 2nd edn, Waveland Press, Prospects Heights, 1983.

15 C D Batson ‘Sociobiology and the role of religion in promoting prosocial behavior: an alternative view’, Journal of Personality and Social Psychology Vol 45, pp 1380–1385, 1983.

16 Brinker Dozier and Miceli, op cit, note 10.

17 E Staub Positive Social Behavior and Morality: Social and Personal Influences, Vol 1, Academic Press, New York, 1979.

18 Ibid.

19 Jensen, op cit, note 13, p 323.

20 Ibid, p 323.

21 F A Elliston ‘Anonymity and whistleblowing’, Journal of Business Ethics Vol 1, pp 167–177, 1982, at p 171.

22 Ibid, p 171.

23 S H Schwartz, K A Feldman, M E Brown and A Heingartner ‘Some personality correlates in personal conduct in two situations of moral conflict’, Journal of Personality Vol 37, pp 41–57, 1969.

24 S Bok ‘Whistleblowing and professional responsibilities’ in P Callahan and S Bok (eds) Ethics Teaching in Higher Education, Plenum Press (The Hastings Center Series in Ethics), New York, 1980, pp 277–295, at p 271.

25 Elliston, op cit, note 21, p 174.

26 See D Graser Whistleblowing—Arbeitnehmeranzeigen im US-amerikanischen und deutschen Recht, Europäiche Hochschulschriften, Frankfurt am Main/Wien, p 181. Graser only lists four decisions of the Federal Employment Court (BAG), 2000.

27 1798–1874.

28 ‘Der größte Lump im ganzen Land—das ist und bleibt der Denunziant.’

29 ‘Nestbeschmutzer.’

30 H Rüping ‘Denunziation und Strafjustiz im Führerstaat’ in G Jerouschek, I Marßolek and H Röckelein (eds) Denunziation: Historische, juristische und psychologische Aspekte, edition discord, Edition Diskord Tübingen, 1997, pp 127–145.

31 G Diewald-Kerkmann ‘Politische Denunziation im NS-Regime’ in Jerouschek et al., op cit, note 29, pp. 146–156, at p 147.

32 K M Mallmann and G Paul ‘Allwissend, allmächtig, allgegewärtig? Gestapo, Gesellschaft und Widerstand’, Zeitschrift für Geschichtswissenschaft Vol 41, No 11, pp 984–999, 1993.

33 Taken from R Gellately The Gestapo and German Society: Enforcing Racial Policy 1933–1945, Oxford University Press, Oxford, 1992, p 61.

34 K M Mallmann and G Paul, Herrschaft und Alltag: Ein Industriegebiet in Dritten Reich, Dietz Verlag, Bonn, 1991.

35 Bok, op cit, note 24.

36 Diewald-Kerkmann, op cit, note 31, p 154.

37 K Sauerland 30 Silberlinge Denunziation—Gegenwart und Geschichte, Verlag Volk & Welt, Berlin, 2000.

38 Cited after Sauerland, op cit, note 37, p 17, translation by the author.

39 These figures have been taken from J O Koehler Stasi: The Untold Story of the East German Secret Police, Westview Press, Boulder, CO, 1999, pp 7–8.

40 The number of unofficial contributors has been continually revised downwards since 1989 from over 600,000 to around 100,000. These figures have been taken from an official study carried out by Helmut Müller-Ensberg and published in his book Inoffizielle Mitarbeiter des Ministeriums für Staatssicherheit, 3rd edn, Links Verlag, Berlin, 1996.

41 A Funder Stasiland: Stories from Behind the Wall, Granta Books, London, 2003, p 74.

42 A Maennel Auf sie war Verlaß: Frauen und Stasi, Espresso/Elef. Press, Berlin, 1998, p 45, translation by the author.

43 D Lyon Surveillance after September 11, Polity Press, Cambridge, 2003, p 142.

44 Ibid.

45 See, for example, ‘Urteil vom 9.9.1947’, Justiz und Verbrechen Vol 1, pp 663, 1968.

46 For an excellent description of the historical roots of such an obligation of loyalty in German law, see M Müller ‘Whistleblowing—ein Kündigungsgrund?’, Neue Zeitschrift für Arbeitsrecht (NZA) pp 428–437, 2002.

47 Müller lists the employees' freedom of opinion and freedom of speech (Article 5 I of the German Constitution (GG)), the right to participate in criminal prosecutions (Article 2 I GG in conjunction with Article 20 III GG) and the right to petition public authorities (Article 17 GG). See Müller, op cit, note 46, p 430.

48 Statutory rights of employees to report certain events or behaviour of others are rare and arise mainly in the area of environmental law, for example, the right to report violations under §§53 of the Federal Protection from Emissions Act (Bundes Immissions Schutz Gesetz - BImSchG), §§21a of the Water Protection Act (Wasser Haushalts Gesetz – WHG) and §§11a Waste Disposal Act (Abfallgesetz – AbfG).

49 For instance, the obligation to report to the police plans for the commission of certain specified criminal offences under §138 of the German Criminal Code (StGB). Anyone failing to report such plans despite having ‘credible knowledge’ of them, is liable to a fine or imprisonment of up to five years. See also BVerfG (2.7.2001) NZA 2001, 888 for a constitutional court decision finding that an employee which complies with his obligation as a citizen to appear as a witness in a criminal trial against his employer may not be dismissed by his employer because of this, even if the employer is acquitted of any offence.

50 BAG (5.2.1959), NJW 1961, 44. For a similar decision see LAG Berlin (25.11.1960), Betriebs Berater 1961, 449.

51 See R Ascheid, U Preis and I Schmidt Kündigungsrecht—Großkommentar zum gesamten Recht der Beendigung von Arbeitsverhältnissen, 2nd edn, C H Beck, München, 2004, §626, No 190.

52 BAG (3.7.2003) AP KSchG §1, No 45.

53 See, for example, Ascheid et al., op cit, note 51, §626, No 193.

54 See note 50 supra.

55 LAG Köln (23.2.1996) NZA-RR 1996, 330.

56 G Wisskirchen, A. Körber and A Bissels ‘“Whistleblowing” and “Ethikhotlines” ’, Betriebs Berater Vol 28/29, p 1571, 2006.

57 Ibid.

58 Defined in §3 I BDSG.

59 Bundesdatenschutzgesetz.

60 See, for example, Wisskirchen et al., op cit, note 56, p 1567.

61 Article 29 Working Party Opinion 1/2006 on the application of EU data protection rules to internal whistleblowing schemes in the fields of accounting, internal accounting controls, auditing matters, fight against bribery, banking and financial crime, WP 117, 1 February 2006 (Article 29 Working Party Opinion).

62 OJ L281/31.

63 Ibid.

64 Wisskirchen et al., op cit, note 56, p 1570.

65 Arbeitsgericht Wuppertal 15.6.2005, 5 BV 20/05, NZA-RR 2005, 476.

66 See LAG Düsseldorf vom 14.11.2005, 10 TaBV 46/05, BB 2006, 335 = NZA-RR 2006, 81.

67 LAG Düsseldorf, op cit, note 66.

68 Ibid, translation by the author.

69 P B Jubb ‘Whistleblowing: a restrictive definition and interpretation’, Journal of Business Ethics Vol 21, pp 77–94, 1999, at p 77.

70 Ibid.

71 Within a democratic and constitutional framework.

72 Brinker Dozier and Miceli, op cit, note 10, p 825.