Navigating the Challenges of Cross-Border Internal Reporting Channels
By Dr. Erika Kovács, EWI Fellow
Establishing and operating effective internal reporting channels can be a daunting task, particularly for small and medium-sized enterprises (SMEs). This is due to the financial and organisational efforts required to set up these systems. The EU Whistleblowing Directive offers a solution by allowing companies with 50 to 249 employees to share resources for receiving and investigating reports, as outlined in Article 8(6). However, when a group of companies across different Member States attempts to create a shared, cross-border reporting channel, several challenges emerge, explained below in more detail.
Ambiguity in Resource Sharing for Larger Companies
One of the primary issues is whether larger companies can share resources. For instance, German and Hungarian laws restrict shared reporting channels to companies with 50 to 249 employees (§ 14 (2) Hinweisgeberschutzgesetz and § 18 (3) 2023. évi XXV. törvény). Conversely, Austrian law allows all companies, regardless of size, to delegate the tasks of the internal reporting channel to a joint office (§ 13 (4) HinweisgeberInnenschutzgesetz). This discrepancy raises questions about the legality and feasibility of a common reporting channel within a corporate group that includes both smaller and larger subsidiaries.
Defining Resource Sharing
Resource sharing is often interpreted as permitting corporate groups to run a single reporting system for the entire group, including the holding company and its subsidiaries. However, the Directive mandates that each company must maintain responsibility for confidentiality, providing feedback, and handling reported breaches. This means that while the technology for reporting can be shared, each subsidiary must still have its own mechanism for managing and investigating breaches. Essentially, even with a shared web-based platform, each company must independently handle and follow up on reports.
Variability in National Regulations
Another significant challenge is the variation in national regulations regarding internal reporting channels. These differences can affect the scope of application, internal reporting procedures, and follow-up actions. As a result, a single cross-border reporting channel may not satisfy the legal requirements in all relevant jurisdictions. This means that what works in one country might not be compliant in another, complicating the establishment of a unified system.
Practical Considerations for Implementing a Cross-Border Reporting Channel
To address these challenges, it is crucial to view the central reporting function not as a single internal reporting channel for all affiliated companies, but as an authorised third party that communicates with whistleblowers. Medium-sized subsidiaries can leverage the investigative capabilities of the parent company for guidance and support. However, each subsidiary must take responsibility for investigating and following up on reports, designating impartial individuals to ensure unbiased handling.
In summary, while the concept of shared reporting channels offers potential efficiencies, its implementation requires careful consideration of national laws and the specific responsibilities of each subsidiary. By doing so, companies can better navigate the complexities of cross-border whistleblowing and ensure compliance with the Whistleblowing Directive, ultimately fostering a more transparent and accountable organisational culture.
Dr. Erika Kovács is a Fellow at the European Whistleblowing Institute and Associate Professor at the Vienna University of Economics and Business in Austria.
