Friday, September 28, 2012

Denmark - Sanctions imposed on multinational corporations failing to register whistleblowing systems

By Oline Nowicki, Sofie Bille-Steenberg and Anders Etgen Reitz, IUNO

Danish subsidiaries of parent Companies listed in the US should be mindful of the parent Companies’ obligation to have whistleblowing systems under US law and to their duty to register these systems with the Danish Data Protection Agency. If the company fails to register its whistleblowing system in Denmark, it will be fined.
According to the most recent figures from August 2012, 134 companies in Denmark had registered their whistleblowing systems with the Danish Data Protection Agency.

The primary purpose of a whistleblowing hotline is to ensure that employees and others can report any wrongdoings in the company to its management or an external hotline.

Under Danish law, it is up to the company whether it wishes to introduce a whistleblowing scheme. It is, however, different under US law. And this may cause multinational corporations with Danish subsidiaries to face problems.

US law on whistleblowing systems
In 2002 the United States introduced the so-called Sarbanes-Oxley Act which provides that all publicly traded companies must have a whistleblowing system. The whistleblowing system also applies to the company’s subsidiaries, which will often appear from the internal guidelines of the subsidiary.  In 2010  the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, and this Act gives the whistleblower a potential "bonus" equal to 10-30 % of the sanctions imposed on the company.

Multinational corporations with Danish subsidiaries obliged
The US law is significant to Danish companies if the parent company is listed in the United States and where it is typically the parent company that administers the company’s whistleblowing system. Under Danish data protection law, the company is obliged to register its whistleblowing system with the Danish Data Protection Agency. This is important for the companies as a violation of the duty to register is punished by fine. The maximum penalty is in principle imprisonment of up to four months, but this penalty has never been applied in practice.

Before the company registers the whistleblowing system with the Danish Data Protection Agency, it is necessary for the parent and the subsidiary company to clarify between themselves who will be the responsible Data Handler. This will be the company that has to ensure that the Danish regulations will be followed and that the security is up to code.

Easy to overlook
Many Danish parent companies have become attentive to the duty to register their whistleblowing systems in Denmark. The problems of whistleblowing systems can, however, easily be overlooked by subsidiaries with parent companies listed in the United States. Therefore, it is particularly important to pay attention to the duty to register whistleblowing schemes with the Danish Data Protection Agency and to the sanctions applied in case of failure to register.