THE AMERICANIZATION OF WHISTLEBLOWING? A LEGAL-ECONOMIC COMPARISON OF WHISTLEBLOWING REGULATION IN THE U.S. AND GERMANY AGAINST THE BACKDROP OF THE NEW EU WHISTLEBLOWING DIRECTIVE Christian Uhlmann* ABSTRACT While it is only a side-issue in Germany, whistleblowing may well be considered a common phenomenon in the U.S.. Why is that? This article provides an answer to this question by unraveling the different cultures associated with whistleblowing. This article will attempt to answer the question of whether a legal system employs whistleblowers, first, depends on the different understanding of the employer/employee relationship, and, second, on the respective system’s approach of how the law is in principle enforced. Is it a rather loose and foreseeable relationship, or does it have the appearance of permanency entailing relatively strong ancillary obligations? Is the law preponderantly enforced by authorities or do private persons play an important role as well? With respect to the latter, it is far from surprising that from the perspective of the U.S. legal system this question has to be answered in the affirmative while Germany is traditionally reluctant in capitalizing private persons for public ends. However, with regard to Germany, this approach is subject to a change coming both from within the German legal system, and from the outside. The increasing influence of the E.U. on Germany has especially begun to elicit changes in the traditional employment relationship, introducing a public policy dimension and thereby an element of private law enforcement. In that respect, by juxtaposing the IRS and SEC whistleblower programs, as well as the new E.U. Whistleblowing Directive, this article demonstrates the transition that the existing German legal system is undergoing. After the analysis in this article, it will become safe to say that the German approach will not merely result in a copy-paste of the “American model.” Beyond that, a new economic theory—the belief model—is used to explain when and why the law changes people’s behavior. This gives room for * Copyright © 2021 Christian Uhlmann, Akademischer Rat auf Zeit, Heidelberg University. First Examination in Law (J.D. equivalent) 2012, University of Mainz; Referendariat (legal clerkship) 2012-2014, Regional Court of Mainz, Second Examination in Law (Bar Exam equivalent); LL.M. 2020, Cornell Law School; Dr. iur. (S.J.D. equivalent) 2020, Heidelberg University. The author deeply thanks the entire UC Davis Journal of International Law & Policy team for their support. 150 University of California, Davis [Vol. 27:2 a both convergence of law and economics and the concept of legal transplants, and for insightful recommendations for both the U.S. and the prospective German whistleblowing framework. 2021] The Americanization of Whistleblowing? 151 TABLE OF CONTENTS I. Introduction ............................................................................. 152 II. Background of Whistleblowing Regulation ............................ 159 A. U.S.: Whistleblowing Regulations from the FCA to the Present ............................................................................... 159 1. The Origin of U.S. Whistleblowing Regulation: the FCA ............................................................................ 159 2. The IRS Whistleblower Program of 2006 .................. 163 3. The SEC Whistleblower Program of 2010 ................. 165 B. Germany: Whistleblowing Regulation Before the EU Whistleblowing Directive .................................................. 167 1. A Short History of Whistleblowing and Its Gradual Change of Perspective ................................................ 168 2. Change of Perspective Continued: Impulses From the Outside .................................................................. 171 a. The ECHR and the Heinisch-judgment ............... 172 b. The EU and Its Way Towards a General Whistleblower Protection Framework ................. 173 III. Whistleblowing: A Discussion About Legal Cultures ............. 176 A. Germany’s Special Understanding of Employment Relationships ..................................................................... 177 B. The U.S.’ Market Driven Approach of Employment Relationships ..................................................................... 181 C. Beginning of a General, Unilateral Convergence? ............ 187 IV. The Law and Economics of Whistleblowing: Time for a Convergence ............................................................................ 192 A. The Standard Economic Model ......................................... 192 1. Basics and Concretizations ......................................... 192 2. The Pros and Cons of Whistleblowing ....................... 196 B. The Alternative Economic Approach: The Belief Model .. 198 C. The Convergence of the Belief Model and Legal Transplants ........................................................................ 200 V. Examining the Whistleblowing Programs In Detail ................ 204 A. U.S.: IRS and SEC Programs ............................................ 204 1. Personal Scope ............................................................ 204 2. Material Scope ............................................................ 204 3. Confidentiality of the Whistleblower’s Identity ......... 205 4. Internal Reporting Channels ....................................... 205 5. Protection Against Retaliation .................................... 206 6. Financial Awards ........................................................ 207 B. Germany and the New E.U. Whistleblowing Directive ..... 208 1. Personal Scope ............................................................ 208 2. Material Scope ............................................................ 209 152 University of California, Davis [Vol. 27:2 3. Confidentiality of the Whistleblower.......................... 209 4. Internal Reporting Channels ....................................... 209 5. Protection Against Retaliation .................................... 211 6. Financial Awards ........................................................ 212 VI. Analysis ................................................................................... 212 A. The IRS and SEC Programs Examined: Path Dependency and Possible Future Developments ............... 212 B. Examining the Upcoming Changes in the German Legal System: A Discussion of More Than Financial Incentives ........................................................................... 215 VII. Conclusion ............................................................................... 221 I. INTRODUCTION La Bocca di Leone1—the lion’s mouth—was a marble statue of a lion’s head embedded in walls in medieval Venice. Like the name might indicate, the mouths of the lions were open just to the extent that a letter could be thrown in. Indeed, this was their original purpose. However, it was not designed to function like mailboxes. Instead, whenever a citizen of Venice detected an infringement, she could file a grievance. After the grievance was filed, a “trial” in the form of a public hearing took place. If the accusation proved to be correct, the wrongdoer was draconically punished. However, if the allegation turned out to be false, it was not the accused who was punished, but rather the accuser. The latter would receive the same punishment that the accused would have received if the allegation would have been true. From a modern, legal comparative perspective, this pattern evokes at least the following thoughts: what law enforcement strategy can be attributed to this approach? What role did citizens generally play in that enforcement framework? Enriched by economic thoughts, did this system provide suitable incentives so that people inform authorities? Beside these basic thoughts, what else is there to conclude from old Venice? Obviously, whistleblowing—viz., providing nonpublic information about a potential violation of the law to authorities or the public—is far older than one might have expected. Additionally, the idea of capitalizing private persons as law enforcers is not exclusively a feature of Common Law Systems, although the Kings of England in the thirteenth century had brought this concept to both frequent use and dubious popularity. 2 In medieval 1 See VENICE RECONSIDERED: THE HISTORY AND CIVILIZATION OF AN ITALIAN CITY-STATE 1297-1797 395 (John Martin & David Romano eds., 2000) (historic background). 2 See Note, The History and Development of Qui Tam, 1972 WASH. U. L. Q. 81, 83-91 (1972) (discussing the English historic background and purpose of qui tam actions); Pamela H. Bucy, Information as a Commodity in the Regulatory World, 39 HOUS. L. REV. 905, 909-17 (2002); Sharon Finegan, The False Claims Act and Corporate Criminal Liability: Qui Tam Actions, Corporate Integrity Agreements and the Overlap of Criminal and Civil Law, 111 PENN ST. L. 2021] The Americanization of Whistleblowing? 153 England, eventually, the strict distinction between the king’s interest and “merely” private interest began to blur. Thus, some of the king’s interests became that of public interest, and private persons were granted the opportunity to bring a claim on behalf of the king directed towards the general well-being in the royal courts. These qui tam3 actions enabled private parties to especially enforce penal laws—viz., the king’s interests. In modern economic terminology, the alignment of interests between private accuser and public interest was further promoted by the issue