directors counsel whistleblowers

The tabling in parliament of the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (Cth) last December was a strong step in ensuring Australia has adequate laws to deal with whistleblowing. Last year’s Parliamentary Joint Committee (PJC) on Corporations and Financial Services report on whistleblower protections in the corporate, public and not-for-profit sectors highlighted significant flaws in our current legislative regime. Regrettably, despite strong bipartisan support for changes to ways whistleblowing issues are addressed in Australian law, the Federal government has chosen a more modest approach.

In Australia, whistleblowing legislation has been confined to two areas of law — namely the Australian Income Tax legislation and the Corporations Act 2001 (Cth)— with the Australian Securities and Investment Commission (ASIC) ensuring whistleblowing incidents are shared between the Australian Commissioner of Taxation and ASIC to ensure potential markets’ malpractices, offences against laws and related incidents are uncovered and adequately followed through.

The PJC report identified a range of challenges not adequately covered by the preliminary Exposure Draft of the proposed legislation. It recommended (alongside the Law Council of Australia) that whistleblowing legislation be a set of uniform laws applied across all contexts and sectors, administered by a single regulator under the responsibility of the Commonwealth. The Law Council argued that replicating provisions across multiple pieces of legislation might potentially hinder the objective of uniformity.

The Federal government has rejected the PJC recommendation, instead retaining the existing approach via the Commissioner of Taxation and ASIC. This leaves significant areas where people attempting to bring breaches to light require protection — such as in the arena of competition law when businesses do not obey the law.

More encouraging is the undertaking by Minister for Revenue and Financial Services the Hon Kelly O’Dwyer that the next stage of regulation will be taken up by the government during 2018 after the passage of the current legislation. The Minister has been an outspoken supporter for the introduction of stronger whistleblowing laws in Australia.

The main feature of the whistleblower legislation is that it will offer potentially much wider protection, whether people are current or former officers, employees and suppliers or related persons to organisations. Unfortunately, it does not go far enough.

The Bill seeks to create a single whistleblower protection regime in the Corporations Act 2001 (Cth) to cover the corporate, financial and credit sectors, and create a new whistleblower protection regime in the taxation law, including the Taxation Administration Act 1953 (Cth), to protect those who expose tax misconduct.

A recent summary by the Law Council of Australia outlined the main changes. Reforms to the Corporations Act 2001 include:

  • Expanding the protections to a broader class of people;
  • Expanding the types of disclosures that will be protected under the framework;
  • Allowing disclosures to parliamentarians and the media in certain circumstances, if preconditions are satisfied;
  • Imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity;
  • Making it easier for a whistleblower to bring a claim for compensation where he or she has been victimised;
  • Creating a new civil penalty offence so that law enforcement agencies will be able to take action against companies where the civil standard of proof can be met; and
  • Requiring all large companies to have a whistleblower policy in place, with penalties for failing to do so.

Current taxation whistleblowing protection under the Taxation Administration Act 1953 — proposed to be amended by new subsections 14ZZT(2) and (3) — are seen by many lawyers and others, as being “too tough”. There is insufficient detail in the drafting as to how this particular test is to be properly evaluated. Frankly, we should not be making the obligation on whistleblowers so extreme as to discourage them from providing evidence of an alleged illegal incident.

The Bill is very narrow in context of to whom whistleblowing complaints and assertions may be made. The legislation as drafted in section 1317AAB, describes an appropriate “whistleblower disclosee” as ASIC; Australian Prudential Regulatory Authority; a member of the Australian Federal Police (as defined by the Australian Federal Police Act 1979); and a person or body prescribed for the purposes of the [relevant legislation] in relation to the whistleblowing.

The Bill removes the requirement that whistleblowers be motivated by good faith in their disclosure and extends protections to a broader range of people including former employees, contractors and auditors, according to the AICD. “Emergency disclosures” to media and MPs would also be protected where a disclosure has been made, but not acted on in a reasonable amount of time, and there is an imminent risk of serious harm or danger to public health or safety or to the financial system. The AICD has explained it has reservations about this aspect. The drafting of the legislation is slightly confused and I agree with the Law Council that the provisions of the proposed legislation — proposed section 1317AB(1)(c) — provides a test too difficult to establish. I suggest the matter be re-examined.

Victimisation, compensation and related matters

As noted in the Law Council’s submission, the introduction of a new regime of corporate compliance through the Criminal Code Act 1995 (Cth) — coming into effect in 2001 — requires corporations to adopt an appropriate culture to support the development of strong whistleblowing procedures. This includes whistleblower protection of persons who believe something damaging or wrong has occurred in the context of the corporation’s behaviour and should be reported to an appropriate regulator.

The proposed legislation does take some care in providing for confidentiality provisions to apply with respect to whistleblowing complaints being reported and being pursued. It is vital whistleblowers feel safe in pursuing whistleblowing when acting in the best interests of their corporate culture. It is appropriate, of course, for corporations to follow up whistleblowing allegations to ensure they are not being made spitefully.

We should eventually ensure that the whistle-blowing regime applies uniformly to ensure Australians recognise the importance of disclosure.

Confidentiality and related matters

Whilst legislative protections are currently available to ensure whistleblower information is kept confidential, the addition of section 1317AE of the Corporations Act 2001 — creating a new offence of disclosing confidential information — should protect disclosures made by whistleblowers to a responsible person. The proposal is to amend the current legislation (section 1317AB of the Corporations Act 2001) and create a new protection under the Taxation Administration Act 1953, which will provide that:

  1. The whistleblower will not be liable for a civil or criminal liability for making disclosures relating to whistleblowing;
  2. No contractual or other remedy may be enforced and thus no contractual or other right may be exercised against the whistleblower on the basis of the fact that a disclosure has been made;
  3. If the disclosure was a disclosure of information to the Commissioner of Taxation, that information is not admissible in evidence against the relevant whistleblower in criminal or other proceedings for the imposition of any penalty other than proceedings which have resulted from whistleblowing information that may have been given falsely.

We should eventually ensure that the whistleblowing regime applies uniformly (with some minor exceptions) to ensure Australians recognise the importance of disclosure and the compliance culture in legislation already (through the Criminal Code).

The US Securities and Exchange Commission incentivises whistleblowers whose tips lead to prosecution of companies. In Australia, breaches of corporate law, corporate misdemeanours such as insider trading, market manipulation and related matters don’t carry the same heavy penalties. This matter is currently before Parliament. I would like our proposed laws to make provision for consideration of compensation along the lines of US legislation.

Global Perspective

As of December 2017, the SEC had awarded more than US$175m to 49 whistleblowers since the inception of the agency’s whistleblower program in 2011. Enforcement actions from whistleblower tips in the US have resulted in more than US$1b in financial penalties. The initiative has been copied by the Ontario Securities Commission in Canada, the first Canadian jurisdiction to offer cash rewards of up to C$5m to whistleblowers for supplying tips that lead to successful enforcement actions and monetary penalties.