Better protections for whistleblowers on the way

A parliamentary committee report has called for significantly stronger protections for whistleblowers

The inquiry into Australia’s whistleblower laws by the Parliamentary Joint Committee on Corporations and Financial Services (the Committee) has this month tabbed its report calling for significantly stronger protections for people who report illegal conduct.

Whistleblowers are essential in bringing to light information about corporate wrongdoing. Insider information is invaluable to regulators in investigations and prosecutions, but more importantly, can assist companies to identify, detect and prevent unlawful or unethical activity.

Statutory protections for whistleblowers ensure that companies and individuals do not victimise people who come forward, often in challenging circumstances, to report wrongdoing. At present, the protections offered to them are sparse, meaning that some disclosures may fall through the cracks. Ultimately, the aim of the reform is to encourage Australian businesses to encourage and appropriately respond to internal disclosures.

The Australian Institute of Company Directors (AICD) has called for substantive reform to broaden and strengthen the coverage of whistleblowing laws and provided submissions, given evidence at a public hearing, and responded to questions on notice from the Committee.

Directors and whistleblowing

Directors have a critical role in establishing and promoting a corporate culture that supports disclosure of wrongdoing. The regulation of whistleblowing has a significant impact on the ability of directors to do this and – by extension – to play their part in ensuring the compliance of their organisations with the law.

Importantly, directors have an interest in seeing that information about misconduct is brought to light so that it can be addressed at the earliest opportunity – ideally before regulatory intervention becomes necessary. The AICD’s response to the consultation process is founded on the principle that providing a robust framework for protecting whistleblowing promotes high standards of governance.

Proposed reforms

The report recommends a number of improvements to the law including:

• Consolidating existing private sector whistleblowing protections into a standalone Act;
  
• Broadening the definition of ‘disclosable conduct’ to include contraventions of any Commonwealth law, or state and territory laws (within the limits of the Constitution);
• Extending protections to current and former staff, contractors and volunteers, and anonymous whistleblowers;
• Stronger protections against victimisation, including a broader definition of what constitutes victimisation, sanctions for such behaviours and a separation of civil and criminal liability; and
• The establishment of a Whistleblower Protection Authority to investigate reports of wrongdoing, seek remedies for whistleblowers where they suffer victimisation and to act as a central authority on all disclosures.

Removal of the requirement of good faith

At present, whistleblowers are required to make their disclosures in ‘good faith.’ This test requires that whistleblowers are solely motivated by a desire to bring corporate wrongdoing to light and not for any other reason.

The Committee observed that motivation is notoriously difficult to establish and it can be difficult test for would-be whistleblowers to understand and apply. Overall, the ‘good faith’ requirement does not effectively prevent spurious or malicious disclosures, and likely has the effect of discouraging whistleblowers from coming forward.

At the heart of it, a whistleblower’s motivation is irrelevant; the public interest is in the truthfulness of the disclosure, not in a whistleblower’s motivation for reporting.

The committee has proposed that ‘good faith’ be replaced with more objective test (that a person be required to have a reasonable belief of the existence of disclosable conduct) which the AICD welcomes.

Disclosures to the media

The committee has recommended that where a whistleblower makes a disclosure to a law enforcement agency and after a “reasonable” amount of time no steps have been taken, protections will apply if the disclosure is then made to the media.

The AICD has concerns about this proposal for a number of reasons. The media may not be appropriately equipped to investigate concerns about wrongdoing, there are few controls in place concerning the use of such information and – importantly – in the age of social media, the definition of who may be considered to be part of the media is increasingly blurred.

Financial incentives for whistleblowers

Perhaps the most controversial of the recommendations is to introduce a system of financial rewards for whistleblowers whose disclosures result in the successful prosecution of a penalty. The Committee considers that the introduction of such a system will incentivise whistleblowers and motivate companies to be proactive in dealing with illegal behaviour.

However, bounty systems in the Australian context are unheard of and there are significant risks associated with them. For example, they create a perverse incentive for whistleblowers to sit on information and wait for wrongdoing to grow in the hope of reaping a greater reward.

Perhaps most importantly, it sends a message that wrongdoing should be reported because of a financial incentive, and not because it is the right thing to do – which is a worrying precedent.

Next steps

Although the recommendations of the committee are not binding on the government, as there was cross-party support for them it is likely that the substance of the report will be reflected in the government’s response.

The AICD expects to see draft legislation before the parliament later this year or early in 2018 and will continue to advocate strongly on this issue.