24 Nov 2016
How companies can prepare for the Turnbull Government's new whistleblower laws
By Nicholas Mavrakis, Tobin Meagher, Katrina Hogan
Companies can get ready for stronger whistleblower protections by examining their internal culture and strengthening internal reporting mechanisms.
There is one essential resource that every regulator lacks in their fight against complex misconduct ‒ inside information. This is why whistleblowers are an essential component of early detection and deterrence.
The Turnbull Government has promised stronger whistleblower protections for both the public and private sector. This promise was made in order to convince Senate crossbenchers to vote in favour of one of the Coalition's double dissolution trigger bills: the Fair Work (Registered Organisations) Amendment Bill 2014. The Senate passed the bill on 22 November 2016. Among other things this Bill strengthened protections for whistleblowers within trade unions and employer associations.
The Turnbull Government has also committed to a wider parliamentary inquiry into whistleblower protections and the establishment of an expert advisory panel. The public sector whistleblower laws were reformed in 2013 with the introduction of the Public Interest Disclosure Act 2013 (Cth) which applies to former and current public officials, so it's likely that the majority of the reforms will centre on the private sector whistleblowing regime.
This article considers Australia's current private sector whistleblowing regime, what reforms may be considered, and how organisations can prepare for these reforms.
Australia's current private sector whistleblowing regime
Australia's Federal private sector whistleblowing laws have suffered intense criticism from a number of international and domestic entities, including the OECD Working Group on Foreign Bribery.
In 2014 the Senate Standing Committee on Economics released a report on the performance of the Australian Securities and Investment Commission. It identified a number of deficiencies in Australia's whistleblowing regime and a need for reform.
Proposed reforms however have centred on specific industries rather than broad private sector protections, like those promised to the crossbenchers. The Federal Government's 2016-2017 budget promised reform aimed at protecting whistleblowers who disclose information about misconduct in the tax sector, and Australia's first Open Government National Action Plan included a commitment to "improve whistle-blower protections in the tax and corporate sectors". This is the first promise of whistleblower reform which encompasses the whole of the private sector.
Australia's Federal sector whistleblowing laws are piecemeal. Separate whistleblower regimes exist within a number of Acts, including the Banking Act 1959 (Cth), Insurance Act 1973 (Cth) and the Life Insurance Act 1995 (Cth). However the most highly publicised (and criticised) whistleblower regime is contained within the Corporations Act 2001 (Cth). The current protections in section 9.4AAA of the Corporations Act:
- only apply to a current employee or officer of the company, a contractor, or an employee of a contractor who has a current contract to supply goods and services to the company about which the disclosure is made. They do not extend to former employees or business partners;
- only apply to disclosures made to a member of the company’s audit team, a director, secretary or senior manager of the company, a person authorised by the company to receive whistleblower disclosures, or ASIC. They do not allow for protection where a whistleblower discloses information to a third party such as a member of Parliament or the media;
- do not apply to whistleblowers who disclose anonymously. If a whistleblower discloses information ASIC will endeavour to keep that information and the identity of the whistleblower confidential, unless disclosure is authorised by law. ASIC has however acknowledged that it may be compelled to provide the whistleblower's information and identity in response to a court subpoena.
- only apply when the disclosure relates to an alleged breach of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) or regulations under either Act;
- only apply to disclosure made in good faith, and based on reasonable grounds of suspicion. The good faith requirement has been criticised as irrelevant. Irrespective of the subjective motive of the individual in disclosing the violation, the effect is the same ‒ the disclosure of important information that can assist ASIC in regulating the securities market; and
- are unilaterally enforced by the victimised whistleblower. The Act does not provide for an advocate who can take action on behalf of a whistleblower seeking compensation for damage caused by victimisation.
What are the new "sweeping" Federal whistleblower laws likely to include?
Whistleblower expert A.J Brown has advocated for a comprehensive reform across all private industries and sectors. With whistleblower reform already underway in the taxation and registered organisations sectors, however, this may be difficult to achieve.
There is a strong possibility that any broader whistleblower reforms will be modelled on the reforms in the Fair Work (Registered Organisations) Amendment Bill 2014. This Bill strengthens whistleblower protections in a number of ways:
- it broadens the definition of a whistleblower to include former officers, former employees, former members of the organisation, contractors and former contractors;
- it removes the "good faith" requirement;
- it allows whistleblowers to report anonymously through a lawyer who acts on the whistleblower's behalf;
- it clarifies that the burden of proof is on the respondent to satisfy the court that the reprisal was not taken as a result of the whistleblower's disclosure;
- it gives the court the power to make orders against a person who has induced the reprisal or failed to take reasonable steps to ensure other persons under their control were prevented from engaging in reprisal;
- It introduces new civil and criminal remedies for whistleblowers who have suffered reprisal or threats of reprisal. It empowers the court to make any civil penalty it thinks appropriate if satisfied that a reprisal was taken or threatened. These penalties can include compensation, reinstatement and the ordering of an apology. It increases the maximum criminal sanctions for taking or threatening reprisal against whistleblowers. A person who takes or threatens a reprisal may now face imprisonment for up to two years and/or 120 penalty units;
- it allows for a number of parties to make a claim for civil remedies including the target of the victimisation, the General Manager of the Fair Work Commission, the Director of the Fair Work Building Industry Inspectorate, the Fair Work Ombudsman and a new independent regulator known as the Registered Organisations Commissioner;
- it provides more prescriptive investigation handling measures and timeframes; and
- it provides for, and in some instances requires, an authorised complaint handling official to disclose the information to other regulators such as the Australian Police Force and the Australian Competition and Consumer Commission.
A number of these reforms were also considered in the Government's April 2016 whistleblowing issues paper which sought consultation on:
- expanding the definition of whistleblower and the kinds of information that will trigger the whistleblower protections;
- protection against victimisation and compensation for victimisation;
- the introduction of financial rewards, compensation and other incentives;
- protection for anonymous whistleblowers;
- the introduction of an advocate for whistleblowers; and
- mandatory internal processes to facilitate whistleblowing.
Perhaps the most controversial of these measures is the provision of financial incentives to whistleblowers, modelled on the United States regime. In the United States the Securities and Exchange Commission may make monetary awards to eligible individuals who voluntarily provide original information that leads to successful commission enforcement actions resulting in monetary sanctions over $1 million, and successful related actions. The US awards range from 10% to 30% of the monetary sanction collected and have been as large as US$30 million.
These awards offer powerful incentives for whistleblowers to come forth, but they can potentially undermine internal compliance mechanisms by creating incentives for whistleblowers to bypass them. This can deprive companies of the opportunity to detect and prevent corporate misconduct before it escalates.
Therefore it is essential that companies futureproof against this potential reform by fostering strong internal reporting mechanisms. It takes time to create a corporate culture that supports internal whistleblowing and it is prudent that companies begin now.
How organisations can prepare for the new whistleblower reforms
Strong internal company support for whistleblowers is an effective tool that companies can harness to enhance corporate culture, reduce conduct risk and avoid potential compliance costs.
In advance of these potential reforms companies should be examining their internal culture and strengthening internal reporting mechanisms. This can be achieved by:
- introducing internal whistleblower reporting hotlines;
- providing mechanisms whereby whistleblowers can report anonymously;
- training employees and suppliers in the benefits of reporting misconduct;
- updating corporate codes of conduct to include clear instructions on how to report misconduct internally and how misconduct will be investigated; and
- introducing an impartial whistleblower liaison or whistleblower team that can liaise between whistleblowers and management, and investigate potential misconduct.