Whistleblower legislation – implications on your business

The Federal Government released its long-awaited draft whistleblower protection legislation on 23 October 2017.

If passed as currently drafted, the Treasury Laws Amendment (Whistleblowers) Bill 2017 will create a single whistleblower protection regime within the Corporations Act 2001 covering the corporate, financial and credit sectors. It will also create a new whistleblower protection regime within existing taxation laws.

The proposed legislation was first announced in the Federal Budget in May 2016 and follows extensive community consultation by the Parliamentary Joint Committee on Corporations and Financial Services over a period of eight months commencing late 2016.

Problems with existing regime

Australia’s whistleblower laws have long been regarded as relatively weak by international standards, particularly within the private sector. Until now, whistleblower protection applied to specific sectors, industries or groups but there was no overarching whistleblower protection regime within the Australian corporate sector.

Before this proposed law, there has been no clear legislatively mandated protection for people coming forward to report or raise concerns about potential corruption, bribery, fraud, money laundering, terrorism financing or other serious forms of misconduct in the private sector. Consumer credit laws offer no statutory protection for whistleblowers and there is currently no whistleblower protection under Australia’s existing tax laws.

Proposed changes

In its current form, the proposed legislation addresses several private sector protections recommended by the Parliamentary Joint Committee including:

  • extending the definition of the term ‘whistleblower’ by expanding the protections to a broader class of people;
  • strengthening protections by expanding the types of disclosures that will be protected;
  • imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity in the absence of a court or tribunal order;
  • allowing disclosures to parliamentarians and the media in certain circumstances, if preconditions are satisfied;
  • making it significantly easier for a whistleblower to bring a claim for compensation where he or she has been victimized;
  • 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 (rather than the higher standard required in criminal proceedings) can be satisfied; and
  • requiring all publicly listed corporations and larger private companies to have a whistleblower policy in place, with penalties for failing to do so.

What this means for whistleblower regulated entities

The proposed legislation is aimed at strengthening, broadening, and harmonising existing whistleblower protections and remedies. It also aims to reduce the personal and financial risks for potential whistleblowers encouraging more people to come forward.

Those entities regulated by the Corporations Act, Banking Act, the Insurance Act, the Life Insurance Act and the Superannuation Industry (Supervision) Act will be deemed whistleblower regulated entities under the proposed framework.

New considerations for regulated entities would include:

  • by expanding the definition of eligible whistleblowers, specified family members of employees, officers and others of a regulated entity (such as spouses, children or dependants) will qualify for protection;
  • to be a protected disclosure, the disclosure must be of information that the discloser has reasonable grounds to suspect indicates misconduct, or an improper state of affairs or circumstances, by a whistleblower regulated entity or related body corporate of a whistleblower regulated entity;
  • the ‘good faith’ requirement for disclosures will be eliminated so that the motivation of whistleblowers cannot be taken into account in determining whether a disclosure ought to qualify for protection or not;
  • the proposed legislation introduces immunity for whistleblowers by ensuring that information that is part of a protected disclosure is not admissible in evidence against a whistleblower in criminal proceedings or in proceedings for the imposition of a penalty (other than in proceedings concerning the falsity of the information);
  • by allowing anonymous disclosures, entities may be required to change existing whistleblowing policies removing any pre-existing requirement that the discloser must provide his or her name when making a disclosure in order to avail themselves of protection; and
  • a requirement for all public and large proprietary companies to have a whistleblower protection policy with information about the protections available to whistleblowers, as well as how the company will ensure fair treatment of employees who are mentioned in whistleblower disclosures – this policy will need to be made available to people who may be eligible whistleblowers in relation to the company and ASIC will enforce penalties against entities who fail to comply.

Stakeholders are invited to comment on the draft legislation by 3 November 2017. The legislation, if passed, is expected to become law before the end of the year and will apply to whistleblower disclosures made on or after 1 July 2018, including disclosures about events before this date.

What is our view of the proposed legislation?

McGrathNicol Senior Consultant and Director of McGrathNicol’s RightCall misconduct reporting service, Dean Newlan, said he welcomed the draft legislation which, if passed into law, would represent a ‘quantum leap’ for private sector whistleblower protection in Australia.

Aside from his work with McGrathNicol, Mr Newlan is convenor of a Standards Australia committee that is currently developing recommendations in connection with a proposal for an international whistleblowing standard to be considered at an International Standards Organization (ISO) committee meeting in Shenzhen later this year. The Standards Australia committee has gathered whistleblowing policy expertise from: The Australian Bankers Association, The GRC Institute, the Australian Institute of Professional Investigators, Griffith University, Australian National University, The NSW Ombudsman’s Office and The Consumers Federation of Australia. Mr Newlan was also convenor of a previous Standards Australia committee that produced the Australian Whistleblower Protection Standard (AS 8004-2003) and the Fraud and Corruption Control Standard (AS 8001-2008).

Mr Newlan said that in his experience, gathered over the course of 30 years and hundreds of misconduct investigations, Australian corporations are inconsistent when it comes to dealing with whistleblowers. He said that the proposed legislation would foster improved organisational integrity by encouraging people to come forward with reports of wrongdoing as well as protecting people who do come forward. He said the legislation will change the focus and attitudes of boards and the senior executive of Australian organisations and we will see more involvement of in-house corporate counsel to ensure organisational compliance.

”In my experience, a significant proportion of organisational wrongdoing comes to the attention of the organisation’s stakeholders, the regulators or investigation agencies as a result of someone, in the guise of a whistleblower from the rank and file of the organisation, coming forward. Corporate Australia, the government sector, the not-for-profit sector and indeed the Australian public, need more whistleblowers to come forward and this bill, if it becomes law, will assist in achieving that.”

Mr Newlan also referred to a reward scheme proposed by the Parliamentary Joint Committee but which is not currently included in the bill. “If the whistleblower reward scheme proposed by the Parliament Joint Committee becomes law, and if we see the same increase in reporting rates that has been seen in the US, serious consideration will need to be given how the task of receiving, processing and investigating whistleblower complaints can be resourced,” he said. He said that the additional resources and funding required to meet the expecting increase on corporate misconduct reports may be, to some extent at least, offset by penalties imposed by the courts.

“Regardless, the proposed changes to the governance of internal whistleblower regimes will require corporations and other regulated entities to be more vigilant in handling internal reports of wrongdoing and in dealing with whistleblowers” he said.

McGrathNicol Forensic has been leading the development of anti-fraud and corruption strategies for private and public sector clients. Our experience across Australia in advising clients on whistleblower frameworks and response meets the standards expected of the proposed legislation. For more information, please contact Dean Newlan on 03 9038 3151 or dnewlan@mcgrathnicol.com or your local Forensic office.