Strong whistleblower Laws in the Asia Pacific Region?
Several jurisdictions have recently or are currently reviewing their laws relating to protection of whistleblowers both in the public and corporate sectors.
For a long time, Australia has been the subject of criticism for the weakness of its whistleblower protections, including that existing protections are “overly narrow” and make it “unnecessarily difficult” for whistleblowers to make protected disclosures.1
An independent review, conducted by Transparency International in 2014, found Australia’s whistleblower protections for the private sector is lacking, despite having comprehensive protections for public sector whistleblowers.2
With the strengthening of anti-corruption laws and growing domestic and international pressure for reform, as well as Australia’s reputation as a transparent and low-corruption business and regulatory environment, there is every chance that Australia will seek to lead the way in the region by spearheading a reform to strike a balance between protecting whistleblowers, disincentivizing corruption, and protecting legitimate corporate confidentiality.
In line with the global movement against anti-corruption and bribery, the Australian Federal Government has stated its focus to combat corporate misconduct through the introduction of stronger whistleblower protections and compensation schemes. The Australian Federal Parliament has referred an inquiry in relation to protections for whistleblowers to the Joint Parliamentary Committee on Corporations and Financial Services. The Committee’s report is expected by mid-August 2017.
Whistleblowing on Breaches of Corporate Legislation
In recent years notable scandals have been brought to light due to whistleblowers’ making disclosures in Australia. The most notorious scandals are the underpayment of 7-Eleven employees by franchisees, which has resulted in $110 million compensation, and an investigation into the questionable financial planning advice given by the Commonwealth Bank of Australia’s financial planners, resulting in $29 million compensation being paid to victims. In both instances, existing legislative protections have been criticized for their failure to offer sufficient protection to the whistleblowers. The weaknesses of Australia’s current system has been highlighted by the media which has reported that Jeff Morrison, the key whistleblower who brought the Commonwealth Bank’s financial advice scandal to light, lost his job and endured death threats. That narrative may have been different if Mr. Morrison was able to make an anonymous disclosure and there had been adequate legislation to compensate and protect him from reprisal.
What Disclosures Are Protected?
Under current Australian legislation, in order for a whistleblower to make a protected disclosure, the following requirements must be met:
- the whistleblower must be a current officer, employee or contractor of a company;
- the whistleblower must provide their name (anonymous disclosures are not protected);
- the disclosure must be made to Australian Securities and Investment Commission (ASIC), the company’s auditor or to specified officers of the company;
- the disclosure must be made in “good faith;” and
- the whistleblower must have reasonable grounds to suspect that officers or staff of an organization have breached a relevant provision of the legislation. Asia Pacific
If a whistleblower satisfies the above criteria, they can be protected from civil or criminal litigation as a consequence of making a protected disclosure. However, the protections must be relied upon as a defense to prosecution or a claim by a whistleblower, meaning that a whistleblower is on the back foot and will have likely already suffered the fall-out for making the disclosure. Further, a whistleblower’s disclosures in some cases can be referred to other parties, including the Federal Police or Australian Prudential Regulation Authority (APRA). Given that the disclosure cannot be made anonymously, a whistleblower’s disclosure often leads to rapid escalation of events completely outside of the whistleblower’s control.
Misconduct Relating to Unions and Employer Organizations
Recent amendments were enacted by the Australian Commonwealth Parliament to allow employees to make protected disclosures to government bodies in relation to breaches of union and employment laws. Although the scope of this reform is limited, these amendments are significant as they have done away with the need for a disclosure to be made in “good faith.”
Whistleblowers – Tax Fraud
Disclosures by whistleblowers relating to tax fraud or misconduct to the Australian Tax Office (ATO) are not currently protected, given that only certain disclosures relating to employment law or corporate law misconduct can be protected under the current legislation. Given the government’s crackdown on tax evasion and fraud, it is expected that proposed amendments may include the ability for financial advisers to make protected disclosures to the ATO regarding their corporate clients’ tax affairs. However, such reforms are likely to be hotly contested and vigorously opposed by industry and professional groups.
It is also expected that the federal government will seek to implement provisions that will allow for former employees, officers and contractors to make protected disclosures, similar to recent amendments to employment related disclosures. The current regime, by allowing only current employees, officers and contractors to make protected disclosures, fails to take into consideration that these parties will suffer reprisal and career damage if knowledge of their disclosure became public. Under existing Australian legislation, if a whistleblower who is no longer employed by a company took part in any breach of corporation legislation themselves, they are not currently protected from prosecution or civil action. To bring Australia’s corporate whistleblower scheme in line with best practice international laws and encourage disclosures, it is expected that it will be proposed for the “good faith” requirement to be dispensed with. Currently, for a corporate whistleblower to be entitled to protection for making a disclosure relating to corporate misconduct, their motive for making the disclosure must not be malicious or for a collateral purpose. The “good faith” requirement is considered to deter potential whistleblowers, given that it creates uncertainty of whether they will be protected after they make the disclosure.
The Australian Federal Financial Services Minister Kelly O’Dwyer has suggested that the Australian Government would be seeking to introduce a “bounty-style” reward system similar to that of the U.S. Such a system would reward whistleblowers who disclose high-quality information that results in a conviction or monetary penalty. It is suggested that a rewards scheme would take into account the financial consequences that whistleblowers endure from disclosing information. This “bounty-style” rewards scheme is based on U.S. law which rewards whistleblowers with 10 to 30 percent of money recovered, where sanctions exceed $1 million. However, by international standards, fines imposed on Australian companies are relatively low. For such a scheme to be successful in Australia, there will need to be a substantial increase in the fines. Further issues under consideration include whether disclosures made to media should be protected, given that in recent years the media has been instrumental in revealing substantial corporate misconduct. How Businesses and Companies Can Prepare The impending reforms seem to have been broadly accepted by the Australian corporate sector. Many industry sectors are attempting to prepare themselves. Businesses are able to prepare by:
- arranging for an independent and external review of their current whistleblower policies;
- permitting anonymous disclosures internally, such as by hotline or email;
- if appropriate, engaging an external investigator to investigate disclosures and conduct;
- implementing specific procedures for investigating and dealing with disclosures
- 5. educating officers and employees about internal policies and protections offered to whistleblowers and how to handle disclosures;
- 6. ensuring that suppliers are contractually bound to have minimum standards of whistleblower procedures; and
- 7. committing to compensation or relocation arrangements for staff who are targeted for reprisals after making a disclosure.
Lawyers and in-house counsel representing clients conducting business in, or in connection with, Australia and throughout the Asia Pacific region should flag the potential reform of whistleblower protections to ensure they are not caught off guard. While reform is never a certainty, the key to preparing for such reforms will be ensuring that employees are offered suitable options for whistleblowing and that suitable procedures and processes for dealing with complaints are well known throughout the company. Failure to adopt such an approach could result in significant financial and reputational damage to the company.
1 Australia’s first Open Government National Action Plan 2016-18
2 Whistleblower Protection Laws in G20 Countries Priorities for Action: Final Report 2014