Whistleblowers

30 November 2009

A whistleblower is an individual who discloses illegal activities which are either occurring within or perpetrated by an organisation with which they are associated (most commonly as an employee). Whistleblowers have proven to be a key resource for detecting corporate and financial services misconduct.

Whistleblowers are protected by the Corporations Act 2001 (Cth) (“the Act”), as well as the Banking Act 1959 (Cth), the Insurance Act 1973 (Cth), the Life Insurance Act 1995 (Cth) and the Superannuation Industry (Supervision) Act 1993 (Cth) (referred to collectively as “the banking and insurance prudential legislation”).

The current protections were inserted in the Act to protect whistleblowers from reprisal or liability as a result of disclosing information about corporate misconduct.

Broadly speaking, whistleblowers are protected under the Act as follows:

(a) They are protected from civil and criminal liability for any consequences stemming from their disclosure, which relate to a potential breach of duty of confidentiality, fiduciary duty, or defamation. They are not protected from civil or criminal liability for participating in the actual misconduct.

(b) Protection is extended to officers and employees of the organisation, as well as persons or employees of persons providing services (including advice) to the organisation.

· make the disclosure to ASIC, an auditor or an internal company officer, or a person authorised by the company to receive such disclosures;

· have reasonable grounds to suspect that a breach of the Act has occurred or may occur;

· act in good faith; and

· provide their name prior to making the disclosure.

(d) Whistleblowers are entitled to have their identity protected. It is an offence to disclose information disclosed by a whistleblower, or the identity of the whistleblower, or information which is likely to lead to disclosure of the whistleblower’s identity. This protection does not extend to a third party, in the situation in which the “disclosee” tells the third party the information disclosed by the whistleblower.

Whistleblowers are protected in much the same way under the banking and insurance prudential legislation except that:

· a person in a related company (to the company who is suspected of misconduct) is also protected from the civil liability consequences of making the disclosure; and

· the information must concern possible misconduct or an improper state of affairs, and the informant believes that the information will assist the officer to whom the information is disclosed, to perform their duties.

Commentators have highlighted some deficiencies with the current regime:

· The Act does not protect former employees, volunteers, and other financial services providers, professionals or business partners, who are not in a contractual relationship.

· Any negative disclosures about a company or organisation must be made “in good faith”, that is, not out of motives of malice or for personal benefit.

· The protection in the Act only relates to disclosures of information relating specifically to breaches of the Act, and not other illegal corporate activity.

· A court can order the release of documents that reveal or tend to reveal a whistleblower’s identity.

· A third party who receives information from a whistleblower “second hand” is not subject to the same restrictions as those who receive it “first hand”. This is perilous for the whistleblower, who does not want to be identified, and also for the organisation which is the subject of the disclosure, as it may lead to the revelation of sensitive commercial allegations and/or unproven allegations.

In October 2009, the Federal Government released an options paper, proposing various changes to the current protections available to whistleblowers. They include:

(a) Extending the scope of the protection to former employees, financial services providers, unpaid workers and business partners, and even to any member of the public who comes forward with relevant information;

(b) Removing the requirement that the disclosure must be “in good faith” – rather, the disclosure should be in the public interest;

(c) Extending the scope of the protection to disclosures made in relation to any matter which is significant enough to warrant investigation by ASIC;

(d) Possibly extending the scope of the protection to disclosures made in relation to misconduct by an organisation which may not amount to illegality;

(e) Removing the requirement that whistleblowers have to identify themselves before making a disclosure – instead, a whistleblower’s identity is only required if it can be reasonably shown that their claims cannot be investigated without it;

(f) Requiring a court to either consider the impact of disclosing a whistleblower’s identity before it is disclosed, or, imposing a requirement that ASIC cannot be required to produce a document which discloses a whistleblower’s identity, unless it can be established that the significance of their disclosure outweighs the public interest in keeping the documents confidential;

(g) Requiring third parties who receive the disclosure “second hand” to be subject to the same confidentiality restrictions as the initial “disclosee”; and

(h) Enabling any disclosure by a whistleblower which is made for the dominant purpose of seeking legal advice, to qualify for protection.

Other recommendations include “standardising” various definitions, to create commonality between the banking and insurance prudential legislation and the Act.

The Government has called for feedback in relation to the options paper. The final date for submissions is 21 December 2009.

Whistleblowers by Holley Nethercote Commercial Lawyers is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 Australia Licence.