Whistleblowers Company officers obligations ASIC Report

  • Date:01 Aug 2005
  • Type:CompanyDirectorMagazine
Company officers and other persons have legal obligations under the Corporations Act if they receive a revelation from a whistleblower

Whistleblowers: Company officers' obligations

By Richard Cockburn, special counsel, Australian Securities & Investments Commission

Company officers and other persons have legal obligations under the Corporations Act if they receive a revelation from a whistleblower.

Unless those persons handle the revelation correctly they may inadvertently breach the Act if they tell an unauthorised third party including other officers of the company. Any unauthorised revelation may trigger significant civil and criminal consequences. Care needs to be taken to avoid victimisation or improper dismissal of the whistleblower.

Corporate cultures of silence, which allow wrongdoing to go undetected, are contributing to the recent round of local and international corporate failures. A regime protecting whistleblowers is seen as part of the answer because it encourages reporting of contraventions by employees.

Corporate culture of compliance

The need for good corporate governance policy to foster upward reporting in an environment free from recriminations and victimisation is essential if senior management and the board are to adequately manage risk and cultural issues within their company.

This need was starkly highlighted in the Australian Prudential Regulation Authority's report into currency option trading at the National Australia Bank, which the bank disclosed to the market in March 2004.

The report said: "NAB's highly regimented culture acted to impede transparency and mollify the message when it involved acknowledging concerns or difficulties at operational level." (page 72 of the report)

The report identified the close management of information flows as a significant factor that discourages the escalation of issues of concern to the board or to relevant external parties.

The existence or otherwise of the types of policies identified in the NAB report will be a significant factor for you when you are evaluating the reliability of your company's internal controls.

Under the Criminal Code of the Commonwealth, a company can be convicted of criminal offences which have an "intent" element. This means that a conviction can result if it is established that a company had a culture that directed or encouraged, tolerated or led to non compliance, or that the body failed to maintain a culture that required compliance with relevant legislation. The need to be able to demonstrate a culture fostering compliance with Australian law is of great importance to a board of directors as they seek to set the tone in their company.

Protection of whistleblowers

A person is protected as a whistleblower if they are an officer or an employee of a company, or a contractor or their employee who has a contract to supply goods or services to the company.

The Act restricts any retaliation against a whistleblower and gives them a civil right, including seeking reinstatement of employment. Protection is extensive:

  • providing qualified privilege against defamation and
  • precluding contractual or other remedies being enforced, including civil and criminal liability, for making the disclosure. This means that secrecy provisions in employment contracts and the like will not preclude whistleblowing.
To qualify for protection a whistleblower's revelation must be made to:
  • ASIC or
  • the company's auditor or a member of the audit team or
  • a director, secretary or
  • senior manager of the company or
  • another person authorised by the company to receive revelations of this kind.
To trigger the provisions of the Act the whistleblower must:
  • give their name before making the disclosure and
  • have reasonable grounds to suspect that their revelation indicates the company or an officer or employee has, or may have, contravened the Corporations legislation (which includes both the Corporations Act and the ASIC Act) and
  • act in good faith.
The commentary on the exposure draft bill said of this requirement: "This is considered appropriate given the need to discourage malicious or unfounded disclosures being made to ASIC. Where a person has a malicious or secondary purpose in making a disclosure, it is considered that the good faith requirement would not be met."

The protection only covers whistleblowers reporting breaches of the Corporations Act and the ASIC Act ("protected disclosure"). However, in many cases contraventions of other legislation will involve secondary offences under these Acts because books or records have been falsified or misleading information given to the market or the auditor in an attempt to cover up the primary offence.

Handling revelations from a whistleblower

Under the Act you can only pass on the revelation and the identity of the whistleblower (or information that may lead to the identity of the whistleblower) under the following circumstances:

  • You can pass it onto ASIC, APRA or the Australian Federal Police without asking for the whistleblower's permission.
  • You can only pass it onto a third party if the whistleblower has given their consent. This means, for example, that a company secretary cannot pass on the revelation to members of the board or the CEO unless the whistleblower has consented to them doing this.

Procedures for a company

Good practice would suggest the need for you to set up proper internal processes for handling revelations from whistleblowers. This would include training all staff and also periodically checking on the effectiveness of your processes. The Act does not prescribe any particular procedures. Most listed companies will have already considered instigating whistleblower arrangements relating to financial reports with reporting lines to the board's audit subcommittee.

Ideally your training should focus on the importance of obtaining the whistleblower's consent to pass the information on to necessary third parties so that it can be investigated or its impact assessed and ensuring the involvement of the human relations area to avoid victimisation and other concerns arising.

Further information

1 The whistleblower provisions of the Corporations Act are in Part 9.4AAA which commenced on 1 July 2004.

2 Standards Australia has an Australian Standard (AS 8004-2003) on whistleblowers that will assist implementation of appropriate procedures in companies and other organisations.

3 Visit ASIC at www.asic.gov.au which has published an information sheet Protection for whistleblowers.

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