Why Australia needs better protection for whistleblowers

A government review is underway into whistleblowing laws. The AICD has called for stronger protection for whistleblowers so that corporate wrongdoing can be detected, addressed and, ideally, prevented.

Public consultation is underway on Australia’s whistleblowing framework. The scope of the review is broad and is likely to result in significant reform to the regime with a focus on providing better protections for corporate whistleblowers.

The AICD recognises that robust whistleblower protections support good governance.

Boards have a strong interest in ensuring that information about alleged corporate misconduct is brought to light early, so that corporate wrongdoing is detected, addressed and, ideally, prevented.

While Australia’s public sector whistleblowing framework is comprehensive, the current protections in the Corporations Act are limited and narrow. Over recent years, a number of reviews have found that we lag behind international standards in our laws on private sector whistleblowing.

The government announced a review of corporate and tax whistleblowing laws last year. This issue received further attention with the deal reached between the government and independent senators in late 2016 on the re-establishment of the Australian Building and Construction Commission.

The deal saw a stronger whistleblower framework introduced for trade unions and employer associations (under the amended Fair Work (Registered Organisations) Act 2009), and committed the government to bringing similar reforms to Australia’s private sector.

Submissions on this broader review closed in February, with the AICD calling for reforms to significantly strengthen corporate whistleblower protections.

Some changes are relatively uncontroversial. For example, the AICD has supported extending the protections available to whistleblowers to cover former officers (including directors) staff and contractors, as well as unpaid workers, accountants and auditors.

The AICD has also called for protections for disclosures made anonymously or through a lawyer. These changes would bring Australia’s corporate whistleblowing framework closer to international best practice. The AICD has also supported significantly increasing penalties for companies found to have victimised or discriminated against whistleblowers.

One of the more challenging issues is whether a whistleblower should have to make their disclosure in ‘good faith’. After carefully considering the issues involved, the AICD has called for the ‘good faith’ test to be replaced with a different test.

Under the current Corporations Act provisions, a whistleblower must only be motivated by wanting to bring corporate wrongdoing to light, and does not receive protection under the law if they have any other motivation. Whistleblowers often have complex motivations that might exclude them from protection under a ‘good faith’ test. The test is difficult to apply, has never been the subject of an Australian court case and likely has the effect of discouraging potential whistleblowers from coming forward.

The AICD believes that the interests of good governance align with encouraging honest disclosures, rather than debating motive. In the UK, the law was changed some years ago to remove good faith, on the basis that the public interest lies in the truthfulness of the disclosure, rather than in the motivations of the person making it. However, a balance must be struck between encouraging whistleblowers to come forward and protecting companies against the risk of serious damage arising from spurious and malicious disclosures.

In place of ‘good faith’ the AICD has proposed an alternative and more objective test that would require a reasonable level of evidence on which to make a disclosure in order for it to qualify for protection.

The reform process has also contemplated whether protections should be extended to third parties such as members of parliament and the media. The AICD recognises that in extraordinary circumstances there may be merit in extending protections to whistleblowers who, having exhausted formal channels, make disclosures to third parties. However, the risks for companies are so substantial that much more work would be required to introduce this concept. The AICD does not support third party disclosures at this time, but will review any proposed models in detail.

Another controversial proposal is to offer financial incentives for whistleblowers to bring information to regulators. These have had success in the United States through the so-called SEC ‘bounties’. While we acknowledge the potential benefits of such a system there are also significant moral hazards involved. The AICD is not supporting a bounty-style system at this stage.

The AICD has also noted that there would be benefits in clarity, ease of reference and administration in bringing the different whistleblowing protections currently in different laws into a stand-alone private sector whistleblowing legislation.

The AICD will continue to advocate for reforms to Australia’s whistleblowing framework which promotes strong standards of corporate governance. Further consultation is likely to happen throughout the year and a final framework is expected to be released by December 2017.