Thursday, April 28, 2011

WHISTLEBLOWING IN THE PRIVATE SECTOR

This article originally appeared in The Whistle, a journal reporting on whistleblowing issues, in Australia and internationally,  

The Commonwealth Treasury recently undertook a review of protections that are available to whistleblowers in the private sector.  Peter Bennett, President of Whistleblowers Australia provided a submission, as did Peter Bowden, Education Officer and President of the NSW Branch. They also attended the subsequent round tables hosted by the Treasury throughout Australia. This article, a shortened version of a longer review that is to appear in the Australian Journal of Professional and Applied Ethics, outlines the conclusions of that review,

The protection of whistleblowers in the private sector is outlined in the Corporations Act 2001, extended in 2004. It is the only significant attempt in Australia to prevent retaliation against whistleblowers in business.  The Act is administered by the Australian Securities and Investments Commission (ASIC).The examination of its effectiveness was initiated by the Australian Treasury on the grounds that the 2004 whistleblower clauses have not been effective. A second reason behind the Treasury examination is to seek further responses to the ethical problems that arose during the recent Global Financial Crisis.

Treasury announced the inquiry in October 2009. Submissions were requested by December that year. Twenty two submissions were received with 20 cleared for public release. Each submission was asked to respond to nine questions posed by the Treasury on optional ways to strengthen whistleblower protection. The nine questions and their responses did indicate ASIC had not been particularly active in managing the program. They also suggest that Treasury had a relatively narrow view of the extent of the reforms that might be necessary.  The majority of respondents, including the two WBA submissions, saw the issue of corporate wrongdoing to be much wider than the concerns raised by Treasury, and argued for a much expanded whistleblower protection program.

Responses came from three academics researching in this area, two of the larger Australian banks, nine professional associations, including WBA, three companies providing whistleblowing services, one finance company and one law firm. Both of the last two had been involved in whistleblowing issues.  Telstra also provided a submission. The nine questions posed by the Commonwealth Treasury, together with the dominant responses, are outlined in the following paragraphs

A.     Who can blow the whistle?

Existing legislation is currently restricted to employees and contractors. The majority of responses supported the option to extend the legislation to all members of the public on the basis that any person who came into contact with the organisation could identify possible wrongdoing, and that wrongdoing would need to be investigated.  A supplier, for instance, could identify a dishonest buyer who would be a cause behind price increases and therefore acting against the public interest.

B.    Should a subsidiary be covered?

The universal answer to this question was yes



C.    What issues can be disclosed that earn protection?

This issue generated great differences of opinion. The Treasury discussion paper noted the anomalies in the current legislation, suggesting that there was “a clear need for the scope of protections to be expanded”.

Legislative responses in the UK and US were outlined in the Treasury options paper. These practices are much wider than in Australia. In Britain, the Public Interest Disclosures Act, 1998, qualifying disclosures include any criminal offence, failure to comply with any legal obligation, miscarriage of justice and dangers to health, safety or the environment. In the US, the Sarbanes-Oxley Act confines itself to financial disclosures, but close to twenty other interlinked pieces of legislation widen the extent of whistleblower protections in the US.

The need to stop a wide range of corporate wrongs is certainly more pressing than the options offered by Treasury, and possibly wider than ASIC’s legislated and administrative ability to handle.

D. Motives of the whistleblower?

The question of the whistleblower’s motive has long been an issue in whistleblowing legislation. Good faith goes to the genuineness of the belief in the information being disclosed. Motive goes to the reasons for making the disclosure, but the two terms are often confused, with good faith taken to imply that the whistleblower should be driven by “pure“ motives  The majority of respondents opted for the revealing of wrongdoing being the primary issue – that the  motives of the discloser were immaterial.

E. Anonymity?
Should whistleblowers be able to hide their identity, or should they be required to reveal themselves before their claims will be investigated? The current act requires the whistleblower to reveal their identity. The majority of respondents preferred the anonymity option despite the limitations that it carried with it.

F. Court orders exposing identity?
The issue is whether a court could order the revealing of a whistleblower’s identity but that it first had to consider the impact of this order. Behind this issue is the concern that whistleblowers will be discouraged from coming forward if they believe that their identity may be revealed by a court order. The alternative (Option F2) was that a court cannot reveal identity unless the party wanting the information can establish that the release outweighs the public interest of keeping identity documents confidential. The preponderance of responses was that the F2 option was preferred. Successive legal appeals have confirmed that courts currently will not release identity information.

G. Second-hand whistleblowing to be confidential?

A whistleblower reveals information to an official body, information that may need to be passed on to a third party for investigative purposes. The question at issue here is whether that third party should also be bound to keep the information confidential, as well as the whistleblower’s identity or any information that is likely to lead to identifying the whistleblower. The universal response to this option was that the third party must also meet confidentiality requirements.

H. Should whistleblowers be protected if seeking legal advice?

The overwhelming response was affirmation of the option that whistleblowers should be protected if they seek legal advice. One dominant reason is the incomprehensibility of the Corporations Act to most people. “Unlovely and Unloved” is a description of the Act provided by the Associate Professor of Law at Melbourne (Cally Jordan). Potential whistleblowers would need legal advice to determine whether a particular issue was covered by the legislation and also to know whether they would be protected.

I. Internal whistleblowing

This question referred to internal whistleblowing systems, including commercial services such as Stopline, Deloitte’s and Your Call, asking whether the legislative protections helped encourage whistleblowers. No options were provided. The responses, from those who answered, were primarily negative - the legislation is ineffective. 

It should be noted that the US Sarbanes-Oxley Act mandates that an internal whistleblowing system be established. 

The Australian Institute of Company Directors (AICD) made a submission to the effect that the few uses that have been made of the whistleblower provisions “is not an indication that the current provisions have failed”. The Institute’s reasons behind this statement were that the low application of the whistleblower provisions “may suggest that serious corporate wrongdoing has not occurred” in Australia, or “that internal… procedures are working effectively”.  The contrasting opinion in the Treasury options paper, however, and in many of the responses, referred to a number of corporate wrongdoings that had taken place in Australia in recent years, including several that had not reached media headlines. Treasury itself also indicated that the provisions of the Act were ineffectual.

 Issues raised by respondents, additional to Treasury

The 20 submissions raised  five issues beyond  the options raised by Treasury. Each deserves further consideration in any scheme that is eventually developed for managing private sector whistleblowing:  

·        Managing vexatious “whistleblowers”
·        Wrongdoings that should be protected
·        Location and role of responsible agency
·        A full set of protections for whistleblowers
·        A False Claims Act

Managing vexatious or fraudulent “whistleblowers”

A number of submissions raised the problem that people with a grudge against their company, or against their supervisor, could raise false allegations that could cause problems and additional expense in resolving them

The concern is entirely reasonable. Readers will be aware of the extensive literature on people who cause difficulties in organisations (e. g. Cava, 2004; Bernstein, 2001; Brinkman and Kirschner, 1994). Several submissions and the discussions in the subsequent round tables, however, provided answers for these concerns. One of the strongest was made by Whistleblowers Australia (WBA), the President of which stated that of those who come to WBA for assistance, some 60% were motivated by personal grievances, not by any public interest. The other WBA submission pointed out that the first line of inquiry, therefore, is determining whether the wrongdoing occurred or not. In most personal grievance cases, there is no public interest at work, and often no wrongdoing. There are also “whistleblowers” who disagree with the decisions of their organisations. That decision, however, may not be a wrongdoing that is against the public interest.

The immediate response to these concerns therefore is the need to question whether the wrongdoing is factual and against the public interest  All definitions of whistleblowing, including that implied by Treasury, involve a wrong – in this case a contravention of the Corporations Act. These paragraphs have argued for a widening of the concerns that a whistleblower can report, but in all cases it has argued that the accusation should be in the public interest and against the breaking of some existing law or code.

Wrongdoing reports that should be protected
The widening of private sector whistleblowing protections beyond the current limitations of the Corporations Act appears a necessary step. This widening, which would be beyond even damage to public health, safety, and the environment, raises further issues, however. The Treasury options paper points out that any extension using terms such as “misconduct” or “improper state of affairs” would be difficult for the general public to understand. An extension would also raise issues that ASIC would be unlikely to have the experience or background staff to investigate. Nevertheless, it is readily apparent that whistleblowers who have inside knowledge should be able to bring to public attention any wrongdoing that companies perpetrate, and be protected from reprisals for disclosing this information.

An extension of the wrongs that can be reported also raises issues in relation to whom they would be reported, who would investigate the issues and how they would protect the whistleblower. In short, the role of the agency responsible for whistleblowing issues in the private sector is also a question that has to be resolved. 

Location and role of responsible agency

Two of the submissions, both by academics, raised the issue that this question needed further research.

The need for further research was derived from three underlying concerns.  One is that an extension of the wrongs that whistleblowers can safely report is obvious. But this extension raises the issues of what concerns could they report, to whom they would report and who manages the investigation and protection processes. ASIC is not the body to which breaches of all Commonwealth Acts should be reported. It does not have the legislative support for undertaking wide ranging investigations nor would it appear to have the experience to investigate them.

ASIC acts through corporate law. The UK Act operates through employment law, with whistleblowers laying their concerns with their employer, or with designated regulatory bodies. If any negative action is taken against them, they appeal to an employment tribunal, and if their complaints are substantiated, compensation will be awarded through these tribunals. Under the US Sarbanes Oxley Act whistleblower complaints are filed with the Occupational Safety and Health Administration (OSHA) of the US Department of Labor.  OSHA, under its Office of Whistleblower Protection, also administers the whistleblowing provisions of the other statutes, protecting employees who report violations of various trucking, airline, nuclear power, pipeline, environmental, rail, consumer product and securities laws. This office investigates, makes a decision and if necessary reinstates or compensates whistleblowers who have suffered retribution.

The US and UK practices suggest that employment law, and the regulatory employment agencies, would be a preferred option to ASIC as the responsible agency. However, the Australian Government, in its recent response to whistleblower protection in the public sector, announced that employment law would not be adopted. This was its answer to the recommendations of the House Standing Committee on Legal and Constitutional Affairs investigating public sector whistleblowing protection.

The government’s decision is questionable.  The Workplace Ombudsman and associated agencies (Fair Work Australia from 2010) have a series of inspectors throughout the country who investigate breaches of the Fair Work Act. They have the ability to undertake investigations, and interact with and assist employees who report breaches of the existing labour legislation. This ability could extend to whistleblowers who report wider breaches of the law.   Research into the possibility of this option appears vital.

One submission also argued that the eventual designated agency had an educational role as well as an investigative and whistleblower support role. It also had a data gathering and analysis role in presenting information on the effectiveness of its administrative procedures and the associated legislation. ASIC has done a poor job in this respect, which may be a contributing reason for the ineffectiveness of the legislation. ASIC in fact had rejected FOI requests for information for use by researchers, consultants and companies themselves.  It only became public knowledge that the legislation had not been useful when this information was revealed in the Minister’s letter requesting submissions.

Protections for whistleblowers

The provisions in the current Act to protect whistleblowers are not extensive. The proposals from Treasury do not extend these protections significantly.  Each state in Australia has a whistleblower protection Act for its public sector, although none of them are regarded as highly effective. There are ten protections available in the states, although no state carries all ten. Only five of the possible ten protections are included in the Treasury options.

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