COMMITTEE - IN - CONFIDENCE Protections Inquiry

Submission #1 – Introductory Submission

Who is a Whistleblower?

Executive Summary

The question “When is a whistleblower a ‘Whistleblower’?” in the eyes of the law is not a trivial question.

In some cases it may take many years before a whistleblower is vindicated by successful legal action which imposes civil penalties or one or more criminal convictions on the wrongdoers.

In some cases the wrongdoers may escape justice on a legal technically such as a limitations of actions defence or due to fault pleadings by the regulatory agency.

What is the legal status of the whistleblower before the resolution or in the case where the whistleblower’s allegations have merit but the wrongdoers still escape justice?

It is a common tactic for the alleged wrongdoer to seek to discredit a would-be whistleblower as simply a disgruntled ex-employee with an axe to grind.

Also it must be acknowledged that regulatory agencies do not welcome with open arms, no matter what public statements are made otherwise by these agencies.

It is easy for a regulatory agency to summarily dismiss a meritorious whistleblower disclosure on the basis of “insufficient evidence” when not real attempt has been made by that agency to obtain further evidence.

Whistlelblowing needs to be considered as a multi-stage process as well as an iterative process. It is not simply a process of going to a regulatory agency and handing the agency a fully documented case on a platter which the agency then immediately actions.

A serious case of misconduct can take years to resolve and the more serious the alleged misconduct the more difficulty there is in obtaining a resolution and vindicating the whistleblower.

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This introductory submission therefore makes the following recommendations:

(i) A registration process be established so that a whistleblower who acts in good faith has legal standing as a “whistleblower” irrespective as to whether his or her disclosure is ever actioned by an employer or by a regulatory agency;

(ii) The registration process to include the documenting of the disclosure or disclosures to prevent misrepresentation by a regulatory agency with a provision to allow the amendment to or addition of subsequent disclosures; and

(iii) The registration process to include a listing of evidence on which the whistleblower relies to substantiate the whistleblower’s allegations of misconduct with the provision to allow addition to this evidence over time after registration.

Introduction

The starting point to any inquiry into whistleblowing should start with an understanding of what is involved in whistleblowing and the challenges faced by any would-be whistleblower.

Whistleblowing has been defined as follows:

“The disclosure by a person, usually an employee in a government agency or private enterprise, to the public or to those in authority, of mismanagement, , illegality, or some wronging.”

This definition covers some important points.

Whistleblowers are often, but not always, employees of the organisation where the misconduct has occurred or is occuring.

Examples of internal whistleblowers are:

(i) , the Commonwealth Bank Financial Planner Scandal whistleblower; and

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(ii) , the CommInsure Life Insurance Scandal whistleblower.

Examples of external whistlelowers who were not employees are:

(i) whistleblower who was an external financial analyst, and

(ii) , the Trio Capital Superannuation whistleblower who was an external financial analyst.

The misconduct identified by a whistleblower can relate to a government agency or to a private enterprise.

An interesting example is where the whistleblower is attempting to blow the whistle on a government agency whose role is to investigate whistleblower complaints related to private enterprise.

The other aspect of whistleblowing is the scope of the alleged misconduct whether it is “mismanagement, corruption, illegality or some wrongdoing”.

Misconduct can range from unethical conduct which does not breach any current laws, through to negligence, dishonesty and conspiracy involving more than one wrongdoer.

stated in Armitage v Nurse [1997] 2 All ER 705:

“In this respect English law differs from civil law systems, for it has always drawn a sharp distinction between negligence, however gross, on the one hand and fraud, bad faith and wilful misconduct on the other.”

A key aspect of whistleblowing that must be recognised is that a whistleblower is the cause of embarrassment.

In the first instance the embarrassment is that the misconduct was allowed to occur in the first place and in the second instance the embarrassment is that the misconduct has been undetected by regulatory agency with jurisdiction over the wrongdoer.

This generates an immediate conflict of interests with any party to whom the whistleblower disclosure is made.

In the case of an employee who makes a disclosure to his or her boss or senior management it is not unusual for such a person to be the subject of retaliation by their employer.

Much easier to sack the whistleblower than to address the issues raised especially if they are significant and will cause the organisation and its senior managers embarrassment if made public.

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A major scandal could cost the CEO and the Chairman their jobs as occurred with the foreign exchange scandal at the National Australia Bank that cost , and , their jobs {Refer to Appendix B}.

Likewise if a would-be whistleblower goes to a regulatory agency, believing the regulatory agency will be supportive of whistleblowers, the whistleblower may receive a cold reception, because what a whistleblower is in effect saying is:

“You guys have not been doing your job properly to allow this misconduct to occur and go undetected in the first place - you should and will be embarrassed by this disclosure.” Policies and Laws not worth the Paper they are Written On

Many organisations have “Whistleblower Policies” and laws already exist that are supposed to protect whistleblowers. However in general these policies and laws are not worth the paper they are written on.

This comes down to the fundamental principle that policies and laws are worthless unless the will exists to enforce them “without fear or favour”.

There is also the problem of selective enforcement, where the will exists to enforce relatively minor infractions that would not gain much public attention, but where the standard operating procedure is to cover-up serious infractions that would prove to be a major embarrassment.

With selective enforcement there is the appearance that the system works, however this is a very deceptive appearance which can be a major trap for a would-be whistleblower who seeks to disclose evidence of a major scandal.

Therefore if the objective is to “improve protection for whistleblowers” the starting point must be identifying the parties who are involved in the whistleblowing process and then assessing their likely response to whistleblower disclosures of increasing levels of seriousness (embarrassment).

If it is proposed to provide financial rewards to successful whistleblowers then the more serious the whistleblower disclosure then the greater will be the likely financial reward.

This then raises the question:

“Who will be prepared to go into bat for the whistleblower?”

The general response, apart from sacking a whistleblower, is to simply ignore the whistleblower.

This was the response of ASIC when the whistleblower, and his colleagues attempted to disclose misconduct by financial planners employed by the Commonwealth Bank.

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It is important to note that former Commonwealth Bank employees work for ASIC and former ASIC employees work for the Commonwealth Bank.

Who should ASIC believe?

The excuse provided by the ASIC , to the Senate Economics Reference Committee was that ASIC had been “too trusting” in an organisation it was supposed to regulate – the Commonwealth Bank. Attacking the Credibility of the Whistleblower

The first line of defence of any organisation when faced with a possible embarrassing disclosure by a would-be whistleblower is to attack the credibility and motive of the whistleblower.

It is easy for an employer to denigrate a former employee and to provide what appears to be a valid excuse for sacking a whistleblower.

The employer can claim there was a restructuring which left no position for the whistleblower. The employer can claim that the whistleblower contravened a company policy by disclosing confidential information.

In the case of an external whistleblower, the allegations can be dismissed on the basis that the whistleblower is attempting to make life difficult for a competitor in the industry.

If the whistleblower goes to a regulatory agency, the agency can claim that the would-be whistleblower was unable to provide the agency with sufficient evidence of the alleged wrongdoing so the agency decided not to pursue the allegations of the whistleblower.

Where a regulatory agency is subject to Regulatory Capture the identity of the alleged wrongdoer may be important. The agency may take action against a minor player in the industry as evidence that the whistleblower programme is working, but may decline to take action against a major player who employs former agency staff who work closely with incumbent agency staff.

That is the “too trusting” element comes into play as was the case with the Commonwealth Bank Financial Planner Scandal. The Scope of the Current Inquiry

The current inquiry has a wide scope covering “the development and implementation in the corporate, public and not-for profit sectors of whistleblower protections”.

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There are already many existing laws that are meant to protect whistleblowers across these sectors however there are no examples of these laws ever being enforced, which should be a starting point of inquiry by the Committee before consideration is given to enacting more laws for whistleblower protection.

The following is stated on ASIC’s website:

ASIC’s role and the limitations of our role

ASIC’s primary role in relation to whistleblowers is to receive, assess and (where appropriate) investigate disclosures. We also look into misconduct relating to allegations that whistleblowers have been victimised for making a protected disclosure. ASIC can and does carry out investigations of allegations of victimisation. However, given our limited resources and the fact that other protections such as reinstatement of employment are available, we will generally focus our resources on an investigation of the information reported by the whistleblower.

No mention is made by the meaning of “where appropriate” and appropriate to whom?

Here ASIC is publically stating: “Do not expect ASIC to come to you aid if you are victimised for being a whistleblower.”

It is living in fairy land to expect that “reinstatement of employment” is a viable option for any whistleblower who has been sacked for disclosing wrongdoing in his or her place of employment.

Even if another agency, such as Fair Work Australia, were to make a reinstatement order, what would the work experience be for that employee who had blown the whistle causing embarrassment to senior management?

- What are the chances of promotion?

- What are the chances of be the subject of a “restructuring” in a year’s time and shown the door for what appears to be a legitimate reason?

- What are the chances that other employees will seek your company?

ASIC states that:

ASIC’s primary role in relation to whistleblowers is to receive, assess and (where appropriate) investigate disclosures

However according to ASIC’s latest Annual Report, ASIC summarily dismissed 80% of whistleblower disclosures received on the basis of “insufficient evidence” without even bothering to further investigate these disclosures.

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Clearly part of the assessment process is to assess how much embarrassment these disclosures would cause ASIC for not doing their job properly in the first place as the conduct regulator of the banking and financial services sector!

If a whistleblower disclosure is summarily rejected by a regulatory agency such as ASIC, then the would- be whistleblower simply becomes just another disgruntled employee and any whistleblower protection legislation is not worth the paper it is written on.

When is a Whistleblower a ‘Whistleblower’?

This is an important question for the Committee to address.

That is, when does a person have legal standing as a “Whistleblower” and is not simply placed in the category of a disgruntled former employee or a competitor seeking to undermine his competition?

In most cases a would-be whistleblower will have some evidence to substantiate their claims and to demonstrate they are acting in “good faith” and not merely engaged in vindictive conduct.

However there will be a legitimate expectation that their employer (in the case of an internal whistleblower ) or the regulatory agency will seek to obtain further evidence with respect to the disclosure that will form the basis of corrective action such as administrative penalties or the initiation of legal proceedings against the wrongdoers.

If no further steps are taken where, does that leave the legal status of the would-be whistleblower?

Whistleblowing is rarely a one-off process and may involve years of seeking action by a regulatory agency.

This was the experience of who spent nine years lodging multiple submission to the US Securities and Exchange Commission alleging that was running a Ponzi Scheme. Recommendation #1 – Whistleblower Registration

A system of whistleblower registration to established with an agency independent of any regulatory agency where a conflict of interests exists between that regulatory agency and whistleblowers.

The registration of whistleblowers will become more important if financial rewards are offered to successful whistleblowers.

In a case that can span many years before resolution, several whistleblowers may come forward and a registration system will provide evidence of the priority and substance of their whistleblower disclosures.

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ASIC advises on its website that:

“Only a properly accredited legal practitioner who understands your circumstances can give you legal advice. This is especially important if you are thinking of acting on the rights the whistleblower protections give to you.”

However the average suburban lawful would be unable to provide appropriate advice.

In the USA there are now specialist law firms that assist whistleblowers in drafting and lodging their whistleblower disclosures which may result in a substantial reward to be shared with the law firm.

The Whistleblower Registration Agency could provide a listing of specialist legal firms who could assist in drafting and lodging the whistleblower disclosure with the relevant regulatory agency.

The proper drafting of a whistleblower disclosure is a very important step that should not be over- looked.

Also it is a very foolish employee who believes his employer’s Whistleblower Policy.

Employees should only ever make a whistleblower disclosure on an anonymous basis. By making a confidential Whistleblower Registration so as to obtain legal whistleblower status, this would assist in protecting the employee if he or she is sacked on suspicion of making the disclosure.

Also if the employer fails to action the disclosure and a regulatory agency is then forced to take action, the record of the employee making an anonymous disclosure that was never actioned can be used in the penalty phase of the regulatory response which may have been avoided if the original disclosure was actioned.

Organisations who profess to have a commitment to The Rule of Law and ethical conduct by their employees should be expected to be able to demonstrate such a commitment. Recommendation #2 – Documenting the Disclosure

A tactic that can be used by regulatory agencies is to misrepresent the disclosure made by one or more whistleblowers, when questioned by Members of Parliament, Senators or by Parliamentary Committees.

An initial whistleblower disclosure may not specifically identify a specific law that has been contravened but may disclose what is obviously unethical conduct.

A properly drafted disclosure prepared with legal advice should in most cases be able to identify at least one contravention of the law.

This also allows confirmation of the agency with jurisdiction over the alleged wrongdoer.

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Where multiple contraventions of the law have been identified or if a conspiracy involving more than one wrongdoer is identified then the whistleblower disclosure may in fact involve multiple disclosures which should be documented as separate infractions of different laws by different wrongdoers.

Furthermore there may be a need to amend or add to the original disclosures over time as more evidence comes to hand or when more whistleblowers step forward.

Therefore properly documenting the disclosures becomes an important step in its own right even before the disclosure or disclosures are then lodged with a regulatory agency for action.

The registration and disclosure documentation process would assist in eliminating any vexatious or misconceived purported whistleblower disclosures.

A professionally drafted disclosure document would also assist the regulatory agency prioritise the particular whistleblower disclosure, since most regulatory agencies will claim that they do not have the resources to immediately investigate every complaint or whistleblower disclosure that is lodged with the agency.

ASIC makes the following statement on its website:

“We cannot investigate every allegation that is made to us; we must prioritise. Generally, we do not act for individuals and we will seek to take action only where our action will result in a greater impact in the market and benefit the general public more broadly.”

This gives ASIC a lot of “wiggle room” to misrepresenting the nature and substance of a whistleblower disclosure.

A professionally drafted disclosure will establish that the disclosure is not a complaint relating to the grievance of an individual employee and will provide what is in effect a “victim impact statement” by assessing the anticipated number of victims and their likely losses.

As mentioned above, provision would also be made to allow for the original disclosure to be refined by subsequent amendment after the initial registration and to allow further disclosures (ie further alleged contraventions of the law to be added after registration).

If the regulatory agency refuses to obtain more evidence or disclose the nature of any evidence obtained, the whistleblower may been to seek other means of obtaining additional evidence to allow refining the original allegations of misconduct or expanding their scope. Recommendation #3 – Documenting the Evidence

A would-be whistleblower is unlikely to step forward unless he or she has some evidence of misconduct to substantiate their allegations.

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Now the evidence may already be in the public domain such as reported investment returns which is how obtained his evidence in the Ponzi Scheme.

The whistleblower may have a legal right to the evidence such as a member of a superannuation fund who has been defrauded by the trustee of the fund and who have a legal right to the Deeds of the fund.

In other cases the issue of confidentiality of evidence obtained by employees may arise.

In any event, part of the registration process would be to summarise all the evidence that the whistleblower has obtained up until the time of registration.

Registration may be deferred if insufficient evidence is no not initially available.

Much better to lodge a creditable case with a regulatory agency later, than to have a poorly prepared disclosure being summarily dismissed.

If more evidence is subsequently obtained after registration by the whistleblower an amending schedule could then be attached to the original registration document.

Most whistleblowers will assume that the regulatory agency once advised of alleged misconduct will seek to obtain additional evidence that may not be accessible to the whistleblower.

Therefore it would be useful to also document what other evidence the whistleblower believes exists but which the whistleblower has been unable to obtain to date.

This documentation process then makes it much more difficult for a regulatory agency to summarily dismiss the whistleblower disclosure on the basis on “insufficient evidence”.

Summary

This introductory submission makes three important recommendations:

(iii) A registration process be established so that a whistleblower who acts in good faith has legal standing as a “whistleblower” irrespective as to whether his or her disclosure is ever actioned by an employer or by a regulatory agency;

(iv) The registration process to include the documenting of the disclosure or disclosures to prevent misrepresentation by a regulatory agency with a provision to allow the amendment to or addition of subsequent disclosures; and

(v) The registration process to include a listing of evidence on which the whistleblower relies to substantiate the whistleblower’s allegations of misconduct with the provision

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to allow addition to this evidence over time after registration.

These procedures would be generic irrespective of whether the disclosure related to a corporate, public or not-for-profit organisation.

The registration process would be independent of any particular regulatory agency since a potential always exists between a whistleblower and the regulator agency with jurisdiction over the wrongdoer.

Any further proposed protections for whistleblowers and proposals for whistleblower rewards must be predicated on a would-be whistleblower having legal standing irrespective as to whether there is a successful resolution of the alleged wrongdoing made by the whistleblower

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