Blowing the whistle Protection for whistleblowers in

September 2014 Publication No. 14-05 2 1 Introduction Recently there has been increasing debate in the media, both Australia and overseas, about the protection of whistleblowers and effective whistleblower programs.

Michael Woodford, the British businessman at the centre of the 2011 Olympus scandal, recently spoke about the need for more whistleblower protection. In this article, Anthony Hodgkinson and Samantha Farthing of our office discuss the protections offered to whistleblowers in Australia, and the importance of an effective whistleblower program.

The importance of whistleblowers A whistleblower is a person who tells someone in authority about alleged dishonest or illegal activities occurring within an organisation. In a recent study, over 42% of uncovered frauds in an organisation were detected by a tip1 - by far the most prevalent way for fraud to be detected. An effective whistleblower program is therefore a key method to reduce loss from fraud in an organisation.

2 Olympus scandal Michael Woodford, a British businessman, was the first foreign “If you’re going to be a chief executive of Japanese giant Olympus, although he had been whistleblower you’ve at the company for 30 years. After only two weeks in his role as CEO, he had uncovered one of the biggest corporate frauds in got to be prepared Japanese history. He was subsequently ousted from the company to be isolated. I was after he insisted on blowing the whistle over $1 billion in fees paid the president. I was to shadow companies. A corporate scandal ensued after it was uncovered that the company had concealed investment losses of financially independent. 117.7 billion Yen ($1.5 billion) dating as far back as the late 1980s. It’s so much harder for Following the announcement of the scandal in October 2011, a junior manager with a Mr Woodford fled to England as board members’ connections to big mortgage and three Japanese organised crime syndicates threatened his life and the kids or a nurse in a lives of his family. Mr Woodford commenced a legal battle against 3 Olympus and eventually received £10 million ($18 million) in residential home.” damages for wrongful dismissal and defamation. He has now written a book on his ordeal, and is an independent corporate governance consultant. In May this year, he spoke in at a Chartered Financial Analyst conference2 about the need for increased whistleblower protection. 3 3 Effective whistleblower programs A robust system for whistleblowers to make disclosures can be of In Australia and benefit to both whistleblowers and their organisations. New Zealand, over Not only will an effective whistleblower program ensure accordance $370 million was with the relevant applicable legislation, it will also significantly reduce an organisation’s vulnerability to fraud. A recent study has concluded stolen over 2011 and that in Australia and New Zealand, over $370 million was stolen over 2012, and the average 2011 and 2012, and the average value of fraud was more than value of fraud was 4 $3 million . As tips from employees are one of the main ways more than $3 million4 organisations become aware of fraud, it is imperative that an effective whistleblower program is established to limit the loss from fraud. Furthermore, a whistle-blower program can provide protection against the regulators – the Department of Justice and the Securities and Enforcement Commission (‘SEC’) in the United States of America want to see a whistleblowing hotline as part of an anti-corruption compliance program. An effective whistleblower program should: • Be communicated to all staff and stakeholders; • Be easy to comprehend; • Ensure broad staff confidence in management responsiveness to whistleblowing; • Ensure all disclosures are followed up promptly and an investigation launched if required; and • Ensure support and protection of whistleblowers. One approach used successfully in Australia and abroad, is the use of an anonymous hotline. Whether via telephone or internet, a whistleblower hotline gives employees an accessible and anonymous way to report fraud. However this should be part of a broader culture of openness and employee support in which raising issues, however awkward they may appear, is encouraged and rewarded. It is essential that management set the appropriate “tone from the top” so employees have a reasonable expectation that issues raised will be treated with appropriate seriousness. The anonymity of the hotline is important, as although some protection is set out in legislation (see below), some whistleblowers may feel isolated or victimised if their identity becomes known. Unfortunately, it is often quite difficult to determine that any victimisation of a whistleblower (such as termination of employment) has occurred solely because of a disclosure of information. ASIC recommends that whistleblowers seek legal advice before making a disclosure (and also note that it is the responsibility of the whistleblower to bring about any action for compensation, as ASIC is not responsible for this). Unfortunately, this process has the potential to be very costly and perhaps unfeasible for many potential whistleblowers, and there are no financial incentives available for whistleblowers inAustralia.

In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as the ‘Dodd-Frank Act’)5 was introduced in 2011 and offers financial incentives to whistleblowers. The SEC can provide monetary rewards to certain individuals who provide information which leads to an SEC action in which over USD 1 million in sanctions is ordered. The award may be between 10% and 30% of the money collected. The SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might reveal a whistleblower’s identity. 4 4 Protection for whistleblowers in Australia In Australia, there are several avenues available for whistleblowers to seek protection. The two federal avenues include protections provided by ASIC and under the Public Interest Disclosure Act 20136 (‘PID Act’). ASIC Protections ASIC provides protection under the Corporations Act to whistleblowers who report misconduct or dishonest or illegal activity that has occurred within an organisation. To be considered a whistleblower under Part 9.4AAA of the Corporations Act, you must be either: • an officer (usually that means a director or secretary) of the company your disclosure is about; • an employee of the company your disclosure is about; or • a contractor, or the employee of a contractor, who has a current contract to supply goods or services to the company your disclosure is about. A whistleblower must make a disclosure in good faith to an appropriate person, and must have reasonable grounds to suspect that the company may have breached the Corporations Act or the Australian Securities and Investments Commission Act 2001 (‘ASIC Act’). Under the appropriate circumstances, ASIC offers the following protection for whistleblowers: • makes it unlawful to prosecute a whistleblower for making a protected disclosure of information; • protects a whistleblower from civil or criminal litigation; and • where a whistleblower’s employment is terminated because of a disclosure made under the Corporations Act, the whistleblower can request a court order to be reinstated in either their original position or in another position at a comparable level. Public Interest Disclosure Act 2013 (Commonwealth) (‘PID Act’) Another form of protection available for whistleblowers is through the PID Act, which came into effect in January 2014. This Act offers protection to public officials who make a disclosure about suspected wrongdoing in an Australian Government department, executive and statutory agency, or a wide range of other entities associated with the Australian Government. If a whistleblower satisfies the appropriate requirements of being a public official7 and discloses to an appropriate person or body8, the PID Act offers the following protections9: • makes it an offence to provide identifying information about a person who makes a disclosure without their consent unless authorised by the PID Act; • provides a whistleblower with immunity from civil, criminal and administrative action; and • makes it a criminal offence to retaliate (or threaten to retaliate by means of discriminatory treatment, termination of employment or injury) against a whistleblower because they made a disclosure. The PID Act is limited to public officials, but ensures that Commonwealth sector agencies have a framework in place that facilitates and encourages the reporting of suspected wrongdoing. It also ensures that public interest disclosures are properly responded to and investigated if necessary.

A recent independent evaluation10 of G20 countries’ whistleblowing laws concluded that in Australia, public-sector whistle-blower protection is mostly strong, with the public sector being required to have internal procedures not only for facilitating disclosures, but also for protecting and supporting whistle- blowers. However, the study concluded that protection for the private sector is considerably weaker, with the main protection offered by the Corporation Act, which does not set out any requirements for internal company whistle-blowing procedures. 5 5 Conclusion A robust system for whistleblowers to make disclosures can be of benefit to both whistleblowers and their organisations, as an effective whistleblower program can significantly limit the loss from fraud. However, all companies and Government organisations should be aware of their requirements under the relevant legislative framework and should ensure that they have appropriate systems in place for receiving whistleblower disclosures. KordaMentha has extensive experience in the implementation of whistleblower programs, fraud risk management and helping organisations effectively manage whistleblowers. Please contact the authors for further information.

Endnotes 1. 2014 Report to the Nations on Occupational and 6. There are also different protections offered under various Fraud and Abuse by the Association of Certified Fraud state-based legislation, which are not discussed here. Examiners (“ACFE”), page 19. 7. As defined in Section 69 of the PID Act 2. On 5 May 2014. 8. As defined in Section 72 of the PID Act 3. Peter Williams, The West Australian, No regrets for 9. Under Part 2, Division 1 of the PID Act – see ‘PID Olympus survivor, 6 May 2014. Information Sheet - The Public Disclosure Act 2013 - What’s 4. KPMG Fraud, Bribery and Corruption Survey 2012: it all about?’ at www.ombudsman.gov.au/pages/pid Australia and New Zealand, p4. 10. Whistleblower Protection Laws in G20 Countries - 5. http://www.sec.gov/spotlight/dodd-frank/whistleblower. Priorities for Action- September 2014. Simon Wolfe, Mark shtml Worth, Suelette Dreyfus, A J Brown. See page 24 for Australia.

About the authors

Anthony Hodgkinson | Executive Director Melbourne | +61 3 8623 3307 | [email protected]

Anthony has over 24 years’ experience in the public and private sector, including a variety of fraud and forensic assignments for a large global finance provider. Anthony has been involved and also managed a range of investigations into corporate fraud and illegal conduct within government departments, corporates and the banking sector within Asia-Pacific. Before working at KordaMentha, Anthony was a member of the Victoria Police Force, investigating major crimes including fraud and corruption, and received the Victoria Police Ethical Services Medal.

Samantha Farthing | Executive Analyst Melbourne | +61 3 8623 3477 | [email protected]

Samantha joined KordaMentha Forensic in January 2011. She has assisted in dispute advisory to clients in the mining and transport sectors as well as provided investigative and forensic accounting assistance to clients in the government, sporting, educational and financial services sectors. KordaMentha Forensic We provide clarity and objectivity to organisations when the commercial stakes are high, and the evidence is critical to the outcome. Our specialist forensic tools, rigorous analysis and clear presentation of the financial, factual and electronic information provides insights that are otherwise hidden in the detail of a dispute, investigation, or review.

Melbourne Perth Owain Stone Andrew Ross Jarrod Baker Partner Partner Executive Director +61 3 8623 3410 +61 2 8257 3051 +61 8 9220 9330 [email protected] [email protected] [email protected] Robert Cockerell John Temple-Cole Partner Partner Singapore +61 3 8623 3355 +61 2 8257 3077 Matthew Fleming [email protected] [email protected] Partner Craig Macaulay Nigel Carson +65 6593 9363 Executive Director Partner [email protected] +61 3 8623 3373 +61 2 8257 3080 [email protected] [email protected] Anthony Hodgkinson Paul Curby Stephen Duncan Executive Director Partner Partner +61 3 8623 3307 +61 2 8257 3050 +61 8 8223 8106 [email protected] [email protected] [email protected] Alex Bell Briston Talbot Executive Director Associate Director David Van Homrigh +61 2 8257 3053 +61 8 8223 8114 Partner [email protected] [email protected] +61 7 3338 0220 [email protected] Brian Wood Partner +61 7 3338 0250 [email protected]

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