Wednesday, 5 December 2018
Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017; Second Reading
I rise tonight to address the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017. Like Senator O'Neill, I will be referring to the Senate Economics Legislation Committee report on the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 and the Parliamentary Joint Committee on Corporations and Financial Services whistleblower protection inquiry, which of course looked at a comprehensive suite of legislative measures to make sure that we have an effective set of laws to protect whistleblowers in this country. Effective whistleblowing provides an essential service in fostering integrity and accountability, while deterring and exposing misconduct, fraud and corruption. A recent analysis of whistleblower protections across G20 countries found Australia's laws to be comprehensive for the public sector, but lacking in the private sector.
The inquiry produced in an excellent report. I saw a lot of the work that went into that by a number of people—especially you, Senator O'Neill, in the chamber today—and I'd like to recognise that, because this is a critical area. If we are going to address fraud and misconduct in the financial services sector—and, in fact, in other sectors and in any workplace—these laws need to be hard and fast and we need to get them right. Evidence presented to the inquiry, as well as consideration of existing laws, indicates that whistleblower protections remain largely theoretical in this country with little practical effect in either the public or private sectors. This is due, in large part, to the near-impossibility of achieving under current laws four key things: protecting whistleblowers from reprisals and retaliatory action; holding those responsible for reprisals to account; effective investigation of alleged reprisals; and whistleblowers being able to seek redress for reprisals. Another significant issue identified by the committee was the fragmented nature of whistleblower legislation. In particular, significant inconsistencies exist not only between various pieces of Commonwealth, public and private sector whistleblower legislation but also across the various pieces of legislation that apply to different parts of the private sector.
The committee has made a number of recommendations. Sadly, not all those recommendations in the report are in this legislation that we have before us tonight. The legislation was probably written and drafted over a period of time before the Parliamentary Joint Committee on Corporations and Financial Services released its very extensive and good work. That's a very important point. Personally, I would have preferred to have seen the legislation brought forward at a point in time where we could have comprehensively addressed the many issues that were outlined in the report. The committee, through this report into whistleblower protections, recommended separate public and private whistleblower protection legislation. However, it recognised that it would be the preference, certainly of Labor and the Greens, to have a single act in the first place. Nevertheless, this is a first step. The work of the committee was assisted by a substantial body of evidence over the past two decades on whistleblower protections.
Acting Deputy President Williams, I know you would join with me at this point in recognising three whistleblowers that I have had the pleasure of speaking to and working with over recent years, going back to 2014 and the original ASIC inquiry, which you were instrumental in getting up and running. One of those is Don Morris from CBA, who came forward during the inquiry as a whistleblower, concerned that the information he'd given to ASIC hadn't been properly followed up.
Yes, sorry—Jeff Morris. Don Morris is actually a Tasmanian, so apologies to Jeff. The information he brought forward led to a separate line of inquiry into CBA and, of course, a call by the committee for a royal commission into CBA back then, which in many ways set in motion a number of Senate inquiries following that, which led us on this long and winding road to the banking royal commission that we have now. I also acknowledge Dr Benjamin Koh from CommInsure who came forward and spoke to Four Corners. I had a number of discussions with Dr Koh. He is a very brave man, who, once again, took on the might of the Commonwealth Bank and found himself out on his backside under incredible stress and pressure simply for being honest and wanting to do the right thing. And, of course, the other whistleblower who came forward in the ASIC inquiry was Mr James Wheeldon, who blew the whistle on practices at ASIC which essentially reflected on the corporate regulator being too close to its clients, the major banks. While that was controversial at the time, I think we've seen through the banking royal commission and other disclosures that that cosy culture between the regulator and the banks has been a serious problem and needs to be addressed.
Had these whistleblowers not come forward, it would have been a lot harder for us to do our work. That disclosure is essential and it is in the public interest. But what I do know from not just their experiences but a number of other whistleblower experiences is that, if you blow the whistle, particularly in a big corporation or a big organisation, be it a government department, be it a large company or be it a smaller organisation, you're branded for life. You're branded for life if you are a whistleblower, regardless of whether or not you're doing the right thing. Your motivations may be pure. You want to see injustice or an aggrievement addressed, but you are branded for life. No matter what kind of platitudes I've heard, I believe that whistleblowers find it very difficult to be re-employed, and many of them end up suffering mental illness and issues because they've taken a brave stance and they've taken on the powers that be. Of course, that's why the Greens have had a very strong view that we should actually have a US system of financial rewards in place for whistleblowers. I think what you're giving up, essentially, is a lifetime of employment. You're going to find it very difficult to be employed once you're branded as a whistleblower. Although you've done the right thing, for some reason, the aspersion is cast that somehow or another you are not trustworthy because you have blown the whistle on improper practices in an organisation.
So one of the committee's main recommendations is the establishment of a whistleblower protection authority, to be housed within a single body or an existing body, that can support whistleblowers, assess and prioritise the treatment of whistleblowing allegations, conduct investigations of reprisals and provide oversight on the implementation of the whistleblowing regime for both the public and private sectors.
I know Senator Patrick wants to speak on this shortly, so I want to read very briefly additional comments that were provided by the Australian Greens in the committee report:
The Australian Greens believe this Bill is a missed opportunity. While the Bill does improve protections provided for whistleblowers—off a very low base—it has failed to do so adequately or in a way that recognises the enormous toll that whistleblowing can have on an individual.
… … …
As is noted in the committee report, the Bill fails to address a number of recommendations from the Parliamentary Joint Committee on Corporations and Financial Services' report on Whistleblower Protections. The report provides a contemporary and comprehensive list of reforms required to protect and compensate whistleblowers. These recommendations were unanimously agreed to by members of both houses, from multiple parties, only six months ago. The Parliamentary Joint Committee served up the solutions on a plate, but the government have ignored—
a large number, especially important recommendations—
… Professor A. J. Brown—
Who as I understand was in the chamber a bit earlier today and may well still be—
Griffith University has listed the major areas of reform set out by the Parliamentary Joint Committee, but not provided for in the Bill—
I think Senator O'Neill alluded to this in her speech a little bit earlier—
i. Providing business with a single, simple Whistleblower Protection Act covering all relevant Commonwealth regulation, rather than multiple legislative requirements …
ii. Clear coverage of wrongdoing, and clear roles and responsibilities for other Commonwealth regulatory and law enforcement agencies, beyond the Treasury portfolio;
iii. Comprehensive coverage for all private and not-for-profit sector employees who reveal wrongdoing by or within the control of their employer, under Commonwealth regulation, i.e. beyond the present range of corporate, financial service and tax entities;
iv. Access to remedial and compensation avenues beyond the courts (e.g. via the Fair Work Commission, as provided for in the Public Interest Disclosure Act 2013);
v. An agency with full obligations and powers to implement the regime, including to take action to ensure protection and compensation (e.g. a whistleblowing protection authority or unit); and
vi. Effective resourcing for this implementation—
In that case, of course, we believe a reward based scheme might be worth considering—potentially raised from a levy from various business sectors. It goes on:
1.4 Given the extent of these shortcomings, and the fundamental nature of some of them, it will be very difficult to address all of these issues through amendments to the Bill.
We won't be seeking to do that tonight. However, we will have one amendment. I plan to talk to that amendment when we go in committee, so I won't spend too much time on it now, but let me say that whistleblower rewards are a very important part of the solution to the problem—as complex and difficult as that is. It goes on:
1.5 Offering legal protections is often not enough for someone who has knowledge of fraudulent activities to come forwards with information and risk their financial security, job security and mental health. One of the most important and progressive recommendations of the Parliamentary Joint Committee was to introduce a reward scheme for whistleblowers (Recommendations 11.1 & 11.2)—
however, as I said earlier, they are missing from this bill. It goes on:
1.6 This is not a radical idea. The US False Claims Act was passed in 1863. It now allows whistleblowers to receive up to 30 per cent of reclaimed money that has been stolen or avoided from government authorities. In 2015, 80 per cent of the around $3.5 billion recovered by US Justice Department was a result of actions taken by whistleblowers.
1.7 Rewards work. They encourage disclosure. They recover ill-gotten gains. And they help compensate whistleblowers.
Of course, there are always unintended consequences with these kinds of laws, and they need to be looked at very closely. We have considered those and how they could be dealt with, and we believe that this is something that should be implemented. I'll go through that in more detail when we get to the committee stage, but I just wanted to note that there was an article in The Australian Financial Review only a few days ago by Elouis Fowler and Tom McIlroy. The article says:
Forty-five Australian whistleblowers have tipped off a US corporate regulator about suspected misconduct and may be financially rewarded for their actions.
The Australian whistleblowers were among 650 people outside of the US who complained to the US Securities and Exchange Commission Office of the Whistleblower.
The SEC has a reward program for whistleblowers whose tip-offs lead to successful sanctions which attract penalties exceeding $US1 million ($1.37 million).
A report by the US commission revealed Australia to be the third-largest source of international complaints behind Canada and Britain.
That is not surprising, considering how many multinational and transnational corporations inhabit our planet, shall we say. The article continues:
It's likely these complaints are from employees working for US-listed firms or companies with headquarters in the US.
This is something that was looked at by the committee, and I hope that the Senate considers our amendment when we put it up.
I would like to introduce the chamber to a woman named Sally McDow. She was made redundant after she blew the whistle on corporate malfeasance at Origin Energy in 2015. After she did that, but before she was made redundant, she found herself undermined, derided, marginalised and threatened with termination, before finally being made redundant. She emerged as one of the lucky ones. Her life was relatively intact, she was a highly experienced lawyer and she had a very close and supportive family. So Ms McDow was able to withstand the immense pressure and she was also able to find herself a new sense of purpose. She, in fact, launched the first ever court case that tested the strength of Australia's corporate whistleblower scheme in 2016, and she created her own law firm, CPR Partners, a firm that supports fellow whistleblowers and also trains corporations on their obligations. She says that the people who she has helped have had their lives all but destroyed for speaking out. In her words, 'No-one wants to be a whistleblower because it is just a fate worse than—well, you wouldn't wish it on your worst enemy.'
Australia's current private sector whistleblower laws are fragmented and confusing. Civil remedies are limited. Claimants are exposed to legal cost risks.
Thank you for pointing that out, Senator Patrick. Thank you for speaking out, Ms McDow.
Australia's current private sector whistleblower laws are fragmented and confusing. Civil remedies are limited. Claimants are exposed to legal cost risks and have great difficulty in discharging their evidential burden in proceedings for compensation in relation to reprisals. Offences committed against whistleblowers have rarely been prosecuted. Companies have been practically prohibited from undertaking investigations, as they could not share information related to the disclosure, regardless of whether it identified whistleblower or it didn't. Anonymous disclosures were simply not allowed, and neither were emergency disclosures to the media or emergency disclosures to parliamentarians.
So the bill before us today, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017, remedies these deficiencies. The current bill will introduces new protections in two separate acts. The Corporations Act 2001 will be amended to create a single, strengthened whistleblower protection regime that covers the corporate, financial and credit sectors. The Taxation Administration Act 1953 will be amended to add new protections to tax whistleblowers who report tax misconduct.
Part 1 of this bill will strengthen protection for corporate whistleblowers by expanding protections to a broader class of persons and expanding disclosures that can be protected. It will also extend protections to cover third-party disclosures in certain circumstances. It will provide greater protection of whistleblower confidentiality. It will improve access to compensation for whistleblowers and create a new penalty offence so that law enforcement agencies will be better able to take enforcement action. In introducing a whistleblower policy requirement for all large companies, this bill amalgamates the protections that are contained in several acts into the Corporations Act 2001. The consolidation will cover the following: the ASIC Act, the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995 and the Superannuation Industry (Supervision) Act 1993. It will also add protections for the conduct that contravenes the National Consumer Credit Protection Act 2009 and the Financial Sector (Collection of Data) Act 2001, which were not previously covered under the existing law.
Part 2 of this bill will introduce new protections for tax whistleblowers, specifically, in the Taxation Administration Act 1953. These are broadly consistent with the enhanced protections under the Corporations Act and will facilitate disclosures about tax misconduct.
The improved whistleblower protections strike the right balance between encouraging genuine whistleblowers to come forward and removing protections for vexatious complaints. The reforms will facilitate a workable scheme for the industry whilst also providing appropriate protection and access to redress for whistleblowers who choose to come forward despite the personal sacrifice that is often involved. Very broadly, the new whistleblower protections align with the Parliamentary Joint Committee on Corporations and Financial Services report into whistleblower protections in the corporate, public and not-for-profit sectors. The remaining recommendations not covered by the new legislation are still under consideration by the government and will be addressed in due course in the government's response to that report of the Parliamentary Joint Committee on Corporations and Financial Services. The measures in this bill are to commence from 1 July 2018 in accordance with the government's commitments. The whistleblower policy requirement mandated for all public and large priority companies, including registerable superannuation entities, will be effective six months later, from 1 January 2019.
What do whistleblower protections in this legislation actually do?
The bill will strengthen the corporate sector whistleblower protections and introduce new protections for tax whistleblowers. The Corporations Act 2001 is amended, as I said, to create a single strengthened whistleblower protection regime that covers the corporate, financial and credit sectors. The new whistleblower protection regime to be created in the Taxation Administration Act of 1953 will protect those who report breaches or suspected breaches of tax law and also misconduct in relation to an entity's tax affairs. So, very broadly, the corporate tax whistleblower regime will protect the identity of whistleblowers, protect them from reprisals, provide access to remedies and provide eligible recipients of whistleblower disclosures with the ability to take action or investigate the alleged misconduct.
The new whistleblower protections in the taxation law are broadly consistent with the protections under the Corporations Act, but the key difference between the corporations and tax whistleblower regimes is that all types of entities—including individuals, bodies of persons, partnerships and all trusts—are covered by the tax regime. Eligible recipients under the tax regime differ from those under the corporate regime due to the nature of the information that is being disclosed. So, for example, tax and BAS agents of entities are eligible recipients under the tax regime. The tax regime also does not contain equivalent provisions to the corporate regime relating to emergency and public interest disclosures. Also, the tax regime does not explicitly exclude personal work related grievances from protection because the scope of the tax whistleblower regime is already limited to disclosures about tax affairs only.
So how will these new changes, these new whistleblower protections, help whistleblowers and also help companies? Corporate crime is estimated to cost Australia more than $8.5 billion every year and it accounts for approximately 40 per cent of the total cost of crime in Australia. Whistleblowing clearly plays a critical role in uncovering corporate and tax misconduct. Through this legislation, whistleblowers will benefit not only from increased protections and improved access to civil remedies but also from greater certainty about their legal position and their ability to prove claims. So there's no risk of an adverse cost order against them, unless a claim is found to be vexatious. The secondary beneficiaries of these new laws will be Australian businesses themselves as corporate governance and integrity practices will increase with officers, employees and taxpayers aware that there is now a much higher likelihood that misconduct will be reported.
It is important to understand why these whistleblower protections are being introduced now. Whistleblower legislative protections have formed part of the Corporations Act for a considerable period of time—in fact, since 2004—but the protections that have existed since that time have been used very sparingly and, increasingly, they have been perceived as inadequate, given recent advances in whistleblower protections in the public sector and also in overseas jurisdictions. So, to specifically address these issues, the government committed in December 2016, two years ago, as part of the open government national action plan to ensure that appropriate protections are in place for people who report corruption, who report fraud, who report tax evasion or tax avoidance and also who report misconduct within the corporate sector. The commitment in that open government national action plan also reaffirmed the government's 2016-17 budget announcement that it would introduce new arrangements to better protect individuals who disclose information to the ATO on tax avoidance behaviour and also any other tax issues.
The whistleblower protections that are in this legislation incorporate the recommendations of the whistleblower protections report of the Parliamentary Joint Committee on Corporations and Financial Services. The parliamentary inquiry into whistleblower protections delivered its report on 13 September 2017. It concluded that existing whistleblower protections are ineffective in both the public and the private sector. That committee, in its report, made 35 recommendations to strengthen the regime. The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 that we are considering today covers many of the current parliamentary inquiry recommendations. The government, as I said, is considering the remaining recommendations and will respond to all of the recommendations in that parliamentary joint committee report in due course.
It's understandable to question why the government isn't introducing a single private sector whistleblower regime with a whistleblower protection authority. Indeed, this was something that was examined by the parliamentary joint committee. In the 2016-17 budget, the government announced that it would introduce new arrangements to better protect individuals who disclose information to the ATO on tax avoidance behaviour and also on other tax issues. In December 2016, the government also committed to pursuing reforms to whistleblower protections in the corporate sector under the Open Government National Action Plan and reaffirmed its tax whistleblower 2016-17 budget announcement.
The parliamentary inquiry into whistleblower protections report, which was handed down, as I said, in September 2017, recommended a single private sector whistleblower regime, and it also recommended a whistleblower protection authority. The government has given very careful consideration to each recommendation and addresses many of these recommendations in this bill, as I said. But the bill includes an explicit requirement for a post-implementation review of the amended whistleblower laws five years after the amendments commence, which allows the government an opportunity to assess the effectiveness of the legislation and to determine whether any further reforms should be made in the future. The government will respond to those recommendations, as I said, in due course.
It's also understandable to question why the government isn't introducing a rewards system for whistleblowers. I did hear Senator Whish-Wilson mention that before in his contribution. In the 2016-17 budget, the government announced that it would introduce these new arrangements to better protect individuals who disclose information to the ATO on tax avoidance behaviour and on other tax issues, and it committed to pursuing reforms to whistleblower protections. While the parliamentary inquiry did recommend the introduction of a rewards system, the government has carefully considered all of the recommendations, including this one. This bill includes an explicit requirement for a post-implementation review, as I have said. It does not, however, include a reward system for whistleblowers. The government would like an opportunity to assess the effectiveness of the legislation and to determine whether any further reforms should be made in the future. It will respond to the recommendations of that PJC report in due course, and will consider introducing a rewards system after that post-implementation review period.
There has been some concern as to whether introducing these whistleblower protections would impose undue regulatory burden on companies. The corporate whistleblower reforms will not result in any direct cost to companies, as they actually relate to strengthening the existing laws and addressing the legislative gaps in protection. The requirement for public companies, large proprietary companies and registerable superannuation entities to have a whistleblower policy is not expected to have any material or lasting financial impact. The policy must include information about the protections available to whistleblowers, to whom disclosures can be made, how the company will investigate the disclosure and support the whistleblower, and how the company will ensure fair treatment of employees who are mentioned in whistleblower disclosures. The costs imposed for many companies will include one-off implementation costs and also costs for annual training. Direct benefits will be derived for companies that are adopting these changes or adapting their existing whistleblower policies, including promoting internal reporting and investigations in the first instance, which will facilitate much higher quality self-regulation and corporate governance practices, and, of course, will also improve their compliance with the law. The new tax whistleblower regime does not impose any regulatory burden on companies.
To ensure that businesses have sufficient time to understand their legal obligations arising from this legislation, a government amendment to the bill has been made to provide for the whistleblower policy requirement to apply six months after the commencement date of the amendments, instead of 1 January 2019.