MELBOURNE: 11 February 2013 - Currently in Australia the majority of provisions to protect whistle-blowers have been enacted though the states and territories, such as The Whistleblowers Protection Act 1993 in South Australia.  National initiatives have been more limited in scope and effect.  For example in 2004 limited protections for whistle-blowers in the private corporate sector were introduced in Part 9.4AAA into The Corporations Act 2001 (Cth) under which an individual could report breaches to ASIC or the individual’s organisation.  Or the Australian Securities Exchange (ASX) under Recommendation 3.1 of its revised Principles of Good Corporate Governance and Best Practice Recommendations states that companies should establish and disclose a code of conduct that seeks to ensure that whistle-blowers who report violations in good faith are protected

However, there is no comprehensive national legislation and regulatory infrastructure which stimulates and protects whistleblowers.  This is despite the fact that as long ago as 1994 a Senate Select Committee recommended that there should be Commonwealth legislation on whistleblowing.[1] Further political impetus came from the February 2009 House of Representatives Standing Committee recommending a national model.[2]  This was followed by a Treasury Issues Paper in October 2009.[3]   Political pressures for federal legislation have continued from a number of independent members of the House of Representatives.  For example Rob Oakeshott and Tony Windsor in September 2010, when as part of the agreement that secured Prime Minister Gillard minority government, she agreed to introduce whistleblower protection legisla­tion to the Parliament before 1 July 2011.  No Commonwealth Government legislation materialised, so in October 2012 Andrew Wilkie introduced a private members bill.[4]   The Govern­ment was critical of the bill and has stated that it would introduce legislation in 2013.[5]   Given the Prime Minister’s announcement of a general election to be held on 14 September 2013;[6] it is a moot point as to whether national whistleblower legislation will emerge in 2013.  So, it is quite possible that the current situation will prevail for the foreseeable future, where in general legislation in Australia that protects whistleblowers exists under State and Territory provisions, with a substantial emphasis on the public sector and limited protections for those working for commercial organisations.  This is disappointing because examples overseas (e.g. Enron and World.Com in the US) show that whistleblowers in private sector organisations can perform a valuable societal role.

In contrast to Australia the US has been promoting at a national level both the incidence of whistleblowing and the protections and incentives that are offered to whistleblowers over a long period.  For example, the False Claims Act has been effective since 1863 and allows individuals to file claims against contractors that they believe have committed frauds against the US Government.  Importantly under the Act bounty incentives are offered through which whistleblowers may receive between 15-35% of any award that the US Government receives.  In 2002 after a series of spectacular financial scandals including Enron and World.Com and waning public confidence in business the US Congress was prompted to pass legislation on corporate liability, the Public Company Accounting Oversight and Investor Protection Act (2002) which is more commonly referred to as the Sarbanes-Oxley Act (SOX).[7]  Under SOX, not only are companies required to ensure that there are secure and confidential processes for the reporting of accounting and auditing irregularities, but also there are also criminal penalties available, (including up to ten years imprisonment), for those proven to have retaliated against a whistleblower.

The catastrophic effects of the Global Financial Crisis (GFC) prompted substantial legislative and regulatory responses from the US Government, most notably the Wall Street Reform and Consumer Protection Act 2010, (commonly referred to as the Dodd-Frank Act).  Under Section 922 of Dodd-Frank, the Securities Exchange Act 1934 was amended, which included adding a Section 21F “Securities Whistleblower Incentives and Protections”.  Under this section the Securities Exchange Commission (SEC) can make monetary awards to whistleblowers whose information leads to successful SEC actions in certain circumstances.  These bounties are required to be between 10-30% of the monetary penalties collected.  In addition Section 924(d) of Dodd-Frank establishes an Office of the Whistleblower within the SEC to administer and enforce the provisions of Section 21F.[8]  These initiatives represent a significant escalation not only in the incentives offered to whistleblowers, but also are an acknowledgement of the increased strategic regulatory importance attached by the US Government to whistleblowers.  For the fiscal year 2011, the Final Rules regarding whistleblower tips only became effective on 12 August 2011 so there were only seven weeks of whistleblower tip data.  This comprised a total of 334 tips, 302 from the US and 32 from overseas, led by China (n=10), UK (n=9) and Australia (n=3).[9]  The 2012 report shows a total of 3001 tips, 2,507 from the US, 170 without any geographical categorisation and 324 from abroad, led by the UK (n=74), Canada (n=46), India (n=33), China (n=27) and Australia (n=21).  In addition the SEC made its first payment to a whistleblower of more than US$45,000.[10]  As time, investigations and prosecutions progress it is likely that not only will totals of tips received rise, but also the amounts of bounty payments awarded and it will be particularly interesting to note what part Australia plays in these processes.

The SEC is not the only US Government agency to be awarding bounty payments to whistleblowers.  For example, US$104 million is a very significant amount of cash and that is the amount that the US Internal Revenue Services (IRS) agreed in September 2012 to pay as a bounty to the UBS private banker turned corporate whistleblower Bradley Birkenfeld.  This is an astonishing amount of money, but it is within IRS guidelines because Mr Birkenfeld’s voluntary disclosures led to UBS paying US$780 million to the US Government in fines and penalties for facilitating more than 17,000 clients evade tax through the use of offshore accounts between 2000 and 2007.[11]  Mr Birkenfeld’s bounty represents 13.3% of the amount UBS paid   Mr Birkenfeld’s cooperation led to the establishment of the IRS amnesty programs, under which the US Government recovered US$20 billion from 33,000 persons utilising illegal offshore bank accounts.  So on a purely cost-benefit analysis Mr Birkenfeld’s whistleblowing represents a resounding success for the US Government.  Nevertheless, in August 2009 he was found guilty of a single count of conspiracy to defraud the US Government and sentenced to 40 months imprisonment.  At his trial the US Department of Justice (DOJ) prosecutor admitted that the entire UBS scheme would not have been discovered without Mr Birkenfeld blowing the whistle.[12]

Both the imprisonment handed down, and the gargantuan bounty paid to Mr Birkenfeld attest to the significant levels of ambiguity surrounding the motivations, contested status, desirability and value of whistle-blowing, both as a concept, and, in practice.[13]  Nevertheless, the national trend in the US seems firmly set on: increasing numbers of whistleblower tips; increasing regulatory emphasis (and reliance?) on whistleblowers; increasing protections for whistleblowers; and increasing incentives (especially bounty payments) for whistleblowers.  An election year can be a notoriously fickle time for regulatory initiatives, but regardless of the next election result whistleblowing and the desirability of bounty payment systems will continue to be a lively political and regulatory issue in Australia.