ASIC’s first whistleblower prosecution under the Corporations Act and guidance as to good practice

The Australian Securities and Investments Commission (ASIC) has sent a strong message to companies and their officers that it is starting to enforce whistleblower protections in its first case under the amended whistleblower protections in the Corporations Act. The commencement of these proceedings was immediately followed by ASIC’s Report 758 Good practices for handling whistleblower disclosures (Report 758) providing guidance on the establishment of strong programs following its review of seven firms.

TerraCom Proceedings

ASIC has commenced proceedings alleging breach of whistleblower protections against an ASX-listed company in the mining sector, TerraCom Limited (TerraCom), claiming it made misleading statements to the market that damaged a whistleblower's reputation.

ASIC has filed civil penalty proceedings in the Federal Court against Terracom, its Managing Director, Chief Commercial Officer, former Chair and former Director and Deputy Chair.

The corporate regulator alleges TerraCom and its directors caused harmed to an employee whistleblower who revealed the alleged falsification of coal quality certificates, by making misleading statements to the market denying the whistleblower’s revelations in two ASX announcements and an open letter to shareholders published in the Australian Financial Review and The Australian. The announcements and open letter denied the whistleblower’s allegations and stated that TerraCom had the allegations independently investigated. In particular, ASIC alleges that the relevant officers:

• failed to take reasonable steps to ensure statements to the ASX were not false or misleading;
• caused detriment to the whistleblower’s reputation, earning capacity and psychological and emotional state by allowing the false or misleading statements to be published; and
• failed to take reasonable steps upon receipt of the independent investigator’s report into the issues raised by the whistleblower, in breach of their duty to exercise reasonable care and skill as directors and officers of TerraCom.

Victimisation of whistleblowers is prohibited under section 1317AC of the Corporations Act. This includes actually causing, or threatening to cause, detriment to another person if on the basis that the perpetrator believes, or suspects, that a person has made, may have made, proposes to make or could make a disclosure that qualifies for protection under the Act. Detriment is very broadly defined to include any detriment to the whistleblower.

ASIC is seeking declarations of contravention, pecuniary penalties, disqualification orders and costs against Terracom.

Good practices

Report 758 is critical reading for directors and officers overseeing entities required to have whistleblower programs, as it outlines ASIC’s guidance on what represents good practice in relation to whistleblower obligations of corporations.

Strong foundations, a positive whistleblowing culture and support for whistleblowers, resources and training and continuous monitoring and improvement of policies are areas called out by ASIC for particular focus in its guidance on what represents good practice in this area.

In addition, ASIC draws out some of the difficulties faced by whistleblower programs in responding to concerns when investigating in a traditional manner may compromise a whistleblower’s anonymity. In those circumstances, cultural reviews or other manners of improving gaps and deficiencies in internal practices should be considered.  

Implications for directors and officers

Directors and officers should ensure that companies have implemented their whistleblower policies and training having regard to ASIC’s Regulatory Guide 270 and are familiar with the good practices for whistleblower disclosures identified in Report 758 to ensure they have complied with the law.

Processes to enable effect executive and director oversight should be carefully considered.

Directors and officers should  seek legal advice before making disclosures regarding whistleblower complaints and complainants to ensure they avoid corporate and personal liability as well as reputational damage.