Limited Protection Available for Voluntary Informants

By: Minter Ellison

Provided by World Services Group


Limited Protection Available for Voluntary Informants

   Published March 30, 2005 - Australia

From time to time, ASIC seeks ‘informal chats’ with licensed financial service businesses and their representatives about situations or circumstances ASIC is looking into. It is sometimes tempting to accept a seemingly friendly ASIC officer’s entreaties that the discussion won’t take long, neither the licensed business nor the representative is a target, or that it is just too bothersome for ASIC to issue a formal notice.

In our experience, it is unwise to provide information to ASIC voluntarily without giving proper thought to the risks of voluntary disclosure.

Risks of voluntary disclosure
The reasons for caution are that voluntary disclosure potentially exposes the informant – both the employee and the licensee – to civil liability. While some disclosures to ASIC may have the benefit of protections in the Corporations Act (eg. qualified privilege for compliance committee members of registered schemes), in many other situations there may be a potential breach of a duty of confidentiality (eg. duties owed to a broker’s clients or to the informant’s employer) and a breach of fiduciary duty, or defamation.

Voluntary disclosure may also waive the informant’s legal professional privilege over information, or mean that the informant is not able to subsequently claim any privilege against self incrimination.

Although ASIC’s interest or questioning may be limited, if the ASIC officer’s interest is sparked, their questioning may wander across any range of subjects in an informal chat, unless you actively stop them from doing so. Formal examinations under the ASIC Act are generally more focused, and the interviewee may (and should) claim the protection of the privilege against self incrimination, and may formally challenge any questions asked if they appear not to relate to matters ASIC is investigating.

Expecting your employee to chat to ASIC informally can also put them in an awkward position: How much are they allowed to say? Will they know when they are ‘overstepping the mark’? Will they be able to stand up to a persuasive interviewer? Will they always know whether they are at risk?

The (limited) protection given to informants by section 92 of the ASIC Act, which protects the informant from liability for a breach of a duty of confidentiality, and the (limited) privilege against self incrimination under section 68 of the Act, are only available where the informant has been compelled to provide information: for example, a requirement to attend an examination under section 19 or to provide documents or information in response to a notice under sections 20-33. In our experience, providing information to ASIC through formal means should always be the starting point for any consideration of a request from ASIC for information.

The (qualified) privilege under section 601JE of the Corporations Act for compliance committee members exists only for statements concerning the operation of a registered scheme made by or on behalf of the committee or its members. The subject matter of disclosures to ASIC must come within these limits for qualified privilege to exist.

Impact of new whistleblower protection
Voluntary informants may now be protected by the new whistleblower amendments to the Corporations Act, which came into force on 1 July 2004.

The classic whistleblower scenario that these new provisions are designed to protect is where an informant voluntarily discloses wrongdoing within their own company. Nevertheless, the provisions may be used to protect some voluntary disclosures to ASIC that may otherwise be a breach of confidentiality, although only in limited circumstances.

To obtain protection from the new whistleblower provisions, all of the following conditions must be satisfied:

1. The informant must be:
an officer of a company;
an employee of a company;
a person who provides goods or services to a company; or
an employee of a person who provides goods or services to a company.

2. The informant must:
have a reasonable belief that there has been or may be a contravention of the law; and
volunteer the information in good faith.

3. The contravention must be:
of the corporations legislation (the Corporations Act or the ASIC Act); and
by the company or by an officer or employee of the company.

4. The informant must make the disclosure to:
ASIC; the company’s auditor or a member of an audit team conducting an audit of the company;
a director, secretary or senior manager of the company; or a person authorised by the company to receive such disclosures.

Key points
If an individual has broken the law, the whistleblowing provisions do not apply. The concern must relate to a company and the contravention must be made by the company or by an officer or employee of the company.

Only contraventions of the corporations legislation are covered, that is, breaches of the Corporations Act or the ASIC Act.

Voluntary disclosures to anyone other than ASIC, the (client)company’s auditor or a senior person within the (client) company will not be covered. For example, disclosures to the ASX or State Police (eg. matters involving fraud are most often referred to State Police) would not be covered.

Where a person receives confidential information from an informant and the disclosure by the informant is protected by the whistleblower provisions, the recipient of the information commits an offence if they pass that information on to anyone other than ASIC, APRA or the Federal Police, unless that disclosure is with the informant’s consent.

Common law protection
The fact that a voluntary informant cannot rely on the statutory protection of either the new whistleblower provisions or section 92 of the ASIC Act does not necessarily mean that the informant is exposed to civil liability as a consequence of the disclosure. The common law rule that public interest in the disclosure of serious crime outweighs the interest in preserving confidentiality may provide protection. However, the boundaries of this public interest rule are imprecise.

Protection and obligations
You should not rely on the new whistleblower provisions before volunteering information to ASIC, unless you are satisfied that all the necessary conditions have been met.

None of these comments affect requirements to report certain matters imposed by your licence, ASX Market Rules, the Corporations Act or the Financial Transaction Reports Act, as these reports are obligatory not voluntary.

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