Sweeping reform to overhaul corporate whistleblower protection regime in Australia

The Federal Government has recently released an exposure draft of the Treasury Laws Amendment (Whistleblowers) Bill 2017 (the Bill).

Australia’s existing whistleblower protection laws have been the subject of criticism due to their limited scope and complexity.

The purpose of the Bill is to address these criticisms and create an overarching and consistent whistleblower protection regime for the corporate and financial sectors.  The regime proposed significantly broadens the scope of conduct covered and introduces key new protections for whistleblowers as well as corporate accountability measures.

The exposure draft has been released following extensive consultation and a parliamentary enquiry into whistleblower protections in the corporate, public and not-for-profit sectors.

Key changes for whistleblowers

The key changes under the draft Bill include:

• expanding the scope of persons that qualify as ‘eligible whistleblowers’ under the regime, in particular to include former employees and officers
• expanding the scope of persons to whom a disclosure may be made by a whistleblower that is covered under the regime
• expanding the conduct covered so that whistleblowing for all forms of serious wrongdoing in a Commonwealth legal context are protected
• removing the requirement for whistleblowers to make disclosure ‘in good faith’ and instead replacing this concept with an objective reasonableness test which requires the whistleblower to have ‘reasonable grounds’ to suspect misconduct
• the introduction of mechanisms to allow for anonymous disclosure and further protection of the identity of whistleblowers and other victims in certain circumstances
• expanding the compensation regime available for whistleblowers, and
• protection from information disclosed by the whistleblower (provided it is covered under the regime) being admissible in evidence in criminal proceedings or proceedings for a penalty against the whistleblower, other than in proceedings concerning falsity of the information itself.

What do companies need to do?

All companies regulated by the Corporations Act 2001 (Cth) should be aware of the proposed changes.  In addition, public companies and large proprietary companies will be required to:

• have a whistleblowing policy which contains information about protections available to whistleblowers and how the company will ensure fair treatment, and
• make the policy available to its employees and other ‘eligible whistleblowers’.

Failure to comply with this requirement will be an offence of strict liability. 

Companies should also review any current policies and ensure they meet the requirements.

When is the new regime scheduled to commence?

The regime is scheduled to apply to any disclosure made by a whistleblower on or after 1 July 2018, including disclosures about events occurring before that date.

Public companies and large proprietary companies will need to have a compliant whistleblowing policy in place on and after 1 January 2019 (or, following that, no later than six months after a proprietary company first becomes a large proprietary company).

Submissions on the exposure draft close on 3 November 2017.  For more information regarding submissions, click here.

Aaron Dahl

So what is an initial coin offering?

An initial coin offering (ICO) is a concept that has been getting increased airplay in recent times, with estimates that more than $1 billion has been raised globally via ICOs.

With some key decisions being made by regulators globally (including the US and China) – and with guidance from ASIC released last week – we thought it timely to provide an overview on the concept.

So what is an ICO? 
ICOs generally operate as a blockchain-based funding process, allowing investors to use cryptocurrency (such as bitcoin or ether) to purchase coins or tokens relating to a specific product or project via the internet for a set period of time.

The relevant coins or tokens are typically linked to the specific business model of the company running the ICO, providing the holder of the coin or token the right to use the company’s product or participate in the relevant project as a customer at a future date.

Rather than being viewed as an alternative to an initial public offering (IPO), ICOs are more akin to a crowd funding campaign, but noting that they are not the same.

…and what do the regulators think?
Initially, ICOs were considered to be outside the scope of fundraising regulations.

Earlier this year, however, the US Securities Exchange Commission made its position clear that certain coins and tokens can amount to a security and, therefore, be subject to the remit of the existing fundraising framework for US IPOs.

ASIC Information Sheet 225 released last week continues this theme, noting that it will ultimately depend on the circumstances and the rights attaching to the coin or token.  ASIC’s guidance includes explanations of when an ICO:

• may amount to an offer of a security in a company – e.g. if the bundle of rights, such as voting rights or an entitlement to a future share of profits (dividend) attaches to the coin or token, potentially triggering the requirement for prospectus type disclosure 
• may constitute a managed investment scheme – e.g. if the value of the coin or token is linked to management of an arrangement, and
• could become a financial market or crowd-sourced funding platform subject to regulation.

Most recently, China made the decision to ban the funding method, with the People’s Bank of China declaring ICOs illegal, flagging specific concerns in respect of money laundering and economic disruption.  This has included requirements for companies that have completed an ICO to refund funds raised.

The potential risks of an ICO
US regulation followed a particularly high profile example of an ICO undertaken by the ‘Decentralised Autonomous Organisation’ (DAO).   The DAO had an objective to provide a new decentralised business model for organising various commercial enterprises.  It operated using the ethereum blockchain, and had no conventional management structure or board of directors.  It raised approximately $150 million in ether, but was unfortunately hacked within a relatively short time period following the raising (to a value of approximately $50 million).

While many new technologies are to be welcomed, the DAO is an example on needing to proceed with caution, and also flags that cybersecurity is a major live issue.

More broadly, while coins and tokens may increase in value following an ICO, they are subject to extreme price volatility, which makes an ICO an inherently risky investment.

There is also the added complexity of anti-money laundering, privacy and data protection laws to consider.

Recovering funds that may be invested in such schemes (including fraudulent schemes) may also be problematic.

It is certainly a developing area and, with the above risks in mind, we recommend you seek further advice if you are seeking to undertake, or participate in, an ICO.

We will continue to watch this space.

Reece Walker and Ben Wood