Warning: blowing the whistle could mess up your life
In the US, the law is geared to protect and reward informants, but in Australia, they end up jobless and traumatised, writes Ruth Williams.
When US nurse Laura Davis first triggered concerns her employer, Dialysis Corporation of America (DCA), was overbilling taxpayers for medicines, she was greeted with puzzlement by her colleagues.
"Laura Davis raised concerns ... internally, but no one listened to her," her lawyer, Stephen Hasegawa, said last month. "They thought she was a little strange to care that the government was being overcharged."
So Davis took matters into her own hands. After engaging a no-win, no-fee law firm, she pursued the company on behalf of the state - the right of every would-be whistleblower in the US.
After hearing her story, the US Department of Justice stepped in and joined the lawsuit. Last month, it announced DCA had agreed to pay $US7.3 million ($7.7 million) to settle the action.
And Davis? She collected more than $US1.3 million for her trouble.
In 2008, the same year Davis began her legal action, a group of whistleblowers in Australia contacted the corporate regulator here about a case of alleged misconduct.
As detailed in a BusinessDay investigation this month, they tipped off the Australian Securities and Investments Commission about the activities of former Commonwealth Bank financial planner Don Nguyen, who was eventually banned from working in financial services.
But after sending a detailed, anonymous fax to ASIC in 2008, nothing happened. They then tried sending letters and emails. The regulator sat on the information for 16 months, as the losses suffered by the planners' clients mounted. Eventually, the whistleblowers went to ASIC in person - a move that finally sparked action.
Their actions helped ensure CBA clients received more than $36 million in compensation. But it left the whistleblowers stressed and disillusioned.
ASIC has defended its performance in a "large and complex matter", saying its action against CBA's planning division was a "landmark achievement".
But a member of the group, Jeff Morris, remains unimpressed. "When you choose to tread the path of the whistleblower, you knowingly take arms against a sea of troubles. What you don't expect though is for the odds against you to be lengthened by a Monty Pythonesque regulator."
Morris' frustrations are echoed by other Australian corporate whistleblowers and their supporters, who say the system - including the whistleblower protections in place under the Corporations Act - actually discourages action and inflicts considerable stress on those who do come forward.
The list of corporate blow-ups in Australia sparked by or involving whistleblowers is long and spectacular - Coles Myer-Yannon, AWB and oil-for-food, NAB's rogue traders, and Multiplex's Wembley Stadium debacle to name a few.
Several of these scandals sparked significant corporate law and regulatory reforms.
Yet Morris and his fellow CBA whistleblowers - who dubbed themselves "the ferrets" - were just the latest to be left bruised by their experience.
Often "their careers are destroyed, no question about it", says Kim Sawyer, from the department of historical and philosophical studies at the University of Melbourne. "It means there's such a disincentive for people to blow the whistle."
Morris says: "It would take an impossibly good man to be a whistleblower under the current system unless they are acting in ignorance."
A recent example was Brian Hood, who exposed corruption at the Reserve Bank's currency printing subsidiaries. He was ignored and victimised after sparking concerns internally, and then forced out of his job.
He told Melbourne Magistrates Court last year of the "relentless pressure" and stress he was under, and the "friction" in his dealings within the company. "I was becoming increasingly isolated," he said.
Whistleblowers Australia national president Cynthia Kardell says, "I don't think people generally understand that whistleblowing is a harrowing business. It changes your life forever."
Jeff Simpson, an accountant who tried to warn the prudential regulator of the goings-on at HIH before its spectacular implosion, says, "The people who stand up just get belted up for it through the legal process."
Ben Phi, a lawyer with Slater & Gordon who has worked with whistleblowers, says, "You are essentially asking private individuals to step up and be a hero. It is not conducive to an environment that encourages people to come forward and report wrongdoing."
Protection for public servant whistleblowers has come under scrutiny in recent years, as the federal government has edged forward on promised new laws that are now before Parliament.
But the protections offered to private sector whistleblowers under the Corporations Act were last updated in 2004, despite the Rudd government talking up potential reforms in 2009.
The laws protect whistleblowers who come to ASIC from being sacked, and from criminal and civil liability - including potential breach of confidentiality suits.
But in 2009, the Rudd government revealed that just four whistleblowers in five years had claimed protection and given evidence to ASIC.
Then corporate law minister Chris Bowen described the protection laws as "poorly regarded and rarely used", saying they contained "fundamental shortcomings".
The laws prevent former employees, for example, from claiming protection, along with business partners and anyone wishing to act anonymously.
A consultation process was launched, along with a Treasury paper that itself criticised the protections in place - especially a requirement that whistleblowers must be acting in "good faith" to receive protection.
Originally intended to prevent maliciously fabricated accusations, this rule "exaggerates the importance of motive", Treasury argued, and left victimised and aggrieved employees vulnerable to having their motives questioned.
Yet it went nowhere. The consultations "did not reach consensus on the need for or form of further reforms", a spokesman for Bernie Ripoll, parliamentary secretary to the Treasurer, said this week, adding that "there was also little evidence to suggest that the existing [framework] was not operating as intended".
Ben Phi says those who do come forward are often kept in the dark about what is happening with their evidence.
It is, he says, a "common complaint", and one voiced by Morris and the ferrets at CBA.
A further issue is that whistleblowers who provide evidence for class action suits are not protected at all, leaving them vulnerable to injunctions and being sued for breach of confidence.
The government and the opposition are being urged not only to better protect corporate whistleblowers, but also to consider paying them. The Australian Federal Police Association, the Tax Justice Network, whistleblower supporters and academic experts are among those calling for new laws modelled on the False Claims Act - the US law used by Davis, and hundreds of other whistleblowers, to help recoup billions of dollars for the US government.
The idea is being looked at by the Attorney-General's Department.
"The [department] is currently considering the merits of an Australian scheme modelled on the US False Claims Act and how the scheme could best be adapted for the Australian legal context," a spokesman said. "The department has undertaken consultation with key stakeholders regarding this issue."
The opposition declined to say whether it would consider new laws, or whether it believed reforms were needed to better serve corporate whistleblowers. "We have made no such announcement," a spokesman for shadow attorney-general George Brandis said. "The Coalition's policies will be announced between now and the election."
The police association has been urging both parties to examine False Claims Act-style laws since 2010, believing they could be a valuable new tool to combat corruption and fraud in government contracts.
"If [fraud] has been carefully orchestrated in the first place, it's very hard to detect - it's only through someone coming forward that we'd even know about it," national president Jon Hunt-Sharman says.
"People are reluctant to come forward about private companies because they risk losing their jobs. This counteracts that by saying you might lose your job but you will be compensated for being honest."
The Tax Justice Network, a not-for-profit group that campaigns for tax reforms, believes similar laws could crack open significant cases of tax evasion through the use of havens and shell companies.
Advocacy and support group Whistleblowers Australia hopes it can change the way informers are perceived and treated. "It would give the whistleblower a far better image, and it would encourage people to come forward if they could be seen not as a grubby dobber but as someone assisting an inquiry," Kardell says.
The False Claims Act, created by Abraham Lincoln during the Civil War to combat burgeoning fraud against the government, then bolstered in recent decades by presidents Ronald Reagan and Barack Obama, allows private citizens to launch legal action alleging fraud against the state - known as a "qui tam" suit - and to share between 15 per cent and 30 per cent of any settlement or penalties recouped as a result.
Crucially, once a whistleblower's claim is lodged with the court, the file is sealed - meaning not even the company or business accused of wrongdoing knows about it. The Department of Justice then examines the case and decides whether to join the action. Even if it does not, the whistleblower can still proceed alone, although the chances of success are much lower.
Most cases settle before they go to trial.
The laws, supporters say, compensate whistleblowers for their actions, and recognise that those actions often come at a significant financial and personal cost.
It has been lucrative for all involved, including no-win, no-fee law firms - all except the companies targeted, of course.
A record-breaking $US4.9 billion was recovered under the act last year, and 647 "qui tam" suits were lodged. Whistleblowers shared in $US439 million worth of rewards last year; since the 1986 reforms to the act, they have been awarded nearly $US4 billion. According to oft-cited figures, the False Claims Act recovers $US15 for every $US1 spent on investigations.
The act has been particularly effective in exposing fraud in healthcare. Last year, GlaxoSmithKline paid $US1.5 billion to settle multiple allegations, including that it promoted drugs for uses not approved by authorities. Merck paid $US441 million over claims it made inaccurate, unsupported or misleading statements about the safety of painkiller Vioxx.
Little wonder then that the federal police association and others want similar laws introduced in Australia. Hunt-Sharman says fraud and corruption involving government contracts is "an area of criminality that we just don't know how big it is. From the experience in the US, we know they have recovered billions of dollars."
While the False Claims Act covers government contracts, the Dodd-Frank laws passed in 2011 allow for the Securities and Exchange Commission to grant rewards to whistleblowers reporting market-related crimes. And the Internal Revenue Service has a similar whistleblower scheme for tax fraud; it led to a notorious $US104 million payout to former UBS banker Bradley Birkenfeld who exposed the Swiss bank's tax-evasion schemes conducted on behalf of thousands of US clients.
Birkenfeld was himself convicted of the conduct he exposed, and sentenced to 40 months in prison, sparking debate about whether he deserved his hefty payout. Yet his actions helped the IRS recover more than $US5 billion in back taxes, fines and penalties for the US government.
"It has to be only a question of time until we have a system like this here," says Thomas Faunce, a law and medicine professor at the Australian National University and a long-time advocate of a False Claims Act-type law in Australia.
But while the US has embraced it with gusto, the concept of financially rewarding whistleblowers remains controversial in Australia, with the idea having been considered and dismissed by successive parliamentary inquiries.
More than two decades ago, a federal inquiry on insider trading firmly rejected the idea of "bounties", finding it was incompatible with Australian society and would cast doubt on the credibility of evidence given by whistleblowers.
This decision was cited in 2009 by a federal inquiry examining public sector whistleblower laws, which heard evidence that rewards could lead to false or frivolous claims and send the wrong signals.
This inquiry did not recommend for or against financial rewards, instead calling for a focus on the "removal of disincentives" to blow the whistle, and for whistleblowers' contributions to be recognised in Australia's honours system.
The threat of malicious former workers selling false information is one of the most-cited arguments against offering rewards. But, as Dr Mark Zirnsak, from the Tax Justice Network, argues, "If somebody makes a baseless claim, they are not going to get any reward."
The so-called bounties for whistleblowers "have the obvious downside that it is premised on whistleblowing being motivated by monetary reward, rather than the best interests of the organisation that they are in," Melbourne University corporate law expert Ian Ramsay says. But he adds that "those two aren't necessarily inconsistent".
"You can have someone motivated to act in the best interests of the company when they are thinking about whistleblowing, but the financial incentive can provide additional incentive."
With the elections looming, it remains to be seen whether the work by the Attorney-General's Department on the False Claims Act is taken further by either of the political parties.
Simpson believes financial rewards are not the answer.
"You have got to come back to why people raise the issue - it's a good thing to do, it's a right thing to do," he says.
He believes cultural change within companies and society is the best way to make life easier for whistleblowers - a term he dislikes. "If you can build up a culture where it's OK to raise these issues and have them addressed, then you are going to overcome that problem for the people who do raise issues."
Simpson says while whistleblowing is not a career-enhancing move, it can be rewarding.
But if the concept of financially rewarding whistleblowers remains contentious, the idea that a private citizen could effectively act as a quasi-regulator and bring an action themselves - as under the Fair Claims Act - is another step altogether.
The concept is "a little bit alien" to Australia, Ben Phi acknowledges.
"But that's not to say that debate should be shut down," he says. "It's important to have that debate about what form encouragement for whistleblowers should take, whether it's the provision of positive incentives or the removal of disincentives. What's in place is not good enough."
RAISING THE ALARM
The Westpac letters scandal, 1991
John McLennan, a former internal auditor with Westpac, exposed letters from Westpac’s lawyers, Allan Allan and Hemsley, to the bank containing a damning assessment of off shore banking malpractices within Westpac subsidiary Partnership Pacifi c overhandling of foreign-exchange loans between 1984 and 1987. The bank retaliated by suing him wfor breach of copyright and confidentiality. Westpac settled with him 18 months later.
The Yannon affair, Coles Myer, 1995
Philip Bowman was a financial director at Coles Myer when he claimed the company’s then chairman Solomon Lew had used a shelf company called Yannon to buy shares in his own investment company, Premier Investments. Aft er five years of investigations, the Federal Director of Public Prosecutions said in 2000 it would not press charges against Mr Lew.
HIH Insurance collapse, 2000
Jeff Simpson was a manager in HIH’s fi nancial services division. He outlined grievous problems at the insurance company to the banking regulator nine months before it collapsed owing $5.3 billion. The accountant said in a 21-page document to the regulator that the company was breaching minimum solvency provisions. He claimed in court the regulator, APRA, did not respond.
NAB’s rogue trader scandal, 2003
Dennis Gentilin and Vanessa McCallum were junior traders who exposed a $360 million foreign exchange scandal involving rogue traders led by David Bullen and Luke Duff y. The trading team had placed shonky deals that falsifi ed the profi t they had made trading in currency options. The trades made it appear as if NAB’s foreign exchange desk had met its profi t targets for the 2003 financial year.
AWB oil-for-food scandal, 2006
Mark Emons, the regional manager of AWB’s Middle-East section, exposed the wheat board’s $300 million Iraqi kickbacks scam during the 2006 Cole Inquiry. He said knowledge of bribes and kickbacks to Saddam Hussein went to the very top of the Australian wheat exporter. Mr Emons had helped devise a system for AWB to pay “trucking fees’’ to Iraq, in breach of United Nations sanctions. AWB claimed the fees back from the UN’s oil-for-food fund but, as the 2006 Cole Inquiry found, the ’’fees’’ were bogus and were corrupt side-payments.
Reserve Bank Securency scandal, 2012
Brian Hood helped level foreign bribery allegations against senior offi cials of two Reserve Bank subsidiaries. He claimed long-held concerns about kickbacks were steadfastly ignored and that the Reserve Bank was aware of them as far back as 2007.