ASIC pursues first whistleblower prosecution and provides recommendations for good practice

In Brief - This first ever whistleblower prosecution by The Australian Securities and Investments Commission (ASIC) highlights the need for human resources professionals, company executives and directors to ensure there is a comprehensive approach to whistleblower governance within their organisation. This includes policies, procedures, training and handling of complaints. 

Background

TerraCom Limited (TerraCom) is an ASX-listed mining resources company. TerraCom operates the Blair Athol coal mine located in Queensland, as well as operating mines internationally. 

As an aspect of their operations, TerraCom undertakes coal quality testing which forms the basis for coal prices in their commercial contracts with consumers. 

On or around 9 July 2019, Mr Williams commenced employment with TerraCom as a General Manager. 

Within the first month of his employment, Mr Williams raised concerns with TerraCom's Chief Executive Officer (the Second Defendant) and Chief Financial Officer (the Third Defendant), alleging that the company had falsified their coal quality results for the purpose of obtaining higher coal prices with consumers.

Mr Williams was made redundant on 13 August 2019.

On 14 August 2019, Mr Williams had a discussion with an advisor to TerraCom's Board of Directors, who subsequently became a director and Deputy Chairman (the Fourth Defendant). Mr William's reiterated his concerns and additionally advised that the companies Chief Executive Officer and Chief Financial Officer were involved in or had knowledge of the amended coal quality results (Whistleblower Allegations). 

TerraCom engaged PricewaterhouseCoopers (PwC) to investigate the Whistleblower Allegations at the end of August 2019. PwC's report did not establish that the Whistleblower Allegations were "unfounded", nor did it establish that the allegations of improper coal quality results were "unfounded" and it did not "exonerate" TerraCom or any of its employees.

In late 2019 and early 2020 Mr Williams commenced proceedings against TerraCom and it's various directors and officers in the Fair Work Commission and the Federal Circuit Court in relation to his dismissal. Mr Williams disclosed the Whistleblower Allegations to ASIC in February 2020.

TerraCom's Conduct

On 24 February 2020, the Australian Financial Review published an article which referred to the Whistleblower Allegations and the dismissal proceedings issued by Mr Williams.

On this same date TerraCom issued various ASX announcements which denied the Whistleblower Allegations, stating that they were unfounded and outlined that the matter had been independently investigated.

TerraCom received customer complaints in February and March 2020 as a result of the Whistleblower Allegations going public.

In March 2020 TerraCom gave an announcement to the ASX which advised that:

• The Whistleblower Allegations were denied;

• An independent investigation had concluded there was no evidence of wrongdoing by TerraCom's Chief Executive Officer and Chief Financial Officer;

• Mr William's had requested $5,000,000 in return for not pursuing TerraCom over his dismissal; and 

• Mr William's had been unsuccessful in similar claims in the past.

The ASX refused to release this announcement and subsequently TerraCom published the substance of the announcement in the Australian Financial Review and The Australian newspaper.

In April 2020 TerraCom issued an ASX announcement outlining that Mr Williams allegations were only made after his dismissal, that an independent investigation had concluded that the company officers had 'done nothing wrong' and that there had been no customer concerns regarding coal quality.

ASIC's Allegations

ASIC has instituted civil penalty proceedings in the Federal Court of Australia against TerraCom, the company's Chief Executive Officer, Chief Financial Officer, Chairman and a former Director/ Deputy Chairman alleging that they:

• Failed to take reasonable steps to ensure that statements made to ASX were not false or misleading; 

• Caused detriment to Mr William's reputation, earning capacity and psychological and emotional state by releasing the statements; and 

• Failed to exercise their duties with care and diligence by not taking reasonable steps to investigate or understand the issues raised in the independent PwC report. 

ASIC is seeking declarations of contravention, pecuniary penalties, a disqualification order and costs against TerraCom. 

Good Practices 

Following commencing these proceedings ASIC released Report 758 Good practices for handling whistleblower disclosures (the Report) which provides guidance to companies, executives and directors as to what represents good practice in relation to whistleblower obligations. 

ASIC concluded that a strong program foundation, supportive culture, resources and training, effective director oversight and reviewing programs based on whistleblower feedback all indicated good whistleblower practices.

Conclusions

It is recommended that companies ask themselves:

• Strong foundation: Is there a strong foundation for the whistleblower program?

• Whistleblowing culture: Are whistleblower's using the program to provide valuable information? If not, what is required to actively promote and grow trust in the program and ensure whistleblower protection?

• Resources and training: How have people been prepared to protect whistleblower's and treat disclosures confidentially?

• Monitoring and review: How is the program being updated to ensure issues with its operation are detected? How is the program's effectiveness being measured?

• Use of information: How is information being used and shared from disclosures to improve whistleblower operations?

• Senior executive accountability: Who is accountable for the program and how is this responsibility discharged? Is access provided to the required information for this purpose?

• Director oversight: How is the program being overseen by company directors? Is access provided to the required information for this purpose?