Counsel: The regulation of whistleblowing

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One of the more anticipated developments in the law this year is the expected introduction of the Whistleblower Act. The implementation of specific whistleblowing legislation in Malaysia is nothing new, having been discussed for a number of years.

However, Prime Minister Datuk Seri Najib Razak’s announcement of the formulation of the long-awaited Whistleblower Act when tabling Budget 2010 in October last year means that it is very much back on the agenda.

While the prime minister’s emphasis placed the Act as part of the National Key Result Areas initiative to eliminate corruption, it should have a major impact on a number of areas and activities of varying severity and size, including national security, corporate practices, employment law, workplace safety, fraud, harassment and minor breaches of regulations, involving parties from multinationals and listed corporations to smaller companies and other organisations.

In relation to private sector businesses and companies, the need for a clear and reliable avenue of uncovering wrongdoings has become very apparent, particularly in light of the continued rise in the number of fraud cases and, more pertinently, the amount of losses caused by fraud. The acceptance in corporate Malaysia that whistleblowing plays an important part in good corporate governance has seen some organisations already put in place their own internal whistleblowing policies and systems.

The current legal and regulatory frameworkAlthough the term “whistleblower” is not used, there are existing laws in Malaysia which address matters relating to individuals who are required to disclose certain information, and who are protected to some degree when making such disclosures. The existing regulatory framework applies to specified classes of parties, such as auditors, company officers and directors, and only in relation to particular issues such as fraud, corruption, money laundering and certain serious crimes.

The Companies Act requires auditors to report breaches of the Companies Act to the Registrar. The Securities Industry (Amendment) Act 2003 afforded employees of listed companies who disclose malpractices within their organisation protection from victimisation and retaliation.

Sections 320 and 321 of the Capital Markets and Services Act 2007 (CMSA) apply only to auditors and key employees of public listed companies, and disclosure is in relation to breaches of stock exchange rules and information which could have a material impact on a company’s financial status. A key element of the CMSA provisions is that the duty to disclose is mandatory, not optional. The CMSA expressly disallows retaliatory action such as dismissal, harassment, discrimination at work or legal action being taken in respect of information disclosed.

Regulatory authorities have also shown a commitment to whistleblowing systems. Bursa Malaysia’s Corporate Governance Guide, released in June 2009, contains a section on whistleblowing. The guide recommends that companies have a whistleblowing policy and states that it is the duty of every employee to express concerns relating to matters such as criminal activity, negligence, contractual breaches, as well as workplace health and safety issues, whether or not the information is deemed confidential. The guide urges companies to ensure that employees can raise concerns about misdemeanours in confidence and sets out some suggestions for whistleblowing report procedures, including a sample whistleblowing policy.

Despite the above, it is obvious that there is an absence of a specialist whistleblowing legislation, which is a void that needs to be filled if Malaysia intends to keep up with the more developed nations, for which whistleblowing laws — or more specifically whistleblower protection laws — are seen as a must in stamping out corruption, fraud and other illegal activities.

What is expected of a Whistleblowing ActTo be effective, the Act must obviously have a wide enough reach, covering both public and private sectors. The following are some important ­elements which, as a start, the new Act is expected to address:

•     The scope of the information involved. While matters of national security, public interest, crime and corruption will obviously be the focus, the Act should also encompass information on matters such as bribery, unofficial payoffs, violations of internal company rules, and also workplace issues, such as bullying and sexual harassment. Not all information should be deemed to be “protected disclosure” under the Act.

•     It has to be made clear whether the disclosure of information is mandatory or optional. This could depend on the nature of the information in question.

•     The protection of the whistleblower must be of paramount importance. A whistleblowing legislation or policy will fail if it does not afford potential informants the confidence that they will not be negatively affected. The Act must not only state in clear and strong terms that whistleblowers will be protected from dismissal, disciplinary procedures or any other form of retaliatory action, but must also provide reliable avenues for harassed whistleblowers to make complaints, including adequate legal remedies. This is potentially the most difficult issue for the Act to address as retaliation may not always take place in obvious forms, such as dismissal, and there are many ways for persons in relation to whom complaints are made to make life difficult for the informant.

•     The Act must provide specific and detailed implementation requirements in relation to reporting infrastructures and written policies to be put in place. The independence of the information recipients must be ensured. Whistleblowers should be able to make anonymous reports. The Act could provide minimum standards to which affected organisations must adhere — such as the creation of whistleblowing complaints panels, the appointment of third-party investigators or the setting up of an anonymous telephone hotline.

The introduction of the Whistleblower Act is seen as a legitimisation of sorts for the whistleblowing concept, which used to be viewed with a degree of contempt, with whistleblowers sometimes regarded as traitors to their organisation. The Act will definitely have some impact on the way that companies are run, and will hopefully assist in deterring detrimental acts such as corruption, fraud and other illegalities.

Marcus van Geyzel is a senior associate in the corporate and commercial division of Mah-Kamariyah & Philip Koh, Advocates & Solicitors

This article appeared in Forum page of The Edge Malaysia, Issue 791, Feb 1-7, 2010.