1. Whistle-Blowing and Its Impact on Auditors and Officers of Companies By LEE SWEE SENG Advocate & Solicitor LLB.LLM,MBA Patent Agent, Notary Public, Certified Mediator sweeseng@tm.net.my www.leesweeseng.com ©copyright

2. Outline  Recent amendments to the Securities Industry Act (SIA)  Duty of the company and its directors  Ethical Informing – Best practices in corporate disclosure  Comparison with other countries

3. Definition  Whistle blowing is a term used to describe the disclosure of information that one reasonably believes to be evidence of contravention of any laws or regulation or information that involves mismanagement, corruption or abuse of authority. Whistle Blowing: Subsversive Spy or Responsible Corporate Citizen : Ybhg Datin Zarinah Anwar, Deputy Chief Executive, Securities Commission

4. Definition  ‘raising a concern about wrongdoing within an organisation or through an independent structure associated with it. - The UK Committee on Standards in Public Life

5. Code of Corporate Governance  Issues given rise to the need for whistle blowing provisions in the law were identified and addressed in the context of auditors in the Report by the Finance Committee on Corporate Governance. Whistle Blowing: Subversive Spy or Responsible Corporate Citizen : Ybhg Datin Zarinah Anwar, Deputy Chief Executive, Securities Commission

6. Amendments to Securities Laws  Amendments to the Securities Industry Act 1983 (SIA) were passed by Parliament in September 2003 and came into effect on 5 January 2004.  Two prong: Dealing with external whistle blowers, ie auditors and Dealing with internal whistleblowers, the key officers dealing with the financial statements of the company.

7. Amendments to Securities Laws  Whistle blowing in the context of the SIA involves the disclosure of information to the relevant authorities by auditors and specific employees of a public listed company who in the course of carrying out their duties, discover any breaches of the securities laws or the rules of the stock exchange or any matter which may adversely affect, to a material extent the financial well being of the listed corporation. FAQ on SC website

8. Provisions on whistle blowing Section 99E, SIA If an auditor is of the professional opinion that there has been :-  a breach or nonperformance of any requirement or provision of the securities laws,  a breach of any of the rules of the stock exchange or  any matter which may adversely affect to a material extent the financial position of the listed corporation,

9. Provisions on whistle blowing the auditor shall immediately submit a written report on the matter—  in the cases relating to securities laws, to the Commission;  in the cases relating to rules of a stock exchange, to the relevant stock exchange and the Commission; or  in any other case which adversely affects to a material extent the financial position of the listed corporation, to the relevant stock exchange and the Commission.

10.  No auditor shall be liable to be sued in any court for any report submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor under this section. S 99E(2) Provisions on whistle blowing

11. Commission may require an auditor to— a)submit additional information; b)enlarge or extend the scope of his audit of the business and affairs; c)carry out any specific examination or establish any procedure in any particular case; submit a report or interim report

12. Provisions on whistle blowing General Penalty – s 123, SIA Any person contravening a requirement or a provision of this Act commits an offence under this Act is liable on conviction to a fine not exceeding RM1m or to imprisonment for a term not exceeding five years or to both.

13. Auditors’ duty to report Companies Act, s 174 (8) If an auditor is satisfied that there has been a breach or non-observance of any provisions of CA and the circumstances are such that in his opinion the matter has not been or will not be adequately dealt with by comment in his report or by bringing the matter to the notice of the directors, he shall report the matter to the Registrar. Penalty: 2 years imprisonment or RM30,000 fine or both.

14. Provisions on whistle blowing Section 99F, SIA Legal protection afforded to others in reporting  chief executive  any officer responsible for preparing or approving financial statements or financial information  an internal auditor  a secretary of a listed corporation by whatever name described

15. Provisions on whistle blowing Section 99F(1)(c), SIA the listed corporation shall not remove, discriminate, demote, suspend or interfere with the lawful employment or livelihood of, the chief executive, any officer responsible for preparing or approving financial statements or financial information, internal auditor or secretary, of the listed corporation because of the report submitted by any of such persons.

16. Provisions on whistle blowing Section 99F(2), SIA No chief executive, officer responsible for preparing or approving financial statements or financial information, internal auditor or a secretary of a listed corporation shall be liable to be sued in any court for any report submitted by such person in good faith and in the intended performance of his duties.

17. Provisions on whistle blowing  Section 99F does not impose a statutory obligation on the relevant officeholder. Where the employee does make a disclosure in good faith and in the intended performance of his duties, the employee is accorded the statutory protection referred to above.

18. Role of CEO  CEOs must lead the way, and indeed they have a duty to do so, by ensuring that ethics pervades the working environment to such an extent that it becomes the culture of the organisation.  Companies must make it conducive for wrongs to be reported. Whistle Blowing: Subversive Spy or Responsible Corporate Citizen : Ybhg Datin Zarinah Anwar, Deputy Chief Executive, Securities Commission

19. Statement on Whistle-Blowing  Eg: Shell Refining Company (Federation of Malaya) Berhad has a whistle-blowing tool, “My Company is My Business” in place for its staff to raise concerns where the interest of the organisation or its stakeholders is at risk, either by a breach of a process/ procedure, or where beneficial opportunities may be missed.  This was amongst other resolutions passed by the Board of Directors dated 17 February 2004.

20. Statement on Whistle-Blowing  Eg: TH Groups Berhad in their Statement of Directors’ Responsibilities and Report on Corporate Governance: “In line with industry best practices to enhance corporate governance, the Group had during the year put in place the policies and procedures for whistle-blowing. Under this procedure, employees or third parties are provided with an avenue to voice their concerns without fear. This in turn will help to promote transparency and accountability throughout the Group.

21. Time Magazine’s Persons of the Year 2002  Cynthia Cooper of WorldCom  Coleen Rowley of the FBI  Sherron Watkins of Enron

22. Other countries - US The Whistleblower Protection Act (WPA) of 1989 - extended in 1994 to cover employees of some government corporations and to employees in the Veterans Administration - prohibits the federal government from reprisals against employees who blow the whistle on public sector misconduct and provides a means of redress.WPA WHISTLEBLOWING: THE NEW PERSPECTIVE Gordon Borrie & Guy Dehn

23. Other countries - US 'Qui Tam' provisions in the False Claims Act 1986, where private citizen who knows of fraud committed against the government may file suit to recover the losses and the citizens become public prosecutors and receive up to 15% of civil fines.

24. Other countries - US The highest reward so far appears to be US$77 million received by Douglas Durand in 2001 in connection with impropriety by TAP Pharmaceuticals. WHISTLEBLOWING: THE NEW PERSPECTIVE Gordon Borrie & Guy Dehn

25. Other countries - US The 2002 Sabarnes-Oxley Act, passed after the collapse of Enron and other disasters requires corporations to have systems for the internal reporting of misconduct and reporting by third parties such as accounting firms. WHISTLEBLOWING: THE NEW PERSPECTIVE Gordon Borrie & Guy Dehn

26. Other countries - UK Public Interest Disclosure Act 1998 came into force on 2 July 1999 encouraging people to raise concerns about malpractice in the workplace and will help ensure that organisations respond by:-  addressing the message rather than the messenger; and  resisting the temptation to cover up serious malpractice.

27. Conclusion The SIA amendment provides a general framework for ensuring that auditors disclose information that are material to the regulators. However, no such duty is imposed on key employees, except for certain protection afforded to them should they disclose. However, there are no further provisions to protect the key employees compared with US Sarbanes- Oxley Act where whistleblowers are back on-the-job within 180 days of discharge.

28. Conclusion Here, whistleblower may have to risk dismissal and have to bring a claim against dismissal in the court of law which may take years to be heard. There are also no incentives provided at the moment, it is left to be seen if employees will nevertheless choose to make such disclosure out of moral obligation or to do it as their conscience dictates.

29. The End