TerraCom hit with $7.5 million fine for whistleblower victimisation

Summary

TerraCom Limited (TerraCom) will pay a penalty of $7.5 million and also $1 million in costs to ASIC for whistleblower victimisation, following Federal Court proceedings brought by ASIC. This is ASIC’s first enforcement outcome for contraventions of whistleblower provisions.

What happened?

• TerraCom is an ASX publicly traded resource company.
• In 2019, a TerraCom employee alleged that TerraCom, along with certain officers and employees, falsified certificates of analysis of coal exported by TerraCom.
• As a result of the allegations, the whistleblower’s employment was terminated.
• In a response to the media about the allegations, TerraCom made a public announcement to the ASX that named the whistleblower and described his allegations as ‘false’.
• A month later, TerraCom published an open letter to shareholders in national newspapers, again naming the whistleblower and denied the allegations.
• The letter said an independent forensic investigation found no evidence of ‘wrongdoing’.
• In the proceeding, ASIC alleged that TerraCom’s ASX announcements were false or misleading, and certain directors and officers caused ‘detriment’ to the whistleblower.
• This is significant because it is the first time ASIC has sought to enforce the anti-victimisation provisions. The ruling has benchmarked the test and scope of the application of these provisions.

What you need to know

• TerraCom received a $7.5 million fine for whistleblower victimisation, making it the first civil penalty proceeding initiated by ASIC under the whistleblower protection provisions in the Corporations Act.
• Although ASIC was unable to establish that TerraCom’s directors breached their duty of care through alleged false or misleading disclosures, the Federal Court still upheld that TerraCom was liable for whistleblower-related breaches.
• The ruling emphasises that whistleblower protections must be observed and concerns properly addressed. Failure to comply with Australia’s whistleblower obligations under the Corporations Act, exposes companies to significant penalties and reputational risks.
• TerraCom acknowledged that its public statements misrepresented the whistleblower’s actions, inflicting more detriment and exacerbated the harm.
• This case highlights that companies must handle whistleblower disclosures and related public statements with care to prevent legal and regulatory penalties.