Through the crucible
There’s a part of the 1950’s play “The Crucible” by Arthur Miller - which centres itself on the 1692 Salem Witch Trials - where the presiding Judge John Danforth summons the play’s antagonist, Abigail Williams for examination. Despite his otherwise dominating character in the courtroom he is constitutionally incapable of finding any fault or impropriety in her or her accomplices despite their wicked mistruths concerning the local practice of witchcraft - rapidly dispatching any suggestion of wrongdoing with threats of imprisonment for contempt. When these falsities later become clear, Danforth sentences innocent townsfolk to be hanged to salvage his reputation.
Respectfully, much like Judge Danforth, the Australian Charities and Not-for-Profits Commission (“ACNC”) as regulator of charities is hamstrung as an enforcer and normative educator for the sector - restricted by legislation and internal policy settings from disclosing details of the investigations it is conducting; occasionally disclosing a brief headline to the public and nothing more. Cited as crucial in protecting charities from undue harm, this trend was somewhat rebuked recently when the ACNC Commissioner Sue Woodward AM clarified the position of the regulator following allegations of criminality being raised against Hillsong Church in Federal Parliament under parliamentary privilege, based on the apparent disclosures of a whistleblower. Naturally, Hillsong denied the allegations - claiming they were false and/or based on information that was taken out of context. What is interesting about this development is that there was no whistleblower, strictly speaking, as the ACNC Commissioner correctly pointed out. But equally, the situation also raises perceptive issues - is this the kind of signal we need as a society to compel a regulator to see potential wrongdoing and respond accordingly? How did we reach a stage where someone feels safer disclosing such concerns to a politician rather than a regulator, and what can be done about it?
Regulators and the crumbling enforcement pyramid
Typically a regulatory agency of any flavour will design its compliance and enforcement approaches around a particular attitude or approach, tying each method or tool to an enforcement “pyramid” of escalating severity - some representing a more aggressive and litigious character proportionate to the risks they are charged with overseeing, and others being more educative and nurturing; preferring supportive, consultative approaches towards charities within their particular regulatory crosshairs as long as the circumstances allow it. In Australia, the ACNC is an example of the latter, whereas its British counterpart, the UK Charities Commission lies somewhere closer to the middle; being vested with significantly greater regulatory powers to boot. Nothing is inherently wrong with that.
A key point of distinction emerges in how each regulator deals with religious institutions. The UK Charity Commission exercises regulatory jurisdiction over most religious institutions, which will extend to cover all such institutions by 31 March 2031 by virtue of the Charities (Exception from Registration) Regulations 1996 (UK). The UK Charity Commission can and in practice does bring its powers to bear in instances of alleged wrongdoing by these charities - typically preceded by a statutory inquiry, then applying its enforcement powers depending on what misconduct is revealed, whether the charity in question has cooperated or not, and/or whether property needs to be secured. By contrast, as a creature of statute the ACNC will generally be hobbled by its own legislation: upon registration as a “basic religious institution” (a category of charity which does not exist in the UK or New Zealand) an entity immediately becomes exempt from much of the regulatory obligations they would otherwise owe at law, including the ACNC Governance Standards and the obligation to submit an annual financial report; meaning the ACNC cannot effectively monitor their activities and by extension, detect potential cases of wrongdoing. However, the real kicker is that the ACNC cannot exercise enforcement powers against these religious institutions either: the only tool available to them is an informal Compliance Agreement which is unenforceable in courts - which in the author’s opinion leaves the ACNC’s enforcement pyramid brittle, crumbling and ultimately unfit for purpose in this particular context. Its a situation the previous Liberal National Government knew about but went on the record indicating that they had no appetite whatsoever to change; ultimately leading to negative outcomes such as the one we're exploring today. Given what we know about their closeness to institutions like Hillsong and those of their ilk that should surprise precisely no one.
Excerpt from the then-Government response to the 2018 ACNC legislation review
But as bleak as that is, there’s still more to say about the Hillsong saga.
The sound of a broken whistle blowing
Whistleblowing is an essential tool in identifying and addressing corruption, misconduct, and wrongdoing within organisations, and charitable institutions are no less deserved of regulator scrutiny in this domain. In recent years, there has been growing recognition of the importance of whistleblowers in uncovering unethical, illegal and/or corrupt conduct in the market generally, leading the Australian Securities and Investments Commission (“ASIC”) to undertake a cross-sectional review of 107 corporate and charitable entities’ whistleblowing policies in between 2021-2022, seven of the sample policies being examined more closely.
The central purpose of the Australian whistleblower protection regime, and therefore, the foundation for ASIC’s evaluation exercise is the shielding of a whistleblower from reprisal in the event that they disclose alleged wrongdoing to an “eligible recipient”. A number of Australian regulatory authorities fulfil this role, including ASIC, the Australian Prudential Regulatory Authority and the Australian Taxation Office in respect of taxation affairs. However, others are not considered "eligible recipients" under whistleblower protection laws, and this includes the ACNC; despite many charities falling within the remit of the whistleblowing protection regime. This means that despite the ACNC’s intended position as a “one stop shop” for the sector, whistleblowers who report wrongdoing within the sector to the ACNC are not afforded any protection from retaliation, as such disclosures are not classified as “eligible disclosures” under s 1317AA of the Corporations Act 2001 (Cth) (“the Act”). By extension, that makes the Public Interest Disclosure/Emergency Disclosure scheme provided for in s 1317AAD of the Act (which provides for protection in limited instances where disclosures are made to journalists or parliamentarians) unavailable to would-be disclosing parties in these circumstances as well. Assuming Andrew Wilkie’s claims reports were made to ASIC and the ATO previously are as incorrect as those made about the ACNC, this includes the Hillsong whistleblower in this instance, meaning the only thing that raised the alarm about their alleged misconduct was a broken whistle.
While this whole scenario is incredibly unfortunate, Canberra has anticipated this conundrum before. Constitutional challenges which prohibit the ACNC’s classification as an “eligible recipient” in this context were considered during the 2018 Senate Economics and Legislation Committee examination of the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (Cth) - the Committee concluding it was unlikely that the Commonwealth could legislate protections into law that covered State-based incorporated associations and other non-corporate entities without a referral of powers to it under s 51(xxxvii) of the Constitution. Despite that, and the longstanding interest in developing a national scheme for not-for-profit regulation in Australia which could have addressed this problem, nothing meaningful has transpired to date; with the conversation now squaring on red tape reduction and harmonisation of national charitable fundraising laws (a longstanding bugbear of charities Australia-wide), both of which have - thankfully - enjoyed measurable progress. Its a shame that whistleblowing enhancements never joined them on their onward journey.
Marching to the beat of the same drum
As the final curtain in The Crucible falls, the audience hears the rolling sound of drums in the distance; signaling the coming of death for the play's protagonist John Proctor. But rather than marshalling the Massachusetts Governor’s hangmen, I believe the sound of drums could instead serve a positive role for Australians - namely, the unified pursuit of enhanced whistleblower protections for the charity sector, led by the ACNC.
One option that has been explored previously - as mentioned above - is the referral of legislative power in relation to incorporated associations from the States to the Commonwealth. The ACNC could then respond as necessary to protect whistleblowers in the future. However, the referral of power in practice is relatively rare - most recent in 2001 to enable the passage of national corporations and criminal intelligence/counter terrorism legislation. If the referral avenue was pursued in order to bestow the ACNC with complete jurisdiction over incorporated associations (which doesn’t even begin to address the question of other bodies such as partnerships and trusts, that are also established pursuant to State and Territory laws), I am reserved about whether or not it would succeed:-
On one hand, all incorporated associations are required to be of a not-for-profit nature and the simplicity of their corporate form neatly aligns with the ACNC’s purpose of simplifying the charity compliance regime. It would also allow for a standardisation of associations law across the country alongside the harmonisation of charitable fundraising, align it with the UK Charity Commission (who does regulate charitable incorporated organisations, which are equivalent to incorporated associations in that jurisdiction) and eliminate the dual regulatory regime that exists between the States and the ACNC - State laws concerning association management adding scant little to corporate governance discourse.
On the other hand, not all not-for-profit entities qualify as charities given many activities fall outside Part 3 of the Charities Act 2013 (Cth) - social enterprises such as Who Gives a Crap also falling into this category depending on their aims. As the ACNC is primarily charged with registering and overseeing charitable enterprises and while some may be small concerns, it makes little sense for largely informal, locally oriented concerns such as sporting clubs and other social institutions to be regulated at a national level. Further, many State-based political parties register as incorporated associations, making the transfer of their jurisdiction to the ACNC functionally inconceivable.
The second, and in my opinion, more likely option is for the ACNC to lead a national, coordinated approach towards the increasing of whistleblower protections by driving uniform law changes much akin to those being pursued at present in relation to charitable fundraising. The charities regulator has lead a number of initiatives since its formation to reduce red tape for charities and enable, where possible a single annual reporting instance for associations provided that certain conditions are met; such as holding an Annual General Meeting and meeting financial reporting obligations. Assuming State-based whistleblower protection legislation is adapted to fit (the Victorian Whistleblowers Protection Act 2001, for example, only applies to prescribed incorporated associations that are supported directly or indirectly by government funding or other assistance) the question then becomes “who responds to to the whistleblowing instance?”. If it is the State-based regulator, then they will need to extend their compliance resources to meet the oversight burden. If, like fundraising licensing in South Australia and the Australian Capital Territory, that burden could effectively be transferred that may go some way towards addressing the whistleblower protection burden so that reprisals (whether threatened or not) could be re be met with significant regulatory consequences as non compliance with ACNC Governance Standard 3 (Compliance with Australian Laws). Whether this could carry the same interest going forward is chiefly a matter for the new Federal Labor Government in all its newfound wisdom. Perhaps this is the right time for the ACNC to go through the crucible and emerge as a regulatory agency better equipped and empowered to maintain public trust in the charity sector. Maybe while the Government is mulling all of this over they could consider whether the inherent, absolute limitations of the “basic religious institution” charity category unique to Australia (and all of the apparent clandestine abuse it invites) should be looked at too.
If you were the Treasurer, how would you address whistleblowing protections in the Australian charity sector? Are there other jurisdictions that can show Australia the way? Let us know your thoughts in the comments section below.