Why whistleblower investigation independence is no longer optional

The recent KPMG Australia controversy has produced four investigations, two senior resignations, a federal parliamentary hearing and a firm-wide apology. What began as an internal disclosure in May 2024, alleging that confidential client documents were being misused to win work from companies including Macquarie Group and Westpac, became something considerably larger. Three successive investigations concluded the allegations were unsubstantiated. The fourth, conducted by Allens and still ongoing, is now challenging those conclusions.

The case raises a key question that boards and general counsel should be considering: when a whistleblower complaint arrives, who conducts the investigation, and does that choice carry risks that have not been properly weighed?

The independence problem

Appointing existing legal advisers to investigate a whistleblower complaint has obvious advantages. They know the business, the governance structures and the relevant regulatory environment. But that familiarity creates a separate problem when the investigation comes under scrutiny.

An investigation may be conducted impeccably and still be undermined by legitimate questions about the investigator's position. Did the firm have a commercial incentive to maintain the client relationship? Was it reluctant to recommend action against individuals who might otherwise continue to instruct it? Had it previously advised on the policies now alleged to have failed? Could it be required to give evidence in any proceedings that follow? That last scenario is not hypothetical: it was a feature of the Hayne Royal Commission.

Perception of independence matters as much as actual independence. Regulators place greater weight on investigations that are demonstrably independent. Whistleblowers are less likely to engage with a process where the investigator is perceived to be the company's lawyer. The risk of apprehension of bias is greatest where the allegations involve systemic conduct, senior executives, governance failures or potential regulatory breaches. These are precisely the situations where the quality of the investigation matters most.

Scope is a related issue. Multiple investigations reaching contradictory conclusions often traces back to instructions that were too narrow. A lawyer is confined by the brief the client provides. Where that brief is framed conservatively, the findings will reflect those limits. In the KPMG matter, the absence of direct board oversight in the early stages allowed management to shape a process that should have been independent of it. A board sub-committee eventually appointed Allens with an expanded scope, but by then the process had already lost credibility.

Why disputes experience matters

Corporate advisory lawyers and disputes lawyers have different skill sets. Corporate lawyers bring genuine expertise in governance frameworks, regulatory compliance and company secretarial matters. Disputes lawyers spend their careers interviewing witnesses, testing credibility, identifying inconsistencies in evidence and assessing contested factual accounts. Those skills translate directly to investigations. So does experience in preserving legal privilege in contentious settings, which becomes important when investigation reports are later challenged. Disputes specialists also have regular interaction with ASIC, APRA, AUSTRAC and the ACCC, and understand the scrutiny that investigations face when they escalate.

Australia's whistleblower protection framework, strengthened under the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019, sets clear rules around who can make disclosures, who receives them and how whistleblowers must be protected. It does not prescribe what constitutes an adequate investigation or when independence is required. The Federal government's review of the framework, with consultation open until 29 July, is an opportunity to address that gap. In the meantime, recent decisions involving Star and Westpac have already raised the bar for what directors are expected to demonstrate when allegations of misconduct arise.

For law firms with longstanding client relationships, referring a whistleblower investigation to an independent specialist is worth considering on its own terms. A company will not be criticised for commissioning a thorough, independent investigation. It will be criticised for relying on one that is perceived to be incomplete or conflicted. Referring the matter to an arm's length investigator achieves genuine independence and, when findings are acted on, the existing adviser is well placed to assist with implementation. Having the confidence to recommend an independent firm in place of the company's usual lawyers tends to strengthen rather than undermine the client relationship.

The KPMG case is a reminder that the credibility of an investigation depends not only on what it finds, but on whether it was designed to find the truth.

Nicole Wearne is managing partner of Kennedys, a specialist disputes and litigation firm with experience conducting independent investigations and acting in liquidator and regulatory examinations and complex inquiries across State and Federal jurisdictions.