Canada: Dollars For Dialing: OSC Proposes To Pay Whistleblowers

Canada has neither a history nor, some say, a culture of paying for tips. This may be about to change, however, since the Ontario Securities Commission is considering implementing a whistleblower program (the "Whistleblower Program") that would offer financial incentives to individuals to provide high-quality and original information about securities-related misconduct. OSC Staff Consultation Paper 15-401 sets out the proposed framework. The OSC is seeking comments on its proposal prior to May 4, 2015.

Why a Whistleblower Program?

The purpose of the Whistleblower Program is threefold:

  1. to motivate people with inside information relating to serious breaches of Ontario securities law, particularly in the areas of financial reporting, other disclosure, insider trading and market manipulation, to share that information with the OSC;
  2. to generate a larger number of complex cases for the OSC to investigate; and
  3. to motivate companies (i.e. issuers and registrants) to self-report misconduct by potentially precluding access to the OSC's Credit for Cooperation Program if a whistleblower reports wrongdoing before the company self-reports.

The Whistleblower Program would be the first of its kind among provincial securities regulators. The only other regulatory whistleblower program in Canada that provides financial incentives is the CRA's Offshore Tax Informant Program, which was implemented just last year. Other whistleblower programs, like the Competition Bureau's, provide only non-monetary incentives such as immunity or leniency in proceedings.

While there is minimal Canadian precedent, OSC Director of Enforcement, Tom Atkinson, recently acknowledged that the OSC had been keeping a close eye on the SEC's whistleblower program since it started in 2011. At the Capital Markets Regulatory Priorities conference in Toronto on January 27, 2015, SEC Associate Director Stephen Cohen described the SEC's program as "highly successful". The SEC has reported over 10,000 tips received from whistleblowers since 2011. The appeal of such abundant tips has not been lost on the OSC. Tom Atkinson candidly acknowledged at the same conference that the OSC should have more complex cases under investigation. In light of the SEC's results, the OSC believes its own program will generate many new cases.

Elements of the Whistleblower Program

The OSC sets out five key elements for an effective program, each of which are discussed below.

  1. Whistleblower Eligibility: Who Gets an Award?

    The program is only available to individuals. To be eligible, information provided to the OSC must: (a) be high quality; (b) be original; and (c) result in total monetary sanctions of more than $1,000,000 (excluding costs) through an order or settlement.

    An individual would not be eligible to receive an award if:

    1. the individual was culpable in the conduct being reported (although the OSC is seeking specific comment on this point);
    2. the information provided is subject to solicitor-client privilege;
    3. the information provided is lacking in specificity or otherwise misleading;
    4. the individual has or had job responsibilities as a Chief Compliance Officer or equivalent position or a director or officer at the time the information was acquired, and acquired the information as a result of an organization's internal reporting or investigation processes;
    5. the information was obtained or provided in circumstances which would bring the administration of the Whistleblower Program into disrepute.

    The program also precludes auditors and regulators from availing themselves of the program if they discover evidence of misconduct in the course of their duties.

  2. How Much is the Award?

    If total monetary sanctions exceed $1 million (excluding costs), the proposed award would be up to 15% of the total monetary sanctions imposed in a proceeding (or agreed to in a settlement). The maximum amount payable would be $1,500,000. Note however that the OSC has discretion in making such awards (discussed below) and they would only be made after the proceeding is concluded (including any appeals).

    These limits differ substantially from the SEC model which has no cap on the total and offers up to 30% of the total monetary sanctions collected. Recently, one whistleblower in the U.S. received a payment of $30,000,000. The OSC payment cap would avoid what some see as "unjust enrichment" to a whistleblower if such large amounts are paid.

    However, while the proposed OSC model has a cap of $1,500,000, awards are not contingent on collection of the monetary sanctions. This means a whistleblower can be paid even if the OSC has not collected from the respondent in question. That is not the case under the SEC model.

  3. Is Confidentiality Protected?

    All reasonable efforts would be made to keep a whistleblower's identity confidential subject to three exceptions: (a) if disclosure is legally required in a proceeding against the respondent; (b) if the relevant information is necessary to make Staff's case against a respondent; and (c) when the OSC provides the information to another government, regulatory authority or law enforcement agency pursuant to the Securities Act.

    The OSC is considering whether it should permit a whistleblower to remain anonymous even to the OSC for at least a period of time after providing the information. One way to do so would be to allow whistleblowers to communicate anonymously with the OSC through legal counsel.

    Of note in the U.S., SEC Associate Director Cohen said that many whistleblowers now make tips through counsel and provide detailed briefs of information, sometimes including documents. When credible tips can be lucrative, one can see the incentive for whistleblowers to prepare a detailed outline of facts and possibly evidence. If this development also comes to Canada, it would have major implications for internal compliance for companies.

  4. Whistleblower Protection from Retaliation

    The OSC will consider seeking legislative amendments to the Securities Act to protect whistleblowers from retaliation by employers, including: (a) a provision making it a violation of securities law to retaliate against a whistleblower; (b) giving a whistleblower a civil right of action against an employer who violates the anti-retaliation provision; and (c) making contractual provisions that would silence a whistleblower unenforceable. Anti-retaliation is a critical component in the U.S. system. SEC Staff pay close attention during an investigation to the interests of whistleblowers and to any company conduct that suggests retaliation is taking place.

  5. Program Administration

    A separate intake unit within the Enforcement Branch would deal with whistleblower submissions. Financial awards would be based on recommendations from Staff and approved by the Commission. Award decisions would be entirely discretionary. No reasons would be provided and no appeal would exist.

What Would the Impact Be?

A key question is "will employees ignore internal compliance programs in favour of seeking a reward?" This question caused heated debate in the U.S. before the SEC program started. Many argued against the SEC program, concerned that financial incentives would encourage individuals to circumvent a company's internal compliance programs and undermine internal controls and remediation. While the OSC has acknowledged these concerns, it has also challenged their validity. The OSC quotes from a study, directed at similar financial incentive provisions in the U.S. False Claims Act, which concluded that there was "no negative impact whatsoever on the willingness of employees to utilize internal corporate compliance programs or report violations to their managers". The OSC Staff Consultation Paper also cites the SEC's experience to date, which is that 80% of whistleblower award recipients reported internally first (albeit the sample size of actual award recipients is small). In his recent speech, SEC Associate Director Cohen observed that "the vast majority" of whistleblowers report internally first, only coming to the SEC after they felt the company failed to respond.

At this stage, the OSC does not appear to be willing to require potential whistleblowers to report internally first in order to be eligible for the Whistleblower Program. The OSC expressly argues that such a prohibition might not be appropriate where an individual has serious concerns about the efficacy of internal reporting procedures or fears retaliation. However, the OSC does suggest that the failure to report internally prior to going to the OSC might be considered in assessing the quantum of any award.

On the issuer and registrant side of the equation, the OSC makes it clear that the failure of a company to self-report and/or implement corrective measures after receiving information of misconduct might result in no credit for cooperation when the issuer or registrant is ultimately brought to account for the misconduct.

What Should Companies Do?

If implemented, the Whistleblower Program will impact issuers and registrants. U.S. experience shows a very high volume of tips resulting from the SEC's program. The OSC expects its program would substantially increase the number of investigations and it anticipates more complex cases as a result.

If the Whistleblower Program proceeds, companies will, at minimum, want to carefully review their internal reporting procedures and culture of compliance to encourage and support "internal first" reporting of compliance concerns. It will also be critical to ensure no retaliation is taken against whistleblowers. Companies without an adequate "anti-retaliation" policy and education process will need to address this. Finally, companies must be willing and able to investigate internally when complaints are received. Disgruntled whistleblowers are more likely to go to a regulator and we can expect that the regulator will hold companies strictly accountable for failure to act on a valid complaint.

Companies may wish to provide comments to the OSC before the May 4, 2015 deadline. Gowlings would be pleased to help assess or prepare responses. We can also advise and assist with internal reporting procedures and conduct independent investigations where serious complaints warrant independent review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Crawley Mackewn Brush LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Crawley Mackewn Brush LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions