Canada's largest securities regulator continues to move to
implement its whistleblowing program, and investors and market
participants should take note. The experience of whistleblowing
initiatives at the SEC, required by the post-meltdown
Dodd-Frank Act, should provide some guidance and
The SEC, in its 2015 Annual Report on the Dodd-Frank Whistleblower
Program submitted to Congress on November 16, 2015, announced
record amounts of tips received from and awards paid out to
whistleblowers. In the fiscal year 2015, the SEC received almost
4,000 total whistleblowing tips, an over 8% increase since the
fiscal year 2014 and an over 30% increase since the fiscal year
2012. However, there was a slight decrease in the number of foreign
tips received; in the fiscal year 2015, 421 tips were received from
whistleblowers outside the United States, representing a 6%
decrease since the fiscal year 2014. After the United Kingdom,
Canada represented the largest foreign source of whistleblowing
tips to the SEC's program.
Record award payments were made in the fiscal year 2015, with
the SEC paying out more than $37 million in awards to eight
whistleblowers. This represents over two-thirds of the total value
of payments made by the SEC since the whistleblowing program came
into effect in August 2011. Since then, over $54 million has been
paid to 22 whistleblowers. The SEC recently suggested that it will limit
awards for whistleblowers who wait before coming forward, and that
higher awards should be given to whistleblowers who report without
Notably, the SEC paid over $30 million to a single overseas
whistleblower in the fiscal year 2015, the largest amount the
regulator has ever paid to a single whistleblower – and more
than all other awards combined paid out by the SEC's program
since its launch. The spectacularly large payout proved correct
concerns that an October 2013 award for $14 million – the
highest amount awarded previously – was an omen predicting
massive payments to whistleblowers in the future.
The OSC's proposed program seeks to avoid payments of this
magnitude by imposing a $5 million cap on whistleblower awards. The
SEC's program, by contrast, has no cap on amounts awarded. The
OSC also proposes a lower payout scale than the SEC's program;
for monetary sanctions or voluntary payments in excess of $1
million, the OSC proposes paying out between 5 and 15% of sanctions
or payments as an award to the whistleblower, as opposed to the
SEC's award scale of between 10 and 30% .
While more circumscribed than the SEC's program, tying the
award at all to penalties imposed may put additional pressure on
Canadian regulators to alter their traditional approach to
securities enforcement, which is protective and preventative, as
opposed to penal.
There is also concern that the proposed policy could undermine
the OSC's efforts to encourage compliance and internal
reporting of securities law violations. Since eligibility for
awards under the OSC's current proposal does not require
whistleblowers to first report misconduct through appropriate
internal channels, this creates an incentive for whistleblowers to
forego internal reporting and go straight to the regulator in the
hope of securing monetary rewards. While the largest Canadian
regulator says that it will encourage employees with knowledge of
securities law wrongdoing to report internally first, its proposed
Whistleblower Program does not make this a requirement, citing
extenuating circumstances that may hinder an employee reporting
misconduct through internal channels.
We, as well as other commenters, take the view that reporting
internally should be a requirement to receive a whistleblower
award, except where good reasons are given as to why this was not
feasible. We feel that this would both address the OSC's
concern and help enhance a corporate culture of compliance.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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