OSC seeks to beef up whistleblower program with cash rewards up to $1.5M
U.S. offers large payouts for information, but programs in Canada are just getting started
Canada's top securities regulator holds a roundtable today in Toronto on a proposal to protect — and pay — corporate whistleblowers who report fraud, bogus accounting and insider trading.
But the Ontario Securities Commission informant protection proposal will be more restrictive and stingy than programs in the United States that have prompted high-profile prosecutions and payouts in the tens of millions of dollars, including a $104-million award paid to a former UBS Swiss bank employee.
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OSC commissioner Mary Condon will meet with lawyers and investor groups to discuss the proposed "Framework for an OSC Whistleblower Program" that takes inspiration directly from the "apparent successes" of U.S. regulators who pay tipsters for information to boost their crackdowns on financial crimes.
"The quick and dirty response from American lawmakers and policy analysts who are favourable to bounties is a very simple 'they work!'" lawyer Paul Lalonde told CBC News. Lalonde, who specializes in international trade, ethics and anti-corruption, is a member of the watchdog group Transparency International Canada.
"They lead to more investigations. They uncover more violations of the law. They make companies more fearful of failing to comply, which I guess from a deterrence perspective is a good thing," said Lalonde.
In Canada, recent high profile corporate corruption cases, including an RCMP probe of Toronto mining company MagIndustries and the foreign bribery prosecutions involving SNC Lavalin, were sparked by whistleblowers who wrote anonymous letters or leaked company misdeeds to the media — not regulators or police — because of fears of being revealed.
The OSC wants to change that.
Here's what an unnamed employee of SNC-Lavalin told CBC News about whistleblowing in 2012:
'If I didn't have kids in school and could count on the respect and protection I deserve from [the CEO] and the board I would go and pull their ears myself! We have emails, but you can't use them or we will be identified....These complacent officers are paid a fortune and many have made millions on their shares based largely on crooked Libyan deals, and are responsible for making people like me and my friends culpable in a criminal enterprise, just by our silence.'
"We believe that the payment of a financial incentive is the most critical [factor] to the success of the program," the OSC proposal says.
Although the goal is to better protect whistleblowers' identities, Ontario's regulator might not be able to guarantee full anonymity once a case reaches court. That's unlike the U.S. situation, where SEC whistleblowers' identities have statutory protections.
The biggest difference for would-be Canadian whistleblowers is the money.
"We believe that the payment of a financial incentive is the most critical to the success of the program," the OSC's framework paper states. But there would be limits. Bona fide tipsters would be eligible to receive up to 15 per cent of any settlements in excess of $1 million, to a maximum of $1.5 million per whistleblower.
It's also unclear whether whistleblowers who are themselves mired in the illegal activity would be eligible for payouts.
"The argument in favour of allowing culpable whistleblowers to receive an award is that it may lead to high quality information being received," states the OSC proposal. "However, [that] may send an inappropriate message to the market and may harm the overall integrity of the whistleblower program."
Transparency International Canada's Paul Lalonde says while better whistleblower protection is vital, he cautions that large bounties can ironically undermine internal whistleblower programs and ethical corporate culture.
"I think to some degree [payoffs to tipsters] undermine efforts by companies to promote internal compliance whistleblowing," Lalonde said. "Whistleblower bounties can cross a line and actually create perverse incentives for people to be in cahoots with the bad behaviour and then if they feel the temperature rising a bit, to then cash in on the bounty."
In the U.S., the largest whistleblower award ever paid out was by the Internal Revenue Service (IRS) which paid $104 million to a former American banker at UBS. Bradley Birkenfeld reported the Swiss bank for engaging in massive fraud and tax evasion. The company was fined $780 million. Birkenfeld tried to negotiate immunity for himself but ultimately wound up serving two and a half years in prison for his role.
After his release from prison in 2012 the IRS, citing his "exceptional co-operation" and the "breadth and depth" of his information, lived up to its whistleblower policy and paid Birkenfeld 25 per cent of the roughly $400 million recouped in the probe.
In 2010, the U.S.set up a whistleblower program under the Dodd-Frank Wall Street Reform Law Act that resulted in more than 3,000 tips last year alone to the U.S. Securities and Exchange Commission (SEC).
One of the tipsters, an unnamed foreign citizen, was paid more than $30 million for information that led to a successful prosecution. The SEC said it "hopes that awards like this one will incentivize company and industry insiders, or others who may have knowledge of possible federal securities law violations, both in the U.S. and abroad, to come forward and report their information promptly to the commission."
The Canada Revenue Agency began an offshore tax informant program in January 2014, offering up to 15 per cent of funds recovered in cases that see the CRA recoup more than $100,000. To date, the program has received 2,000 calls, leading to 100 tipsters being considered for eligibility with a number entering into formal contracts with the agency. But because the program is so new, there has yet to be a single financial payment to anyone informing on a tax cheat.