Posted by John SOH Yong Ye , Year 4 undergrad at the School of Economics, Singapore Management University
The Ontario Securities Commission is considering setting up Canada’s first whistleblower program, offering to pay up to $1.5-million to people who provide tips on securities crimes that lead to major prosecutions.
The regulator issued a consultation paper Tuesday, seeking public input on how to design a program to encourage people to report serious misconduct to regulators without facing retaliation from their employers. The OSC is proposing to only make payments in cases that generate at least $1-million in sanctions, saying the program is intended to help crack major cases.
No other provincial securities regulator in Canada has a similar whistleblower program, but the U.S. Securities and Exchange Commission created a program in 2011 that it says has already generated over 10,000 tips and complaints. The Canada Revenue Agency also launched a program last year to pay for tips about improper use of offshore tax havens.
While the SEC has not capped payouts under its whistleblower program, the OSC says it intends to introduce caps. The regulator is proposing to pay a maximum of 15 per cent of total monetary sanctions collected in a case to a maximum of $1.5-million, but said it will use its discretion to determine the size of the final payout.
The U.S. program has drawn criticism for making massive payments in some cases. The SEC offers to pay tipsters between 10 per cent and 30 per cent of all sanctions collected following a prosecution, which has resulted in a $30-million (U.S.) payment last year to a tipster who helped uncover a major fraud.
OSC chairman Howard Wetston said the model the OSC is proposing is “realistic and concrete.”
“We see a whistleblowing program as an important enforcement tool – one that will encourage individuals with high-quality information to come forward and report misconduct,” Mr. Wetston said in a statement.
The OSC is seeking public comment on key features of how a program would work. For example, it would like to be able to pay people for tips even when they have had some role in the wrongdoing, but said it needs to decide what “level of culpability” goes too far to allow payments to be made for tips.
“The argument in favour of allowing culpable whistleblowers to receive an award is that it may lead to high quality information being received,” the OSC’s consultation paper says. “An individual who is culpable may be the best source of information about the conduct being reported.”
However, the regulator is asking for comment on whether making payments to people involved in crimes “may send an inappropriate message to the market and may harm the overall integrity of the whistleblower program.”
The paper offers examples of the types of people it hopes will report misconduct, including accounting personnel who learn about deceptive reporting practices, salespeople from companies who witness unregistered or improper sales of securities, or employees of brokerage firms who see colleagues breach rules for dealing fairly with clients.
The OSC says it would not let auditors collect awards for uncovering improprieties during audits and would not make payments for information from lawyers that is subject to solicitor-client privilege.
The commission is also proposing limiting the ability of corporate compliance staff to collect money when they learn about wrongdoing during investigations. However, the OSC said it would consider payments in cases in which compliance employees disclose that known wrongdoing has been hidden by senior compliance officers.
Payments would only be provided when tips lead to successful prosecutions after all appeals have been exhausted, but the OSC said they will not hinge on successful collection of sanction funds. That means eligible tipsters will be paid even if people do not pay their fines in the case.
The OSC acknowledged in its consultation paper that companies will complain that a whistleblower program will lead people to go directly to the OSC so they can collect payments for their tips, rather than report wrongdoing internally. The regulator said it does not intend to “undermine these internal systems,” but said they do not always work, especially when people fear retaliation for reporting internally.
The OSC said it would still be willing to give credit for disclosing tips if the person reported them internally first, saying it encourages people to do so. The consultation paper said the OSC would also investigate who provided the tip first if someone else brings the information to the OSC after it was reported internally. In some cases, the OSC said it may be possible for more than one person to qualify as a whistleblower.
The consultation paper is only the first step in creating a whistleblower program. If the OSC decides to proceed after receiving public comment, it will have to prepare a formal new regulation, which will also be subject to public input after it is published.