20 November 2017By Khrystina McMillan & Shakaira John
According to this year’s Annual Report by the Ontario Securities Commission (“OSC”), the new whistleblower program has enjoyed some success since its inception last year. In order to maintain this momentum, the OSC has prioritized raising awareness of the program and whistleblower protections in particular in the coming year. However, not everyone thinks the whistleblower protections are as good as they sound.
The Whistleblower Program: On July 14, 2016, the OSC launched the Office of the Whistleblower and implemented OSC Policy 15-601 to target serious and difficult-to-detect regulatory misconduct, such as insider trading, market manipulation, and serious accounting and disclosure violations (the “Whistleblower Program”). Under the Whistleblower Program, individuals who meet certain criteria and who voluntarily submit eligible information regarding a breach of securities law may be eligible to receive compensation of up to $5 million if the tip provides “meaningful assistance” in obtaining over $1 million in monetary sanctions (following a final order of the OSC) and/or voluntary payment.
The Whistleblower Program is the first of its kind in Canada to offer financial incentives for information about securities law violations. A similar paid whistleblower program exists in the U.S., but, unlike the OSC’s Whistleblower Program, the U.S. Securities and Exchange Commission (“SEC”) does not cap whistleblower payments. Since its inception in 2011, the U.S. whistleblower program has contributed to successful enforcement actions resulting in more than USD$975 million in financial remedies for wrongdoings, and more than USD$162 million in awards to whistleblowers.
Although it remains to be seen whether the OSC Whistleblower Program will reach the level of success achieved in the U.S, it has achieved reported success since coming into force. In its Annual Report 2017, the OSC reported that “[s]ince its launch, the Office of the Whistleblower has received several credible tips and high-quality information”. The Whistleblower Program’s reported success suggests that, while the $5 million cap on awards may preclude Ontario’s program from the enormous numbers reported in the U.S., whistleblowers are nevertheless incentivized to report wrongdoing to the OSC.
OSC Priority to Promote Better Understanding of Whistleblower Protections in the Coming Year: In its 2017-2018 Statement of Priorities, the OSC outlines its priority to, among other things, raise awareness of the Whistleblower Program, including:
If successful, the enhanced Whistleblower Program should result in measureable increases in the number of credible tips and cases initiated in fiscal 2017-2018.
Further to this priority, in the “Whistleblower Review” section of its Annual Summary Report for Dealers, Advisers and Investment Fund Managers, the OSC states that all registrants should be aware of the available whistleblower protections. The following whistleblower protections have now been built directly into section 121.5 of the Securities Act, and apply equally to whistleblowers who report internally, to a self-regulatory organization, to the OSC or to a law enforcement agency.
Anti-Reprisal Provisions: The OSC may take enforcement action against employers who retaliate or take reprisals against whistleblowers. Under the Protection from Reprisals provisions of the Securities Act, it is an offence to retaliate against an employee for providing information (or otherwise participating in an investigation or proceeding), expressing an intention to provide information, or even seeking advice about providing information about misconduct. Any person or company who is guilty of an offence is liable on conviction to a fine up to $5 million, imprisonment up to five years, or both.
Prohibition of Restrictive Provisions in Agreements: In line with these protections, the OSC will be working to identify restrictive provisions in confidentiality agreements, employment contracts, severance agreements and other related agreements, which seek to prevent employees from reporting violations. The OSC is particularly concerned about contractual language that:
The Securities Act voids any such contractual provisions aimed at silencing whistleblowers. This protection also extends to void such provisions that prevent the employee from co-operating, testifying, otherwise assisting, or expressing an intention to do so, in an investigation or proceeding.
Improving Internal Whistleblowing Channels: The OSC also encourages registrants to look at their internal compliance systems to determine whether a culture of compliance is being fostered. Consideration should be given to the availability and appropriateness of employee reporting channels to encourage potential whistleblowers to report misconduct internally and to allow the organization to investigate and remediate as appropriate.
Sounds Good But… : While it is beyond the purview of this brief post to look at the various critiques that have arisen of the Whistleblower Program, two such criticisms are particularly relevant to the OSC’s recent focus on promoting whistleblower protections. First, the above-described legislative amendments do not create an independent cause of action by a whistleblower against a company for actions taken to silence him or her, or reprisals. The enforcement of the anti-reprisal provisions, therefore, falls entirely to the OSC: some have questioned the OSC’s motivation or ability to prosecute registrants for violations of the anti-reprisal provisions.
Second, despite the OSC’s suggestion that registrants look at their internal compliance systems to allow potential whistleblowers to report misconduct internally, the OSC’s Whistleblower Policy statement allows employees to report misconduct directly to the OSC without having first exhausted internal reporting mechanisms. As such, some argue that that the Whistleblower Program gives companies little to no opportunity to investigate and address allegations of misconduct before being exposed to high-profile investigations by the regulator. Companies are therefore more susceptible to what one securities litigator calls “blindside allegations”.
The OSC’s Annual Summary Report for Dealers, Advisers and Investment Fund Managers, as well as its 2017-2018 Statement of Priorities are silent on these issues.
The Takeaway: Despite criticisms of their practical efficacy, Ontario legislation has been amended to include provisions designed to protect whistleblowers from retaliations in the workplace. Companies should ensure that their contractual language does not contain restrictive provisions now prohibited by securities law. Organizations should also ensure their compliance systems include robust protections for employees who come forward to report problems, to encourage potential whistleblowers to report misconduct internally and decrease the risk of regulatory action. Practically speaking, employees are more likely to use internal reporting procedures if internal whistleblowing policies are up-to-date and promoted within the firm, and if employees think their complaints will be taken seriously and dealt with confidentially.