Category Archives: !Jurisdiction

Ontario’s OSC Following SEC in Whistleblower Bounties

The question of internal compliance is always a challenge when regulators offer rewards to whistleblowers with cash awards. Why report internally when the whistleblower can get paid if they report externally? Internal compliance officers are paid to establish, train and enforcement legislative compliance policies internally.  However, internal compliance will not usually result in a reward for good behaviour or for internal whistleblowing. Hence the inherent problem with rewarding the whistleblower.

Since Dodd Frank, the Securities and Exchange Commission (“SEC”) has been giving monetary rewards or bounties for credible tips from whistleblowers that lead to enforcement actions. For example, The SEC recently awarded more than $4.5 million to a whistleblower whose tip triggered the company to launch an internal investigation and report the whistleblower’s allegations to the SEC and another government agency.

The Ontario Securities Commission (“OSC”) adopted a whistleblower reward program in 2016, and has received hundreds of “tips” since then. Earlier this year, the OSC announced that it has paid $7.5 million in rewards or bounties for tips leading to findings of wrongdoing under securities law. The OSC tipsters apparently provided high quality, time, specific and credible information that helped advance enforcement actions resulting in monetary payments to the OSC.

What is troubling, from a compliance perspective, is that the reward is based on the finding of wrongdoing and enforcement. No rewards are given to individuals from reporting internally and preventing a regulatory or criminal contravention.  The bounty reward programs, both in the US and Ontario, only reward individuals when they help catch a corporate or individual after the contravention.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal their identity. The same applies with the OSC program.

One big difference between the SEC and the OSC programs, is that the penalties in the US are much larger than those in Canada. For example, in January 2017, Zimmer Biomet paid $30.5 million to resolve DOJ and SEC investigations into the company’s “repeat” violations of the Foreign Corrupt Practices Act. The DOJ said then thatBiomet “knowingly and willfully continued to use a third-party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf.” Those kinds of fines have not been seen by our courts or the OSC in their Canadian enforcement activities.

There is also a $5 million maximum on the OSC whistleblower counties program, suggesting that smaller rewards available in Ontario will be enough to achieve the same result and deterrent effect. The SEC has no such restrictions. Is this cap on the size of the bounty necessary, sufficient, and self-defeating?

Since Ontario is the only provincial securities regulator offering bounties, the other question of concern is whether  this is deterrent to business investment and listing on the Toronto Stock Exchange, for small capital firms, that may have the choice to register elsewhere in Canada?

Even non-political businesses could be snared by Canada’s new election law

For many of us, federal election law regulates what is, for the most part, a spectator sport.

Sure, we all have the option to vote. And we could volunteer on campaigns and spread policy ideas around. Some of us even take on the vital role of the ornery family member, burdened with the responsibility of educating his or her politically unenlightened kinfolk over dinner.

But, for the most part, we sit back, watch and cheer (or jeer). For many of us, election season is primarily about excellent TV viewing and inspired political cartoons. Perhaps for even more of us, election season is nothing more than an unavoidable irritant or sleep aid.

Many of us are happy with the status quo. But imagine if the rules changed and forced us to participate in the ruckus? That would be like armchair critics of a hockey team suddenly finding themselves lacing up and submitting themselves to drug tests.

This would never happen in sports, of course. Fans of professional sports are not subject to the rules of the game.

And therein lies a difference between the rules of spectator sports and federal election law.

This year, businesses may be surprised to find themselves as participants in a game they never wanted to play. This risk has long been present, but, as of the 2019 election, Parliament has changed the rules yet again.

Extra games have been added to the election season

First, opening day has moved up, extending the election season.

June 30 this year marks the start of the regulated election communication periods (the pre-election period), even though the election period itself doesn’t begin until the fall. This is the first year that the pre-election period exists for federal elections, adding an additional layer of rules atop the already complex requirements of the election period (which begins once an election is called).

Compliance made difficult by expansive requirements

Second, this new, extended regulated period regulates all sorts of communications through broad definitions in the law. This is where the fans of the game – businesses and individuals – could find themselves in a pickle.

Among other things, the law now applies to all paid online advertisements that hyperlink to websites that identify or name candidates, even though such websites may not have an overly political character. Managing this requirement could prove difficult, especially for businesses with an extensive web presence.

 A huge swathe of advertising will be regulated during the election period

Third, once the election period begins in the fall, all manner of issue advertising touching on policy issues is subject to rules. This includes issues that are associated with a party, party leader, candidate or even a person associated with a political party. The ambit of this definition is indeterminate, with innocuous content potentially being subject to regulation.

Out of step with the internet age

Fourth, federal election law now subjects internet activity, including advertising and online platforms, to specific and onerous requirements.

Election law as currently fashioned does not sit comfortably with our internet age; the resulting uncertainty should be a concern for any business with an online presence.

Follow the rules … or else

The Commissioner of Canada Elections wields expanded powers: he now has the power to lay charges for a long list of offences, which could result in hefty fines and prison sentences. 

Enforcement powers really drive home the importance of following the rules. Canadian businesses may find that election law is a game of higher stakes than may have been previously believed.

Safety violation results in contractor getting 18 months in jail

On Sept. 18, Sylvain Fournier, a Quebec based contractor, was sentenced to 18 months in prison followed by two years of probation.[1] Fournier had been found guilty of manslaughter under the Criminal Code relating to a workers death by means of a breach of Quebec safety code. The case is the first of its kind in Canada and raises serious concerns about the use of criminal law to enforce provincial regulatory safety standards.

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London Calling – The case of Skansen and UK Jurisdictional Reach for Corporate Bribery

The is a guest blog post by Nick Johnson, Q.C., from Exchange Chambers & Bright Line Law, London.

Southwark Crown Court is a designated centre for many of the UK’s serious fraud and white-collar crime jury trials. It is a drab building in a stunning location. There’s a spectacular view of Tower Bridge and the Tower of London over the river, obscured only by HMS Belfast, a WWII cruiser permanently moored as a museum and which, last Christmas, flew the Canadian flag in tribute to the participation of the Royal Canadian Navy in the Battle of North Cape. Hundreds of Canadian sailors served on British ships in the north, including eighty on the Belfast.

As the Maple Leaf flew, I acted for the MD of Skansen Interiors Ltd, a London based fit-out and refurbishment contractor, in a bribery case which concluded last April. The company itself and two of its directors faced charges under the Bribery Act 2010 (“UKBA”), relating to making improper payments in order to secure contracts for two City of London office refurbishments worth about £6m.

The case was a legal first in the UK in that the company, despite having carried out an internal investigation and self-reported to the UK National Crime Agency, then faced a Section 7 UKBA prosecution before a jury in the Crown Court. Section 7 has an unusually wide reach. A company itself is guilty of a criminal offence where a person associated with it bribed another, even where management might be completely unaware of the bribe. It is a rare form of corporate criminal strict liability, subject to a defence where the company can prove, on a balance of probabilities, that it had in place adequate procedures to prevent such conduct. Of course, the legislation is aimed at compelling a change in corporate culture when it comes to effective anti-bribery measures. Quite apart from the interesting questions the case posed as to what may amount to “adequate procedures” and why it was that an entirely co-operative company was not offered a UK Deferred Prosecution Agreement, the focus upon the Section 7 requirements was a clear reminder of how even a non-UK corporate could well end up in a UK criminal dock.

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Training Executives On Anti-Corruption Laws – Best Practices

This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.

Good strategists manage uncertainty by playing the probabilities, but too many executives use wishful thinking when it comes to anti-corruption compliance. Playing the probabilities means understanding the odds of success. Just 1 in 12 companies manages to Mitigate Reputational Risk Exposure resulting from non-compliance and therefore this result in a High Level of Reputational Risk Exposure.

Non-compliance seriously increases risk and liability; depreciates M&A and joint venture value; potentially damages the brand; undermines and reduces trust and confidence; increases the potential for prosecution; and threatens sustainability. Executives must be pro-active and continuously diligent in their efforts to mitigate individual and organizational risks.

Corporate board members devote significant time to financial oversight and strategy, while ignoring steps needed to protect and promote its most important intangible asset – its culture and reputation. Corporate boards are due for a rude awakening – compliance expectations and competing stakeholders are demanding increased more effective oversight. Directors need to learn how to carry out these important functions.

When training executives on anti-corruption laws we need to make them realize that Boards and senior executives need to do substantially more than a once-a-year “flyover” of their anti-corruption compliance programs if they expect the DOJ to conclude that their program meets the government’s definition of “effective.”

Boards need to be well-versed in all elements of the anti-corruption compliance program, regularly interact with compliance and legal personnel, and receive timely briefings on the program and the personnel responsible for its stewardship and operationalization. Directors and senior executives must understand that any compliance failures are something that they may have to answer to.

The existence of adequate policies and procedures does not provide a full defence against bribery charges but can be a useful tool for negotiating with authorities or avoiding proceedings against corporate entities. Further, because liability can also be founded on ‘wilful blindness’, the existence of anti-corruption policies and procedures can be helpful in rebutting any inference that a company or its executives ignored bribery.

There is still a place for tone at the top. The board and senior leadership must set the right tone in their communications across the company and outwardly. But tone needs to be paired with persistent actions on the part of the board and senior leadership signaling that ethics and compliance are a top priority and that the company is committed to doing business the right way and is prepared to back up its words with actions, including walking away from business and relationships that are not in alignment with the company’s organizational ethos. That is how tone at the top becomes conduct at the top.

When training Boards and senior executives on anti-corruption laws, we also need to make them realize that they cannot control the integrity of individuals, but they can certainly influence it. An organization’s culture influences the integrity of those employees that are either on the fence or would rationalize wrongdoing when the culture promotes willful blindness, permits ignorance of policies and controls, or encourages the avoidance of those controls through unreasonable business goals and rewarding success by any means.

Finally, Boards and senior executives need to be aware that no controls, compliance program, or business culture can eliminate or totally prevent people without integrity from doing wrong, but the absence of those factors greatly increases the capacity of wrongdoers to operate with impunity, while the strong presence of those factors greatly increases the likelihood of preventing and detecting wrongdoing, as well as providing a foundation to mitigate its impacts and consequences on the organization.