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?