OSC’s whistle-blower program aims to change corporate behaviour

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The Ontario Securities Commission's new crime reporting program should compel more companies to act on internal complaints and report wrongdoing to regulators before their employees become whistle-blowers, according to chair Maureen Jensen.

The commission's whistle-blower office opened Thursday, promising payouts of up to $5-million for people who report securities-related crimes that lead to successful prosecutions.

Ms. Jensen said the program will not only help the OSC uncover violations that are difficult to detect without insider tips – such as accounting fraud and insider trading – but should also change corporate behaviour.

"We expect our whistle-blower program to have an immediate impact on market participants, specifically on firm culture and tone at the top," she told reporters at a launch event for the new whistle-blower office.

"This will be a powerful incentive for firms to continually enhance their internal compliance systems and foster an environment where internal reporting of misconduct is both encouraged and taken seriously."

The whistle-blower program will accept tips from anyone about securities law violations, including employees, suppliers, contractors or others who have "timely, specific and credible facts" that are provided voluntarily and were not previously known to the OSC.

Directors and officers of companies – including chief compliance officers – are normally excluded from the program because they are expected to act on wrongdoing, as are people who obtain information while doing investigations of wrongdoing at a company.

However, the OSC said it will make an exception in their cases when disclosure of the information is necessary to prevent "substantial injury" to a company or investors, or when someone is impeding an investigation, or when 120 days have passed after the whistle-blower has reported internally.

Lawyers and auditors working for a company are also normally excluded from being whistle-blowers, the OSC said, except in cases where disclosure of wrongdoing is permitted under their professional rules of conduct.

The OSC has faced criticism for allowing whistle-blower payments for people involved in the wrongdoing, but Kelly Gorman, who heads the whistle-blower office, said the intention is to create an incentive for smaller players to come forward.

"The simple truth is that culpable individuals often have detailed knowledge of the misconduct," she said.

She said the "directing mind" of the crime will not be eligible for a payout, however, and said the OSC reserves the right to prosecute someone who comes forward as a whistle-blower. People who are convicted of a criminal offence related to the tip will be ineligible for payouts.

The OSC also outlined circumstances where whistle-blowers will never be paid, including when they knowingly provide false information and when they pass along confidential information they receive from OSC staff during an investigation.

Whistle-blowers can report anonymously through their lawyers, but they must reveal their identities before they can be paid, the regulator said.

Ms. Gorman said the office will never reveal it received a whistle-blower tip during or after an investigation or prosecution, and will not reveal which cases led to payouts when reporting publicly on the program.

Ontario has also passed amendments to its Securities Act that would allow the OSC to sanction companies that retaliate against employees who bring forward tips in good faith, even if investigations ultimately do not find wrongdoing or lead to prosecutions.

Ms. Jensen said the OSC does not have the power to order companies to rehire employees they have fired for being whistle-blowers, but can impose other fines and penalties.

Companies have raised concerns about vindictive employees going to the OSC with false information, but Ms. Gorman said people who purposely provide false information are not eligible for whistle-blower payments and can be subject to prosecution. And she said the OSC does not anticipate using its anti-retaliation provisions against companies if they act against employees in such cases.

"The anti-retaliation cases that we'd look forward to bringing would be very clear-cut and black and white, and not in that grey zone," she said.