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Commentary Whistle-blower programs usher in a new era of fighting white-collar crime

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In the proverbial smoky rooms in which illegal price-fixing agreements are made, cartel members have long had a worry: Members of the cartel may snitch to law enforcement in exchange for immunity or leniency. This worry has made government whistle-blower programs – which exchange immunity or leniency in sentencing for evidence that leads to prosecutions – highly successful in both preventing and destabilizing cartels.

The success of whistle-blower programs in targeting price-fixing cartels has led to the increased use of these programs to prosecute fraud in securities markets and illegal bribery of foreign officials. In April, the U.S. Securities and Exchange Commission (SEC) announced that it had awarded nearly $4-million (U.S.) to a recent recipient under the regulator's whistle-blower program.

As the efficacy of these whistle-blower programs improves, law-enforcement agencies will prosecute more white-collar crimes. On the other side, businesses that establish compliance and reporting mechanisms and cultivate and encourage a culture of transparency and compliance will almost certainly do better in the long run.

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In the 1990s, the U.S. Department of Justice's antitrust division was the only competition law-enforcement agency in the world with what it called a "leniency program." Under the program, participants in illegal cartels can avoid criminal sanctions, including prison, by being the first to confess, by co-operating with the agency and by meeting certain other requirements.

In Canada, the Competition Bureau introduced a formal immunity program in 2000, and a leniency program in 2007. Under these programs, parties may be granted immunity or lenient treatment in sentencing if they co-operate, including by disclosing undetected offences or providing evidence that allows charges to be filed. Last year, the number of individuals reporting offences under these programs jumped by 50 per cent.

In July, 2016, the Ontario Securities Commission (OSC) introduced "the first paid whistleblower program by a securities regulator in Canada." The OSC program resembles the SEC's, which has seized close to $1-billion and awarded more than $150-million. Under the SEC's program, whistle-blowers may be awarded between 10 and 30 per cent of the money collected in actions in which more than $1-million in sanctions are awarded. There is no maximum on the amount awarded to whistle-blowers.

The OSC's whistle-blower program has the potential to be successful despite some weaknesses. Whistle-blowers only receive an award if they provide new information resulting in over $1-million (Canadian) in sanctions ordered or voluntarily paid to the OSC. Whistle-blowers are only entitled to an award of 5 per cent to 15 per cent of the monetary sanctions ordered or voluntary payments received, up to a maximum of $1.5-million. Whistle-blowers can, however, receive a higher award, up to a maximum of $5-million, where the sanctions imposed or voluntary payments made in a proceeding are at least $10-million and the OSC actually collects at least $10-million in sanctions or voluntary payments. As many critics have highlighted, the OSC's poor record of collecting sanctions will impact whistle-blowers' eligibility for these awards and their incentive for reporting conduct.

In 2016, the U.S. Department of Justice implemented its pilot program to encourage voluntary self-disclosure of violations of the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits the payment of bribes to foreign officials and other related fraudulent accounting practices. Under the program, companies qualify for mitigation credits if they voluntarily self-disclose misconduct, fully co-operate, remediate and disgorge all profits resulting from a FCPA violation. The mitigation credits include reduced fines or avoiding prosecution. To date, the pilot program appears to have been a success.

In Canada, we have the Corruption of Foreign Public Officials Act (CFPOA) which came into force in 1999 and was amended in 2013. The 2013 amendments expanded the scope of the CFPOA, provided harsher penalties for violations and gave the RCMP exclusive responsibility for laying charges. As of October, 2016, there were 10 active investigations, four convictions and four cases in which charges were laid but not yet concluded under the CFPOA. In light of the success of the pilot program in the United States, Canada may implement a similar program under the CFPOA.

Individuals and organizations engaged in or aware of conduct reportable under these whistle-blower programs would be wise to consult with counsel as early as possible: the stakes are high, the legal landscape is complex and the passage of time is critical to eligibility for these programs.

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Lawyers and other outside advisers can provide businesses with sample codes of conduct, policies and procedures that consider the risks of illegal activities to the business. Furthermore, outside advisers can audit these policies and procedures to ensure they are adequate.

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