One of the leading experts on whistleblower protection law in the United States says that Canada’s “backwards” regulations may be allowing “corruption to flourish” and is causing the government to miss out on “billions of dollars in compensation.”
Stephen Kohn is a Washington, D.C.-based attorney and author of nearly a dozen books on whistle-blowing, including the upcoming “The New Whistleblower’s Handbook.”
Kohn says there is a dearth of protections for workers who put their jobs and reputations on the line to reveal misconduct.
As it stands, Ontario is the only province with a paid whistleblower program. In successful cases, it offers individuals between five and 15 per cent of sanctions, or up to $5 million, for information that led to a prosecution.
These whistleblowers are offered protections such as confidentiality and anti-retaliation, but they are not immune from prosecution and their reward is contingent upon the degree to which they were complicit in the misconduct.
However, support for whistleblowers across the country is much more limited and often conditional.
New Brunswick and Saskatchewan provide private-sector tipsters with protection from employers, but other private-sector workers in Canada often have to report violations of specific statutes, such as Ontario’s Occupational Health & Safety Act, to shield them from retaliation.
Meanwhile, government workers are granted greater protection against reprisals through the federal Public Servants Disclosure Protection Act. And, at the provincial level, legislation along the same lines has been implemented in several provinces, most recently Quebec.
The Criminal Code of Canada also makes it illegal for employers to retaliate against a worker who reports any law-breaking activity to authorities.
But Kohn said these measures don’t go far enough.
“Ontario’s is actually the best whistleblower law in Canada, because it prohibits retaliation, it lets you go confidential and it does have the prospect of a reward,” he said.
“It’s the best whistleblower law in Canada — that tells you (how) far backwards Canada is.”
One of the “major defects” with the program is that it caps rewards at $5 million, which Kohn said isn’t enough for higher-level executives to risk their careers.
“It’s not worth it (for them),” he said.
“And one of the goals of these laws is to get the higher level people — we call them the big fish — that are going to know about the big wrongs.”
The prospect of higher payouts also has the effect of enticing more potential tipsters to blow the whistle.
“By putting in that cap, you’re sending a message that, ‘we don’t want you,’” said Kohn.
The other issue is that the rewards are not mandatory and they are not eligible for a judicial review, he added.
Kohn said it is essential to incentivize insiders to come forward because the nature of white collar crimes means they are designed to be “undetected.”
Misconducts such as financial fraud, tax fraud, briery, corruption and especially securities fraud can be complex and require a whistleblower to explain how they were orchestrated.
“But the insider is not going to step forward when they haven nothing to gain and everything to lose,” said Kohn.”
In particular, Kohn said Canada’s limited whistleblower protection laws have left it vulnerable to tax fraud.
Canada loses out on somewhere between $16 billion and $47.8 billion in uncollected taxes each year.
An estimated $6 billion to $7.8 billion is lost to offshore tax evasion.
But the Canada Revenue Agency whistleblower program only offers financial rewards to tipsters with information about cases of Canadians involved with international tax non-compliance, according to Kohn.
“It is the only nonsensical program I’ve ever heard in my life.”
“… ‘Oh, we don’t care if the tax fraud occurs in Canada, we only want whistleblowers if it occurred outside our country.’”
The American example
Kohn said Canada should look to its neighbours to the south for effective whistleblower protection laws.
The U.S. government’s whistleblower programs, operated by the Securities and Exchange Commission and the Commodity Futures Trading Commission, were launched in 2010 as part of the Dodd-Frank Wall Street reforms.
These new laws, which are the focus of Kohn’s forthcoming book, offer awards of between 10 and 30 per cent of all sanctions, with some reaching as high as US$30 million, collected from an enforcement action and whistleblowers can go to court to make sure they get their money.
They also offer confidentiality.
“So if I’m a whistleblower, or a potential (one), and I’m trying to figure out whether it’s worth it for me to risk my career, my livelihood (and) my reputation to blow the whistle (and) If I know I have really good (information) then I can remain confident … if it leads to a successful prosecution — that I must be paid. “
Kohn said because the laws also tie compensation to the importance of the information and whether it leads to a successful legal action, they create an incentive for tipsters to provide high-quality data on a variety of misconduct including, fraud, environmental violations, tax evasion and foreign corruption.
He added that the programs are now the number-one source of fraud detection in the U.S.
“They have been remarkably successful,” said Kohn.
“Billions upon billions of dollars have been recovered for the taxpayers.”
In fact, Kohn said the U.S. boosted its coffers by more than $5 billion from whistleblower cases in last year alone.
“I look at these countries like Canada, and other countries that haven’t implement or fully implemented these laws … you’re letting corruption exist — because it’s very hard to detect without a whistleblower — and you’re missing out,” he said.
“(Canada is) missing out on billions of dollars in compensation.”
Billions lost in compensation
Furthermore, this compensation may be heading south of the border as Canadian whistleblowers are turning to the U.S. in the absence of protections in their own country.
Kohn said that if a Canadian company is traded on the U.S. market, sells shares to Americans, or operates in the U.S., it will likely be covered by its laws.
That means hundreds of Canadians have crossed the border to blow the whistle.
Since 2012, 283 Canadians have filed cases with the SEC alone and Kohn expects more will come as they find out the option exists.
Kohn said the SEC’s whistleblower program has paid out more than $30 million to non-U.S. citizens, with tipsters from the United Kingdom being the number those fundsents of those fund and Canadians being second.
“What the SEC has given out in a couple years, is probably more money than every Canadian whistleblower has ever made in the history of Canada,” he said.
Kohn said Canadians can also look to the Foreign Corrupt Practices Act, which prohibits the bribing of foreign officials, as well as the False Claims Act, which governs fraud in government contracting.
He noted that the CFTC’s whistleblowing program could be especially useful to Canadians because of the prevalence of commodity trading.
Kohn said Canada should “mirror” the legislation stateside and encourage joint co-operation between authorities.
That way it could incentivize whistleblowers to file in Canada and piggyback on cases in the U.S. with a Canadian connection, both of which would lead to more revenue for the government and tipsters.
Kohn said this has occurred in the U.S., as 26 states have enacted laws in line with the federal legislation. This means whistleblowers can file under federal law and state law, and be compensated in both cases.
“Canada could work with the U.S. people, or even tag right behind and get their fair share,” he said.
“All of sudden you would see a radical increase in accountability and recoveries.”