Whistleblowing and Capital Markets Fraud Legislation Comes Into Force

HRinfodesk---Canadian Payroll and Employment Law, September 2004

Bill C-13 (amends the Criminal Code) that target prohibited insider trading and deter intimidation of employees reporting unlawful conduct in their workplace are key features of the legislation that is now in effect. Most provisions in Bill C-13 came into force on September 15, 2004. Additional provision involving concurrent jurisdiction will be implemented at a later date to allow for a coordinated approach in relation to the prosecution of offences threatening the integrity of Canada's capital markets.

"These measures will enhance our ability to crack down on unlawful corporate conduct that endangers our markets, while forbidding employers from threatening sanctions against employees who report such wrongdoing" said Minister of Justice and Attorney General of Canada Irwin Cotler. "Our laws must show corporate criminals that their actions will have serious consequences." said Minister Cotler. New measures include:

* Making insider trading a criminal offence that target employees of corporations and others who use privileged information to benefit themselves. The measure complements existing provincial rules;

* Providing protection to employees for reporting unlawful conduct within their corporation;

* Establishing that both the federal and provincial governments have jurisdiction to prosecute capital market fraud cases; and

* Employees are entitled up to eight weeks of unpaid job-protected leave to support and care for a seriously ill family member with a risk of dying within a 26-week period.

* Increasing the maximum sentences for fraud offences and establishing aggravating factors to assist the courts in determining appropriate sentences;

The whistleblower protection provided to employees has the most direct impact on employers and human resource professionals because employees often play an important role in revealing corporate misdeeds. Currently, however, employees who have knowledge of corporate wrongdoing often do not speak up for fear of demotion, dismissal or other retaliation from their employer. Also, many employees are subject to stringent confidentiality agreements that make breach of such discretion cause for immediate dismissal.

Whistleblower protection already exists in the Competition Act, in various health and safety legislation and environmental legislation. Anti-reprisal protection exists in a number of employment-related contexts, including employment standards, workplace safety and human rights legislation. However, the new whistleblower protection in the Criminal Code is much broader than other existing protection; the new amendments to the Criminal Code make it an offence for an employer, supervisor or an employer’s agent to threaten or to actually negatively affect that person’s employment in an effort to discourage or stop the employee from providing information to law enforcement officials. It also makes it an offence to retaliate or threaten to retaliate against an employee that has already provided information about an offence. The penalty for violating the provisions of the Code related to whistleblowing carry a maximum penalty of 5 years imprisonment, in addition to any provincial or regulatory sanctions under securities legislation—including imprisonment in a federal penitentiary.

To help with enforcement, the government announced the creation of six special investigation teams dedicated to financial-markets fraud cases.

These Integrated Market Enforcement Teams (IMETs), are made up of RCMP investigators, federal lawyers and other experts, and will be introduced sometime in 2004-2005. The teams will be based in the financial districts of Toronto, Vancouver, Montreal and Calgary, but will investigate these crimes across the country.

In this context, employers and human resource professionals are cautioned to review or establish policies, standards and procedures including stringent confidentiality policies or agreements, that are actually effective in reducing the likelihood of the organization and its representatives committing an offence under these new liabilities, as well as to ensure that they do not prevent an employee from speaking to law enforcement authorities about a legitimate concern regarding potential corporate wrongdoing.

The policies and/or agreements to review and/or implement are confidentiality policies and agreements, workplace conduct and behaviour, ethics and corporate governance, conflict of interest, kickbacks, whistleblowing, complaints and investigations, disciplinary and termination policies, as well as finance and accounting policies. Several lawyers have stated that organizations should focus on the following areas:

* Create a positive work environment and culture which sets the tone from upper to lower level management. Implementing a code of conduct or a guide to ethical conduct will help generate the right atmosphere and guide employees in making appropriate decisions;

* Communicate expected moral behaviour to employees including upper and lower level management;

* Develop and implement measures to deter and detect fraud which include management control that are monitored;

* Develop and implement an employees’ anonymous confidential method to communicate knowledge of dishonest, unethical, and fraudulent activities to their organization;

* Develop and implement computer security including proper password and staff access controls at the user level, and appropriate system security and monitoring at the organizational level;

* Hire and promote the right employees and conduct thorough background checks and criminal background checks (if applicable);

* Conduct ongoing performance reviews;

* Provide fraud, insider trading and tipping awareness training programs;

* Review and update all such programs annually.

In addition, protect the confidentiality and anonymity of all communications received by employees. Take them seriously and conduct proper investigations (discretely and efficiently) into the allegations before taking action. Ensure you document all steps and results of the investigation. Ensure all records and documents necessary for an investigation remain intact and are in safekeeping. If the investigation validates the complaint, report it to the police or the proper level of law enforcement. Do not confront or terminate a suspected employee until you have consulted legal counsel and/or an adviser experienced in fraud investigations.

Ensure that all employees including management, and/or shareholders, and/or board of directors including owners are educated about the implications and consequences of Bill C-13 and follow the established rules. Be diligent as well as vigilant.

For more information on Bill C-13, go to Bill C-13.

By Yosie Saint-Cyr, Editor at HRinfodesk

Published on HRinfodesk---Canadian Payroll and Employment Law

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