The rollout of the Ontario Securities Commission’s new Office of the Whistleblower this July has not caught larger law firms napping.
For the last five years, firms have been developing and branding white-collar crisis response teams to react to an anticipated upswing in internal investigations in the corporate world.
Crisis teams may be getting more interest, for example, if the Ontario Securities Commission’s whistleblower program has wide take-up. The program offers compensation of up to $5 million to people who come forward with tips that lead to enforcement action in relation to possible violations of Ontario securities law, including illegal insider trading, market manipulation and accounting and disclosure violations.
“We are expecting to see more investigations start as a result of whistleblowing,” says Danielle Royal, a partner at Stikeman Elliott LLP. “Whistleblowing is not new, but the policy to provide incentives is.”
Royal is part of the white collar and regulatory crisis response team at the firm. She says her group had been doing a significant amount of white collar crime investigations over the last 15 years but only officially branded the group four years ago.
“We saw our competitors branding practice groups in the U.S. and Canada,” she says. “We knew we had as much, if not more, expertise from a Canadian law perspective. It’s important for marketing but also for letting clients know that we have expertise both in respect of investigative practice and subject matter.”
Royal says if allegations of corporate wrongdoing occur, one of the benefits of retaining external counsel in the initial fact-finding stage is in establishing a potential privilege claim.
“When a company retains legal counsel, the contents are subject to attorney-client privilege. If the internal compliance group do the initial investigation, that is disclosable both to regulators and in the event of a civil action,” she says.
Royal observes that often, when crises erupt, there is pressure to do something quickly.
“Decisions are made without thinking about the consequences. The companies want transparency, so getting information out to the public is more important than preparing for future lawsuits,” she says. “We have seen how these crises unfold and the repercussions. With our involvement, the company can make an intentional decision [whether to waive attorney-client privilege].”
Norm Keith, a partner at Fasken Martineau DuMoulin LLP, is part of the firm’s white- collar defence and investigations group. He says that regulators expect the alleged wrongdoer to hire a lawyer.
“It’s necessary if you want them to consider deferred prosecutions. It makes sense to co-operate with regulators,” he says.
Keith considers the whistleblowing program to be controversial because it encourages turning alleged wrongdoers into an outside agency instead of an internal compliance group.
“Rather than encourage compliance, it encourages non-compliance and profit.”
He is particularly concerned that a co-conspirator is not disqualified from recovering under the scheme.
“A person can technically profit from their own crime, which is against the English common law precepts,” he says.
Royal is more optimistic about the program.
“The Securities Commission has tried to strike a balance between the potential for abuse and providing an incentive for individuals who notice a problem and feel they are in a position that they can’t bring it to their own employer’s attention. It’s given them a path. It remains to be seen if they have struck the right balance,” she says.
Whistleblowing is not the only area where crisis teams are expecting to see increased activity.
Growing regulatory scrutiny and law enforcement are exposing corporations to the risk of criminal and regulatory proceedings as well as conduct-related civil litigation.
Jim Douglas, national co-head of the investigations and white-collar defence group at Borden Ladner Gervais LLP, recalls that his team was developed in response to the growing complexity of commercial crime in the securities, competition and trade areas.
“We formally decided about five years ago to stake out some turf in the area of internal investigations and white-collar defence. We put a label on what we were previously doing under the rubric of our capital and security markets litigation practice,” he says.
“There is increasing pressure on law enforcement to devote attention to the white-collar area,” Douglas says.
“Take, for example, the capital markets area. Regulators now have formal co-operation with what were previously wholly independent policing bodies through the OSC’s Joint Serious Offences Team,” says Douglas.
“This is one of the many different initiatives undertaken to advance the regulatory and policing world’s expertise in the area. They are making more use of tools and regularly looking to expand powers and tools.”
Keith has also observed that regulators are becoming more aggressive.
“There is a growing sense amongst the common people that people who wear suits shouldn’t get away with crime just because they scrub up better and wear a white shirt and tie,” he says. “Regulators are feeling more public pressure to use all their tools to root out potential wrongdoing.”
The teams all offer advice on risk avoidance as well as crisis response services.
“We provide services to develop risk assessments of what potential risks they face in the marketplace, depending on the nature of the industry,” says Royal.
“We provide internal and external protections and public relations expertise to put contacts in place so corporations are not operating in reactive mode. We hope they don’t need it, but it’s ready to go if they do.”