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May 6th, 2004:

Whistleblower protection in the Criminal Code

By Yosie Saint-Cyr, Editor at HRinfodesk

May 06, 2004


Unethical business conduct that began in the boom of the 1990s are still being discovered. In fact, since the barrage of international corporate scandals that have shaken investor confidence around the world—which has resulted in lost security for retirees and lost jobs for workers—the governments of the United States and Canada have been compelled to implement tougher rules on corporate activities and governance. In Canada, Bill C-13, An Act to amend the Criminal Code (Capital Markets Fraud and Evidence-Gathering) received Royal Assent on March 29, 2004 and is awaiting a date to come into force by Order in Council. Read about the Bill in the following article.

The Bill is said to be an attempt to strengthen investor confidence in the court’s ability to regulate corporate wrongdoing and protect employees for reporting unlawful conduct such as insider trading or capital markets fraud stemming from potential violation of federal or provincial law. In addition, the new legislation takes into account the complex structure of modern companies, where middle and lower level management often oversee daily operations.


New measures include:

  • Making insider trading a criminal offence that would 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
  • 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.


What employers should know and do

According to a study by the Association of Certified Fraud Examiners (CFE) over 80% of fraud involves asset misappropriation—with cash, or its equivalents—being targeted 90% of the time. The average fraud scheme lasts about 18 months before it's detected and over half costs their victims at least $100,000; nearly one in six cause losses of $1 million or more. Those larger losses are often the work of mid to upper level management.

Experts have indicated that the type of corporate environment that is most susceptible to fraud will usually have the following characteristics:

  • Corporate ethics that are not clearly defined or well communicated;
  • Management controls that are not monitored often enough to ensure that they are being followed; and
  • Management rewards (bonuses or raises) that tend to be based on short-term results rather than long-term goals. 

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.

By Yosie Saint-Cyr, Editor at HRinfodesk

©1999-2004 First Reference


Written By: Yosie Saint-Cyr, Editor at HRinfodesk
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