At first blush, it feels somehow unseemly to pay people for providing the authorities with information about a crime. Why can't people do the right thing of their own volition?
In many instances, they can. But white-collar crime in the securities realm may not be one of those instances. Offences such as accounting fraud or insider trading are hard to discover unless insiders are willing to bring issues to light – yet doing so presents huge risks for whistleblowers. Many have faced discipline and dismissal. And even if they escape that fate, their evidence risks damaging their own financial interests: They will likely end up harming and even putting out of business the company that pays their salary. It's only logical that many people weigh the risks (enormous) versus the rewards (none) and decide to turn a blind eye.
In 2011, the U.S. Securities and Exchange Commission decided to see whether they could change those attitudes by paying cash for tips that lead to successful prosecutions. The program has succeeded beyond all expectations, with 3,600 tips pouring in last year alone. Many of them are coming from citizens of other countries – including 58 from Canadians last year – who prefer to bring forward allegations of wrongdoing in a jurisdiction where they may be paid for the information. The Globe and Mail reported Wednesday that SEC officials began investigating Toronto-based advertising company MDC Partners Inc. on the basis of a whistleblower tip.
The Ontario Securities Commission is now considering a similar program, motivated by the success of the U.S. strategy. The proposal is facing criticism, with some saying it could encourage false reports. But with payouts only possible for successful prosecutions, there is nothing to be gained from crying wolf.
The OSC's bigger challenge will be deciding whether to provide payments to people involved in wrongdoing. It's a line that must be drawn carefully, but balance is possible. The OSC needs strong tools to discover and investigate crimes, and payments for information can be justified if they lead to more successful prosecutions.