Law Times

Law Times • June 6, 2011 Alarm sounded on new SEC bounty payments BY JULIUS MELNITZER For Law Times I n a move that could have seri ous implications for Ca- nadian companies doing business in the United States, the U.S. Securities and Exchange Commission is implementing provisions of the Dodd-Frank Wall Street Reform and Con- sumer Protection Act that au- thorize what amount to large bounty payments to whistle- blowers for information about violations of securities laws. "Anyone who thinks Dodd- Frank is just a U.S. phenomenon should think again," says Susan Hackett, the Association of Cor- porate Counsel's general counsel. Adopted on May 31, the rules allow whistleblowers to by- pass internal compliance systems through the direct submission of tips to the SEC in exchange for payments of up to 30 per cent of any penalty imposed. Th e ACC issued a strongly worded statement impugning the program. "Th e SEC's bounty rule is a Pandora's box that, when opened, is likely to create new and even unanticipated harms rather than promoting better reporting of in- ternal problems," says Hackett. Indeed, when the rules were fi rst proposed in late 2010, the ACC responded with a brief signed by general counsel from 250 of the largest U.S. compa- nies. Signifi cantly, Canadian corporations, including Bell Canada Enterprises, BMO Fi- nancial Group, Royal Bank of Canada, and TD Bank Financial Group, were also signatories. But it's not just Canadian multinationals or other compa- nies subject to U.S. securities laws that will feel the eff ects. "Any Ca- nadian company that does busi- ness in the U.S. or partners with a U.S.-listed company is exposed," says Amar Sarwal, the ACC's as- sociate general counsel. What's signifi cant here is that the whistleblower rules apply to any individual, not just employ- ees of U.S.-listed companies or U.S. citizens. "For example, an employee of a private Canadian company who becomes aware of a violation through the company's relationship or partnership with a U.S.-listed company is eligible for bounty payments," Sarwal notes. Under U.S. law, preventing anyone from communicating with the SEC is a violation. Th e upshot is that Canadian compa- nies risk prosecution should they attempt to stop their employees from passing on tips about the conduct of an American partner. Th e issue isn't just theoreti- cal. Since 2002, when the U.S. Congress extended protection to whistleblowers in the Sarbanes- Oxley Act, regulators have wel- comed them enthusiastically. "Having been directed by Congress to put the Dodd-Frank program in place, the SEC will be under a great deal of pres- sure to ensure that whistleblower Untitled-2 1 www.lawtimesnews.com 6/1/11 9:34:50 AM ACCELERATE YOUR SUCCESS GET THE FULL PICTURE OF THE LAW WITH WESTLAW® CANADA EFFECTIVE RESEARCH PATHWAYS Experience seamlessly integrated research that's illuminating and efficient, not confusing and frustrating. All Westlaw Canada content is seamlessly linked so you never have to back track to find related information. You'll find everything you need in one place. We'll point out and provide links to relevant related material along the way. This logical linking ensures that your research is always moving forward, giving you the fastest route to better results. Get Better Results Faster with Westlaw Canada Call 1-866-609-5811 or visit www.westlawcanada.com complaints are fully investi- gated," says Cornell Wright of Torys LLP. Th e ACC's primary sug- gestion for modifi cation of the proposals was that the SEC require an individual who had information on corporate mis- conduct to fi rst use existing in- ternal compliance and report- ing systems and then give the company a reasonable time to resolve the issue before turn- ing to the regulator. Th e argu- ment resounds with Canadian companies that in the years fol- lowing the Enron debacle have been no less vigilant than their U.S. counterparts in focusing on internal reporting. "Canadian companies gen- erally have very good inter- nal compliance systems," says Wright. "But in the end, the ex- istence of a fi nancial reward for going to the SEC is a signifi cant incentive for whistleblowers to bypass internal systems." NEWS PAGE 3 Project seeks global pro bono market M BY MICHAEL McKIERNAN Law Times onique Villa has an ambitious plan: to create a worldwide market for pro bono legal services. Th e CEO of the Th omson Reuters Founda- tion was in Toronto last week to recruit members for the foundation's TrustLaw project, which links lawyers willing to provide free services and non- governmental organizations and charities in need of legal support. "Pro bono is practised currently very well in only a few countries: mainly the U.K., the U.S., Cana- da, South Africa or Australia," Villa says. "In other countries, it is either completely ad hoc, where a lawyer happens to know an NGO and helps them, or it is forbidden altogether." Lawyers in major countries such as Brazil and Germany were unable to work pro bono until re- cently. In Brazil, there was a ban until two years ago. In Germany, the practice was fi nally allowed just last year. Villa now wants to capitalize on those changes. "Our idea is to create a market for pro bono and spread the practice worldwide," she says. TrustLaw launched in June last year with 180 members and has grown quickly to 430 of them. Th at total includes more than 100 law fi rms, as well as several in-house counsel at some of the world's largest companies, including General Electric, Merck & Co. Inc., and Hewlett-Packard Development Co. Canadian law fi rms Torys LLP and McCarthy Tétrault LLP are among the early adopters, although Villa hoped to add more dur- ing her trip. "I have a huge program while I am here," she says. "Th ere is a lot of interest. For lawyers and law fi rms, it gives them access to the kinds of projects and research they never had access to before be- cause it's completely worldwide." On the other side of the equation, TrustLaw's remaining members include NGOs and social en- trepreneurs in need of legal advice and support. Much of TrustLaw's eff ort has gone into large international projects, including one that calls on the global network of lawyers to help Transparency International with research on corruption rates in more than 100 countries. Another major project is looking into the legislative barriers to microfi nance projects in the European Union. But it's not just large projects that TrustLaw helps with. Swiss-based Medair, an emergency relief charity that has worked in crisis-hit areas such as Haiti, got help from Torys as it explored the possibility of opening a Canadian offi ce to support its work in the Caribbean.

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