The New Whistleblower's Handbook
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THE NEW Whistleblower’s
HANDBOOK
A Step-by-Step Guide to Doing What’s Right and Protecting Yourself
STEPHEN MARTIN KOHN
Guilford, Connecticut
An imprint of Globe Pequot
Distributed by NATIONAL BOOK NETWORK
Copyright © 2017 Stephen M. Kohn
All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review.
British Library Cataloguing in Publication Information available
Library of Congress Cataloging-in-Publication Data available
ISBN 978-1-4930-2881-8 (paperback)
ISBN 978-1-4930-2882-5 (e-book)
The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.
Printed in the United States of America
This book is not a substitute for obtaining advice from an attorney. Every effort has been taken to ensure that the information in this book is accurate as of the date of publication, but legislatures can (and do) change the scope of legal protections, and courts often differ when interpreting legal rights. The circumstances surrounding every person’s individual case are unique. If you have a legal issue you should contact an attorney.
This book is dedicated to my six extraordinary teachers: Howard Zinn, William Worthy, Dennis Brutus, Frederick Brown, Mari Jo Buhle, and A. Leon Higginbotham Jr.
“That it is the duty of all persons in the service of the United States, as well as all other inhabitants thereof, to give the earliest information to Congress or any other proper authority of any misconduct, frauds or misdemeanors committed by any persons in the service of these states, which may come to their knowledge.”
Resolution of the U.S. Continental Congress unanimously passed on the 30th day of July, 1778
Contents
Introduction: What to Do if the Boss Is a Crook?
Rule 1: Use the New Legal Tools
Rule 2: Navigate the Maze
Rule 3: Follow the Money
Rule 4: Find the Best Federal Law
Rule 5: Don’t Forget State Laws
Rule 6: Get a Reward! False Claims Act/Qui Tam
Rule 7: Get a Reward! Tax Cheats and the IRS Qui Tam
Rule 8: Get a Reward! Securities and Commodities Fraud
Rule 9: Get a Reward! Report Foreign Corrupt Practices Worldwide
Rule 10: Get a Reward!: Make Sure Automobiles Are Safe
Rule 11: Get a Reward!: Stop the Pollution of the Oceans
Rule 12: Get a Reward!: End Wildlife Trafficking
Rule 13: If Working for the Government, Use the First Amendment
Rule 14: Federal Employees—Defend Your Jobs!
Rule 15: Make Sure Disclosures Are Protected
Rule 16: Yes, You Are a “Whistleblower”
Rule 17: Beware of “Hotlines”
Rule 18: Don’t Talk to Company Lawyers
Rule 19: Auditors and Compliance Officials: Qualify for Rewards
Rule 20: Cautiously Use “Self-Help” Tactics
Rule 21: Be Prepared for the Lid to Blow
Rule 22: Delay Is Deadly
Rule 23: Conduct Discovery
Rule 24: Get to the Jury
Rule 25: Win the Case: Prove Motive and Pretext
Rule 26: Get Every Penny Deserved
Rule 27: Make the Boss Pay Attorney Fees
Rule 28: Hold Companies Accountable for Paying Hush Money
Rule 29: Politics Is Poisonous
Rule 30: Never Forget: Whistleblowing Works
The Final Rule: Remember July 30, 1778
International Toolkit: Taking the Profits out of Corruption
Checklist 1: Whistleblower Reward Laws (Qui Tam)
Checklist 2: Whistleblower Protections Under Federal Law
Checklist 3: Whistleblower Protections Under State Common Law
Checklist 4: What to Look for When Blowing the Whistle on Fraud Against the Government
Checklist 5: Proof of Retaliation
Checklist 6: Discovery in Whistleblower Cases: Obtaining the Evidence Needed to Win a Case Against an Employer
Checklist 7: Dodd-Frank, Securities Fraud, and FCPA “Q&As”
Checklist 8: Foreign Corrupt Practices Act Recoveries 2015–2016
Annotated Chapter Sources
Resources for Whistleblowers
Acknowledgments
Special thanks are owed to my law partners, Michael D. Kohn and David K. Colapinto, who have courageously worked with me for over thirty years fighting for whistleblowers. Additional thanks to Mary Jane Wilmoth and all of the attorneys and staff of the law firm of Kohn, Kohn, and Colapinto, along with the volunteers and staff at the National Whistleblower Center and the numerous students who clerk with us, including Frederic Whitehurst, Jane Turner, Rev. William Yolton, William Sanjour, Mark Toney, Gina Green, Peter Williams, David Lewis, Ashley Binetti, Paul Lyons, Casey Kovarik, Jedd Lewis, Leah Tedesco, and Rebecca Guiterman. Without the support and love from my family, Leslie Rose, Nataleigh Kohn, Max Kohn, Corinne Kohn, Ana Maria Ramos Kohn, Rossie Ramos, Arthur Kohn, and Michael Rose, this book would never have been written. My late sister, Estelle Kohn, deserves special acknowledgment. After interviewing hundreds of whistleblowers seeking help, she was the one who insisted that I write this handbook. Finally, thanks to my agent, Rita Rosenkranz, and Lyons Press editor Keith Wallman for working with me to ensure that this new edition would be published.
Stephen M. Kohn
Washington, DC
July 1, 2017
INTRODUCTIONWhat to Do if the Boss Is a Crook?
“You can’t fix something if you don’t know it’s broken. That’s just common sense.”
Senator Charles Grassley, July 30th 2015,
Whistleblower Day Celebration
On August 6, 2012, the U.S. Internal Revenue Service (“IRS”) changed whistle-blower law forever. It issued a dramatic ruling on a “reward” claim filed by Bradley Birkenfeld, a whistleblower who successfully exposed illegal secret banking practices by UBS AG (at the time, the world’s largest bank). Birkenfeld traveled from Switzerland to the United States and provided detailed information on a twenty-billion-dollar UBS program dedicated to soliciting and managing illegal off-shore Swiss bank accounts on behalf of American tax cheats. He lost his job, was prosecuted for tax violations by the U.S. government, and had spent almost three years in prison. He was a poster child of how whistle-blowers who try to do the right thing can be utterly destroyed. Up until that point it appeared as if his case stood as a warning against others who may dare to hold the most powerful institutions in the world accountable.
But on August 6, 2012, all that would change. The IRS did what many cynics thought was utterly unthinkable. They enforced the whistleblower law designed to protect and encourage the Bradley Birkenfelds of the world who step forward and expose wrongdoing. On that day the IRS issued its ruling on Birkenfeld’s case. Mr. Birkenfeld was awarded $104 million under the IRS’s whistleblower program. It was the single largest whistleblower reward paid in world history to a single individual. It sent shockwaves not just within American financial institutions but worldwide, especially in Switzerland.
In making its award, the IRS explained not only why Mr. Birkenfeld qualified for such a large reward but also explained the key role whistleblowers play in the detection of otherwise well-hidden frauds:
Birkenfeld provided information on taxp
ayer behavior that the IRS had been unable to detect, provided exceptional cooperation, identified connections between parties to transactions (and the methods used by UBS AG), and the information led to substantial changes in UBS AG business practices and commitment to future compliance. . . . The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth. . . . While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS . . .
In Switzerland the fallout from this reward was dramatic and stunning. The leaders of the Swiss banking community, who had prided themselves in keeping offshore banking practices completely secret from international authorities, including the American government, announced that the era of creating illegal bank accounts for American citizens was over. The fear that other Swiss bankers would blow the whistle to U.S. authorities and become multi-millionaires did the trick. Billions upon billions of dollars previously stashed in these hidden accounts has been repatriated to the U.S., resulting in the largest collection of back taxes, fines, and penalties in history ($13.7 billion to date). The whistleblower, Bradley Birkenfeld, had forever changed the course of international banking.
Who are these whistleblowers? Sometimes they are people you read about with admiration in the newspaper. Many others choose to be anonymous or confidential. Whistleblowers are workers performing their jobs. A pipe fitter from Aiken, South Carolina who complained about illegal drug sales at a nuclear weapons plant was fired but won back his job. A technician from Wilmington, North Carolina, who reported radioactive contamination on her workbench. Consequently, she lost her job and never again worked in the nuclear industry. In New Jersey a drug company executive exposed fraud in sales to the federal Medicare program. As a result, he obtained a million-dollar whistleblower reward for “doing the right thing.” Whistleblowers are citizens performing their public service. They are your neighbors, your co-workers, your bankers, your bosses. Sometimes they are the highest ranking officials in a company, tired of sitting on the sidelines when witnessing corruption.
The list does not end here. At some point it may even include you, the reader, if not today, then sometime in your career.
In each example cited above, the worker who witnessed wrongdoing or suffered from retaliation did not simply go away, unhappy, impoverished, or dejected. Instead he or she stood up and insisted that “doing the right thing” at work must be protected. In each case a single employee demanded that his company or her government follow the law. This changed the American work-place for the better. These people, and thousands similar to them, changed the laws, protected the taxpayers, exposed frauds, and changed the way we view employees who earn the title “whistleblower.”
Whistleblowing is now occurring in every major company in the world, and in every government agency within the United States. Why? The culture of “cover-up” is alive and well. In 2015 the Institute of Internal Auditors, a highly respected trade association of compliance professionals with 180,000 members in 170 countries, published a survey of its members. The numbers speak for themselves. As reflected in Figure 1, 55 percent of North American chief audit executives “reported being directed to omit or modify an important audit finding.”
The survey revealed that 49 percent were told “not to perform audit work in high-risk areas,” while another 32 percent were “directed to work in low-risk areas so an executive could investigate or retaliate against another individual.” The institute’s conclusion was most troubling: There were “pervasive efforts” to suppress or improperly influence audit findings. This type of corporate misconduct will give rise to whistleblowers, some of whom will lose their jobs, but others will file claims confidentially and qualify for rewards under the new whistleblower laws.
Based on these findings, it is also not surprising that millions of Americans are aware of misconduct occurring at their jobs. The National Business Ethics Survey found that 62 million American workers have witnessed fraud or misconduct at work. This survey, conducted by the Ethics Resource Center, was funded by corporate giants such as Walmart, Northrop Grumman, BP, and Raytheon Company, to name a few. This same survey found that an estimated nine million employees who reported misconduct experienced retaliation, and that reports of retaliation were significantly increasing.
Whistleblowing Is More Effective than Regulatory Authorities in Detecting Fraud
Outside of the major headlines, it may be difficult to realize how whistle-blowing works. PricewaterhouseCoopers, among the most well-known and respected corporate auditing firms in the world, conducted “the most comprehensive world-wide” study of corporate fraud. The firm interviewed fifty-four hundred chief executive officers, chief financial officers, and chief compliance officers in nearly every major global corporation, with the goal of detecting the depth of corporate crime in the international economy and the best methods available for combating that crime.
The results of the study were most revealing. It was determined that whistleblowers (“tipsters”) are the single most effective source of information in both detecting and rooting out corporate criminal activity. The study showed that some corporate executives privately praised the contributions that whistleblowers made to uncovering fraud and corruption within their companies. In addition, whistleblowers who worked for free uncovered far more fraud than all the government police and regulatory authorities, and they uncovered more fraud than even the paid professional corporate auditors and compliance officers. In other words, worldwide, on a day-to-day basis, whistleblowers detected and exposed more wrongdoing in the corporate world than every investigator and auditor working for every law enforcement and regulator agency combined.
After documenting the immense contributions of the whistleblowers, PricewaterhouseCoopers, speaking for international capitalism itself, concluded that whistleblowers were absolutely essential for the “detection” of corporate crime. The firm urged corporations to change their workplace culture and promote employee disclosures. “Best practice” recommendations for every corporation, the first of which was strong provisions to protect whistleblowers from any form of retaliation, were also established.
The critical role whistleblowers play in detecting fraud was confirmed in all of the annual highly respected Global Fraud Study conducted by the Association of Certified Fraud Examiners. Its 2016 conclusion was clear: “our research has consistently established tips as a major source for detecting fraud.”
The internal statistics of the U.S. Department of Justice’s Civil Fraud Division confirm these conclusions. Annually, the Civil Fraud Division publishes statistics on the amount of money the federal government recovers from government contractors who commit fraud against taxpayers. Over the past twenty-five years, of the billions of dollars recovered by the government from fraudulent contractors, the majority of money was obtained as a direct result of whistleblowers filing claims under one old whistleblower protection law (the False Claims Act). The Justice Department statistics speak for themselves. Between 1986 and 2016 the government successfully prosecuted fraud cases on its own and recovered $15.347 billion from fraudsters. During the same time period, with the help of whistleblowers the government recovered $37.685 billion. Whistleblowers now uncover 70 percent of the civil frauds recovered by the United States. Whistleblowers were able to detect and report more fraud in government contracting than every government contract officer, inspector general, Justice Department attorney, and other paid government bureaucrat combined.
These findings point to the reality of modern-day whistleblowing—it is widespread, worldwide, and extremely effective. Whistleblowers can create positive change in ways many elected officials can only dream of. At the grassroots level, literally on the factory floors themselves, whistleblowers are changing the way both government and corporations work, and the change is for the better.
The Rewards—Both Personal and
Financial
Employees who exposed wrongdoing within their own companies were once universally ridiculed. In the words of U.S. Senator Charles Grassley, they were seen as “skunks at the picnic.” However, public opinion has changed. As exemplified by Time magazine honoring three whistleblowers as the “Persons of the Year,” employees who report wrongdoing are no longer thought of as oddballs or pariahs. In the first truly “scientific” opinion poll testing the public’s perception of whistleblowers, an overwhelming majority of those surveyed supported whistleblowers. Furthermore, an overwhelming 79 percent of those surveyed supported increased protection for whistleblowers.
Congress has felt the pressure to act. Over the past fifty years, protections for whistleblowers radically expanded in ways that were unimaginable in the 1960s and 1970s. The federal government mandated that all companies who traded on Wall Street create “employee concern” programs to investigate internal whistleblower allegations. The mandate was expanded to include all large federal contractors. Antiretaliation laws were then passed, covering millions of employees, including those working for federal and state governments and most private-sector corporations. The United States enacted laws designed to financially reward whistleblowers. Initially, these reward laws were focused on protecting employees who exposed fraud in government contracting and procurement. They were based on a percentage of monies recovered by the federal government from fraudulent contractors. Billions have been recovered under this whistleblower law, and (as of September 2016) employees have earned over $6.352 billion in rewards. Congress enacted similar whistleblower reward laws for employees who report large tax frauds, securities or commodities fraud, pollution at sea, auto safety, and illegal wildlife trafficking.