by Stephen Kohn
The types of cases whistleblowers successfully filed has remained remarkably consistent. For example in 2016 taxpayers recovered $2.9 billion from cases filed by whistleblowers, including a $67 million recovery against Genetech Inc. for providing false information about a cancer drug; M&T Bank had to pay $64 million for issuing improper mortgages; Z. Gallerie had to pay $15 million for evasion of customs duties; 21st Century Oncology paid $37.7 million for performing unnecessary procedures; ArmorSource paid $3 million due to illegal manufacturing and testing methods used to produce military helmets; Lockheed Martin paid $5 million for failing to properly dispose of dangerous waste; Centerra Services paid $7.4 million for double billing on wartime security contracts; RehabdCare and Kindred Health Care paid $125 million for performing unnecessary rehabilitation services.
Rule 7: Get a Reward! Tax Cheats and the IRS Qui Tam
The IRS rewards law is codified at 26 U.S.C. § 7623. IRS Notice 2008-4, 2008-1 C.B. sets forth procedures for submitting claims to the IRS Whistleblower Office. See also Internal Revenue Manual, Part 25.2.2 (updated June 18, 2010). The IRS is in the process of publishing final rules for its whistleblower program at 26 C.F.R. § 301. The IRS Whistleblower Office website: www.irs.gov/uac/whistleblower-informant-award.
The Tax Court can hear appeals filed by whistleblowers that challenge both the amount of an award or the denial of an award. Cooper v. Commissioner, 2010 Tax Court LEXIS 20, 135 T.C. No. 4 (July 8, 2010).
Whistleblower 21276-13W v. Commissioner of IRS, 147 Tax Court 4 (Aug. 3, 2016) (Tax Court expands scope of “alternative remedy” provision). (Note: The commission does not approve of this ruling.)
Whistleblower 21276-13W v. Commissioner of IRS, 144 Tax Court 290 (2015) (Form 211 need not be filed before whistleblower provides information to other parts of the IRS).
IRS Whistleblower Office, Annual Report to Congress on the Use of Section 7623 (2009).
Department of Treasury Inspector General for Tax Administration, “Deficiencies Exist in the Control and Timely Resolution of Whistleblower Claims” (Aug. 20, 2009).
Alexander Dyck, et al., “Who Blows the Whistle on Corporate Fraud?” University of Chicago Booth School of Business (Working Paper No. 08-22).
U.S. Tax Court, Title XXXIII, “Whistleblower Actions,” Rules 340-344 (tax court rules for whistleblower appeals).
Dennis Ventry, Jr., “Whistleblowers and Qui Tam for Tax,” Vol. 61 Tax Lawyer 357 (2007).
Karie Davis-Nozemack, et al., “Lost Opportunities: The Underuse of Tax Whistleblowers,” 67 Administrative Law Review 321 (2015).
Government Accountability Office, IRS Whistleblower Program: Billions Collected, but Timeliness and Communication Concerns May Discourage Whistleblowers, GAO-16-20 (October 2015).
Government Accountability Office, Offshore Tax Evasion: IRS has Collected Billions of Dollars, but May be Missing Continued Evasion, GAO-13-318 (March 2013).
Stephen Ohlemacher, “Tips on tax cheats skyrocket with bigger rewards,” Associated Press (Oct. 1, 2009); Barry Shlachter, “Tax Whistleblowers Stand to Reap Bigger IRS Rewards,” Star-Telegram.com (April 14, 2010).
John Koskinen, Commissioner, IRS, Prepared Remarks Before the U.S. Council for International Business-OECD, International Tax Conference (Washington, D.C., June 3, 2014).
Bradley Birkenfeld, the most famous tax whistleblower, told his story in his book Lucifer’s Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy (Greenleaf Book Group Press, Austin TX, 2016).
Rule 8: Get a Reward! Securities and Commodities Fraud
The three main whistleblower protection provisions in Dodd-Frank are codified at 7 U.S.C. § 26 (commodities); 15 U.S.C. § 78u-6 (securities); and 12 U.S.C. § 5567 (consumer protection).
Dodd-Frank Act, Public Law No. 111-203, 124 Statutes at Large 1376 (July 21, 2010). The following sections enhance whistleblower rights: § 748 creates a new section 23 of the Commodities Exchange Act that provides for mandatory whistleblower rewards and prohibits retaliation; § 922 creates a new 21F of the Securities Exchange Act that provides for mandatory whistleblower rewards and prohibits retaliation; §§ 922 and 929A contain the provisions that amended and improved the Sarbanes-Oxley whistleblower protections; § 924 requires the SEC to establish a special whistleblower office and enact regulations enforcing whistleblower rules; § 1507 establishes new whistle-blower protections for employees who make protected disclosures related to the enforcement of the Bureau of Consumer Financial Protection; § 1079B(c) amended the False Claims Act antiretaliation law to provide for universal national three-year statute of limitations to file wrongful discharge/retaliation claims under the FCA.
The Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) will publish rules governing the whistleblower rewards provisions of Dodd-Frank. The SEC’s rules are codified at 17 C.F.R. Parts 240 and 249. The CFTC rules are codified at 17 C.F.R. Part 165.
Reward claims must be filed as mandated under the rules of the SEC or CFTC. The failure to follow these procedures can result in the denial of a reward.
On June 13, 2011, the SEC published its final version of these rules, along with an extensive analysis of each requirement. A similar publication by the CFTC was published shortly thereafter, on August 25, 2011. The actual regulations, and the detailed explanation of these rules, are available at: 76 Federal Register 34300 (SEC) and 76 Federal Register 53172 (CFTC).
U.S. Senate Committee on Banking, Housing, and Urban Affairs, “The Restoring American Financial Stability Act of 2010,” Senate Report No. 111-176, 111th Cong. 2nd Session (April 30, 2010) (the final Senate report containing the legislative history/analysis of the Dodd-Frank Act).
U.S. Senate Committee on Banking, Housing, and Urban Affairs, “Dodd-Frank Wall Street Reform and Consumer Protection Act: Conference Report,” Senate Report No. 111-517, 111th Cong. 2nd Session (June 29, 2010) (containing the final text of the Dodd-Frank Act).
The SEC’s policy and practices on “disgorgement” in Janigan v. Taylor, 344 F.2d 781 (1st Cir. 1978); Elaine Buckberg and Frederick Dunbar, “Disgorgement: Punitive Damages and Remedial Offers,” 63 Bus. Law. 347 (2008).
Prior to the passage of the Dodd-Frank Act, the Inspector General for the SEC concluded that the existing voluntary bounty program was gravely deficient. Securities and Exchange Commission, Office of Inspector General, Office of Audit, “Assessment of the SEC’s Bounty Program,” Report No. 474 (March 29, 2010). The Office of Inspector General was also very critical of the SEC’s handling of the Madoff scandal and the whistleblowers who had stepped forward. See SEC, Office of Inspector General, Office of Investigations, “Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme,” OIG Report No. OIG-509 (Aug. 31, 2009).
Testimony of Harry Markopolos before the House Committee on Financial Services (Feb. 4, 2009); Senate Banking, Housing, and Urban Affairs Committee (Sept. 10, 2009) (Markopolos provided testimony in support of the new qui tam provisions contained in Dodd-Frank). See Suzy Jagger, “Madoff Warnings ‘Ignored for 10 Years,’” TimesOnline (Dec. 17, 2008).
U.S. Senate Committee on Banking, Housing, and Urban Affairs, “Dodd-Frank Wall Street Reform: Conference Report Summary” (Committee website, 2010).
U.S. Senate Committee on Banking, Housing, and Urban Affairs, “Dodd Statement on Wall Street Reform Conference” (June 25, 2010).
Congressional Record, S. 4066 (May 20, 2010) (Statement by Senator Feingold).
Geoffrey Rapp, “Beyond Protection: Invigorating Incentives for Sarbanes-Oxley Corporate and Securities Fraud Whistleblowers,” Vol. 87 Boston University Law Review 91 (2007).
Rule 9: Get a Reward! Report Foreign Corrupt Practices Worldwide
The Foreign Corrupt Practices Act, 15 U.S.C. § 78m and § 78dd-1, et seq.
The Department of Justice (DOJ) resource page on the FCPA is located at www.justice.gov/criminal-fraud/foreign-corrupt-practices-act.
The legislative history of the
FCPA is published by the DOJ at www.justice.gov/criminal-fraud/legislative-history.
The best source of information explaining the requirements of the FCPA is the Resource Guide to the U.S. Foreign Corrupt Practices Act, published by the Criminal Division of the DOJ and the Enforcement Division of the Securities and Exchange Commission (SEC). A copy of this guide is available at www.whistleblowers.org.
Resources for understanding the FCPA, including translations of how the law works in more than ten languages, are published at www.kkc.com/Handbook and www.globalwhistleblower.org.
The FCPA statute is translated into fifty languages at www.justice.gov/criminal-fraud/statutes-regulations.
The SEC publishes a list of FCPA prosecutions at www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.
The following articles provide additional information and perspectives on FCPA.
Bryan Cave, “Alert: The Implications for FCPA Enforcement of the SEC’s New Whistleblower Rules” (June 22, 2011); available at www.bryancave.com.
Philip M. Nichols, “The Neomercantilist Fallacy and the Contextual Reality of the Foreign Corrupt Practices Act,” 53 Harvard Journal on Legislation 203 (Winter 2016) (broad scope of FCPA).
Daniel Grimm, “Traversing the Minefield: Joint Ventures and the Foreign Corrupt Practices Act,” 9 Virginia Law and Business Review 91 (2014) (broad reach of FCPA).
The SEC has a web page, “FCPA Spotlight,” located at www.sec.gov/spotlight/fcpa.shtml. The SEC’s website also contains a list of every foreign company that sells stocks to Americans under the American Depository Receipt program.
An FCPA violation also implicates the following laws, which can give rise to additional penalties: Sarbanes-Oxley Act, Section 302 (15 U.S.C. § 7241) (accuracy of financial reports); Section 404 (15 U.S.C. § 7262) (internal controls over financial reporting); Travel Act (18 U.S.C. § 1952); as well as laws covering money laundering, mail and wire fraud, false certifications, and violations of the Internal Revenue Code.
Rule 10: Get a Reward!: Make Sure Automobiles Are Safe
The antiretaliation law: 49 U.S.C. § 30171.
The Department of Labor regulations implementing the law: 29 C.F.R. § 1988. Statute setting forth entitlement to rewards: 49 U.S. Code § 30172.
Legislative history of the reward statute: Senate Report 114-13, “Motor Vehicle Safety Whistleblower Act, Report of the Committee on Commerce, Science, and Transportation on S. 304” (April 13, 2015).
“Examining S. 3302, The Motor Vehicle Safety Act of 2010,” hearing before the Committee on Commerce, Science, and Transportation, U.S. Senate (Senate Hearing 111-991) (May 19, 2010).
Statement of Senator Jay Rockefeller IV, press release (May 4, 2010).
ABC Prime Time Live, “Mini Van Danger” (May 3, 2008).
Bill Vlasic, “Fired Employee Battles Chrysler in Courtroom,” the Detroit News (July 2003).
Chrysler Corp. v. Sheridan, No. 227757 (Mich. Court of Appeals, 2003) (unpublished) (dismissing whistleblower’s lawsuit).
Office of John Thune press statement on reward law: “Thune, Nelson Introduce Legislation to Help Prevent Auto Injuries, Deaths from Faulty Parts by Incentivizing Whistleblowers” (November 20, 2014); www.thune.senate.gov/public/index.cfm/2014/11/thune-nelson-introduce-legislation-to-help-prevent-auto-injuries-deaths-from-faulty-parts-by-incentivizing-whistle-blowers.
Rule 11: Get a Reward!: Stop the Pollution of the Oceans
The APPS whistleblower reward provision is codified at 33 U.S.C. § 1908(a).
The International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) is available at http://library.arcticportal.org/1699/1/marpol.pdf.
A practical guide to the MARPOL convention is available at https://maddenmaritime.files.wordpress.com/2015/08/marpol-practical-guide.pdf.
U.S. DOJ, Environment and Natural Resources Division. A motion requesting 50 percent whistleblower reward in U.S. v. Overseas Shipholding Group, Inc., 06-CR-10408 (D. Mass, March 15, 2007) is available at www.globalwhistleblower.org.
Michael G. Chalos and Wayne Parker, “The Criminalization of MARPOL Violations and Maritime Accidents in the United States,” 23 University of San Francisco Maritime Law Journal 206 (Fall 2011). Although antiwhistleblower in tone and content, this article sets forth the various laws and legal standards applicable to APPS prosecutions.
“Avoiding the APPS Magic Pipe Trap,” Officer of the Watch website (November 14, 2012), offers another antiwhistleblower position; https://officerofthewatch.com/2012/11/14/avoiding-the-apps-magic-pipe-trap/.
A detailed listing of APPS cases for which rewards were paid (including copies of the indictments, plea agreements, and whistleblower reward filings) is posted at www.kkc.com/resources/APPS.
The Marine Defenders organization publishes information on APPS whistleblower rules, and also has a handbook designed to help seamen involved in government investigations. See www.marinedefenders.com/commercial/rewards.php.
U.S. v. Efploia Shipping Co. S.A., Case 1:11-cr-00652-MJG, Bench Decision Re: Whistleblower Award (ECF Doc. 80) (D. Maryland) (April 25, 2016). The Court discussed congressional intent behind the APPS whistleblower provision and the fact that most, if not all, APPS prosecutions come from evidence provided by whistleblowers.
DOJ press release regarding the Efploia Shipping Company and Aquarosa Shipping case is available at www.justice.gov/opa/pr/two-shipping-corporations-plead-guilty-and-are-sentenced-maryland-obstruction-justice.
Rule 12: Get a Reward!: End Wildlife Trafficking
The main wildlife whistleblower reward laws are codified as follows: Lacey Act, 16 U.S.C. §3375(d); Endangered Species Act, 16 U.S.C. §1540(d); Rhinoceros and Tiger Conservation Act, 16 U.S.C. §5305a(f); Antarctic Conservation Act, 16 U.S.C. §§2409 & 2439; Fish and Wildlife Improvement Act, 16 U.S.C. §742l(c)(3); and Wild Bird Conservation Act, 16 U.S.C. §§4912(c) & 4913(b). All of these laws are substaintally identical.
The sweeping authority granted the Fish and Wildlife Service and the National Marine Fisheries Service to award whistleblowers under any wildlife protection laws administered by these agencies for reporting violations was enacted as part of the Fish and Wildlife Improvement Act, Pub. L. No. 97-396, 96 Stat. 2005, 16 U.S.C. §742l(k)(2).
The Congressional history behind the original 1981 amendments to the Lacey Act, which included the whistleblower reward laws, is located in House Report No. 97-276 (Oct. 19, 1981).
The legislative history of the 1982 Fish and Wildlife Improvement Act which empowered the Fish and Wildlife Service and the National Marine Fisheries Service to pay rewards under all wildlife laws administered by these agencies is set forth in 128 CONG. REC. H10207 and H31972 (Dec. 17, 1982).
For a complete understanding of the wildlife whistleblower laws and the scope of their coverage see Kohn, Monetary Rewards for Wildlife Whistleblowers: A Game-Changer in Wildlife Trafficking Detection and Deterence, 46 Environmental Law Reporter 10054 (January 2016).
President Obama’s Exec. Order on wildlife trafficking is codifed as E.O. No. 13,648 (July 1, 2013).
The testimony of Assistant Attorney General John Cruden was submitted to the House Committee on Foreign Affairs, Subcommittee on Terrorism, Nonproliferation and Trade (April 22, 2015), www.justice.gov/opa/speech/poaching-terrorism-national-security-challenge-statement-assistant-attorney-general.
For information on the Lacey Act see Association of Fish & Wildlife Agencies, The Importance of the Lacey Act: The Nation’s Champion Legislation Against Wildlife Crime & Illegal Wildlife Trade 2 (2014) (“The Lacey Act remains one of the nation’s most important conservation statutes and a powerful tool for protecting fish and wildlife in the U.S. and supporting conservation worldwide.”), available at http://www.fishwildlife.org/files/LaceyAct_FactSheet.pdf.
The Lacey Act is codified at 16 U.S.C. §3372, et seq.
The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), 27 UST 1087; TIAS 8249; 993 UNTS 243. See https://www.cites.org/
eng.
1 Id. at 19. This is the international convention signed by over 150 countries, including the United States, prohibiting trafficking in protected plants, fish and animals. The Lacey Act implements this treaty.
The END Wildlife Trafficking Act, Public Law 114-231 (October 7, 2016).
For information on the wildlife whistleblower reward laws and how to file a claim see www.whistleblowers.org/wildlife.
Rule 13: If Working for the Government, Use the First Amendment
Pickering v. Board of Education, 391 U.S. 563 (1968) (government employee speech on matters of “public concern” protected under the First Amendment) (holding applies to all employees who work in the public sector).
Civil Rights Act of 1871, 42 U.S.C. § 1983 (federal civil rights law that permits state and local employees to file Pickering claims in whistleblower retaliation cases). When seeking damages under § 1983 it is advisable to always name the government employees and managers responsible for the retaliation in the lawsuit, as there are strict limits on the ability to directly sue a state or municipality under that law. See Monell v. New York City, 436 U.S. 658 (1978) (setting forth rule on suing municipalities); Will v. Michigan, 491 U.S. 58 (1989) (states and state employees acting in an “official capacity” immune from lawsuits under § 1983); Harlow v. Fitzgerald, 457 U.S. 800 (1982) (setting forth standards necessary to sue individual government managers and supervisors in their “personal capacity” under the “qualified immunity” standard).
