The Trump Administration has promised to “drain the swamp,” combat corporate corruption, and root out waste, fraud, and abuse in the federal government. To achieve those laudable goals, the new Administration will need to appoint effective leaders to the agencies or subagencies charged with enforcing whistleblower-protection laws, and Congress will need to preserve and, indeed, enhance whistleblower protections in the public and private sectors.
In an article published in the Emory Corporate Governance And Accountability Review titled Draining the Swamp Requires Robust Whistleblower Protections and Incentives, Tom Devine, Legal Director at the Government Accountability Project, and Jason Zuckerman, a whistleblower lawyer, provide a detailed agenda for the new Administration to ensure effective enforcement of federal whistleblower-protection laws and an agenda for Congress to plug significant gaps in whistleblower-protection laws.
Devine and Zuckerman urge the Trump Administration to strengthen whistleblower protections as a means to expose waste, fraud, abuse, crime, and other illegal activity. They specifically recommend that the new Administration do the following:
- Fund the programs that protect whistleblowers. The Office of Special Counsel (“OSC”), OSHA’s Whistleblower Protection Program, and other agencies or subagencies that protect whistleblowers are severely underfunded and are experiencing unprecedented backlogs. The Administration should urge increased funding for these critical programs, which protect the public interest and save taxpayer dollars.
- Advocate for legislation to expand whistleblower protections. While Congress strengthened whistleblower protections for federal employees in 2012, there are still significant gaps in statutory protections available to certain government employees and contractors. The Administration should work with Congress to enact appropriate legislation to protect these individuals, including providing jury-trial access.
- Protect public- and private-sector employees against retaliation through criminal investigations and prosecutions when they engage in protected whistleblowing for which it would be unlawful to fire them or take other employment actions.
- Provide independent due-process rights for intelligence-community employees and contractors who make lawful whistleblower disclosures.
- Finally, support strengthening and more aggressively enforcing current whistleblower-reward laws, such as the qui tam provisions of the False Claims Act (“FCA”), the Securities and Exchange Commission (“SEC”) whistleblower-award program, and similar reward laws.
Use Whistleblower-Reward Laws to Combat Fraud on the Government, Reduce the Deficit, and Protect Investors
Devine and Zuckerman identified three whistleblower-reward laws that the new Administration should continue to utilize and strengthen: 1) the SEC whistleblower-award program, 2) the Internal Revenue Service (“IRS”) whistleblower-award program, and 3) the qui tam provisions of the False Claims Act. These laws have enabled the government to halt fraud and collect billions of dollars for the government on an annual basis.
Protect Investors by Investigating Whistleblower Disclosures to the SEC
The SEC whistleblower-award program was created by Dodd-Frank Act of 2010 (“Dodd-Frank”) to combat violations of federal securities laws. Under the program, the SEC will issue awards to whistleblowers who provide original information that leads to SEC enforcement actions with total civil penalties in excess of $1 million. A whistleblower may receive an award of between 10 percent to 30 percent of the total sanctions imposed.
Press reports indicate that a repeal of the Dodd-Frank is among the top policy priorities of the Trump Administration. Devine and Zuckerman argue that though some Dodd-Frank provisions may warrant reexamination, the Act’s very successful whistleblower-reward program should not be repealed.
In the program’s short history, it has generated more than 18,000 tips, thereby enabling the SEC to recover $584 million in penalties. Furthermore, according to the SEC Whistleblower Program’s 2016 annual report to Congress, whistleblower tips are on the rise. This has resulted in higher quality information and has assisted the SEC in uncovering the biggest frauds. In 2016, the SEC Whistleblower Program issued seven of the top ten whistleblower awards in the program’s history. These tips alone have allowed the SEC to protect investors from losing hundreds of millions of dollars.
The article recommends that the government continue to rely on whistleblowers to protect investors from fraud and ensure the integrity of U.S. markets. Furthermore, it recommends that the SEC Office of the Whistleblower continue to bolster the program by enforcing Dodd-Frank’s prohibition against retaliation and Rule 21F-17 of the Act, which prohibits companies from using gag clauses in employment or severance agreements to prevent whistleblowers from providing information to the SEC.
Reduce the Deficit Using the IRS’ Whistleblower Program
Under the IRS whistleblower-award program, the IRS is required to issue an award to tax whistleblowers of 15 percent to 30 percent of proceeds collected from tax fraud or underpayments if the office uses the whistleblower’s information to collect unpaid taxes in excess of $2 million. In enacting the IRS whistleblower bounty legislation, Congress provided these mandatory awards for better information. The IRS estimates that the United States loses $450 billion per year to tax evasion and underpayments.
Since the enactment of the new tax whistleblower reward program, the IRS has collected more than $2 billion in tax underpayments due to whistleblower disclosures. A notable success of the IRS Whistleblower Program is Brad Birkenfeld, whose disclosure led to the collection of more than $1 billion in illegal offshore tax evasion and an award of $104 million.
Devine and Zuckerman recommend that the Trump Administration support the whistleblower office and fill a significant gap in statutory protections. Specifically, the article recommends that the administration support the IRS Whistleblower Office in overcoming some of its recent inefficiencies. The IRS budget has been cut by 17 percent since 2010, and the impact has been noticeable. Based on several reports by the Government Accountant ability Office (“GAO”) and the U.S. Treasury Inspector General for Tax Administration (“TIGTA”), the IRS Whistleblower Office has been plagued with issues, such as unreasonable delay in the whistleblower claims-review process, inadequate controls for oversight of claims processing, and insufficient communication with whistleblowers. Additional funds could help improve the IRS Whistleblower Office, which has already proven to be an important tool to narrow the tax gap.
Furthermore, the article recommends that Congress provide tax whistleblowers with protections against retaliation. Unlike other whistleblower laws, the tax whistleblower statute does not provide individuals with these protections. This has likely dissuaded many tax whistleblowers from reporting valuable information. Tax professionals often work in highly specialized areas within companies, where a limited number of employees are privy to specific information. Without protection, individuals may not risk their job security and financial well-being to report tax underpayments.
Strengthen Enforcement of The False Claims Act
Under the or qui tam provision of the False Claims Act (FCA), a successful relator can recover 15 percent to 30 percent of the government’s total recovery in a suit for the knowing presentment of a false or fraudulent claim for payment or approval by the government or other violations of the FCA. Health care fraud alone costs taxpayers at least $60 billion annually. The FCA has become the most effective tool at combatting fraud on the government and has enabled the federal government to recover more than $50 billion.
Devine and Zuckerman recommend that the Trump Administration continue to use this indispensable tool to hold government contractors and grantees accountable for fraud and oppose attempts by lobbyists for fraudsters to weaken or gut the False Claims Act. In particular, they recommend that the Trump Administration should oppose 1) caps on whistleblower award, which would reduce the incentive for relator counsel to invest substantial resources to investigate and prosecute FCA claims; and 2) requirements for whistleblowers to report fraud to their employers as a prerequisite for filing a qui tam action, which would expose whistleblowers to retaliation and permit fraudsters to cover-up or destroy evidence before the government has a chance to investigate the fraud. And President-elect Trump should oppose any reduction in funding of the investigations and prosecution of False Claims Act violations, including the successful Department of Health and Human Services and Department of Justice Health Care Fraud Prevention and Enforcement Action Team.
