Tag: whistleblower laws

A New Year for Whistleblowers? Emergency Action Needed to Make Current Whistleblower Laws Work

In 2021 the White House, in conjunction with every major executive agency, approved The United States Strategy on Countering Corruption. In this authoritative and non-partisan Anti-Corruption Strategy, the United States for the first time formally recognized the key role whistleblowers play in detecting fraud and corruption. Based on these findings it declared that it was the official policy of the United States to “stand in solidarity” with whistleblowers, both domestically and internationally. As part of the Anti-Corruption Strategy the United States recognized that whistleblower qui tam reward laws must play a major role in combating financial frauds, such as money laundering. The proven ability of whistleblowers to detect fraud among corporate and government elites led the United States government to formally identify them as key players in preventing fraud, strengthening democratic institutions, and combating corruption that threatens U.S. national security.

Despite these findings, leading federal agencies responsible for enforcing whistleblower rights have failed to implement the U.S. Anti-Corruption Strategy’s whistleblower-mandates. Many of their current rules and practices directly undercut and undermine the very whistleblower rights identified by the White House Strategy as playing an essential role in combating corruption.

The 118th Congress will end on January 3, 2025. Thus, there is one year remaining for Congress and the current-sitting executive officers to act on a number of pending whistleblower initiatives, all of which have strong bipartisan support, are based on the plain meaning of laws already passed by Congress, and which are individually or collectively essential for the implementation of the U.S. Anti-Corruption Strategy. Outside of political interference by those who stand to lose when whistleblowers are incentivized and protected, there is no legitimate reason why these reforms cannot be quickly approved. The actions listed below are needed for the Strategy to be implemented, but whose approval has been stalled or blocked by resistant executive agencies or a timid Congress:

  • AML Whistleblower Regulations. The Treasury Department must enact regulations fully implementing the money laundering and sanctions whistleblower provisions of the Anti-Money Laundering Act. This law has been in effect since January 1, 2021, but Treasury has failed to implement the required regulations. Congress did its job, but Treasury has dropped the ball on approving the regulations necessary to ensure that the law is enforced. President Biden must demand that his Secretary of Treasury fully implement the anti-corruption Strategy his White House has approved as a critical national security measure.
  • Justice Department Whistleblower Regulations. Since January 1, 2021 the U.S. Department of Justice (DOJ) has been required, as a matter of law, to accept anonymous and confidential whistleblower disclosures concerning violations of the Bank Secrecy Act, including illegal money laundering and the use of crypto currency exchanges to facilitate violations of law. In December 2022, this requirement was by law extended to whistleblowers, worldwide, who wish to report violations of sanctions covering Russia, Hamas, ISIS, and other covered entities. In contempt of its legal requirements the Justice Department has ignored this law, and has failed to adopt regulations permitting anonymous whistleblowing. Congress did its job, Justice has dropped the ball. President Biden must demand that his Attorney General fully implement the anti-corruption Strategy his White House has approved as a critical national security measure.
  • SEC Whistleblower Regulations. Although the Securities and Exchange Commission’s (SEC) Whistleblower Program has radically improved since its failure to respond to whistleblower disclosures regarding the fraudster Bernie Madoff, regulations approved over 12-years ago continue to violate the statutory rights granted whistleblowers under the Dodd-Frank Act and strip otherwise qualified whistleblowers of their rights. For example, although the law gives whistleblowers the right to provide “original information” to the SEC through a news media disclosure, the SEC has never enforced this right. This has resulted in numerous extremely important whistleblowers to be denied protection or compensation. In the context of foreign corruption, DOJ statistics inform that 20% of all Foreign Corrupt Practices Act (FCPA) cases (which are covered under Dodd-Frank) are based on news media disclosures. Based on these numbers, one in five whistleblowers who report foreign corruption are illegally denied compensation under current SEC rules. An audit by the Organization of Economic Cooperation and Development released data regarding how whistleblowers were being harmed by the SEC’s interpretation of the law, including the failure to protect whistleblowers who make initial reports to international regulatory or law enforcement agencies, even if these agencies work closely with the United States. The SEC can resolve these issues by issuing clarifying decisions and exemptions consistent with the plain meaning of the Dodd Frank law and Congress’ clear intent. President Biden must demand that his appointments to the SEC fully implement the anti-corruption Strategy his White House approved.
  • Stop Repeal by Delay. The Internal Revenue Service (IRS) and the SEC both fail to compensate whistleblowers in a timely manner. These delays, which the IRS admits average over 10-years, cause untold hardship to whistleblowers, many of whom have lost their jobs and careers, and their only hope for economic survival is the compensation promised under law. In response to these untenable and unjustifiable delays, Congress has introduced two laws to expedite paying legally required compensation to whistleblowers, the SEC Whistleblower Reform Act and S. 625, the IRS Whistleblower Reform Act. Both amendments have strong bipartisan support and should be/could be passed quickly. See https://www.grassley.senate.gov/news/news-releases/grassley-warren-reintroduce-bill-to-strengthen-sec-whistleblower-program and https://www.grassley.senate.gov/news/news-releases/grassley-wyden-wicker-cardin-introduce-bipartisan-bill-to-strengthen-irs-whistleblower-program.
  • Strengthen the False Claims Act. The False Claims Act (FCA) whistleblower qui tam provision has proven to be the most effective law ever passed protecting the government from greedy contractors, fraud in Medicare and Medicaid, and from criminal procurement practices. Over $70 billion has been recovered by the taxpayers directly from fraudsters, and countless billions has also been paid in criminal fines. Two bipartisan amendments to the FCA are languishing in Congress.  The first is designed to prevent federal contractors from colluding with government officials when trying to justify their frauds. The second permits the federal government to administratively sanction contractors in smaller cases, where prosecutors rarely file charges in court.  The Administrative False Claims Act, S. 659, has been unanimously passed by the Senate but is stalled in the House of Representatives. The False Claims Act Amendment targeting collusion has strong bipartisan support, but is awaiting votes in Congress.  See    https://www.grassley.senate.gov/news/news-releases/senators-introduce-bipartisan-legislation-to-close-loophole-in-fight-against-fraud    https://www.grassley.senate.gov/news/news-releases/bipartisan-fraud-fighting-bill-unanimously-passes-senate.
  • Pass the CFTC Fund Improvement Act. The whistleblower reward law covering violations of the Commodity Exchange Act has proven successful beyond the wildest dreams of Congress. Billions upon billions in sanctions has been recovered from fraudsters who have manipulated markets ripping off consumers across the globe. These unprecedented whistleblower-triggered prosecutions have created an unintended problem: there are inadequate funds available to compensate whistleblowers as required under law. It is unconscionable for Congress to pass a law mandating that whistleblowers obtain compensation when they risk their jobs, reputations, and even their lives to serve the public interest, but then refuse to allocate funding to pay the mandatory rewards. The CFTC Fund Improvement Act, S. 2500, which has strong bipartisan support, would fix this problem. It needs to be immediately passed. Congress must live up to its promises.  See  https://www.grassley.senate.gov/news/news-releases/grassley-nunn-and-hassan-lead-bipartisan-bicameral-effort-to-bolster-successful-whistleblower-program.
  • Demand that Federal Agencies Respect, Honor, and Compensate Whistleblowers. One of the most unacceptable and unjustifiable hardships facing whistleblowers is the continued resistance to protecting whistleblowers in numerous (most) federal agencies.  This is exemplified by the complete failure of agencies to use their discretionary powers to protect or compensate whistleblowers. The Department of Commerce/NOAA can reward whistleblowers who report illegal fishing or “IUU” fishing violations and crimes committed by large ocean fishing boats operated by countries like China. Yet they have repeatedly failed to implement their whistleblower laws. The same can be said of the Department of Interior/Fish and Wildlife Service which have ignored the Lacey and Endangered Species Acts’ strong whistleblower reward provisions, allowing billions in illegal international wildlife trafficking to fester. Likewise, the Coast Guard largely ignores the whistleblower provisions of the Act to Prevent Pollution from Ships, turning down numerous whistleblower tips and failing to conduct investigations. Worse still, is the Justice Department’s penchant for prosecuting whistleblowers – even those who report crimes voluntarily to the Department pursuant to whistleblower disclosure laws.  President Biden must take action and demand that all executive agencies use their discretionary authorities permitted under law to incentivize and protect whistleblowers consistent with the anti-corruption Strategy his administration has approved.

A first step in changing the anti-whistleblower culture that undermines the public interest within most federal agencies is for the President to enforce the National Whistleblower Appreciation Day resolution that has been unanimously passed by the U.S. Senate over the past ten years. The resolution urges every executive agency to acknowledge the contributions of whistleblowers and educate their workforce as to these contributions. See https://www.grassley.senate.gov/news/news-releases/ten-years-running-grassley-wyden-lead-whistleblower-appreciation-day-resolution (S. Res. 298).

The importance of President Biden’s requiring all federal agencies to institute to Senate resolution is clear, based on the text of the resolution asking that all agencies “inform[] employees, contractors working on behalf of the taxpayers of the United States, and members of the public about the legal right of a United States citizen to ‘blow the whistle’ to the appropriate authority by honest and good faith reporting of misconduct, fraud, misdemeanors, or other crimes; and acknowledging the contributions of whistleblowers to combating waste, fraud, abuse, and violations of laws and regulations of the United States.”

These seven reforms all have bipartisan support and/or can be immediately implemented through executive action. There is simply no justification for delaying the implementation of these minimum and absolutely necessary reforms.

But the buck does not stop at the top. Strong and vocal public support can push all of these bipartisan reforms across the finish line. The American people – across all demographics, stand behind whistleblowers. How do we know this? The highly respected Marist polling agency conducted a scientifically valid survey of “likely American voters.” Their findings speak for themselves:

  • 86% of Americans want stronger whistleblower protections
  • 44% of “likely voters” state that the position of candidates on this issue would impact their vote. 

Despite the divisions within American society the Marist Poll findings demonstrated that the American public is united in supporting whistleblowers:

  • 84% of people without a college education want stronger protection for whistleblowers
  • 89% of people with a college education want stronger protection for whistleblowers
  • 85% of people earning under $50,000 want stronger protection for whistleblowers
  • 89% of people earning over $50,000 want stronger protection for whistleblowers
  • 86% of people living in urban areas want stronger protection for whistleblowers
  • 83% of people living in rural areas want stronger protection for whistleblowers
  • 86% of women want stronger protection for whistleblowers
  • 87% of men want stronger protection for whistleblowers
  • 88 % of Independents want stronger protection for whistleblowers
  • 78 % of Republicans want stronger protection for whistleblowers
  • 94 % of Democrats want stronger protection for whistleblowers

The only thing holding back effective whistleblower laws in the United States is the lobbying power of special interests and powerful government officials’ hostility toward dissent. This must end. Whistleblowing has proven to be the most effective means to detect waste, fraud, abuse and threats to the public health and safety. The United States Strategy on Countering Corruption represents a roadmap for action. It’s time for the President, Congress and those running agencies such as the Department of Treasury and the SEC to get the job done.

Copyright Kohn, Kohn & Colapinto, LLP 2023. All Rights Reserved.

by: Stephen M. Kohn of Kohn, Kohn & Colapinto 

For more news on Current Whistleblower Laws, visit the NLR Criminal Law / Business Crimes section.

IRS Announces New Director of Whistleblower Office

On May 12, the U.S. Internal Revenue Service (IRS) announced that John W. Hinman will serve as the Director of the IRS Whistleblower Office. Hinman will oversee the agency’s highly successful whistleblower award program. Since 2007, the IRS has awarded whistleblowers over $1 billion based on the collection of over $6 billion in back taxes, interest, penalties, and criminal fines and sanctions.

“We hope that as the director Mr. Hinman will have an open door policy for whistleblowers and their advocates,” said leading whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “We look forward to working with the new director to ensure that the incredibly important tax whistleblower program properly deters fraudsters and incentivizes whistleblowers to step forward. We hope that processes are put into place that speed-up the final determinations in reward cases,” added Kohn, who also serves as the Board of Directors of the National Whistleblower Center.

The IRS Whistleblower Program has been an immense success since it was established in 2006. For example, the program incentivized the whistleblowing of Bradley Birkenfeld, the UBS banker turned whistleblower whose disclosures helped lead to the dismantling of the Swiss banking system as it existed. However, the program has recently been plagued by a number of issues, including massive delays in the issuance of whistleblower awards. According to the IRS Whistleblower Office’s most recent annual report to Congress, the IRS currently takes 10.79 years to process a whistleblower case, leading to a backlog of over 23,000 cases.

Prior to his new appointment, Hinman served as Director of Field Operations for Transfer Pricing Practice in the IRS’s LB&I Division. According to the IRS, in this position, he “oversaw field operations of the Transfer Pricing Practice economists, revenue agents, and tax law specialists who focus on complex transfer pricing issues of multinational business enterprises.” Hinman will take over as Director of the IRS Whistleblower Office from Lee D. Martin, who left the agency on April 9 to serve as the Director of the Directorate of Whistleblower Protection Programs at the Occupational Safety and Health Administration (OSHA).

Geoff Schweller also contributed to this article.

Copyright Kohn, Kohn & Colapinto, LLP 2022. All Rights Reserved.
For more articles about whistleblowers, visit the NLR White Collar Crime & Consumer Rights section.

SEC Publishes New Whistleblower Rules; Deadlines Impact Thousands of Cases

The Federal Register published the Whistleblower Program Rule changes approved by the U.S. Securities and Exchange Commission (“SEC” or “Commission”) on September 23, 2020. The changes published today not only impact the requirements governing the whistleblower program, but they establish new deadlines relevant to thousands of current or future cases.

While the effective date of the rules changes is listed as December 7, 2020, each rule’s applicability date should be examined as many are retroactive.

In Section III of the published rules, the SEC carefully explains the applicability of each provision. Highlighted below are rules that can impact pending cases.

Among the new deadlines established by the SEC are:

  • Rule 21F-4(e) defining “monetary sanctions.” This rule change will be applied retroactively and has a significant impact on the amount of an award a whistleblower may be entitled to under pending cases and in cases related to non-prosecution agreements. The rule applies “calculating any outstanding payments to be made to meritorious whistleblowers.” This means the rule covers all pending cases. It also covers sanctions obtained in cases resolved by non-prosecution agreements where the SEC never published a Notice of Covered Action.
  • Rule 21F-6 concerns the SEC’s discretion in small cases where sanctions obtained by the SEC are $5 million or less that rewards should be paid at the highest amount (i.e., 30% of sanctions obtained), barring the existence of negative factors that would justify a reduction. This rule applies to “all award claims still pending” on December 7, 2020. Thus, the applicability of this rule is retroactive.
  • Rule 21F-9 requires whistleblowers to file complaints using the TCR form to qualify for a reward. Whistleblowers have 30-days from an initial contact with the SEC to file the TCR. The 30-day requirement is tolled until a whistleblower obtains actual or constructive knowledge of the TCR filing requirement. However, the thirty day requirement can be triggered when a whistleblower hires an attorney to file a reward claim. This provision applies “to all award claims still pending” as of December 7, 2020, and all future filings. All persons contacting the SEC with information on potential violations need to be aware of this 30-day filing deadline, along with all attorneys who represent whistleblowers in SEC proceedings.
  • Rule 21F-13 relates to the administrative record on appeal of Whistleblower Award Applications. Under this rule, any WB-APP award application filed with the SEC after December 7, 2020, may not be supplemented. Therefore, whistleblowers must be careful to include the entire basis for an award claim in their WB-APP application. This rule applies “only to covered-action and related-action award applications that are connected to a Notice of Covered Action” posted on or after December 7, 2020.
  • Rule 21F-18 established a new summary disposition process. This rule applies to “any whistleblower award application for which the Commission has not yet issued a Preliminary Determination” as of December 7, 2020, as well as to any future award applications that might be filed. Therefore, this rule impacts pending reward claims.
  • Interpretive guidance on the meaning and application of the term “independent analysis” in Rule 21F-4. The SEC intends to rely on the principles articulated in the guidance for “any whistleblower claims that are still pending at any stage.” Thus, any person who has already filed a TCR complaint or a WB-APP application based on the “independent analysis” rules should examine this new guidance and determine whether they need to amend or supplement their filings.

The SEC whistleblower program has been extremely successful. As of today, the Commission has collected over $2 billion in sanctions from whistleblower cases, paid to harmed investors well over $750 million, and paid 112 whistleblowers over $719 million in rewards.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.
For more articles on whistleblowers, visit the National Law Review Securities & SEC section.