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Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste

March 23, 2009
Michael Sullivan

Whistleblowers reporting fraud by contractors in Iraq reconstruction are coming forward, reports Stuart Bowen, the Special Inspector General for Iraq Reconstruction. The relatively calmer conditions in Iraq apparently are a factor in more whistleblowers coming forward, he believes.

From the $21 billion Iraq Relief and Reconstruction Fund, billions have been lost, according to Bowen.

“Thirty-two billion dollars later, we don’t know a whole lot about what’s happened to that money,” Bowen said.

“The actual reconstruction money, I estimate 15 to 20 percent has been wasted. Roughly $3-$4 billion,” he said. Many projects have been plagued by waste and poor design.

“Millions [have been] wasted at the Baghdad police college because of extremely shoddy construction,” Bowen said.

Iraq reconstruction whistleblowers may receive rewards of 15-30% of the fraud or false claims reported by using the False Claims Act, the major whistleblower law that we have written about often. They may also potentially use the IRS Whistleblower Program to obtain rewards, since illegal activity often results in tax violations.

In this age when fraud and abuse are depleting taxpayer funds, any whistleblower who steps forward to report fraud or other impropriety in the Iraq reconstruction is to be commended.
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The AIG Whistleblowers Begin to Speak About Its Credit Default Swaps?

March 18, 2009
Michael Sullivan

The facts about how the AIG Financial Products unit took down AIG begin to emerge more clearly, as AIG whistleblowers begin to speak.

Former AIG auditor Joseph St. Denis described his concerns about AIG’s Financial Products unit–and how AIGFP’s Joseph Cassano refused to let him investigate:

“Mr. Cassano shouted at me for several minutes, and then said, as previously noted: ‘I have deliberately excluded you from the valuation of the Super Seniors because I was concerned that you would pollute the process.”

More to
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Appreciating Harry Markopolis, the Madoff “Whistleblower” to the SEC

March 16, 2009
Michael Sullivan

I had the pleasure of seeing again and speaking last week with Harry Markopolis, the “whistleblower” now renowned for his excellent work in recognizing and reporting to the SEC that Bernie Madoff was running a huge Ponzi scheme. Harry was in Washington attending the “IRS Whistleblower Boot Camp” sponsored by Taxpayers Against Fraud.

Harry Markopolis exemplifies the whistleblower who works diligently to “do the right thing.” His appearance on 60 Minutes gave us a taste of his frustration over the years in attempting to
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IRS Whistleblower Attorneys Join IRS Whistleblower Office Director and Other IRS Officials for “IRS Whistleblower Boot Camp”

March 9, 2009
Michael Sullivan

I spent a very productive day today with IRS Whistleblower Office Director Steve Whitlock, former IRS Commissioner Margaret Richardson, IRS Special Counsel Tom Kane, and other senior IRS officials working with the IRS Whistleblower Office, in helping stage the most comprehensive legal education program yet about the new IRS Whistleblower Program–the “IRS Whistleblower Boot Camp.” The day-long event was sponsored by Taxpayers Against Fraud.

After sessions on various aspects of how the tax whistleblower program operates, I was honored to lead the panel discussion with Director Whitlock and others on some difficult and complex issues in representing whistleblowers. We discussed in depth claims by whistleblowers such as CPAs, lawyers, and fiduciaries who have had confidential relationships with the taxpayers in question; and claims by whistleblowers who were involved in misconduct. Joining our panel discussion were Special Counsel Tom Kane of the Office of Chief Counsel, and my friend and fellow whistleblower attorney Paul D. Scott of San Francisco.Whistleblower Lawyer Blog Co-Author Michael A. Sullivan (left) moderates the panel discussion with IRS Whistleblower Office Director Steve Whitlock (right).

Director Whitlock explained how the claims submitted to the two year-old IRS Whistleblower Office have grown from approximately 80 in the first year, to approximately 2000 at present.

The IRS officials reviewed offshore tax schemes, tax fraud and tax evasion, and many other types of tax noncompliance as potential bases of IRS Whistleblower claims.The IRS Whistleblower Boot Camp began with “IRS Whistleblower Office 101,” a panel discussion introducing the applicable regulations, providing an overview of the IRS Whistleblower Office, and providing an update on the progress of the program. It was moderated by TAF Member Margaret Finerty, and included as panelists Director Steve Whitlock, and IRS Whistleblower Office Analysts Robert Gardner, Dawn Applebaum, and Al Gibson. (Dawn Applebam had joined me last week in Atlanta to make an excellent presentation on the IRS Whistleblower Program at the annual “Whistleblower Law Symposium” that our firm sponsors.)

The main domestic and international tax fraud schemes, and the types of cases the IRS Whistleblower Office would like to receive, were the subject of a discussion by former IRS Commissioner Margaret Richardson. The panelists were IRS “Subject Matter Experts” Larry Brongel (Large and Mid-sized Business Division (LMSB), Retailers, Food, Pharmaceuticals and Healthcare Industry); Sheila Olander (Sr. Analyst Special Agent with the IRS Criminal Investigative Division, Office of Financial Crimes); Elizabeth Elfrey (Director, Fraud/Bank Secrecy Act in the IRS Small Business/Self Employed (SBSE)); and Al Gibson (Whistleblower Office Analyst).

TAF member Frederick Morgan, and attorney and CPA Ralph Minto, then discussed expanding a False Claims Act practice to include IRS Whistleblower cases.

TAF President Neil Getnick led a panel discussion on issue-spotting and practice pointers when bringing IRS Whistleblower cases. The panelists were Director Steve Whitlock, Special Counsel Tom Kane, and TAF Member and fellow whistleblower attorney Brian Kenney.
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False Claims Act Amendments Approved by Senate Judiciary Committee As Part of FERA (Fraud Enforcement and Recovery Act) Today

March 5, 2009
Michael Sullivan

Today, we were excited to hear that the Senate Judiciary Committee has sent long-needed amendments to the False Claims Act to the full Senate, as part of the “bailout” and “stimulus” inspired “Fraud Enforcement and Recovery Act” (FERA).

Where there are taxpayer funds being spent, there will be attempts to engage in fraud to cheat the public. As hundreds of billions of dollars are poured into federal and state programs through the “economic stimulus” package, the continuation of the Troubled Assets Relief Program
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Whistleblower Attorneys to Discuss Qui Tam Cases Under False Claims Act, IRS Whistleblower Program, and Sarbanes-Oxley Whistleblower Cases at Annual “Whistleblower Law Symposium”

March 1, 2009
Michael Sullivan

I am very excited about co-chairing the Annual “Whistleblower Law Symposium” once again this week.

From Atlanta, Boston, Chicago, New Orleans, San Antonio, and Washington, D.C., many of the country’s leading attorneys in whistleblower cases under the “qui tam” statute, the False Claims Act, the Sarbanes-Oxley statute, and the IRS Whistleblower Program will gather in Atlanta on March 4 to discuss some of the more challenging aspects of representing whistleblowers (or defending against whistleblower claims) under these laws.

We are honored to have one of the officials of the IRS Whistleblower Office, Dawn Applebaum, join us in person to discuss the progress of the new IRS Whistleblower Rewards Program. The IRS Whistleblower Office has just celebrated its second anniversary.

We are also privileged to have the top state enforcement officials in health care fraud cases from Texas, Florida, and Georgia, to explain how they coordinate state and federal health care fraud whistleblower cases under the federal and state False Claims Acts.

Also joining us is Rep. Edward Lindsey, the Legislative Sponsor both of the Georgia State False Medicaid Claims Act, and recent legislation to solidify Georgia’s Office of State Inspector General.

Because of the wave of new whistleblower statutes that have been inspired by the successes of the False Claims Act, our firm instituted the Whistleblower Law Symposium. Once again, top-notch speakers will address a broad variety of issues that arise under these whistleblower laws, including:

–Whistleblowers in Health Care: Recent Cases and Strategies for Healthcare Providers and Counsel When a Whistleblower Calls

–Recent Developments in Qui Tam Cases Under the False Claims Act-The Relator’s Perspective
–Current Issues in Defending Qui Tam Claims
–Coordinating State and Federal Whistleblower Cases Under the State and Federal False Claims Acts-Current Priorities and Recent Results
–Federal Priorities and Procedures in Qui Tam Cases
–Plaintiffs’ & Defendants’ Approaches to Sarbanes-Oxley Claims
–Update on the IRS Whistleblower Program

We are fortunate to have such excellent faculty members from around the country join us. Our faculty members and their topics are listed below.
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UBS Agrees to Pay $780 Million & Identify Customers in IRS Tax Fraud Case

February 18, 2009
Michael Sullivan

Off-shore tax evasion and international tax avoidance schemes are priorities of the IRS and the IRS Whistleblower program, which rewards tax whistleblowers. Our whistleblower lawyer blog has followed the ongoing investigation of UBS for its activities, which took a major turn today.

Today, the government announced that UBS AG, Switzerland’s largest bank, has admitted to helping U.S. taxpayers hide accounts from the IRS. UBS has agreed to identify its customers and to pay $780 million, as part of a “deferred prosecution agreement” on charges of conspiring to defraud the United States by impeding the IRS.

Based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), UBS agreed “to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business.” UBS also agreed to stop providing banking services to U.S. clients with undeclared accounts.

In 2000, after UBS purchased the brokerage firm Paine Webber, UBS entered into an agreement with the IRS to report income and other identifying information for its U.S. clients who held United States securities in a UBS account, according to the government. The government alleged that UBS was required to withhold income taxes from U.S. clients.

To evade those new reporting requirements, the government alleged that employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped U.S. taxpayers open new UBS accounts in the names of nominees and/or sham entities. Assets of the individual’s accounts were then moved to the new accounts, and the U.S. taxpayer would not be identified as a beneficiary, according to the government.

UBS managers and employees also reportedly used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients. Clients of the cross-border business allegedly filed false tax returns omitting the income earned on their Swiss bank accounts, and failed to disclose the existence of those accounts to the IRS.
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Pharma Manufacturer in Medicaid Fraud Case Ordered to Pay Millions by Wisconsin Jury

February 18, 2009
Michael Sullivan

Hidden schemes to defraud Medicare and state Medicaid programs of scarce taxpayer dollars are at the heart of many whistleblower cases under the federal and state False Claims Acts.

This morning, Wisconsin Attorney General J. B. Van Hollen announced that a Dane County, Wisconsin jury has just declared that a pharmaceutical manufacturer defrauded the Wisconsin Medicaid program by reporting grossly inflated and fraudulent prices.

Pfizer was on the receiving end of the health care fraud verdict, which may result in more than $153
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Wall Street Financial Industry “Bailout” Whistleblowers Sought by–Michael Moore?

February 11, 2009
Michael Sullivan

Taking a brief break from “substantive” writing on this whistleblower lawyer blog, I could not help but briefly note this story today:

Filmmaker Michael Moore is seeking whistleblowers in the financial industry for his next film. He concludes “if you work for a bank, a brokerage firm or an insurance company — or if you have seen things or heard things that you believe the American people have a right to know — please contact me” via the email address posted on his blog.

Perhaps those whistleblowers should follow Sen. Grassley’s strong advice to use the qui tam whistleblower provisions of the False Claims Act to report fraud and abuse in TARP or other “bailout” measures. Persons in the financial services industry already have contacted us to do just that, and some also have potential claims in the IRS Whistleblower Program.

Both the False Claims Act and the IRS Whistleblower law allow the private citizen whistleblowers to share in the government’s recovery of money wrongfully obtained, as we have written about extensively.

We anticipate that the “stimulus” package in Congress this week also will produce many opportunities for fraud and abuse of taxpayer funds, so that whistleblowers also will be important to deter those abuses through use of the False Claims Act and the IRS Whistleblower Program.
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TARP Apparently Overpaid for Bank Assets, According to Congressional Oversight Panel

February 6, 2009
Michael Sullivan

Those potential whistleblowers watching for TARP waste, fraud and abuse should note today’s report of the Congressional Oversight Panel. According to the report, the Treasury Department has received “far less value in stocks and warrants than the money it injected into financial institutions.”

The report, “Valuing Treasury Acquisitions,” concludes that Treasury paid “substantially more for the assets it purchased under the TARP than the market value of those assets” at the time this deal was announced. The Panel revealed that, in the ten
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The False Claims Act and the New Georgia “Taxpayer Protection False Claims Act’

August 7, 2013
Michael Sullivan

After I helped draft Georgia’s new False Claims Act enacted last year, the “Taxpayer Protection False Claims Act,” I have been asked many questions about this new whistleblower law. Like the federal False Claims Act, its “qui tam” provisions allow private citizens to report fraud against public funds and receive a share of the recovery.

What many people may not know is that Georgia’s two False Claims Acts now apply to all spending by the state, and all spending by local governments.

The 2012 Act can be used by a wide array of “local government” bodies, and by citizens who know about fraud against those entities. The Act defines “local government” broadly to include “any Georgia county, municipal corporation, consolidated government, authority, board of education or other local public board, body, or commission, town, school district, board of cooperative educational services, local public benefit corporation, hospital authority, taxing authority, or other political subdivision of the state or of such local government, including MARTA.”

To answer many questions, we have uploaded here our summary of these laws, titled “The False Claims Act and the New Georgia ‘TaxProtectionection False Claims Act,'” which you may download here.

Please feel free to contact us with any questions about the False Claims Act or the new Georgia Taxpayer Protection False Claims Act.
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Liechtenstein Bank Secrecy Gives Way in $23.8 Million IRS Settlement That Exposes US Tax Evaders

July 30, 2013
Michael Sullivan

Another shoe dropped for offshore tax evaders today, in an encouraging sign for the IRS Whistleblower Office.

A Liechtenstein bank avoided prosecution by agreeing to turn over files on 200 U.S. customers and to pay $23.8 million for assisting U.S. taxpayers in opening and maintaining undeclared bank accounts from 2001 through 2011.

Liechtensteinische Landesbank AG (LLB-Vaduz) helped a significant number of U.S. taxpayers hide these offshore accounts, evade U.S. taxes, and file false tax returns with the IRS, according to today’s announcement.

The Justice Department
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CFTC Whistleblower Program Taps SEC Enforcement Lawyer As New Director

July 17, 2013
Michael Sullivan

In January, the Commodity Futures Trading Commission (CFTC) lost to the SEC the first director of the new CFTC Whistleblower Office, Vincente Martinez. CFTC Chairman Gary Gensler has announced that he has recruited from the SEC Enforcement Division Christopher Ehrman to lead the CFTC Whistleblower Office’s efforts to attract whistleblowers in the swaps and futures markets.

Mr. Ehrman most recently had been Assistant Director of the SEC’s Office of Market Intelligence. His experience there should serve him well since he “oversaw the processing, review and
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Court Allows N.Y. Tax Whistleblower Case To Proceed Against Sprint-Nextel Corporation

July 10, 2013
Michael Sullivan

When New York amended its state False Claims Act in 2010, it broke new ground by including tax whistleblower cases. New York’s decision to attract tax whistleblowers bore fruit when the NY Supreme Court recently ruled that New York’s $100 million tax whistleblower case against Sprint-Nextel Corp. may proceed.

If successful, this case may net New York three times the more than $100 million in unpaid taxes that the state alleges Sprint has failed to pay its state and local governments. It may also bring the whistleblower 15%-25% of what the state recovers.

The N.Y. Supreme Court first rejected Sprint’s arguments that the N.Y. Tax Law did not require payment of the sales tax in question. The Court allowed the case to proceed.

Sprint was successful in limiting the time in question to March 31, 2008 forward, but now faces discovery and a potential trial over allegations that include whether Sprint knowingly made “false records or statements” and repeatedly engaged in “fraudulent or illegal activity.”
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Amid Attacks on the IRS, Recognition of the Best of the IRS Whistleblower Office

June 10, 2013
Michael Sullivan

Now is the time to tell the story of Bob Gardner. Bob retires this week after 37 years of service with the IRS, most recently with the IRS Whistleblower Office.

Bob understands that public service is a noble calling for so many in our government. He epitomizes all that is good in fairly administering our internal revenue laws.

When IRS Whistleblower Office Director Steve Whitlock began hiring for the first “tax whistleblower” office that Congress had authorized in late 2006, Bob Gardner was
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Reforming the IRS–and Why We Need a Functioning IRS That Follows the Law

June 5, 2013
Michael Sullivan

Could the IRS and Treasury Department have done a worse job in how they have handled the alleged “targeting” of conservative groups that applied for tax-exempt status before the 2012 elections?

My criticism starts–but does not end–with any IRS personnel who singled out “Tea Party” and similar groups for extra scrutiny based on their political affiliations. Any such acts cannot be tolerated..

But less noticed is what was being done–or not done–since at least mid-2012 by the Treasury Inspector General for Tax Administration (“TIGTA”).

The Senate Finance Committee’s official “timeline” states that, in May 2012, “TIGTA briefs [IRS] Commissioner Shulman on the targeting by the IRS of tea party applications for 501(c)(4) status.”

So the Inspector General’s Office knew, at least six months before the 2012 elections, that “targeting” of these applicants had occurred? If TIGTA told Commissioner Shulman that it was auditing the problem, why did it take TIGTA another year to issue its May 2013 report?

And did Commissioner Shulman, a Bush appointee with no reason to “hide” any “targeting” of conservative groups, rely on the Inspector General’s staff to gather evidence and take appropriate action? Shouldn’t TIGTA have acted expeditiously? TIGTA’s other FY 2013 reports reveal nothing so pressing that it should have taken it another year.to complete its work.
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IRS & SEC Whistleblower Directors Join False Claims Act Officials for Conference on Whistleblower Issues

March 23, 2013
Michael Sullivan

This week in a rare occurrence, the heads of the IRS and SEC Whistleblower programs and federal and state False Clams Act officials participated in one conference to discuss prosecuting and defending whistleblower cases.

Our firm has organized this “Whistleblower Law Symposium” since 2007 to explore developments in the growing number of federal and state whistleblower laws that seek to stop fraud against taxpayer funds.

“Sequestration” threatened to keep some major speakers from participating because of travel restrictions. The solution was “beaming in” Sean McKessey, Director of the SEC’s Office of the Whistleblower, and Steve Whitlock, Director of the IRS Whistleblower Office, to join our panelists by videoconference.

The conference began with an overview I provided of the country’s major whistleblower law, the False Claims Act. Its successes since 1986 inspired Congress to create both the new IRS Whistleblower Program in 2006, and the new SEC Whistleblower Program in the 2010 Dodd-Frank Act.

An excellent discussion of the False Claims Act in health care followed, led by Rick Shackelford of King & Spalding, LLP. Rick was joined by my former partner John E. Floyd of Bondurant, Mixson & Elmore, LLP; Daniel P. Griffin of Miller & Martin, PLLC; and Marlon Wilbanks of Wilbanks & Bridges, LLP.

Another panel then analyzed Georgia’s New 2012 “Taxpayer Protection False Claims Act, a 2012 state False Claims Act that I helped draft. This law encompasses all spending by state, county, municipal, and other local governments in Georgia. Nels Peterson, who as Georgia’s Solicitor General is charged with overseeing the implementation of the new statute, explained the framework of the law.

Because the new state FCA applies to fraud against local governments as well, we also heard how the Act might be used by cities and counties. Mary Carole Cooney, former Atlanta Deputy City Attorney, and Bill Linkous, former Dekalb County Attorney, provided their perspectives on how the new whistleblower law might expose fraud in various areas of local government spending.

SEC Whistleblower Chief Sean McKessey then joined us electronically to discuss the most pressing issues in bringing (and defending) SEC Whistleblower claims.
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Health Care Fraud Institute Discusses False Claims Act Developments

December 18, 2012
Michael Sullivan

Each December, some of the nation’s top health care lawyers gather to discuss developments in prosecuting and defending health care fraud cases at the Health Care Fraud Institute in Atlanta. Because the qui tam law–the False Claims Act– is the government’s primary civil tool to combat fraud and false claims, the False Claims Act developments are a highlight of the discussion.

This year, I was honored again to be invited to participate as part of the False Claims Act panel with Rick Shackelford, an
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SEC and Justice Department Issue “Resource Guide to the U.S. Foreign Corrupt Practices Act”

November 14, 2012
Michael Sullivan

The SEC Whistleblower Program authorized in 2010’s Dodd-Frank law has greater significance because the SEC and the Justice Department share jurisdiction over Foreign Corrupt Practices Act cases.

Today, SEC Director of Enforcement Robert Khuzami and Assistant Attorney General Lanny Breuer released the “Resource Guide to the U.S. Foreign Corrupt Practices Act.” They describe the Guide as “a unprecedented undertaking by DOJ and SEC to provide the public with detailed information about our FCPA enforcement approach and priorities.”

FCPA investigations have increased significantly in the past few years, and the dollar amount of these cases is often quite large. FCPA cases brought by SEC whistleblowers will only add to amount of FCPA violations uncovered.

The Guide is a primer on the FCPA. The SEC and DOJ have attempted to summarize “who and what is covered by the FCPA’s anti-bribery and accounting provisions; the definition of a ‘foreign official’; what constitute proper and improper gifts, travel and entertainment expenses; the nature of facilitating payments; how successor liability applies in the mergers and acquisitions context; the hallmarks of an effective corporate compliance program; and the different types of civil and criminal resolutions available in the FCPA context.”

Chapter 3 describes the accounting provisions over which the SEC has authority. When a defendant pays commercial bribes to foreign officials, the offending companies often disguise the payments through false accounting entries. The FCPA creates civil liability for such violations of the Act’s “books and records” provision.

The FCPA’s “internal controls” provision is also important, as it requires that issuers devise and maintain a system of internal accounting controls to assure management’s control,authority, and responsibility over the firm’s assets.
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As IRS Commissioner Steps Down Today, How the Next IRS Commissioner Can Immediately Help Address the “Fiscal Cliff” by Expanding the IRS Whistleblower Program

November 9, 2012
Michael Sullivan

Today marks the end of IRS Commissioner Doug Shulman’s tenure, just as President Obama and Congressional leaders shift to addressing the looming “fiscal cliff.” Rather than disrupt the process of narrowing the deficit, Shulman’s departure could actually assist it–in an important way that does not depend on raising tax rates.

The timing is perfect for a new IRS leader to back fully a bipartisan effort long advocated by Republican Sen. Chuck Grassley (R-Iowa) to tackle the “tax gap”–the more than $300 billion owed but not paid by tax cheats each year. Grassley seeks to expand the IRS Whistleblower Program to fulfill the promise of changes to the tax whistleblower law that Grassley sponsored almost six years ago.

Grassley should enlist as a ready ally President Obama, whose Justice Department is about to announce a record year of fraud recoveries in False Claims Act cases brought by whistleblowers. Grassley also has been the driving force behind that highly successful law since at least 1986.

Although the IRS has assembled highly skilled professionals to staff its Whistleblower Office led by Director Steve Whitlock, Grassley’s efforts have been stymied by bureaucratic resistance among others in the IRS. Those naysayers create endless obstacles to attracting whistleblowers–even though the Treasury Inspector General has determined that whistleblower information is essentially twice as effective as other sources for uncovering tax violations.

The Justice Department has learned over the past quarter century that working closely with “insider” whistleblowers and their counsel is the key to unravelling significant fraud schemes. In contrast, too many in the IRS refuse to learn from the DOJ’s experience and to heed Congress’ directive to expand the use of whistleblowers. For example, after convincing Grassley’s staff in 2006 that they could and would work closely with whistleblowers, the IRS Chief Counsel’s Office over almost six years has refused to approve even a single agreement with a whistleblower to allow that cooperation.
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