Whistleblower Blog Archives - Page 4 of 35

Whistleblower Blog

Long-Awaited IRS Whistleblower Rule “Fix” Is Released for Comment

January 14, 2011
Michael Sullivan

We have written previously about Senator Grassley’s pointed criticisms of aspects of the IRS whistleblower rules proposed in June 2010. The IRS’s delay in finalizing those rules is a principal reason why the IRS has not yet paid whistleblowers who have come forward since the December 2006 creation of the new IRS Whistleblower Program.

Today, the IRS took a large step to correct one major flaw that Grassley urged be corrected: re-writing a bizarre rule that would deny rewards to valuable whistleblowers who prevent improper refunds, or reduce a credit balance by a taxpayer. From what we can tell, that nonsensical rule was not the creation of the IRS Whistleblower Office, but of others within the IRS.

The IRS today announced a new IRS whistleblower rule to correct that anomaly, to be published for comment in the Federal Register.

Specifically, in a June 21, 2010 letter to Treasury Secretary Tim Geitner, Grassley challenged the IRS to write a sensible rule to correct this result:

In addition to the IRS posting the new [Internal Revenue Manual] provisions without public comment, there are many substantive concerns within the IRM. For example, the new definition of “collected proceeds” is particularly troubling because it seems to limit the payment of awards to whistleblowers only in those instances where the IRS receives cash payment from a taxpayer. . . . The denial of a whistleblower award where the whistleblower’s information leads to the denial of a claim for refund seems to create a perverse incentive for the whistleblower to wait until the IRS has paid an improper refund. In addition, the IRM says that satisfaction of a taxpayer’s liabilities by reducing a credit balance is not within the scope of collected proceeds so the whistleblower would receive no award.

The new proposed rule attempts at least a partial fix. It provides that rewards may now be paid on “amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided.”

Today’s proposed rule does nothing to address Grassley’s other criticisms of the June 2010 proposed rules.
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Activities of IRS Large Business and International Division Earn Its Commissioner Recognition As “Tax Person of the Year”

January 4, 2011
Michael Sullivan

Citing many developments in the IRS Large Business and International Division in 2010, Tax Analysts this week named IRS LB&I Commissioner Heather Maloy as its “Tax Person of the Year.”

Among those developments that we have followed previously are the international focus of the restructured LB&I division (formerly known as the Large and Mid-Size Business Division (LMSB)), and the creation of the new Global High Wealth Industry Group within LB&I. That group within LB&I is already is working some very significant IRS Whistleblower cases.

Also mentioned by Tax Notes was one of my favorite IRS professionals who assisted the new IRS Whistleblower Program in its infancy, Stuart Mann:
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New SEC Whistleblower Program to Benefit from SEC’s Appointment of New Enforcement Official?

December 17, 2010
Michael Sullivan

The SEC has just announced that current senior advisor to SEC Chairman Mary Schapiro, Stephen L. Cohen, has been named an Associate Director of the Division of Enforcement.

We hope this is good news for the nascent SEC Whistleblower Program. The SEC recently announced that its delaying creation of an SEC Whistleblower Office for budget reasons.

Steve Cohen has advised Chairman Schapiro on a number of issues including the SEC Whistleblower program, which I have discussed with him briefly earlier this year.

Coincidentally, the announcement came on yesterday’s deadline for comments on the SEC’s proposed rules for SEC whistleblowers, which must be substantially revamped so as not to defeat Congress’ purpose by discouraging meaningful whistleblowers from coming forward. We have submitted our own comments to the SEC on its proposed whistleblower rules, and will discuss later others’ comments here. See our comments

The SEC’s press release is reprinted below:
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IRS Whistleblower Claims Reporting Tax Evasion and “Overlooked” Returns

December 12, 2010
Michael Sullivan

Tax whistleblowers using the new IRS Whistleblower Program have reported many instances of tax evasion involving domestic and foreign corporations, partnerships, and trusts, in addition to abusive offshore transactions about which we have written previously. These tax whistleblowers will allow the IRS to reduce the more than $300 billion “tax gap”–the difference between what tax cheats owe, but refuse to pay.

Tax evasion generally entails taxpayers understating taxes in the returns they file. In many cases evasion also entails taxpayers failing to file returns, especially information returns (as opposed to tax returns).

For example, partnership returns (Form 1065) are information returns and as such do not report tax payable. Cases of partnership tax evasion sometimes arise where filing Form 1065 is “overlooked.” In many of these cases, the partners continue to file their own income tax returns, which typically understate taxable income and tax payable, as there are no K-1’s to report.

Another partnership information return frequently overlooked is Form 8275. This form should generally be filed where partners have made partnership contributions, and received partnership distributions, within a two year period. Failing to file 8275’s typically results in an underpayment of tax where the disguised sale rules operate to treat the contribution and distribution as a sale.

Cancellation Of Debt (“COD”) is another area where non-filing of information returns (generally Form 1099-C) often results in an underpayment of tax, particularly in relation to non-institutional debt.

The problem of overlooked returns is not limited to income tax. Another return that is frequently overlooked is Form 709. This form should be filed by individuals who gift property that does not qualify for exclusion from gift tax.

On the international side, taxpayer interests in foreign companies should often be information reported on Form 5471. Where taxpayers have interests in foreign companies that hold interests in other foreign companies, multiple 5471’s may need to be filed to reflect second tier or higher tier interests. Failing to file 5471’s typically results in an underpayment of tax where foreign company income is required to be included in US income, for example under the Subpart F rules.
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Special: Article Explaining the 2010 False Claims Act and State False Claims Acts

December 7, 2010
Michael Sullivan

Three years ago, our whistleblower lawyer blog presented an in-depth article discussing the nation’s major whistleblower law, the False Claims Act, and the wave of new state False Claims Acts.

Since then in 2009-2010, Congress has amended the False Claims Act three times to remove obstacles created by courts, which had limited the law’s effectiveness. To reflect those important and needed changes in the law, I have updated this article to present at the 2010 Fraud and Compliance Forum sponsored by the American Health Lawyers Association and Health Care Compliance Association.

That detailed article is excerpted here to explain the False Claims Act, with its 2009-2010 amendments. For ease of reading, it is divided into six parts:

Part 1: Introduction: What You Should Know About the False Claims Act And New State False Claims Acts After the 2009-2010 Amendments

Part 2: The False Claims Act and the Increasing Number of State False Claims Acts

Part 3: The False Claims Act: Background & History

Part 4: How the False Claims Act Works After the 2009-2010 Amendments (with Comparisons to Some State False Claims Acts)

Part 5: The Trend of Recoveries Under the False Claims Act

Part 6: States’ Experiences With Their Own False Claims Acts

If you have any questions about a potential False Claims Act case, please feel free to contact us at 800-228-9159, or send an email through the link here.
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Part 1: Introduction: What You Should Know About the False Claims Act And New State False Claims Acts After the 2009-2010 Amendments

December 7, 2010
Michael Sullivan

This is Part 1 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 1 provides an introduction to the False Claims Act.

In 2010, more than ever, it is essential for lawyers to understand their clients’ potential liabilities under the federal False Claims Act (“FCA”). The health care industry increasingly has become the major focus of the federal government’s enforcement efforts, and usually pays at least two-thirds of the money recovered each year under this anti-fraud statute.

Adding to the health care lawyer’s challenges, since 2009 Congress has amended the False Claims Act three times, primarily to overturn judicial decisions that once created obstacles to FCA actions. Those amendments also have created an important new basis of FCA liability – retention of overpayments – which has great significance to health care providers. These 2009-2010 amendments make the FCA a far more effective enforcement tool for the government, and thus a much greater problem for defendants accused of health care fraud.

Further, a wave of new “whistleblower” statutes continues, inspired by the successes of the False Claims Act. These new laws include (1) an increasing number of state versions of the federal False Claims Act; (2) the new IRS Whistleblower Rewards Program; and (3) new “SEC Whistleblower” and “CFTC Whistleblower” programs, authorized in July 2010 as part of the Dodd-Frank Financial Reform Act. By encouraging employees, contractors, and others to report allegations of fraud, these new whistleblower provisions create substantial concerns for health care organizations and other defendants alleged to be liable.

This article provides an overview of what health care lawyers should know about the federal False Claims Act and the new state False Claims Acts. As discussed below, the state Acts mirror the federal False Claims Act in important respects, but can differ in some significant ways.
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Part 2: The False Claims Act and the Increasing Number of State False Claims Acts

December 7, 2010
Michael Sullivan

This is Part 2 of an explanation the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why Have A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay.(Quoted from legislative history of 1986 amendments to False Claims Act).

Fraud – and allegations of fraud – plagues government spending at every level. Today, as the federal government struggles to fund the hundreds of billions of dollars spent annually on health care through Medicare, Medicaid, and other programs; the Iraq and Afghanistan wars; the financial “bailout” measures enacted after the 2008 financial collapse; disaster relief efforts; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past two decades, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”

The federal False Claims Act since 1986 has been successful in recovering more than $27 billion, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries.
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Part 3: The False Claims Act: Background & History

December 7, 2010
Michael Sullivan

This is Part 3 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 3 explains the history of the False Claims Act and why effective whistleblower laws are important.

II. Background of the Federal False Claims Act

Although the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.

According to one writer:

In the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.

A. Birth of the False Claims Act:

The Civil War prompted Congress to enact the original False Claims Act in 1863. As government spending on war materials increased, dishonest government contractors took advantage of opportunities to defraud the United States government. “Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for the commodities, regardless of character, quality, or quantity.”

One senator explained how the qui tam provisions of the Act were intended to work:
The effect of the [qui tam provisions] is simply to hold out to a confederate a strong temptation to betray his co-conspirator, and bring him to justice. The bill offers, in short, a reward to the informer who comes into court and betrays his co-conspirator, if he be such; but it is not confined to that class. . . . In short, sir, I have based the [qui tam provision] upon the old fashioned idea of holding out a temptation and setting a rogue to catch a rogue, which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.

The original Act provided for double damages, plus a $2,000 forfeiture for each claim submitted. If a private citizen or “relator” used the qui tam provision to file suit, the government had no right to intervene or control the litigation. A successful “relator” was entitled to one-half of the government’s recovery.

The Act survived in substantially its original form until World War II. In a classic and oft-quoted 1885 passage, one court rejected the argument that courts should limit the statute’s reach on the grounds that qui tam actions were poor public policy:

The statute is a remedial one. It is intended to protect the treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly. It was passed upon the theory, based on experience as old as modern civilization that one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain. Prosecutions conducted by such means compare with the ordinary methods as the enterprising privateer does to the slow-going public vessel.
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Part 4: How the False Claims Act Works After the 2009-2010 Amendments (with Comparisons to Some State False Claims Acts)

December 7, 2010
Michael Sullivan

This Part 4 of a six part summary explains how the federal False Claims Act works, after Congress amended it three times in 2009-2010. It also discusses similar provisions of some state False Claims Acts.

This is an update from a previously published article by whistleblower lawyer blog author Michael A. Sullivan.

III. Overview of How the Modern False Claims Act Works (with Comparisons to Some State False Claims Acts)

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories, only four of which were generally used before FERA. FERA has added an additional theory of liability for retention of overpayments, which now will likely be used quite often in health care cases:

First, the Act makes liable any person who knowingly presents, or causes to be presented, a “false or fraudulent claim for payment or approval.”

Second, the Act creates liability for using a “false record or statement.” It imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”

“Claim” is broadly defined, and is not limited to submissions made directly to the federal government:
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Part 5: The Trend of Recoveries Under the False Claims Act

December 7, 2010
Michael Sullivan

This is Part 5 of 6 of a recently updated article about the qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This is an updated version of a previously published article by whistleblower lawyer blog author Michael A. Sulliva.

This Part 5 discusses the striking success of the False Claims Act since its 1986 Amendments, as it has recovered more than $27 billion in taxpayers’ money wrongfully obtained by fraud and false claims.

IV. The Trend of Recent Recoveries Under the False Claims Act

Over the past twenty-four years since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically, especially in health care cases. The Department of Justice (“DOJ”) statistics tell the story:

In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.

In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion came from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount came from qui tam cases.

In 2006, the Justice Department recovered a record of more than $3.1 billion in settlements and judgments for fraud and false claims. Of this record $3.1 billion in recoveries, 72% came from the health care field; 20% from defense; and 8% from other sources. In that record year, health care alone accounted for $2.2 billion in settlements and judgments, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second-largest hospital chain. Defense procurement fraud amounted to $609 million in recoveries, which included a $565 million settlement with the Boeing Company.

In 2010, DOJ set a record for health care fraud recoveries of $2.5 billion, out of a total of $3 billion recovered from civil fraud claims. $2.3 billion of that $3 billion resulted from qui tam cases. DOJ also set a two-year record for recoveries of $5.4 billion in 2009-2010, most as a result of qui tam cases.
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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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