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Part 6: The State False Claims Acts: Qui Tam Whistleblower Laws That Seek to Repeat the Successes of the Federal False Claims Act

This Part 6 is the final installment by whistleblower lawyer blog of an article explaining why the major qui tam whistleblower statutes, the federal False Claims Act, has led to a wave of new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.

This Part 6 describes the new state whistleblower laws and how states have fared to date in recovering taxpayer money wrongfully through fraud and false claims. It also discusses some interesting new approaches that some states have taken in improving on the federal False Claims Act with their own statutes.

V. Other States’ Experiences With Their Own False Claims Acts

As noted, in 2007 Georgia, New York, and Oklahoma joined the 16 other states that have a False Claims statute, and at least a dozen other states are considering similar laws. [58] The financial incentives of the Deficit Reduction Act of 2005 have not only prompted states that had lacked False Claims statutes to enact them, but also have caused many states wishing to qualify for the additional funds to amend their existing False Claims statutes.

In essence, while states may enact “tougher” or more comprehensive laws than the federal False Claims Act, states with “weaker” or less effective laws-as judged by the standards of the Deficit Reduction Act-will not qualify for the additional funds. [59]

Seven of the first ten states whose statutes were scrutinized by the Office of Inspector General (OIG) quickly learned this lesson when OIG disapproved their state statutes. [60] These included California (which lacked a minimum penalty), Florida (which omitted “fraudulent” from its definition of claims), Indiana (which did not make defendants liable for “deliberate ignorance” and “reckless disregard”), Louisiana (which did not permit the state to intervene in cases, set too low a percentage for whistleblowers to recover, and set no minimum penalty), Michigan (which omitted penalties and liability for decreasing or avoiding an obligation to pay the government, i.e., a “reverse false claim”), Nevada (which had a statute of limitations too short and a minimum penalty too low), and Texas (which did not permit the whistleblower to litigate the case if the state did not, and which provided for lower percentage shares to whistleblowers and lower penalties). Most of these states have gone back to the drawing board to correct these deficiencies.

In sum, the Deficit Reduction Act has set minimum standards for state False Claims Acts for states wishing to receive these additional funds. In plain English, the state laws must protect at least Medicaid funds, and they must be at least as effective as the federal False Claims Act, especially in rewarding and facilitating qui tam actions for false or fraudulent claims, with damages and penalties no less than those under the federal Act. [61]

A. How Other States’ False Claims Acts Compare to the New Georgia Statute

Many state False Claims laws have been in transition in 2007. States whose laws have been “disapproved” by OIG have begun to amend their statutes to meet the requirements for obtaining the additional funds under the Deficit Reduction Act, as Florida and Texas already have done in 2007. While these laws are in flux, some significant differences from Georgia’s new State False Medicaid Claims Act are likely to remain.

First, the majority of state False Claims statutes protect the state’s funds generally, rather than protecting only state Medicaid funds, as Georgia’s new State False Medicaid Claims Act is limited. Just as the federal False Claims Act is not limited to health care fraud, but encompasses fraud against the government generally (except for Internal Revenue violations, which are now covered by the new IRS Whistleblower program), [62] many states have used these statutes to protect public funds in general from fraud. Those states include California, Delaware, Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, Nevada, Oklahoma, Virginia, and Tennessee.

In addition, several states-including Hawaii, Massachusetts, Nevada and Tennessee- have expanded on the federal Act’s four commonly-used theories of liability listed above. These state laws create a new legal theory for holding liable a person or entity who is the “beneficiary” of the “inadvertent submission” of a false or fraudulent claim, if that person or entity fails to disclose (and presumably correct) the false claim after discovering it. [63]

Moreover, Tennessee’s False Claims Act reaches beyond false or fraudulent “claims” and imposes liability for false or fraudulent “conduct” that apparently does not necessarily involve “claims” submitted to the state. This state law adds a new category of liability for “any false or fraudulent conduct, representation, or practice in order to procure anything of value directly or indirectly from the state or any political subdivision.” [64]

Because states have this leeway under the Deficit Reduction Act to pass laws that may be “tougher” or more “effective” than the federal Act, some states have set the statutory penalties higher than the federal level of $5,500 to $11,000 per claim. For instance, under the New York law enacted in 2007, penalties range from $6,000 to $12,000 for each false or fraudulent claim. [65]

Some other states authorize a higher percentage of the state’s recovery that a relator (whistleblower) may receive, instead of the percentages that the federal False Claims Act authorizes (which the Georgia statute also uses): 15-25% of the recovery in cases in which the government intervenes, and 25-30% in cases in which the government does not intervene. For example, Nevada’s percentages are 15-33% in intervened cases, and 25-50% in non-intervened cases; Tennessee’s are 25-33% in intervened cases and 35-50% in non-intervened cases; and Montana’s range from 15-50%. [66]

B. Notable Results Obtained by States Under Their False Claim Statutes

Most qui tam cases filed under the state False Claims statutes have related to health care. Many are “global” Medicaid cases that were first developed in federal courts as Medicare and Medicaid fraud cases and that concerned a nationwide fraud which had been investigated by multiple federal and state jurisdictions. [67] Each state that enacts a False Claims Act that meets the minimum requirements is in a position to join the process.

Most of the state settlements have come from “piggy backing” on federal law enforcement efforts and from joining in global settlements. [68] Experience with some of the newer state statutes is too recent to evaluate, but many states have reported the desire for more resources to develop such cases. [69]

Texas’s experience is worth special mention because the Texas Attorney General’s Office has been especially effective in pursuing cases involving false claims in health care. Texas’s statute has allowed it to recover more than $216 million in health care fraud cases since 1999.

Because the Texas Attorney General’s Office has been a leader in recovering damages for health care fraud by using the Texas statute, it was perhaps ironic that OIG initially “disapproved” the highly successful Texas law before it was amended in 2007 to comply with the Deficit Reduction Act standards. [70]

California, whose statute is not limited to health care, recovered $43.1 million in 2005 in a state False Claims action alleging fraud in the installation and monitoring of heating and cooling equipment in San Francisco schools. [71] In 2001, California recovered $31.9 million in an action alleging fraudulent billing during construction of the Los Angeles subway system. [72] Similarly, California recovered $30 million in 2000 in a matter alleging the knowing sale of defective computers to the state and political subdivisions. In 1998, California recovered $187 million in an action alleging the improper retention of unclaimed municipal bonds. [73]

We do not know with any precision the dollar amount of fraud that affects any particular state’s government spending, or how much of that fraud can be prevented through effective use of a state False Claims Act. For now, New York, Oklahoma, and Georgia have joined the list of states that will see how much of at least their Medicaid fraud losses can be recovered through the new state False Claims Acts.

Conclusion

We hope that our article on the False Claims Act and the new state False Claims Acts has been useful. If you would like, please feel free to call us to discuss any questions you may have at 800-228-9159, or email us through our website link here (or directly to msullivan@finchmccranie.com.)
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Part 5: The False Claims Act’s Successes–and How They Have Prompted a Wave of State False Claims Acts With Qui Tam Whistleblower Provisions

This is Part 5 of 6 by whistleblower lawyer blog of a detailed article for those wishing to know more about the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.

This Part 5 discusses the dramatic successes of the federal False Claims Act since its 1986 Amendments in recovering taxpayers’ money wrongfully obtained by fraud and false claims.

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

Over the past two decades 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 statistics [52] 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. 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.

It is interesting that, while defense procurement fraud both inspired the Act and was the largest source of recoveries at the time of the 1986 Amendments, health care cases now lead in recoveries, as health care costs have grown as a percentage of the federal budget. By industry, in 1987 the defense industry was the largest source of cases under the False Claims Act. [53] The health care industry accounted for only 12% of cases under the False Claims Act in 1987; that percentage grew to 54% by 1997. [54]

Many health care fraud cases have addressed over-billing or up-coding, fraudulent cost reporting, billing for services not provided, and failure to furnish the required “quality of care.” [55] The breakdown of the Department of Justice statistics shows that government recoveries in the health care field have grown from less than $2 million in 1988 to more than $1.8 billion in 2003. Although the amounts recovered rise and fall each year, from 2001–2006 government recoveries from the health care field exceeded $1 billion in five out of six years.

The trend has continued in 2007, as the Office of Inspector General of the Department of Health and Human Services recently announced that it expects $2.9 billion in recoveries for Medicare, Medicaid, and other federal health and human services programs for the first half of fiscal year 2007. [56]

In short, the health care industry now consistently accounts for the vast majority of settlements and judgments obtained by the federal government for fraud and false claims.
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Part 4: The Modern False Claims Act–How It Works

This Part 4 by whistleblower lawyer blog is a continuation of a detailed article for those wishing to know the specifics of the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is taken from a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and it is reprinted with the permission of the Georgia Bar Journal.

This Part 4 focuses on the “modern” False Claims Act–since the 1986 Amendments. Before considering it, please note that, in September 2007, a bipartisan group of Senators introduced the “False Claims Act Correction Act,” a bill to further “modernize” the False Claims Act with substantial improvements intended to restore the Act to Congress’ original intentions. We at whistleblower lawyer blog will provide regular updates as that bill is considered by Congress.

III. Overview of How the Modern False Claims Act Works (with Comparisons to State False Claims Acts, With the New Georgia State False Medicaid Claims Act as a Primary Example)

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories, only four of which are generally used:

First, the Act makes liable any person who knowingly presents, or causes to be presented, a “false or fraudulent claim for payment or approval” to the federal government. [30] “Claim” is broadly defined to include not only submissions made directly to the federal government, but also “any request or demand . . . for money or property” made to a “contractor, grantee, or other recipient” if the federal government provides any portion of the money or property in question. [31]

Second, the Act creates liability for using a “false record or statement” to obtain payment of a false claim. It imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.” [32]

Third, the False Claims Act imposes liability under a “conspiracy” provision. Any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid” is also liable under the Act. [33]

Fourth, since the government also can be defrauded when a private entity underpays or avoids paying an obligation to the government, the modern Act contains what is known as a “reverse false claim” provision. It creates liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” [34] For example, a company that is obligated to pay royalties to the government under an oil lease can be held liable if it uses false records or statements to pay less than what it owes.

Georgia Act compared: The same bases of liability are set forth in new section 49-4-168.1(a), with regard to the Georgia Medicaid program. “Claim” is also broadly defined in the Georgia statute in section 49-4-168(1). In fact, the Georgia statute’s definition of “claim” was intended by the legislature to eliminate a point of dispute about the federal statute [35] by making clear that it applies to “claims” submitted not only to the government, but also to other persons or entities, as long as the Georgia Medicaid program provides any portion of the money or property at issue.

The federal False Claims Act also creates a cause of action for damages for retaliation against employees who assist in the investigation and prosecution of False Claims Act cases. [36] This cause of action belongs to the employee alone, and the government does not share in any recovery for retaliation.

Georgia Act compared: New section 49-4-168.4 establishes a similar right to pursue a claim for retaliation in employment.
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Part 3: False Claims Act–Background and History

This is Part 3 by whistleblower lawyer blog of a detailed explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is taken from a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and is reprinted with the permisssion of the Georgia Bar Journal.

The Part 3 explains the history of the False Claims Act and why effective qui tam whistleblower laws are important.

II. Background of the 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. [12]

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. [13]

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.” [14]

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. [15]

The original Act provided for double damages, plus a $2,000 forfeiture for each claim submitted. [16] 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. [17]

The Act survived in substantially its original form until World War II. [18] 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. [19]
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Part 2: The False Claims Act and the Growing Number of State False Claims Acts With Qui Tam Whistleblower Provisions–the Basics

This is Part 2 by whistleblower lawyer blog of a detailed overview of the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. It is based on an article by whistleblower lawyer blog author Michael A. Sullivan, and is reprinted with permission of the Georgia Bar Journal.

This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why 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. [5]

Fraud-and allegations of fraud-plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; national security and local security efforts; Hurricane Katrina and other disaster relief; 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. [6] 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 20 years, 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.” [7]

The federal False Claims Act has been successful in recovering billions of dollars, 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 [8] 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. [9]

Thus, Georgia’s and other states’ impetus in enacting these new state False Claims Acts in 2007 was this incentive of more dollars. In 2007 to date, Georgia, New York, and Oklahoma have joined the 16 other states that have enacted some version of a “False Claims” statute. [10] At least a dozen other states [11] are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.
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Part 1: The False Claims Act and How It Has Inspired a Wave of State Qui Tam Whistleblower Laws–An Introduction

We at whistleblower lawyer blog hope this detailed article assists those interested in the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. A version of this article by whistleblower lawyer blog author Michael A. Sullivan [1] has just been published in the October 2007 Georgia Bar Journal. For ease of reading, we have divided the article in six parts–this is Part 1.

The federal False Claims Act [2] has inspired a
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Medicare Fraud Scam Leads to Physician’s Indictment

We read today in the news that a Dr. Michael D. Kim in Houston, Texas had been indicted by a Federal Grand Jury in yet another “motorized wheelchair fraud scheme.” According to the government’s indictment, Dr. Kim fraudulently approved thousands of Medicare beneficiaries for motorized wheelchairs in return for cash payments of $200.00 per beneficiary. According to the indictment, thousands of Medicare beneficiaries were brought by paid recruiters to Dr. Kim’s medical clinic in Houston between April of 2002 and October of 2003 for the
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IRS Whistleblowers and 75 Billion Dollars?

It is estimated that the annual tax gap between those who owe money to the government as taxes and those who actually pay them (i.e. the annual underpayment of taxes) is $345 billion. Under the new IRS Whistleblower provisions, an insider with information about tax fraud can claim a minimum of 15% up to a maximum of 30% of back taxes collected by the government based on information received from the whistleblower. What this means is that each year if, in fact, the annual tax
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Qui Tam Whistleblower Cases Force Bristol-Meyers Squibb to Pay $515 Million to Settle Allegations

Last week, the United States Department of Justice announced that Bristol-Meyers Squibb (BMS) had entered into a settlement agreement to pay more than $515 million to resolve allegations of illegal drug marketing and pricing. This is yet another example where Big Pharma has attempted to gouge the government to increase profits, at the public’s expense. The allegations made by the government, regrettably, are all too familiar and have occurred in many other cases of a similar nature.

The first thing the government alleged was that
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Part II: IRS Tax Whistleblower Officials Explain Details of New IRS Whistleblower Rewards Program

This is Part II of this whistleblower lawyer blog’s description of how IRS Tax Whistleblower officials have explained many of the long-awaited details of the new IRS Whistleblower Rewards Program to whistleblower attorneys at the annual Taxpayers Against Fraud Conference in Washington, a national organization of whistleblower lawyers who represent whistleblowers under the False Claims Act, the state False Claims Acts, and the new IRS Whistleblower Rewards Program for tax whistleblowers. Both parts summarize information provided by IRS Whistleblower officials at this Conference, at which I had the pleasure of participating in a panel discussion with the Director of the IRS Whistleblower Office, Stephen Whitlock, and later spending time with other IRS officials from the IRS group responsible for the Financial Services industry (including hedge funds), Large and Mid-Sized Business Division, Stuart Mann and Nicole Cammarota.

The investigation of matters submitted by whistleblowers will be handled not by the Whistleblower Office, but by other IRS officials–in the field. The Whistleblower Office will initially perform a screening function at the beginning of the process, with “classifiers” reviewing the claim submissions and directing them to the appropriate persons within the IRS for investigation, if an investigation is warranted.

If an investigation results, and the government recovers funds (tax liability, interest, penalties, or other amounts), Director Whitlock then will determine the amount of any award to the whistleblower or whistleblowers. The new statute allows the whistleblower to appeal any determinations to the Tax Court to review decisions about rewards.

The threshold question for persons seeking to submit IRS Whistleblower claims is to demonstrate plainly to the IRS why–with so many potential matters that the IRS already has to investigate, and with limited resources–pursuing an investigation suggested by an informant is the best use of the IRS’ limited resources. Not all potential tax violations can be investigated–or will be investigated–by the IRS. Thus, the challenge is to present a whistleblower claim that the IRS will decide to pursue–and pursue vigorously.
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In Largest False Claims Act Case Over Mortgage Fraud, Bank of America to Pay $1 Billion

Since the 2008 financial collapse, many have called for imposing liability on those whose fraud fueled the crisis.

In this early phase of what we predict will be a wave of financial fraud cases, the Justice Department announced today the largest False Claims Act settlement to date over mortgage fraud. Bank of America has agreed to pay $1 billion to resolve allegations that the Bank, through Countrywide Financial Corporation and some of its subsidiaries and affiliates, engaged in underwriting and origination mortgage fraud.

DOJ
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IRS Whistleblower Claims Explored at Heckerling Institute, the Leading Conference for Estate & Trust Lawyers and Estate Planners

The University of Miami’s Heckerling Institute last week brought together the nation’s leading estate planners, including attorneys, trust officers, accountants, insurance advisors, and wealth management professionals. For the first time, these estate planning professionals delved into how estate and gift tax issues are the subjects of many IRS Whistleblower claims.

This program was organized by Marty Basson, who recently retired from the IRS Whistleblower Office and hung out his shingle (now providing a wealth of knowledge to the private bar), after a distinguished career as the IRS authority on estate and gift tax issues.

Marty has long served on the Heckerling Institute faculty at the University of Miami. Marty is also a charter member of the IRS Estate and Gift Tax National Advisory Panel, a select group of IRS attorneys who assist in forming nationwide policy decisions in the estate and gift tax area.

Marty asked me to join him and Dawn Applebaum of the IRS Whistleblower Office for a Heckerling panel discussion last week on the IRS Whistleblower Program in the estate and gift tax arena. While a few professionals in attendance had already filed IRS Whistleblower claims, the vast majority had not.

Heckerling provided a first class forum to address many of the “hot” issues in the tax whistleblower program. I was honored to join Marty and Dawn as the private whistleblower attorney who provided the perspective of whistleblowers in the IRS Whistleblower Program.

Once Congress created the new IRS Whistleblower Program in December 2006, the IRS Whistleblower Office was unsure whether it would receive many estate tax and gift tax claims. It received far more estate and gift tax claims than anticipated.

Consider a typical case of a divorced couple who both know that a parent has hidden accounts offshore. When that parent dies, the estranged spouse knows that the offshore accounts will not likely appear on the estate tax return. Such information about tax evasion is very useful to the Service, so that honest taxpayers do not bear more than our fair share of the burden.

Our Heckerling discussion covered many, many aspects of the IRS Whistleblower Program in a spirited discussion that ran out of time. Marty was suddenly free to express his own observations, not simply the official position of the IRS.

Among the topics were recent Tax Court opinions on protecting the confidentiality of whistleblowers and of taxpayer information in appeals, and the protections of taxpayer information in proposed new Tax Court Rule 345.

I was asked to discuss steps to protect whistleblowers from criminal and civil liability, which has been an important issue in past presentations after UBS whistleblower Bradley Birkenfeld found himself prosecuted for a federal offense. Marty also asked me to discuss the view of numerous tax whistleblowers as their claims progress through the process.
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How Whistleblowers in Qui Tam, IRS, and SEC Whistleblower Cases Must Protect Email Communications

At the Healthcare Fraud Institute this past week, I was asked to address what steps whistleblowers should take to ensure confidentiality of emails with their lawyers. Although qui tam cases under the False Claims Act were the focus of our discussion, the same principles apply to tax whistleblowers and SEC whistleblowers.

Potential whistleblowers should never use their company’s email system, or any email account shared with or accessible to another person, for communicating with their attorney or for gathering information or evidence to report to the government.

Although the law encourages whistleblowers to report fraud, whistleblowers can create unnecessary problems for themselves by not following this rule.

First, emails between whistleblowers and their attorneys are privileged and confidential, but the privilege can disappear and be waived if the communication is disclosed to others.

Second, qui tam whistleblower cases under the False Claims Act are filed with a court order “sealing” the case from public view, while the government investigates. If an email accidentally exposes the case, the whistleblower may have violated the court’s “seal” order.

Third, alerting a defendant company that the whistleblower has reported the company’s fraud to the government is almost certain to provoke retaliation against an employee who is a whistleblower. Immediate suspension or firing often follows. Although the False Claims Act and the SEC and CFTC whistleblower laws create remedies for retaliation, those remedies take time to achieve. They will not pay the whistleblower’s mortgage next month–or this year.

We advise all of our clients that they must protect the confidentiality of their emails. Many people do not realize that emails sent from a company’s computer system usually leave some record, even if the employee is accessing a personal Gmail account.
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Qui Tam Whistleblower Cases Under False Claims Act Explained

I have been asked to publicize a seminar at which I am speaking on handling qui tam whistleblower cases under the False Claims Act, the nation’s primary whistleblower law addressing fraud that steals government funds. Here is the announcement:

AAJ will hold a “Qui Tam” Teleseminar on December 6, 2011 at 2:00 pm EST. With recently amended whistleblower laws and several high profile settlements, lawyers need to understand the procedural complexities and pitfalls in qui tam whistleblower cases. Cosponsored by the Qui Tam Litigation
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2011 IRS Whistleblower Boot Camp Hears of Deputy Commissioner Steve Miller’s “Desire for the Whistleblower Program to Grow”

At this past week’s third annual “IRS Whistleblower Boot Camp,” Deputy IRS Commissioner for Service and Enforcement Steven T. Miller spoke of his “desire for the whistleblower program to grow.” A major announcement was that he would “push for” the IRS to begin using the expertise of whistleblowers who can help the IRS interpret information obtained in its audits..

In his remarks, Deputy Commissioner Miller described “offshore” tax abuses as a key area. He commented that whistleblower submissions have a “unique place” in “breaking bank secrecy.”

With budget reductions, the IRS is looking for ways to “leverage” its efforts. According to Miller, whistleblower submissions in at least three areas can help:

1. Promotion of abusive tax shelters known to potential whistleblowers
2. Tax violations in which sophisticated information technology systems pose a barrier to the IRS, unless a whistleblower can explain them
3. Inadequate information reporting that is required of third parties, and that whistleblowers can address
When it “makes sense” for the IRS to use the whistleblower’s expertise, Miller said he would encourage use of disclosure agreements with whistleblowers authorized under section 6103(n) of the Internal Revenue Code, which governs disclosure of taxpayer information. Examples he gave include review of information received in response to the Service’s information document requests, or explanation of information technology issues known to the whistleblower.

Sen. Chuck Grassley recently urged the IRS to make better use of expertise and resources that whistleblowers and their lawyers can provide, as the Justice Department does in False Claims Act cases.

This year’s IRS Whistleblower Boot Camp also included many other senior IRS officials. Whistleblower Office Director Steve Whitlock and his office’s Special Counsel Debra Bowe were major participants.

Once again, the Office of Chief Counsel’s Senior Counsel Tom Kane participated and was again very generous with his time, both during and after the program. He addressed various litigation issues that arise in whistleblower matters. Senior Program Analysts Dawn Applebaum and Kathy Onken also provided a great deal of knowledge and insight into how the program is operating.

The most fascinating issues to me were those involving the international and offshore efforts of the IRS, the subject of the session I moderated. On this panel, joining IRS Whistleblower Office director Steve Whitlock and Senior Analyst Dawn Applebaum were Toni Weirauch, Deputy Director of International Crimes in the IRS Criminal Investigation Division; and Donna Prestia of the new Global High Wealth Division. The attendees gained an appreciation of the considerations of representing whistleblowers who may be foreign nationals gathering evidence in ways that comport with U.S. law, but that may be contrary to other countries’ bank secrecy laws.

My colleagues Erika Kelton, Paul Scott, Linda Stengle, and Margaret (Peggy) Finnerty deserve thanks for their excellent presentations as well.
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Next IRS Whistleblower Boot Camp: Offshore and International Tax Whistleblower Issues and Latest Developments

Each year’s “IRS Whistleblower Boot Camp” brings together senior officials of the IRS Whistleblower Office and tax whistleblower attorneys to explore the latest developments in the IRS Whistleblower Program. This year’s Boot Camp is November 15, 2011 in Washington.

Of special interest this year is that Deputy IRS Commissioner for Services and Enforcement Steven T. Miller will participate for the first time. Other IRS officials participating include (in order of appearance):

—Stephen Whitlock, Director of the IRS Whistleblower Office
–Debra Bowe, Special
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Qui Tam Whistleblower Cases, and the New Financial Whistleblower Programs by the SEC, CFTC, and IRS To Be Discussed at Whistleblower law Symposium

Every two years, attorneys prosecuting or defending qui tam whistleblower cases under the False Claims Act and other whistleblower laws gather for the Whistleblower Law Symposium.

We have written much about “qui tam” whistleblower cases under the False Claims Act. Since last year’s passage of the Dodd-Frank law, whistleblowers who help expose (1) violations of the securities laws or (2) commercial bribery of foreign government officials, now can receive rewards of 10-30% of money sanctions imposed under the new SEC Whistleblower Program. The new IRS Whistleblower program pays whistleblowers 15-30% of amounts recovered. These cases also help stop fraud against taxpayers and investors.

On October 21, an unusual group of national experts on these claims will gather for the Whistleblower Law Symposium, which our firm organizes every two years. Not only do we have senior attorneys from the Department of Justice and experienced whistleblower lawyers discussing qui tam cases, but the Director of the IRS Whistleblower Office Steve Whitlock will participate and explain the tax whistleblower program. Senior SEC attorneys also have stated that they wish to be part of our seminar to discuss the new SEC Whistleblower Program, and are seeking approval to participate.

This conference is broader in scope than any whistleblower law conference in the country of which I am aware, as we have a national faculty of lawyers on both sides of these cases, as well as some of the top government officials involved.

Registration is still open for those who want to register online here:

Please feel free to call or email me with any questions. The Agenda is below.
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GAO Report Released on IRS Whistleblower Program: Raising–But Not Answering–the Fundamental Questions of What the Tax Whistleblower Program Needs to Be Most Effective

The promising new IRS Whistleblower Program that Congress authorized in December 2006 is the subject of a long-anticipated GAO Report released this morning.

Disappointingly, the report raised, but did not attempt to answer, fundamental questions that will determine whether the IRS realizes the full potential of the new program in helping close the “tax gap”–or settles for a fraction of what it can accomplish.

Inspired by the dramatic successes of the False Claims Act in combating fraud against the government through rewarding whistleblowers,
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Whistleblower Lawyer and IRS Whistleblower Office Staff to Speak at 2012 Heckerling Institute on Estate Planning

The new IRS Whistleblower Program for tax whistleblowers will be featured for the first time at the nation’s leading conference for estate planners, the Heckerling Institute on Estate Planning.

The Heckerling Institute is known as the country’s “leading conference for estate planners, including attorneys, trust officers, accountants, insurance advisors, and wealth management professionals.” This is the 46th Annual Institute, named after late Professor Philip E. Heckerling, founder of the University of Miami Law School’s Estate Planning Institute. The conference will take place from
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How the New CFTC Whistleblower Rules Will Operate

When the CFTC announced its final whistleblower rules yesterday, it answered many questions about how the new CFTC whistleblower program will work.

David Meister, the CFTC’s Director of the Division of Enforcement, provided this summary according to the unofficial transcript our firm prepared of yesterday’s CFTC public meeting:

The Commission will pay awards to eligible whistleblowers who provide original information to the Commission leading to a successful Commission enforcement action and the imposition of monetary sanctions in excess of $1 million.

Congress provided that the amount of the whistleblower award must be between 10% and 30% of sanctions collected in either the Commission action or related action as defined in the rules. The Commission has discretion in determining the amount of the award within that 10 – 30 percent range.

The rules set forth a number of factors that the Commission will consider in determining the amount of the award. These factors include the significance of the information; the degree of the whistleblower’s assistance; the Commission’s programmatic interest; whether the award enhances the Commission’s ability to enforce the Commodity Exchange Act, protect customers and encourage people to come forward with high quality information; and potential adverse incentives from oversized awards.

To be award eligible, a whistleblower is not required, under our recommendation– a whistleblower is not required to report his information internally to his employer. Staff believes that such a requirement would deter some whistleblowers from coming forward, which would undermine congressional intent.
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