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Whistleblower Blog

Will Your State Have a State False Claims Act?

Finch McCranie, LLP has recently learned that many state government officials, including Governor Perdue of Georgia, have received a proposed State False Claims Act for consideration to be enacted in 2007. Even though the Bill has been drafted and is on his desk, at present, the Bill has not been submitted to the Legislature for consideration. Obviously, this raises a serious question as to why it is that the Governor is delaying action on this important piece of legislation.

Section 1909 of the Deficit Reduction Act of 2005 creates a financial incentive for states to enact legislation that establishes liability to the state for individuals or entities that submit false or fraudulent claims to a state Medicaid program. This incentive takes the form of an increase in the state’s share of any amounts recovered from a state action brought under a “qualifying law.” In order for a state to qualify for this incentive, the state law must meet certain enumerated requirements as determined by the Inspector General of the Department of Health and Human Services in consultation with the Attorney General. The Office of Inspector General has already ruled in several different cases that certain states have not enacted “qualified laws” and therefore do not qualify for the increase share of fraud recoveries which can amount to a ten (10%) percent increase over amounts currently being received by the states. Thus, if the Governor is to act, it is imperative that he submit a “qualified law” to the Legislature for its consideration. In essence, a “qualified law” is one that is as strong and effective in its qui tam whistleblower provisions, and other features, as the Federal False Claims Act.

As we see it, there is no good reason for the Governor not to submit this proposed legislation for consideration. If he is to do so, however, he should first submit the proposed legislation to the Office of Inspector General as the Office of Inspector General will advise the State whether it “qualifies” for the increased share of fraud recoveries. Indeed, the OIG is required to consider whether the state law is, at least, as effective in rewarding and facilitating Qui Tam actions when compared to the provisions of the Federal False Claims Act. In order to request a OIG review of the state law, the Governor should submit a complete copy of the proposed legislation to the Office of Inspector General Department of Health and Human Services, Cohen Building, Mail Stop 5527, 330 Independence Avenue, S. W., Washington, DC 20201, Attn: Roderick Chen, Office of Counsel to the Inspector General.

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Significant 2006 Verdicts and Settlements of Qui Tam Whistleblower Cases Under the False Claims Act

In our multi-part explanation of the federal False Claims Act previously posted, we have summarized the most recent verdicts and settlements of qui tam whistleblower cases (as of December 2006).

We will continue to update you on additional verdicts and settlements of significance.

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The Whistleblower Statute: The Text of the False Claims Act

We have tried to explain what readers may want to know about how the whistleblower statute works, in our article explaining the False Claims Act. Here is the current language of this law that creates rewards for qui tam whistleblowers:

FALSE CLAIMS ACT
TITLE 31. MONEY AND FINANCE
SUBTITLE III. FINANCIAL MANAGEMENT
CHAPTER 37. CLAIMS
SUBCHAPTER III. CLAIMS AGAINST THE UNITED STATES GOVERNMENT

3729. False claims

(a) Liability for certain acts. Any person who–

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;

(2) 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;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

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No More Gifts For Doctors

The International Federation of Pharmaceutical Manufacturers and Associations revised its Code of Ethics on January 1 of this year for the first time in a decade. Under the newly revised Code of Ethics, members of the trade group which represents pharmaceutical companies worldwide may no longer provide “expensive gifts” or paid trips to physicians. While the code allows members to provide physicians with gifts that are related to prescription drugs that are inexpensive such as pens, paperweights, stethoscopes and other de mini’s gifts, the new

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New Compliance and Education Reforms Take Effect

In February, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). An obscure provision within this Act mandates that entities receiving greater than $5 million per year in Medicaid payments must educate their employees about “whistleblower” claims under the Federal False Claims Act. Under the DRA, effective January 1, 2007, as a requirement of continued eligibility for the receipt of Medicaid payments, any entity receiving annual payments of $5 million or more in Medicaid funds must have mandatory compliance and education programs in place for its employees to provide detailed information about the Federal False Claims Act. This education must include information provided to employees about administrative remedies, state laws pertaining to civil or criminal penalties, whistleblower protections, and the role of such laws in preventing and detecting fraud, waste, and abuse in federally funded healthcare programs.
Congress has clearly recognized that the government has a strong need to contain costs through increased fraud and abuse enforcement. Medicaid spending, like Medicare spending, is exponentially increasing. Medicaid enrollment increased from ten (10) million beneficiaries in 1967 to over 44.7 million beneficiaries in 2006 according to statistics published by the United States Department of Health and Human Services. Along with this increase in beneficiaries, Medicaid expenditures have also dramatically increased. In fiscal year 2005 Medicaid expenditures approximated twenty percent (20%) of total federal outlays.

The Centers for Medicare and Medicaid Services (CMS) in its fiscal year report for 2005 documented that $484.3 billion had been spent in the fiscal year 2005. Given this staggering amount of money, and because the percentage of the total federal outlay was expected to exceed twenty percent (20%) of the total federal budget, Congress enacted the mandatory employee education provisions about false claims recovery to encourage whistleblower lawsuits and, hopefully, thereby decrease fraud and abuse.

In addition to providing written policies for all employees, the mandatory policies and compliance programs must include detailed provisions regarding the employer’s policies and procedures for detecting and preventing fraud, waste and abuse. The written policies must include a specific discussion of federal and applicable state False Claims Acts, and the rights of employees to be protected from retaliation as whistleblowers. Ironically, as of the effective date of this provision, there is no state False Claims Act in Georgia. This is very discouraging. Nonetheless, this too may change depending upon the actions of the Georgia Legislature when it meets in 2007.

Section 6031 of the Deficit Reduction Act encouraged the enactment of state False Claims Acts by providing financial incentives for states to enact laws dealing with false or fraudulent claims (specifically including Medicaid claims) that parallel the federal False Claims Act. All states that enact state False Claims Acts are eligible for a ten percent (10%) increase in their share of Medicaid fraud recoveries. Many states have already availed themselves of this opportunity to participate in an increase share of Medicaid fraud recoveries but Georgia has yet to pass such legislation. Whether it will do so, of course, depends upon Governor Perdue and the Republican controlled State House and Senate.

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Tax Whistleblower Rewards Increase

We are excited that, in December 2006, Congress dramatically increased the “rewards” to whistleblowers under the IRS Whistleblower rewards program. Whistleblowers now can receive up to 30% of the taxes, interest, and penalties that the IRS recovers based on information furnished by a whistleblower in large tax cases.

For years, the Internal Revenue Service has been authorized to pay informants reporting tax fraud a percentage of any back due taxes collected. Usually the maximum percentage was approximately fifteen (15%) percent of the back tax recovered.

The new whistleblower reform provisions passed by Congress have changed this maximum, and now allow the Internal Revenue Service to consider not only the back tax amount, but also interest and penalties. Given the amounts of money involved, and depending on the passage of time, the fines, penalties and interest in addition to the tax could be significant.

Moreover, the law changes the amount that goes to the informant from a fifteen (15%) percent cap to a thirty (30%) percent cap of all collected proceeds which again includes penalties, interest and the back tax. The new provisions also allow an above-the-line deduction for attorney’s fees and cost paid by and on behalf of the individual in connection with any award for providing information regarding violations of the tax laws. The Internal Revenue Service must now create a Whistleblower Office within the IRS to administer the mandatory reward program.

Congress will require a yearly report to the Secretary of Treasury regarding the effectiveness of any reward program implemented by the IRS. Congress estimates that these new provisions will raise $33 million over the next five years which is but a small fraction of the under reported income in the United States each year. Nonetheless, it is an improvement over existing procedures.

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Will Whistleblower Tax Reforms Produce Results?

The Federal False Claims Act has been recognized as the government’s most effective tool for combating fraud and waste in government programs. According to the Justice Department, false claims act recoveries for the fiscal year 2006 exceeded 3 billion dollars. Unfortunately, the whistleblower reward program utilized by the Internal Revenue Service can hardly be characterized as being so successful. Since new IRS reward reform measures were enacted by Congress, we have been giving thought to the crucial question of whether the IRS will be successful in implementing its new informant reward program. Statistics available from the IRS are hardly encouraging. Between fiscal year 2001 and 2005, a paltry $27.3 million was paid by the Internal Revenue Service to informants as rewards. The average individual reward was around $24,000.00. When we compare this to the results achieved under the Federal False Claims Act, obviously, the disparity in results is staggering which is probably why it is that Congress recently acted to encourage the Internal Revenue Service to reform its whistleblower program. The real question is whether the Internal Revenue Service is up to the job and whether it will learn lessons from the success of its other federal agencies in combating taxpayer fraud and abuse.

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Addressing Contractor Fraud and Abuse in Iraq

According to the Congressional Research Service, the United States has spent to date over $437 billion on the Iraq War. An additional $100 billion is estimated to be spent this year. While much of the money, obviously, goes for troops, a great deal of these amounts has gone to civilian contractors involved in reconstruction efforts in Iraq. But where has the money gone and who is accounting for its proper use?

According to Senator Patrick Leahy of Vermont, “Eventually we’re going to have a bill

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The CMS Clarifies the Mandatory Whistleblower Reforms

The salutary intent of the Deficit Reduction Act was to require that employers educate employees about the Federal False Claims Act and, hopefully, address fraud and abuse by employer entities receiving $5 million dollars or more in federal funds under the Medicaid program. When the Deficit Reduction Act was passed in 2005, a debate emerged about whether the DRA education provisions mandating employee education about the Federal False Claims Act applied directly to healthcare providers and/or whether states receiving Medicaid had to pass implementing legislation to make the provision effective. In December of 2006, the Centers for Medicare and Medicaid Services (CMS) set the record straight. An “entity” includes a government agency, organization, unit, corporation, partnership or other business arrangement (including any Medicaid managed care organization, irrespective of the form of business structural or arrangement by which it exists) whether for profit or not for profit, which receives or makes payments under a state plan approved under Title XIX or under any waiver of such plan, totaling at least $5 million annually. In short, states do not have to implement legislation to make the provision effective and any entity receiving $5 million or more annually in Medicaid benefits must implement the mandatory education provision.

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Where Is the Oversight?

Just before Christmas I read an article about a case in Texas where a doctor was sentenced to a lengthy prison term for a scheme to defraud Medicare and Medicaid in excess of $25 million. The doctor had been approached by individuals offering to pay him a kickback for supplying Certificates of Medical Necessity (CMN) approving a beneficiary to receive a motorized wheelchair. I have been watching TV and seeing these adds for sometime about scooters for disabled individuals and I was wondering how so

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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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