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Whistleblower Blog

Amendments to New IRS Whistleblower Law Considered

We have had many calls this week from potential clients in our IRS Whistleblower practice, probably because msn.com featured an article about the IRS Whistleblower program on Monday that linked to our whistleblower lawyer blog.

As I have explained to many whistleblower clients, the new regulations for the IRS Whistleblower Rewards Program are in the works, but have not been issued. We have been pursuing IRS Whistleblower claims under the new program and have found the IRS agents to be excited about it.

Adding to the mix for those seeking a whistleblower attorney is that Congress is considering amendments to the law that established the new IRS Whistleblower Program in December 2006. Among the possible changes/additions are a provision opening up the Whistleblower Program to more claims by setting a different threshold for the amount of money in question, which could allow more whistleblowers to qualify for a reward.

Another provision would appropriate funds for the IRS Whistleblower Office, some of which might help defray expenses incurred by the whistleblower’s legal representative. Yet another provision addresses the confidentialty of whistleblowers in Tax Court proceedings.

These proposed changes are part of HB 2, the “minimum wage” bill, which passed the Senate in February.

We will continue to keep up with any developments affecting the IRS Whistleblower Program, which we believe promises to be a great success. If you have any questions about the IRS Whistleblower program, feel free to email me here.

The current section of the proposed HB 2 that applies to the IRS Whistleblower Program is below:
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Guilty Plea in Pharmaceutical Fraud Case

A subsidiary of the drug manufacturer Pfizer has agreed to plead guilty in a kickback scheme and to pay a criminal fine of $19.68 million, according to the U.S. Attorney for the District of Massachusetts, Michael J. Sullivan (not to be confused with Michael A. Sullivan, one of the authors of this whistleblower lawyer blog).

The government’s announcement was that Pharmacia & Upjohn Company, Inc., a subsidiary of Pfizer, Inc., was charged with offering a kickback in connection with the administration and distribution
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New York Becomes Latest State to Agree to Enact a State False Claims Act

The New York legislature has become the latest state to agree to the enactment of a State False Claims Act, when it approved passage of such a whistleblower law as part of approving the state budget. The Buffalo Times reported on this encouraging development.

We have written before about why states are passing their own whistleblower laws to protect taxpayer money. Congress has created significant financial incentives for states that pass their own state false claims acts, with whistleblower provisions that are at
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New Medicaid Whistleblower Law Passes House in Georgia

We have been writing about why states are passing their own whistleblower laws, with qui tam provisions that are at least as effective as the federal False Claims Act. Georgia’s legislature took a giant step forward when its House of Representatives today passed the State False Medicaid Claims Act–by an overwhelming margin of 164-2!

As we have mentioned before on this whistleblower lawyer blog, when the House Judiciary Committee met to discuss and approve the new whistleblower statute, two witnesses were invited
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Whistleblower Laws of Two More States–Hawaii and Virginia–Are Approved by Feds

States are figuring out how to pass whistleblower laws with effective “qui tam” provisions, so that they qualify to receive more money from Medicaid fraud settlements. The Office of Inspector General of the Department of Health and Human Services has announced that, unlike 7 of the 10 state whistleblower laws that OIG had previously reviewed, the whistleblower laws of Hawaii and Virginia pass muster under the Deficit Reduction Act of 2005.

We have previously discussed why states are passing or improving their own
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Whistleblower Law Sponsor Testifies About Iraq Contractor Fraud

Whistleblowers and whistleblower attorneys may consider Senator Charles Grassley of Iowa as the “patron saint” of protecting taxpayer money from fraud against the government. Sen. Grassley continues his great work as he testifies today before the Senate Judiciary Committee about Iraq contractor profiteering and fraud.

The Senator already claimed another recent victory by spearheading passage of the new IRS Whistleblower Rewards Program. Sen. Grassley saw how cost-effective the False Claims Act has been in recovering more than $20 billion for the government–largely because of the
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New State Qui Tam Whistleblower Law Is Approved by House Judiciary Committee in Georgia

This afternoon I had the privilege of joining the Inspector General of Georgia’s Department of Community Health, Doug Colburn, in serving as the two invited witnesses who were asked to explain how the new “State False Medicaid Claims Act” would work, in testimony before the full Judiciary Committee of the Georgia House of Representatives.

The new whistleblower law was approved unanimously by the Judiciary Committee, and is gaining steam toward passage.

Chairman Wendell Willard expressed his strong support for encouraging whistleblowers to report wrongdoing. The
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IRS Whistleblower Rewards Featured in Smart Money Magazine

The new IRS Whistleblower Rewards Program that we have been discussing is featured in the March 13 issue of Smart Money Magazine–and Smart Money cites our Whistleblower blog and quotes one of our authors.

The Smart Money reporter, Lisa Scherzer, contacted our firm, Finch McCranie, LLP, to discuss the IRS Whistleblower Rewards program and our experiences in representing clients in the IRS Whistleblower program. We commented that most potential whistleblowers who have contacted us are ethical, conscientious persons who are troubled
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New “Whistleblower Protection Enhancement Act” Passes U.S. House

We were excited to see that the U.S. House of Representatives today passed an important new whistleblower protection law, the Whistleblower Protection Enhancement Act.

We have discussed this new whistleblower bill previously, as an encouraging development for whistleblowers and whistleblower lawyers. The new whistleblower law would protect federal employees and, now, also federal contractors, who report evidence of fraud, waste, abuse, gross mismanagement, or “substantial and specific danger to public health or safety.”

Rep. Henry Waxman sponsored the new whistleblower protection bill, but Rep. Bruce Braley of Iowa also spoke eloquently today about why American taxpayers–and the American public’s security–demand that honest citizens must be able to bring to light evidence of fraud, waste, and abuse that affects government dollars (which are taxpayer dollars).

Home with a bug today, I was able to watch the debate on C-Span. The bill passed the House by a vote of 331-94, with 8 members not voting. Let’s hope the Senate also acts responsibly by approving the bill.

Rep. Braley was inspiring in his remarks about the courage and contributions of important whistleblowers such as former FBI Agent Colleen M. Rowley, whose comments in speaking out after 9/11 are worth remembering and repeating below:

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New State False Medicaid Claims Act (with Qui Tam Whistleblower Provisions) Is Approved by Georgia Legislative Subcommittee

Whistleblowerlawyerblog Author Testifies In Support of Georgia Department of Community Health’s “State False Medicaid Claims Act”

This morning, a new state False Claims Act cleared a hurdle as it was approved by a Georgia legislative subcommittee.

Georgia’s new “State False Medicaid Claims Act,” which has qui tam whistleblower provisions similar to the federal False Claims Act, received unanimous support among members of the subcommittee of the House Judiciary Committee chaired by Rep. Edward Lindsey of Atlanta.

Testifying in support of the new
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CFTC Announces Final Whistleblower Rules, Rejects “Mandatory Internal Reporting” by Whistleblowers

The final whistleblower rules of the Commodities Futures Trading Commission (CFTC) are being announced now at a CFTC open meeting. Like the SEC, the CFTC has rejected any provision that whistleblowers be required first to report internally the violations in question, but will treat internal reporting as a “positive” consideration in its awards.

The alternative pushed by business would have required all CFTC whistleblowers first to risk career suicide by reporting the boss’s wrongdoing to the boss himself.

Industry’s approach would have made the Commission the laughing stock of law enforcement, since no rational person with a career and a mortgage would risk reporting even major fraud with that requirement.

Fortunately, the CFTC put first its responsibility to protect the public, and is taking seriously its law enforcement duties by seeking to root out major frauds.

Madoff, Stanford, and the other major frauds of the past decade prove that internal compliance programs cannot protect the public. That is why Congress in Dodd-Frank demanded the first meaningful SEC and CFTC whistleblower programs.

We applaud the CFTC on this important stand, and look forward to reviewing the text of the final rules when made available.
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Qui Tam Whistleblower Cases Produced $97 Million in Recoveries After Being Declined by Justice Department

When qui tam whistleblower cases under the False Claims Act are “declined” by the Department of Justice, the whistleblower or “relator” is authorized to pursue the case on the government’s behalf.

The DOJ statistics below show that these declined cases have generated more than $97 million in recoveries for taxpayers since 1987, the year after the modern False Claims Act was born.

These facts dispel any notion that the Justice Department has sufficient resources to pursue all meritorious cases. Some of the more notable False Claims Act recoveries were achieved by private attorneys pursuing these “declined” cases.

A list of these declined cases that have brought almost $100 million into the U.S. Treasury is below. This amount is “larger than the sum of all salaries paid to members of the United States House of Representatives and the United States Senate last year,” as observed by Pat Burns of Taxpayers Against Fraud.
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Former Credit Suisse Officials Indicted For Assisting U.S. Taxpayers Evade Taxes Since 1953

The IRS emphasis on international and offshore tax violations continues. Today, the government made clear that U.S. prosecutions for cross-border tax evasion did not end with the 2009 landmark UBS settlement, which followed a tax whistleblower’s approaching U.S officials.

The Justice Department announced today that three more former Credit Suisse bankers have been indicted for helping U.S. taxpayers evade U.S. taxes.

Credit Suisse has been under U.S. scrutiny for at least the past year. Today’s indictments of three former officials bring to seven
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Progress with Dodd-Frank’s Whistleblower Programs: CFTC and SEC Working to Deter the Next Big Schemes to Harm Investing Public

Too often missing in today’s discussions of Dodd-Frank’s one-year anniversary is appreciation of efforts by CFTC and SEC leadership to build from scratch the effective new whistleblower programs mandated by Dodd-Frank.

With scant resources, each agency is creating an essential mechanism to protect today’s investors from the next fraudulent scheme.

Let’s start with the CFTC. When I met with Chairman Gary Gensler and his CFTC staff in March to discuss the CFTC’s proposed whistleblower rules, I was struck by Chairman Gensler’s focus on what improvements could be made to its “draft” commodities whistleblower rules.

The only non-lawyer in the room, Gensler seemed to grasp more quickly than anyone potential abuses that its draft rules would not correct.

CFTC Commissioner Bart Chilton has also recognized how essential an effective whistleblower program is to protect investors.

More importantly, even the CFTC’s initial cut at its rules showed that it would not simply copy the SEC whistleblower rules’ approach, but would independently design a meaningful program to protect the public by attracting significant whistleblower information to ferret out frauds.

Likewise, the SEC–whose whistleblower rules have been finalized–has shown a welcome commitment to making SEC whistleblowers welcome. Chair Mary Schapiro, Director of Enforcement Robert Khuzami, and other staff such as Steve Cohen, Jordan Thomas, and Sarit Klein put more than considerable thought and effort in refining the SEC whistleblower rules announced in May 2011.

Some in Congress seek to keep the SEC and CFTC so underfunded that they cannot protect the public effectively. As former SEC counsel Professor Don Langevoort observed, “Congress maintains increasingly tight control over SEC policy largely through the budgetary process, and having the Commission be habitually needy and under-resourced fits well within this strategy. The campaign contributions from various sources with an interest in securities regulation are large, and influential members of Congress hardly maximize their own political advantage by stepping aside and leaving the SEC free to do its work as it sees fit.”
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SEC Charges FCPA Bribery Scheme–Feds Collect $15 Million

The SEC Whistleblower Program encompasses not only classic securities violations, but also violations of the Foreign Corrupt Practices Act (“FCPA”), a topic we have followed closely.

This past week, the SEC filed and settled an FCPA case against Armor Holdings, Inc., and collected more than $5.6 million, while the Department of Justice added almost $10.3 million in criminal fines.

The SEC charged that Armor Holdings, Inc. engaged in a bribery scheme to sell body armor to U.N. peacekeeping missions. The Commission also alleged that Armor Holdings violated the federal securities laws’ books and records and internal controls provisions by failing to account properly for commissions in 2001-2007.

Demonstrating the SEC’s increased emphasis on FCPA enforcement, this case is one of 32 FCPA cases the Commission has filed since 2010. Bribery of foreign government officials for business is having increased repercussions.

According to the SEC’s Complaint, through a U.K. subsidiary Armor Holdings paid more than $200,000 through an intermediary to a United Nations official who could send it business, and used a sham consulting agreement to disguise its actions. The result was more than $7 million in additional revenues, and more than $1.5 million in additional profits, according to the SEC.
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Why the SEC Whistleblower Rules Show A New Seriousness About Using Valuable Whistleblower Information

The suspense over the final SEC whistleblower rules ended with the SEC’s release of its final whistleblower rules last week. The CFTC is to follow suit soon in announcing its own commodities whistleblower rules.

We have followed the SEC rules’ development, after being part of the small group of pro-whistleblower attorneys who met with the Commissioners and staff and urged changes to the draft rules to make them effective.

In January, I had the opportunity to visit with SEC Chairman Mary Schapiro,
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Fraud Enforcement Adds Teeth by Pursuing Individuals Allegedly Responsible for Organizations’ Frauds

Last week the government’s criminal trial of former GlaxoSmithKline vice president and associate general counsel Lauren Stevens ended abruptly, as the judge found no basis to allow the case to go to a jury. Prosecutors had charged that she obstructed justice and made false statements to cover up the company’s improper marketing of the antidepressant drug Wellbutrin SR.

While she dodged a bullet, the case jolted lawyers handling health care fraud investigations, which are more typically civil cases under the False Claims Act.

Yet
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New Supreme Court False Claims Act Decision Today: Could This Court Be Any Friendlier to Qui Tam Defendants?

False Claims Act history repeated itself today.

Since Congress acted decisively in 1986 to breathe life into the False Claims Act through amendments intended to expand use of the nation’s major anti-fraud whistleblower law, the Supreme Court and some lower courts have regularly intervened by imposing their own views on what Congress must have meant in writing the 1986 amendments.

Those decisions hostile to enforcement of the False Claims Act included Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev’d, 562 F.3d 295 (4th Cir. 2009)).

Since then, in 2009 and 2010 Congress responded emphatically with three more sets of FCA amendments to state, in essence, what Congress actually intended in 1986, and still intends, the law to mean. We have previously discussed those amendments made by the 2009-2010 legislation known as FERA, PPACA, and Dodd-Frank. (Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (“FERA”); Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (“PPACA”); Dodd-Frank Financial Reform Act (“Dodd-Frank”), Pub. L. No. 111-203, 124 Stat. 1376.)

Today’s decision in Schindler Elevator Corp. v. United States ex rel. Kirk is a victory for those who seek to make it more difficult to use the “old” version of the False Claims Act to battle fraud against taxpayers. The Supreme Court’s decision today continued the legislative tennis match with Congress.

The Court held that what is known as the “public disclosure bar” of the False Claims Act deprived courts of jurisdiction over this qui tam whistleblower case, because the whistleblower had attempted to corroborate his allegations through FOIA requests.

Fortunately for those who favor stopping fraud against taxpayers, the decision should have no effect on qui tam cases filed after the March 22, 2010 enactment of PPACA, the major health reform bill.
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Tax Whistleblower Attorneys At IRS Hearing Urge Treasury and IRS to Be True to Congress’s Intent in Expanding the IRS Whistleblower Program

As has been reported today in Tax Notes and CCH, my colleague Richard Rubin and I addressed the IRS at its hearing yesterday on the proposed IRS Whistleblower rules. We were able to speak for roughly one-third of the hearing.

We focused on fundamentals. We urged that Treasury and the IRS must stay true to the intent of Congress to expand the number and types of IRS whistleblower claims that the IRS receives and pursues, and that merit awards to whistleblowers.

I argued
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IRS Whistleblower Rules Hearing on May 11 Attracts Global Attention

A frequent question I receive is whether non-US citizens can receive rewards under the IRS Whistleblower Program. There is no limitation to US citizens, and persons around the world are eligible to participate in the IRS Whistleblower Program, regardless of citizenship.

Perhaps this is one reason why the May 11 hearing in DC on the IRS Whistleblower rules has attracted attention far and wide, from the India Times, to the American Banking and Market News, to the Northside Neighbor. We will
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