Kansas City Whistleblower Lawyer Blog

In a bizarre move demonstrating the impact of the recent sequestration budget cuts, the Internal Revenue Service recently announced that it would be trimming the percentage of money it awards from its whistleblower program.

The sequester cuts have resulted in the loss of $85 billion in spending out of this year's budget and will ultimately lead to a total of $1.2 trillion in cuts over the next 10 years. A variety of government agencies have had their budgets cut as a result, including the IRS. Most agencies would look to find the least impactful ways of cutting the money, after all, that makes the most sense, to cut money in ways that impact your agency and taxpayers in the least harmful way possible.

Sadly, the IRS seems to have taken a different approach. In an attempt to shave money from its budget, the IRS revealed that it's the whistleblower program, which was created as a result of the 2006 passage of the Tax Relief and Health Act, that would suffer. Currently the program awards whistleblowers between 15 and 30 percent of the total amount collected in cases of large-scale tax fraud. The IRS has said that it will reduce these awards by 8.7 percent.

The IRS has yet to provide a rationale for their decision, likely because there is none. In fact, experts say that reducing a whistleblower's award below the statutory minimum of 15 percent would violate the clear terms of the law that created the IRS whistleblower program in the first place. The language of the 2006 Act says that whistleblowers "shall" receive at least 15 percent of the proceeds collected.

Moreover, the cut is bewildering given that sequestration is meant to impact direct spending and discretionary appropriations; whistleblower awards are neither. Instead, awards are paid directly out of the money collected by the IRS. This money is not part of the agency's budget and thus not affected by sequestration cuts. That means there is no budget impact to paying a percentage of collected money to whistleblowers. In fact, paying such awards actually increases the amount of money in the IRS' coffers.

The recent decision makes it seem as if the IRS is going out of its way to dissuade whistleblowers from coming forward with reports of tax fraud. The cut never needed to be made and serves only to keep concerned citizens from coming forward about large-scale tax fraud. It's confusing why an agency whose sole goal is to collect taxes would take a step to undermine a major program designed to encourage an increase in tax collections.

Sources:
IRS Uses The Sequester To Give Whistleblowers Another Kick In The Teeth by Erika Kelton, published at Forbes.com on March 6, 2013.

IRS: The Jester of the Sequester by Adam Resnick, published at HuffingtonPost.com on March 13, 2013.

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Grassley Follow-up: Letter to Treasury Secretary Geithner and IRS Commissioner Shulman

The False Claims Act, also known as "Lincoln's Law" just celebrated it's 150th anniversary on March 2, 2013. Though the occasion was likely not celebrated in homes across the country, the fact is, the False Claims Act is an incredibly important piece of legislation and has done enormous good for the country.

The legislation, which was signed into law by Lincoln so many years ago, remains important today, thanks to the strength of the idea it stands for. The purpose of the law was to incentivize whistleblowers to come forward by giving them a percentage of any amounts collected from those guilty of defrauding the government. By creating such a system, the government has seen more integrity in its financial transactions and suffered much less fraud than would otherwise be the case. This transparency made possible by the False Claims Act has helped not only taxpayers, but also businesses that have benefited from an open and fair process for awarding government contracts.

The False Claims Act got its start in the midst of the Civil War and was designed to help reduce incidents of price gouging. The Union Army repeatedly found itself being swindled out of money by inadvertently purchasing defective products. Lincoln signed the bill into law to create a financial incentive for members of the public to come forward and reveal instances of fraud.

Sadly, the law became less important after the war ended and was eventually made toothless after a push by defense contractors during World War II. Ironically, it turned out that defense spending was exactly what brought about the revitalization of the False Claims Act. In the mid-1980s legislators, specifically Senator Charles Grassley and Representative Howard Berman, grew concerned about the ballooning defense spending seen during the Cold War and the potential for fraud to occur, given the large amounts of money sloshing around the country. With their support, President Reagan strengthened the existing law in 1986, resurrecting a measure after decades of dormancy.

Since the rebirth of the False Claims Act, it has proven its value time and time again. It's estimated that since 1986, the False Claims Act is responsible for more than $35 billion in federal civil recoveries in addition to $15 billion in criminal fines and state recoveries.

As with many things, imitation is the sincerest form of flattery. Since the passage of the False Claims Act, 29 states and the District of Columbia have passed similar laws. Moreover, other whistleblower laws modeled after the False Claims Act have been passed, including those concerning securities trading, commodities trading and the IRS.

The False Claims Act and other whistleblower legislation is perhaps more important now than ever before. Given the recent economic malaise and stock market collapse, incidents of financial fraud and thievery have frequently grabbed headlines. No one should be able to profit at the expense of innocent taxpayers who have already been on the hook for bailouts that have reached into the billions of dollars. Incentivizing whistleblowers to come forward with information to stop the government from being bilked out of money is essential for the functioning of a stable democracy.

So far, every indication is that the legislation is working. Though the government has pursued plenty of cases on its own, data show that cases initiated by whistleblowers and their own private attorneys account for a whopping 80% of all False Claims Act recoveries. Whistleblower reports have continued to pour in and more than $9 billion was recovered due to state and federal False Claims Acts last year alone. The IRS whistleblower program has reported that it has more than 10,000 cases under investigation, each one worth an average of $2 million.

Though no law is perfect and improvements could always be made to encourage efficient resolution to cases, the success of the False Claims Act cannot be doubted. Unlike many laws which begin with good intentions and then lose their way, the False Claims Act is one measure of which its backers, namely President Lincoln, could still be proud.

Sources:
Born in Civil War Scandals, 'Lincoln Law' Reaches 150 Years as Potent US Fraud Weapon published at ACFCS.org.

The Lincoln Law Is 150 Years Old And Thriving published at TAF.org on March 5, 2013.

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The 2006 Reforms to False Claims Act
Whistleblowers and the IRS

As an update to an earlier post, the United States government has made the important decision to join a whistleblower lawsuit against Lance Armstrong. The suit, filed by Armstrong's former teammate Floyd Landis, revolves around Armstrong's recently admitted use of performance enhancing drugs while racing.

The qui tam whistleblower suit was filed by Landis under the False Claims Act more than two years ago, but has recently been given a major boost after the public revelations by Armstrong during his interview with Oprah Winfrey. The government decided that their case was strengthened enormously by his admissions and decided to join the case.

The theory of the case, now supported by the federal government, is that Armstrong, who was being sponsored by the U.S. Postal Service, was using illegal drugs while racing under contract with the USPS and thus worked to defraud the government. The Department of Justice's decision to join the suit reduces the percentage share that Landis would receive if the case is won, but at the same time increases the overall chances of success.

The government decided to intervene in the case after many months of talks with Armstrong and his legal team about settling their interest in the whistleblower action. Apparently talks fell apart after the two groups could not reach an agreement about how much damage the Postal Service suffered as a result of Armstrong's revelations and subsequent shattered image. Armstrong's attorney, Robert Luskin, says that the government suffered no damage as a result of the revelations, saying that studies have shown the USPS received more than $100 million in benefits over the course of its sponsorship of the team.

Almost everyone agrees that the recent decision by the government is bad news for Armstrong. A case pushed by Landis alone would have had a much harder time gaining traction than a joint action backed by the government. Despite the relatively strong case, the matter is not a sure thing. Some experts believe Armstrong will aggressively fight the charges, saying that his contract never contained explicit terms that prohibited blood doping. Another possible tactic would be arguing that he never personally signed any agreement directly with the USPS that banned blood doping and thus cannot be held liable for defrauding the government.

The case is a serious risk for Armstrong as the cost if he loses could be enormous. The USPS paid Armstrong and his team at least $30 million over the course of their sponsorship, lasting between 1999 and 2004. Under the law, the government could win its permitted treble damages, thus bringing the possible amount of liability up to $90 million.

Sources:

US Department of Justice Joins Lawsuit Against Lance Armstrong by Pete Williams, published at NBCNews.com on February 22, 2013.

Feds Join Whistle-Blower Lawsuit Against Lance Armstrong by Michael Martinez, published at CNN.com on February 22, 2013.

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Whistleblowers and the IRS
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The U.S. Chamber of Commerce and other corporate lobbying groups have kicked off a major push to force the federal government to update and revise existing anti-foreign bribery laws. Specifically, the corporate groups have urged regulators to provide companies with additional defenses against criminal charges related to suspected foreign bribery.

The Foreign Corrupt Practices Act (FCPA) was originally created in the 1970s and has changed little in the intervening decades. The U.S. Chamber of Commerce argues the measure is ambiguous and out of step with currently accepted business practices.

Though the groups say they were happy with recently released guidance by the Justice Department and the Securities and Exchange Commission, the guide did nothing to amend the regulations. Back in November the two regulatory bodies released a lengthy guide that was meant to help explain to corporations how the FCPA would be enforced, hopefully clearing things up and creating a more open process.

The guidelines were released at an opportune time given the recent emphasis placed on the FCPA by U.S. regulators. In recent years, the FCPA has resulted in hundreds of millions of dollars in fines from companies like Siemens, KBR and others. Other major U.S. companies, including Wal-Mart and Avon, are in the midst of incredibly costly internal investigations of possible misconduct.

The business groups said the guidance cleared some questions up, but not all of them. Furthermore, the business groups have said that provisions should be added that allow companies to escape criminal liability for the actions of individual employees provided that the company has already put in place strong internal compliance systems.

Another issue that the business groups raised was something that the recently released guidelines touched on, but failed to fully explore. The guide indicated that companies would be given credit for self-reporting possible violations, but said nothing more. The business groups want a more thoughtful discussion of the issue, specifically, they want to know exactly how much credit companies will receive if they take the step of turning themselves in for possible FCPA violations.

So far the Justice Department has been noncommittal about any plans to change the FCPA. A spokesperson only said that the department looked forward to a "continuing dialogue on the issues."

Sources:
U.S. Business Seeks More Clarity on Foreign Bribery Law by Aruna Viswanatha, published at ChicagoTribune.com on February 19, 2013.

FCPA Guidance: A Murky Road for Compliance by Patrick O'Toole, Jr., published at Boston.com on February 7, 2013.

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The Foreign Corrupt Practices Act: High Cost of Corrupt Practices
Primer on the Foreign Corrupt Practices Act

According to recently released data from the federal government, the Internal Revenue Service paid a record setting $125.4 million to whistleblowers in 2012. The total includes an especially massive payout to a former employee of UBS, a Swiss bank that found itself in the IRS' crosshairs last year.

Though the IRS has been faulted for the way it manages its whistleblower program, the recent statistics indicate a good year for the agency. Critics have said that the agency moves much too slowly and that it has put relatively little resources into publicizing and pushing the program. These critics claim the way the program has been mismanaged has led many whistleblowers to avoid contacting the IRS, resulting in the potential loss of millions in uncollected taxes.

The report showed the number of new whistleblower reports increased last year from 314 in 2011 to 332 in 2012. Though the increase was seen as a good sign, it still pales in comparison to the all time high of 472 individual reports witnessed in 2009.

The new numbers reveal a staggering increase in award money distributed in 2012. The $125 million contrasts with only $8 million awarded in 2011. The IRS also reported a steep increase in the amount of unpaid taxes it collected as a result of tips from whistleblowers. In 2011, $48 million was collected because of such reporting and in 2012, that figure jumped to $592.5 million.

It's important to keep the numbers in some kind of perspective. Though there was a tremendous increase in award payments, the vast majority of that increase was due to one especially large award. Bradley Birkenfeld, a former UBS private wealth banker, came forward and revealed that he helped wealthy Americans hide millions of dollars in secret Swiss accounts to avoid detection by the IRS. The IRS paid Birkenfeld $104 million, or all but $21 million of last year's award money.

The IRS currently operates two whistleblower programs. One, dealing with small-awards, is for those cases involving less than $2 million of tax money. For such cases the award percentage is capped at 15%. The second program, for large awards, is more generous. For those cases with more than $2 million in tax money, the reward amount can increase to as much as 30%. Last year three payments were made under this large-award system, one of which was to Birkenfeld. In a recent letter, Senator Chuck Grassley was especially unhappy to read in the IRS report that numbers indicate that payments made under the large-award program are not projected to grow in 2013. Grassley called news of this plateau alarming, given how important such big cases can be.

One bit of especially troubling news contained in the report, something that Senator Chuck Grassley has faulted the agency for in the past, is processing time. The IRS said that the average number of days it spent evaluating an award increased to 1,141. That staggering figure compares to an average time of 285 days seen in 2011.

Sources:

IRS Paid Record $125 Million to Whistleblowers in 2012: Report by Nanette Byrnes, published at News.Yahoo.com on February 13, 2013.

IRS Releases 2012 Whistleblower Report by Laura Saunders, published at WSJ.com on February 20, 2013.

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Expanding Whistleblower Protections
First Payouts from SEC Whistleblower Program Set to Occur

Given the relatively positive news recently released about the IRS whistleblower program (payouts are up dramatically), it's sad to hear that the SEC has not had similar luck. The newly created SEC whistleblower program, enacted under the Dodd-Frank Act, was viewed by many as one of the best ways to help clean up misbehavior on Wall Street. The hope was that by incentivizing those who witness the bad behavior to come forward, the financial industry would learn to clean up its act. Unfortunately, numbers show that the program has yet to work in the way it was hoped.

The whistleblower program works by giving money to those people that "voluntarily" provide "original" information which leads to a successful enforcement action and monetary sanctions greater than $1,000,000. The awards range from between 10 and 30 percent of the amount collected. Whistleblower submissions are only considered voluntary if the individual provides the submission prior to an official request for information relating to the subject matter of the submission. Submissions are not considered voluntary if the individual is required to report the information by law or because of their contractual obligations with a company.

New numbers released by the Securities and Exchange Commission show that while tips have been flowing in at a fairly rapid clip, some 3,000 whistleblower reports, not much money is flowing out of the agency. The report revealed that the thousands of reports, several times more reports than come in to the IRS whistleblower program, came from all 50 states and from 49 different countries.

The numbers are impressive and indicate a bit of good news, people are coming forward, but there's little progress in terms of paying out money to whistleblowers. Last year the SEC paid out less than $50,000 in claims, an utterly insignificant figure relative to the more than $450 million war chest the agency has amassed.

Given the lack of dollars going to whistleblowers, some have said that many on Wall Street who may have been inclined to come forward are frustrated and may not be bringing forward valid claims because they were scared off by the overly bureaucratic process.

One proposal to help encourage those on Wall Street to come forward with reports of misdeeds is to create a kind of trust fund that will provide payouts to whistleblowers early on in the process. Given the length that such claims take, with investigations and trials happening before any money is awarded, many whistleblowers may be scared away. The trust fund would work by giving money to help tide the whistleblowers over for what can be a lengthy fight.

Sources:
SEC Whistleblower Fund: 3,000 Tips, Little Payout by Chris Tobe, published at Marketwatch.com on February 6, 2013.

The Rise of SEC Whistleblower Cases an Interview with Erika Kelton, published at CorporateCrimeReporter.com on February 5, 2013.

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Expanding Whistleblower Protections
The 2006 Reforms to False Claims Act

Just a few months back we wrote about a long overdue update to the Whistleblower Protection Act of 1989. Senator Chuck Grassley pushed the new legislation for more than a decade and the new rules helped implement much needed protections for federal workers who come forward with evidence of wrongdoing in the workplace.

President Obama signed the new law in November and then he signed the 2013 National Defense Authorization Act on January 2nd. The NDAA extends many of the same protections contained in the Whistleblower Protection Act to workers in the nation's defense industry who come forward to expose corruption and waste. To the surprise of many, Obama also included a signing statement with the NDAA, writing that the bill's whistleblower protections could be interpreted in a way that might interfere with the President's authority to manage executive branch officials. Given this risk, the President's signing statement made clear he would ignore the NDAA if it conflicted with his power to supervise employees' communications with Congress in cases where such communication would either be illegal or reveal privileged information.

The director of the Government Accountability Project has come out against the signing statement, saying that 12 million defense contractors will suffer because of the President's statement. The signing statement essentially says that defense employees are supposed to go to their boss before going to Congress to report problems, something that totally defeats the purpose of blowing the whistle.

The language Obama used was incredibly vague and could be interpreted by the President to include a multitude of situations where the NDAA will be ignored. The bill's sponsors were never told of the signing statement and have since come out and said that the President's remarks are "deeply disturbing" and warned it could undo all the hard work meant to protect defense contractors.

Senator Grassley warned at the time the law was signed back in November that there remained plenty of work to do. The recently revealed signing statement is further proof that Grassley was right. Beyond the unknown consequences of the signing statement, whistleblower protections have yet to be extended to a crucial piece of the government apparatus, those contractors in the intelligence community. This large group of employees remains without protection should they witness waste or corruption and feel the desire to bring such problems to light. Hopefully action will be taken in the future to strengthen, rather than weaken federal whistleblower protections.

Sources:
GAP Position on President Obama's NDAA 2013 Signing Statement published at Whistleblower.org on January 16, 2013.

Why Is Obama Bashing a Whistleblower Law He Already Signed? by Dana Liebelson, published at MotherJones.com on January 10, 2013.

Signing Statement Raises Concerns for Whistleblowers published at TheGazette.com on January 16, 2013.

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Grassley Follow-up: Letter to Treasury Secretary Geithner and IRS Commissioner Shulman
Grassley Letter to IRS Commissioner

A host of information was recently released by the federal government regarding last year's Foreign Corrupt Practices Act (FCPA) enforcement effort. One thing that's clear from the numbers is that the Justice Department and the SEC have dramatically decreased the fines levied against violators of the Act. What that means for companies remains to be seen.

Some are asking whether the lower fines seen in 2012 are representative of a larger shift among federal officials who will now dole out smaller punishments for FCPA violations. Others believe the dip last year was merely an oddity and not the beginning of a change in the way such cases are handled.

Last year the Justice Department and the SEC collected a combined $260 million in criminal civil penalties related to FCPA violations. That number is down dramatically from the $652 million collected in 2011 and the staggering $1.8 billion collected in 2010.

Another change this year is that both agencies have remained quiet about their FCPA enforcement efforts. In years past, both the Justice Department and the SEC would release statements congratulating themselves on the large amount of fines collected. This year, mum's the word.

Some in the financial industry say the trend reveals that penalties for FCPA violations have plateaued. However, other groups are saying the 2012 numbers are merely a blip and will rise again in the future. The truth is likely somewhere in between.

As one expert points out, typical FCPA settlements usually range between $10 and $20 million. The number for 2010 and, to a lesser extent, 2011, were skewed by mega settlements. For example, in 2010, BAE Systems paid a massive $400 million FCPA settlement, one of the largest ever. Last year there were no such mega settlements, making the number appear smaller than it actually is.

Some in the legal industry are warning that there may be other mega settlements on the horizon. A major settlement out of the French oil company Total may end up being over $300 million and a recent push into the pharmaceutical industry by Justice Department investigators could also yield big fines. It appears as if the days of massive FCPA hauls by the federal government may not be over just yet.

Sources:
Lower Fines the New Norm for the FCPA? by Christopher Matthews, published at WSJ.com on January 17, 2013.

FCPA Violations by Dr. Elaine Buckberg, published at Mondaq.com on January 16, 2013.

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Primer on the Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act: High Cost of Corrupt Practices

As Lance Armstrong readies for his big Oprah appearance, an important legal issue looms in the background, one that won't be smoothed over by any forced apologies. It's been revealed by several news organizations that Floyd Landis, a former teammate of Armstrong's and a former Tour de France winner, has filed a federal qui tam whistleblower lawsuit against Armstrong.

The whistleblower suit filed by Landis in 2010, claims that Armstrong violated the terms of the $30 million sponsorship deal he signed with the U.S. Postal Service. The violations occurred because Armstrong and others took drugs to enhance their performance, something specifically forbidden in the USPS contract.

Landis has launched the suit under the False Claims Act, a piece of legislation that allows whistleblowers to file suit against individuals and companies who defraud the government of money. In this case, Landis has sued Armstrong saying that he defrauded the USPS of $30 million that was paid to sponsor his racing team. The False Claims Act specifies that penalties can rise to three times damages, so Armstrong may be on the hook for up to $90 million.

Landis has an incentive to launch such a suit, given that the Act allows whistleblowers to receive a share of the amount ultimately recovered as a reward. The suit in question is what's known as a qui tam action, meaning that it has been filed "under seal." This means that those party to the suit, including Landis, cannot discuss the suit in public. The current privacy seal ends on Friday and if the government does not ask for an extension, it will have to decide then whether or not to join Landis' whistleblower suit.

If the Justice Department decides to join the case against Armstrong then it will proceed like any other case with the federal government taking the lead prosecuting the case. If not, Landis and his attorneys are allowed to pursue the case on their own. If that were to happen the money would still go to the government, but Landis could keep a larger share of the damages collected.

Many expect the Justice Department to pursue the case against Armstrong. The current public relations flurry has angered the public and many believe Armstrong should repay the money he took from the USPS now that he has publicly admitted to doping. How much money Landis could collect depends on whether the matter settles out of court and how much he contributed to the final result of the case. Whistleblowers are entitled to between 15 and 25% of the recovery if the government joins the case, and 30% if the government does not.

Sources:
The Whistleblower Lawsuit Against Lance Armstrong: What to Expect Next by Erika Kelton, published at Forbes.com on January 17, 2013.

EXCLUSIVE: Inside the Secret Whistleblower Case Against Lance Armstrong -- Former Teammate Floyd Landis' Lawsuit Nails Cycling Cheat by Teri Thompson, published at NYDailyNews.com on January 17, 2013.

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Recent news involving a massive fine leveled against HSBC might, at first glance, appear to be a good thing. After all, $1.9 billion in penalties against a major international financial conglomerate over an international money laundering scandal might seem like a good step at holding the company accountable for its actions. However, a closer look reveals some problems with the settlement.

HSBC agreed to pay such a hefty fine after there were reports that the company spent years laundering money for Mexican drug cartels, Iran and other unsavory organizations, which are supposed to be blacklisted by international financial institutions. Specifically, HSBC is said to have violated the Bank Secrecy Act that requires all financial institutions to report any cash transaction of $10,000 or more and bring any suspicious activity to the attention of bank regulators.

The $1.9 billion penalty to settle the case is the largest amount ever paid by a bank. Moreover, on the surface at least, the terms of the settlement appear fairly stringent, given that the government can reopen a criminal case against the company at any time over the next five years if it appears that the company has failed to strengthen it's internal oversight procedures. This is a fairly rare clause in such settlements as most stipulate that the government must give up any potential future criminal case.

As tough as all this may seem, the fact is the government went easy on HSBC, given the severity of what the bank is accused of doing. Not one person from the bank is headed to prison for laundering money for drug cartels, something that has landed many smaller fish in the financial sea behind bars. According to the New York Times, the giant bank may simply be "too big to indict."

The Times wrote that federal and state authorities declined to push for indictment of HSBC officials for fear that such criminal charges could destabilize one of the world's largest banks and thus the financial system as a whole. Evidently, a compromise guilty plea was considered, but ultimately scuttled by the Treasury Department, which worried about the effects of such a plea on the larger economy. By pleading guilty to violations of the Bank Secrecy Act, many regulators were afraid the company would be cut off from important sources of money, including many pension funds, and would eventually lose its charter to operate in the U.S.

Though criminal indictments are relatively rare for big financial players, the threat of real jail time is a powerful deterrent for those considering cutting corners. The Washington Post points out that if prosecutors make it clear to those in the big banks that criminal charges are unlikely, regulators could become all bark and no bite in the minds of many on Wall Street. The notion that such large banks are "too big to fail" has already led to reckless behavior by some. Should the banks come to believe that they are truly "too big to indict," God only knows what kind of behavior might emerge.

Sources:
'Too Big to Fail' becomes 'Too Big to Indict' by James Downie, published at WashingtonPost.com on December 11, 2012.

Too Big to Indict published at NYTimes.com.

Too Big To Indict, HSBC, Barclays and UBS Set Ugly Precedent by Haydn Shaughnessy, published at Forbes.com on December 11, 2012.

See Our Related Blog Posts:
The DOJ's Bad Deal with a Tax-Evading Swiss Bank - Part I
The DOJ's Bad Deal with a Tax-Evading Swiss Bank - Part II

A vote late last month by the Senate cleared the way for final approval of legislation meant to strengthen legal protections for federal whistleblowers. Finally, this week, President Barack Obama signed S. 743, the Whistleblower Protection Enhancement Act of 2012, into law.

The measure has been pushed for more than a decade by advocates and is designed to protect employees who reveal government wrongdoing from any future retaliation by their supervisors. The new legislation will serve to overturn court decisions that have narrowed protections for government whistleblowers and protect groups of workers who, until now, were not previously covered by such laws. The new act will also grant the Office of Special Counsel the power to seek disciplinary action against any supervisors who attempt to retaliate against a whistleblower.

Many have hailed the new measure as a way of closing loopholes that worked to make federal employees feel unsafe about exposing government corruption. Though it goes a long way, it's not all that advocates were after. Some say that even with the new legislation, governmental protections for whistleblowers still pale in comparison to those for private workers. Two large pieces of the act were blocked by House Republicans; including jury trials to enforce the newly created provisions and an extension of such rights to national security workers. Thankfully, after Congress failed to include such a provision, President Obama issued a Presidential Policy Directive that specifically prohibited supervisors from retaliating against those national security and intelligence employees who expose waste, fraud and abuse.

Those who have backed the bill say that they now believe millions of federal employees will no longer need to live in fear of retaliation for standing up to misbehavior in the workplace. The hope is that by giving federal workers the chance and protection to speak out against corruption and fraud in their workplaces, the government will become more transparent and efficient.

Sources:
Bill Giving Whistle-Blower Protections to Federal Employees Signed into Law by Judy Greenwald, published at BusinessInsurance.com on November 28, 2012.

Congress Approves Stronger Whistleblower Protections by Joe Davidson, published at WashingtonPost.com on November 13, 2012.

Senate Passes Whistleblower Protection Enhancement Act by Laura Walter, published at EHSToday.com on November 14, 2012.

See Our Related Blog Posts:
The DOJ's Bad Deal with a Tax-Evading Swiss Bank - Part I

The DOJ's Bad Deal with a Tax-Evading Swiss Bank - Part II

As we've discussed before, complying with the U.S. Foreign Corrupt Practices Act can be a major headache for U.S. businesses with large international practices. Given those headaches, it has come as welcome news to many that a new guide to the FCPA was released earlier this month. The guide, known as "A Resource Guide to the U.S. Foreign Corrupt Practices Act," pulls together information about the law that was previously scattered in a variety of places.

The FCPA imposes criminal and civil penalties on businesses for a variety of offenses including foreign bribery and inaccurate financial records. The new guidelines are meant to help companies avoid overstepping their bounds and thus avoid expensive fines associated with the Act.

The guide was drafted by officials with the Justice Department and Securities and Exchange Commission. It does not change the FCPA, doing so would take an act of Congress, and there is nothing legally binding about the guide either. Instead, it is intended to give insight into the mind of DOJ and SEC enforcement officials.

It's no easy read either, coming in at a whopping 120 pages. The guide addresses the definition of a foreign official, specifies examples of proper and improper gifts and lists some of the hallmarks of effective corporate compliance programs. The guide notes that the FCPA does not actually prohibit gift giving, just the payments of bribes that are disguised as gifts. The guide says that handing out promotional material including pens, hats and t-shirts is an appropriate way of showing your gratitude and marketing your company.

Experts say that one of the more valuable aspects of the guidance is that it provides hypothetical situations and case studies, without naming the companies involved. Hypothetical and real-life scenarios deal with such issues as gifts, travel and entertainment of foreign officials, areas of FCPA compliance with which some U.S. companies have struggled in the past. A few good examples contained in the good include the tip that it would be improper to give a $12,000 birthday trip to a government decision-maker or hand over a trip to Italy that includes $1,000 of pocket money.

The guide appears to be far from perfect, but it should serve as a valuable tool for companies looking to avoid an expensive fine by running afoul of U.S. laws. As more companies turn overseas for growth, the guide will likely only become more important.

Sources:
U.S. Unveils FCPA Guidelines by Mike Scarcella, published at AmericanLawyer.com on November 15, 2012.

New FCPA Guidance Brings Welcome Insight to U.S. Businesses published at BusinessInsurance.com on November 25, 2012.

See Our Related Blog Posts:
The Foreign Corrupt Practices Act: High Cost of Corrupt Practices
Primer on the Foreign Corrupt Practices Act

According to a recent report in the Wall Street Journal, settlements with the government are not the only cost corporations must account for if they decide to engage in illegal bribery of foreign officials. The newspaper found that legal expenses for internal investigations associated with foreign bribery charges have cost several companies hundreds of millions of dollars.

Allegations of bribing overseas officials have cost Avon, Weatherford International, and Wal-Mart nearly half a billion dollars. Worst of all for the companies: they have not even been charged with anything yet. Avon is in the midst of its fifth year of going through an internal investigation about allegations that employees paid bribes overseas. The company has so far spent about $280 million on legal expenses conducting the investigation. Oil-services company Weatherford International has spent more than $125 million on its own six-year investigation into bribes that took place in Europe and the Middle East. Another whopper is the $51 million Wal-Mart has spent in less than a year on an investigation into bribery claims that took place in Mexico.

The Foreign Corrupt Practices Act, or FCPA, says that it is illegal to offer money or a gift to a foreign government official to gain a business advantage. The law applies to any company based in the U.S. or listed on a U.S. stock exchange. It has become commonplace for companies that suspect they may have engaged in illegal behavior to preemptively hire investigators to examine the issue internally. These investigations are often turned over to the government in the hope of getting lighter penalties or avoiding punishment altogether.

The costs associated with these internal investigations are so high that it can seem like punishment in itself. In some cases, the settlements paid by the companies to the government are substantially less than the amount they paid their own investigative team of attorneys and auditors.

Experts in the field say that a typical major, multinational company can expect to spend an average of about $2 million to investigate its operations in one country. The problem for many companies is that most investigations are not limited to only one country and can instead encompass whole regions of the world. Smaller investigations that center on a specific issue can cost less, between $100,000 and $200,000.

Despite the incredible expense associated with these investigations, law-enforcement officials say such internal probes are absolutely necessary to ensure fairness in such a large marketplace. Companies need to be able to police themselves given that the Justice Department is not large enough to conduct so many comprehensive investigations on its own. The DOJ instead relies on the information gathered by the companies when it begins an investigation of its own.

According to officials with the Justice Department, more than a hundred other companies are currently under investigation for possible FCPA violations. That means that millions of dollars will soon be spent by dozens of companies on law firms and auditors in an attempt to stay a step ahead of federal investigators and possibly save themselves from even costlier criminal or civil fines down the road.

Sources:
FCPA Inc.: The Business of Bribery by Joe Palazzolo, published at WSJ.com, October 1, 2012

The High Cost of FCPA Investigations by Jaclyn Jaeger, published at ComplianceWeek.com, April 17, 2012

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When we left off last time it was 2010. Bradley Birkenfeld, the UBS whistleblower, had been sentenced to 40 months in prison for tax evasion and the DOJ had just let UBS off the hook after the bank revealed information on a tiny fraction of the total number of accounts thought to belong to Americans hiding from the IRS. Now, for the rest of the story.

Mr. Birkenfeld, the former UBS private banker, recently got a bit (well, maybe a lot) of good news when it was announced that he would receive a whistleblower award of $104 million for his hard work. The award represents the largest individual federal payout in history and comes at an especially good time for Birkenfeld given that he was released from prison at the beginning of August, just in time to enjoy his windfall.

Birkenfeld's attorney said the man is thrilled with the development, saying that, "The IRS sent 104 million messages to whistle-blowers around the world - that there is now a safe and secure way to report tax fraud." The next thing on Birkenfeld's agenda is a presidential pardon which he is seeking while under home confinement as part of the terms for his release.

This likely comes as much needed vindication for Birkenfeld who said in earlier interviews that he felt he should be viewed as a hero, not a criminal. In an earlier interview with Bloomberg News, Birkenfeld said, "I delivered and documented this entire scandal, the largest in U.S. history... It's a question of doing the right thing, and that's what I did."

The IRS whistleblower program was created in 2006 to boost tax revenues by giving incentives for citizens to tipoff authorities. The program stalled for almost five years and only made its first award in 2011, despite more than a thousand tipsters coming forward. The incredibly slow pace of the program's development sparked criticism from U.S. Senator Charles Grassley who pushed for the original law. Grassley pointed out that a similar program by the DOJ had collected more than $27 billion under the False Claims Act.

Grassley released a statement saying he was thrilled with the Birkenfeld award: "This case provides evidence about how the whistle-blower program can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistle-blower." Though Grassley admitted the size of the award was surprisingly large, he pointed out that billions in taxes will be collected as a result of the tip that would not have been possible without the information.

Sources:

UBS Whistle-Blower Secures $104 Million Award From IRS by Tom Schoenberg, published at Bloomberg.com, September 11, 2012.

IRS awards $104 million to UBS tax case whistleblower published at NYDailyNews.com, September 11, 2012.

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This is the first part in a two part series of posts explaining the saga of an IRS whistleblower from UBS who spent years fighting his former employer before recently receiving a major reward for all his trouble.

To start the story, let's go back in time almost two years. In October of 2010, the U.S. Justice Department decided to dismiss a major criminal case against UBS AG, the largest bank in Switzerland, saying it had complied with an agreement to defer prosecution. The bank had been charged with conspiring to defraud the U.S. government by helping nearly 20,000 American taxpayers hide money from the Internal Revenue Service in secretive Swiss bank accounts.

In an attempt to avoid prosecution, UBS agreed to pay $780 million in fines, admit to aiding in tax evasion and hand over account information for nearly 4,500 accounts. UBS held up its end of the bargain and, as a result, the DOJ agreed to drop the charges against the big bank, saying since UBS met its obligations dismissal was appropriate.

The criminal investigation was started in 2007 after a former private banker for UBS, Bradley Birkenfeld, told U.S. authorities how he and others from the bank had come to the U.S. to attract American clients and help them shield their assets from the IRS. Birkenfeld revealed that as many as 60 Swiss-based private bankers came to the U.S. each year to woo clients and help them set up fake offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. UBS trained bankers to avoid detection by regulators, urging them to carry encrypted laptop computers and falsely state on travel forms that they were entering the country for pleasure, not business. Birkenfeld ended up pleading guilty to charges related to this tax evasion and was sentenced to 40 months in prison in 2008.

The case was an important one given that it led to charges being filed against dozens of UBS clients for tax evasion. The case was also seen as a watershed moment that ended a long period of total bank secrecy in Switzerland. Despite this seeming success, the victory could have been much sweeter had the government been more aggressive with the bank. It was revealed by Bloomberg News that the government originally attempted to get information concerning some 50,000 Swiss bank accounts, but eventually agreed to settle for data on only 4,500.

Birkenfeld's attorney released a statement after the decision was announced decrying the failure on the part of the DOJ to aggressively prosecute the wrongdoers, saying: "The DOJ should demand that UBS produce all 19,000 tax violators, not just 4,450, shut down all UBS business in the United States until there is full compliance, and reopen an active criminal investigation into the American and Swiss bankers who conspired to commit these crimes. It is an insult to every honest taxpayer that while the whistleblower is in jail, UBS and its American clients are getting away with hiding billions of dollars of taxable income."

What all happened in the two years since the DOJ debacle? Read part two of the story which will be coming soon to find out.

Sources:
UBS Tax-Fraud Charge Is Dropped by U.S. Prosecutors by David Voreacos, published at Bloomberg.com, October 22, 2010.

Swiss Parliament Rejects UBS DOJ Deal published at Whistleblowers.org, June 8, 2010

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Expanding Whistleblower Protections