Kansas City Whistleblower Lawyer Blog

What Is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act of 1977 was passed in response to scandals in the mid 1970s that exposed over 400 U.S. companies that had been making payments to foreign government officials to facilitate preferential treatment. One of the incidents that prompted the passage of the law was the Bananagate scandal of 1974. It was found that not only did the United Brands Company bribe government officials in Honduras to lower export taxes on bananas, but they also tried to convince the SEC that these bribes should remain secret.

The FCPA is found in the United States Code (15 USC §78dd-1 et seq.). Its requirements can be broken down into two basic categories:

First, according to the Department of Justice, is to "[prohibit] corrupt payments to foreign officials for the purpose of obtaining or keeping business." The definition of "foreign official" is interpreted rather broadly. Payment through an intermediary is also considered a violation of the FCPA if the payer knows that that money will ultimately be used to bribe a government official.

Second, is an accounting provision (as detailed in 15 USC § 78m), largely overseen by the SEC. This statute mandates that corporations keep accurate and complete records of all transactions. Low-level payments that do not confer special privileges and are "necessary to achieve ministerial action" are still permitted.

Who Enforces the FCPA?

The Department of Justice is responsible for enforcement of the law's criminal penalties. The Securities and Exchange Commission enforces the civil penalties. Private causes of action cannot be supported by the FCPA alone, but an FCPA violation can be part of a private lawsuit under another law such as Racketeer Influenced and Corrupt Organizations (RICO) Act.

Whistleblowers?

When the Dodd-Frank Act created its general whistleblower incentive program, the SEC adopted its own rules to incentivize disclosure of information leading to the discovery of fraudulent transactions involving public companies. Whistleblowers are entitled to 10-30% of the recovery in any resulting settlement or action borne of a successful enforcement based on the information. The reporting may be anonymous, but receipt of the reward requires disclosure of one's name to the SEC.

The reward provisions do not apply to those with a legal duty to report corrupt transaction or those convicted of a crime related to those transactions.

The information must also arise from a "voluntary submission" i.e. before the SEC contacts the prospective whistleblower. Second, the information must be based on "independent knowledge," not something that could be gleaned from publically available sources unless the whistleblower himself was the source for the public reports.

How Effective Is It?

Enforcement of the FCPA has increased dramatically in recent years. There were only two cases prosecuted in 2004; in 2010 the number jumped to 48.

The recent Wal-Mart scandal is a classic example of the type of corruption that the FCPA was meant to counteract. Back in 2005, it was discovered that Wal-Mart paid Mexican government officials more than $24 million. However, law enforcement officials were never notified and the story remained dormant until this past April when the New York Times wrote an important article about the scandal.

The article described how trusted agents would deliver "envelopes of cash" to any official who could have potentially hindered Wal-Mart's rapid growth in Mexico. These envelopes of cash are a classic example of the payments that would leave behind the vague records that send up a red flag to the DOJ and SEC regarding possible FCPA violations. The Times also noted that the company's records indicated $16 million dollars worth of "donations" and "contributions" to various Mexican municipal governments. While some of the payments were made to facilitate getting business licenses, they went far beyond the low level ministerial payments permitted by the FCPA.

Source:
Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle, by David Barstow, published at NYTimes.com, April 21, 2012.

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The new Securities and Exchange Commission's Office of the Whistleblower opened on August 12, 2011. The new office is responsible for fielding tips received from whistleblowers, enforcing SEC rules and supporting the SEC in determining awards for whistleblowers. Motivated by the potential for large monetary awards, along with citizens' wanting to speak out about corporate wrongdoing, the expectation is that the number of individuals willing to report complaints to the SEC will increase dramatically.

This increase in activity is evidenced by the increase in these types of cases filed with the federal government since 2005, according to the Department of Labor's Occupational Safety and Health Administration (OSHA). While supporters of labor and shareholder interests are very much in favor of this trend, it puts increased pressure on corporations to ensure that strong internal compliance programs are in place as well as good communications and training to encourage internal reporting. Additionally, corporations are well served to have anti-retaliation policies in place.

OSHA administers multiple whistleblower protections under laws such as Sarbanes-Oxley and the Consumer Financial Protection Act. The agency has seen an increase in whistleblower complaints, specifically 2,339 charges in 2011 (through September 14, 2011), compared to 2,319 for all of 2010, and 2,158 in 2009.

Geoffrey Rapp, the Harold A. Anderson Professor of Law and Values at the University of Toledo's College of Law, commented on the increase in whistleblower charges. "The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart."

One such case recently concluded against Bank of America, in which the bank allegedly used retaliatory tactics against a whistleblower. OSHA ordered the bank to pay the former employee $930,000 in interest and back wages and to reinstate the employee.

The uptick in whistleblower activity garners conflicting opinions within the legal industry. Gregory Keating, co-chair of Littler Mendelson's whistleblower practice, believes that the monetary incentives are motivating individuals to go forward with unsubstantiated claims, citing examples of employees who were suffering from poor performance threatening to blow the whistle.

Those on the other side of the argument indicate that since government enforcers are limited, the new rules are necessary to incent corporate employees, who might otherwise be reluctant to come forward to blow the whistle on wrongdoing. Some also say that the increase in complaints is a sign of the times in which we live.

The 2010 Ethics & Workplace Survey by Deloitte reports that the financial collapse has compromised trust and ethics, highly important components in conducting business. The survey indicated that almost a third of employees reported that their colleagues are more likely to be unethical in this environment and that those planning to look for new jobs would do so as a result of a loss of trust in their employers.

Reuben Guttman, an attorney for Grant & Eisenhofer, a law firm specializing in corporate governance and fraud, stated that, "We live in an era where people are more open about second-guessing institutional activity." He also indicated that the financial collapse caused many people to "open their eye[s]. Entities we thought were reputable may be making misrepresentations and not telling the truth about what they're doing."

Sources:

Increased motivation for whistle-blowing, AccountingWEB in Watchdog, November 18, 2010

More workers willing to blow the whistle on their employer, Careers on MSNBC.com, September 19, 2011

Rise of the Whistleblowers, Law360, New York, August 22, 2011

The Dodd-Frank Wall Street Reform and Consumer Protection Act established a whistleblower program to be adopted by the Securities and Exchange Commission (SEC). Specifically, section 922 of the Dodd-Frank act amended the Securities Exchange Act of 1934 by adding a new section called "Securities Whistleblower Incentives and Protection." According to this new section, the SEC is to pay awards to whistleblowers that provide the SEC with original information that leads to the successful action whereby the SEC assesses greater than $1 million in fines and sanctions. The rules for this program to be adhered to by corporate compliance departments were finalized on May 25, 2011. Prior to the Dodd-Frank Act, the SEC's authority for rewarding whistleblowers covered only insider trading cases.

On August 12, 2011, the new rules became effective and the SEC launched a webpage designed for individuals to access, report violations and apply for financial awards. The new webpage at www.sec.gov/whistleblower contains necessary information regarding how to submit a tip, eligibility requirements, and frequently asked questions and answers.

The final rules of this program, seen as one of the most controversial requirements of Dodd-Frank, were adopted by a very slim margin, a 3-2 vote by the SEC. Mary Schapiro, chairman of the SEC commented that the new rules "build upon our efforts over the past two years and our experience with the Sarbanes-Oxley Act - an Act that made great strides in creating whistleblower protections and requiring the internal reporting systems at public companies. From that experience, we learned that despite Sarbanes-Oxley, too many people remain silent in the face of fraud. Today's rules are intended to break the silence of those who see a wrong."

The 'no' votes were entered by Commissioners Kathleen Casey and Troy Paredes, their concerns being that the new rules would weaken corporations' internal compliance programs. The rules actually provide that whistleblowers are still eligible for a reward if they internally report wrongdoing to the company, and the company, in turn, reports it to the SEC. Additionally, a whistleblower could achieve a higher award if it is reported to the company first.

Commissioner Casey went on to elaborate that the rules could further decrease the bandwidth of the commission that is already struggling to keep up with limited resources. Commissioner Paredes believes that the new rules and process for providing tips to the SEC and then obtaining awards are "burdensome" and that individuals may not be as willing to report information.

Sean McKessy, Chief of the SEC's Office of the Whistleblower, commented that the agency would make changes if problems occurred. After a speech, delivered at Georgetown University's McDonough School of Business, he said, "If our program is not doing what it's intended to do, then we'll look at it and figure out ways to fix it."

McKessy also commented that, "Whistleblowers remain loathed in industry, but financial incentives should help the SEC ferret out more wrongdoing and could make investigations quicker and cheaper." He went on to say, "Look in a thesaurus under 'whistleblower' and see what kind of words you get out. I'm either the head of the office of the rats, or the rat finks, or rat bastards," McKessy said. "If even one fraud is stopped before it gets to a Madoff-type situation, then all the effort has been worth it."

Sources:

US SEC Says Will Fix Whistleblower Rule if Any Problems, Reuters, by Andrea Shalal-Esa, August 11, 2011

SEC's new Whistleblower Program Takes Effect Today, Securities and Exchange Commission, August 12, 2011

Price WaterHouse, A closer Look, The Dodd-Frank Wall Street Reform and Consumer Protection Act, PwC, May 19, 2011.

A federal whistleblower, Bunnatine "Bunny" Greenhouse, has just won a major victory with the U.S. District Court in Washington. On Monday, July 25th, the court approved an award to Greenhouse in the amount of $970,000, which represents full restitution of wages, compensatory damages and attorney fees.

The case involves Kellogg Brown and Root (KBR), a subsidiary of Halliburton, and the settlement is with the Army Corps of Engineers. Greenhouse was an employee of the agency and took issue with KBR using its own cost projections for a "multi-year no-bid, no competition contract." After her initial objection with KBR, she took the contract issue to Congress. The result of her communication with Congress was that she was removed from the Senior Executive Service and her top secret clearance was revoked.

It all started in February of 2003, a short time prior to the U.S. invasion of Iraq. A Pentagon meeting agenda included the subject of an approximately $7 billion government contract award to Kellogg Brown and Root for the purpose of restoring Iraq's oil facilities. Greenhouse was in attendance in addition to officials from Defense Secretary Donald Rumsfeld's office and aides to retired Lieut. General Jay Garner. To her dismay, also present were several representatives from Halliburton. Her issue with the presence of the Halliburton representatives was with regard to the sensitive nature of the discussions and the obvious potential for conflict of interest with KBR, with Halliburton representatives in the meeting being privy to internal discussions about the terms of the contract. She requested, with a whisper to the presiding general, that the Halliburton employees be asked to leave the meeting.

Greenhouse then raised other concerns including the fact that the contract had never been put out for competitive bid and the five-year term was not justified, that the contract term should be opened to competition after only a one year term. When the contract came back for approval, the term was still five years. The war was looming and she had no choice but to approve the terms, but added a handwritten reservation voicing her objections and stating that a no-bid contract with greater than a one year term could imply, "there is not strong intent for a limited competition."

These objections did not become public until October of 2004. In January of 2004, the government had replaced the noncompetitive contract with two competitively bid awards. Interestingly, Halliburton was awarded the larger of the two, worth up to $1.2 billion. As early as 2004, she had received a lot of trouble for issuing concerns about the deal and was warned to stop interfering and then was threatened with a demotion. At the time, her lawyer sent a letter to the acting Secretary of the Army, charging that her superiors had tried to silence her. The letter states that over the seven years previous to the Halliburton contract, Greenhouse had voiced reservations about many procurement documents, but only after the Halliburton issue was she warned to stop. The letter also states that Robert Griffin, the major general who warned her, later gave a sworn statement in which he admitted her reservations on contracts had "caused trouble" for the army and that it was "intolerable" and "had to stop." The letter also states that he threatened to downgrade her.

Greenhouse said in a statement, "I hope that the plight I suffered prompts the administration and Congress to move dedicated civil servants from second-class citizenry and to finally give federal employees the legal rights that they need to protect the legal trust."

After suffering terrible working conditions, including a fall on a rigged trip cord in her office that resulted in a painful injury to her knee, Greenhouse retired with 29 years of service with the federal government. This retirement was earlier than she had planned and she retired without her SES credentials and top secret clearance.

Stephen Kohn, president of the National Whistleblowers Center, claimed that she was "an American hero." In a statement released by his office, he said, "She had the courage to stand alone and challenge powerful special interests. She exposed a corrupt contracting environment where casual and clubby contracting practices were the norm. Her courage led to sweeping legal reforms that will forever halt the gross abuse she had the courage to expose."

Her case illustrates the need to protect federal whistleblowers. Although legislation that would improve these protections has been in front of Congress for years, it has never gained any final approval.

Sources:
Beyond the Call of Duty, Time Magazine, October 24, 2004

A Bittersweet Win for a Federal Whistleblower, The Washington Post, July 26, 2011

Final rules regarding the whistleblower provisions of the Dodd-Frank Act have been released by the U.S. Securities and Exchange Commission. The rules are effective as of August 12, 2011 and will apply retroactively to whistleblower tips made since July 21, 2010. If you provide original information about potential securities law violations you can receive a monetary award for that information if it results in a successful enforcement action by the SEC or a related agency.

The rules do not require that employees first report their suspicions to an internal compliance system prior to going to the SEC. This creates an incentive for whistleblowers to skip a company's internal compliance procedures. If this is done, compliance programs would be undermined and companies would not have an opportunity to quickly respond to a problem or self report prior to an investigation. In order to reduce the possibility of whistleblowers skipping internal compliance procedures, the SEC made rules that are intended to encourage the whistleblower to in fact use the company's internal compliance procedure.

Companies now have a strong incentive to encourage whistleblowers to report suspicions internally and promptly respond to reports. Potential whistleblowers should expect to see companies implementing strong internal reporting procedures as well as the latest investigation techniques. Corporate attorneys will be at the ready to protect the company's attorney-client privilege and attorney work product protections by being involved with the reporting and investigation of whistleblower claims. Companies will adapt a proactive approach with regulators to avoid surprises from whistleblowers or the SEC.

One provision of the rules is the 120 day look-back provision. When a whistleblower reports internally, he or she will have 120 days from the date of the internal report to provide the same information directly to the SEC without losing his or her place in line to claim a bounty award. Therefore, companies will have 120 days from receiving a report to do an investigation and determine if they wish to self report to the SEC.

Whistleblowers should expect to see various, easily accessible reporting methods including 24/7 access to anonymous reporting systems like free hot lines, web and email reporting methods and access to company compliance officers.

Training about reporting tools and availability will be emphasized.

Instead of whistleblowers being shunned, they will probably be recognized and praised.

Companies will most likely make it a requirement that all employees must report possible misconduct and violations and certify periodically that they are not aware of securities law violations not already reported.

On the investigation side of things, if the whistleblower identifies him or herself, he or she will most likely be one of the first witnesses interviewed. The whistleblower can expect to be in the loop on communication about the report because management will not want to make the whistleblower feel that no action is being taken.

Company attorneys will most likely conduct investigations or at least supervise the investigators doing the investigation. This is because the company will want to preserve and protect the company's attorney-client privilege and this can only be done if a company attorney is directly involved.

Expect to see more companies making more voluntary disclosures because the SEC will treat the company more favorably if the company has disclosed the wrongdoing before a whistleblower broadcasts the wrongdoing.

Source:
Dealing with tipsters under Dodd-Frank; New SEC whistleblower rules will require companies to examine and restructure their internal compliance programs; Corporate & Business Law, The Wall Street Journal, June 27, 2011

Forty years to the day that the New York Times began publication of the Pentagon Papers, Mr. Stephen M. Kohn, Executive Director of the National Whistleblowers Center, writes an enlightening article in the Times about our founding fathers and their actions that established America's first whistleblower-protection law.

"That it is the duty of all persons in the service of the United States, as well as all other inhabitants thereof, to give the earliest information to Congress or any other proper authority of any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge."

The genesis of this law was the reporting by 10 revolutionary sailors and marines that their commander of the Continental Navy, Commodore Esek Hopkins, had participated in the "inhuman and barbarous" treatment of captured British sailors. This occurred during the winter of 1777, a time during which warship Warren was anchored near Providence, R.I. The men accusing Commodore Hopkins included 10 sailors and marines that were engaged in the revolutionary war. They met on the Warren in order to discuss their issues about the commander, knowing full well the risks they faced, considering that Hopkins was from a very powerful New England family.

The result of their petition, presented to the Continental Congress by a Marine Captain named John Grannis, was that the Continental Congress voted in March of 1777 to suspend Hopkins from his post.

Hopkins, who was furious with the suspension, retaliated with the filing of a criminal libel suit in Rhode Island against the whistleblowers. Two of Hopkins' accusers, who were in Rhode Island at the time, were jailed. In July of 1778 the men pleaded that they had been "arrested for doing what they then believed and still believe was nothing but their duty." The result of their pleading was Congress' enacting of the whistleblower-protection law. Congress went another step further by authorizing payment for the legal fees of the two men, thereby ensuring that the whistle-blowers could have the funds for legal counsel to fight the libel charges.

Mr. Kohn's article makes the point that, "Congress did not hide behind government secrecy edicts, even though the nation was at war. Instead, it authorized the full release of all records related to the removal of Hopkins. No "state secret" privilege was invoked. The whistle-blowers did not need to use a Freedom of Information act to obtain documents to vindicate themselves. There was no attempt to hide the fact that whistle-blowers had accused a Navy commander of mistreating prisoners."

Two hundred years later, the Supreme Court justice William O. Douglas reiterated the meaning of the first amendment and praised our founders' commitment to freedom of speech. He wrote, "The dominant purpose of the First Amendment was to prohibit the widespread practice of government suppression of embarrassing information."

However, just in the last 20 years, laws that were in place to protect federal employee whistleblowers have unraveled. The government now has the right to "strip employees of their security clearances and fire them, without judicial review." Another loophole affects employees of the National Security Agency and the Central Intelligence Agency by barring them from any coverage under the law. Finally, national security whistle-blowers, fired for uncovering and exposing wrongdoing, are barred from obtaining protection in federal court.

Our current administration continues to aggressively pursue leakers such as Thomas A. Drake, a former official at the National Security Agency and Bradley E. Manning, an Army private. Drake just plead guilty to a misdemeanor claiming misuse of the agency's computer system by providing information to a reporter and Manning is suspected of passing classified data to Wiki Leaks and has been imprisoned based on these allegations since May of 2010.

Kohn closes the article with, "Instead of ignoring and intimidating whistle-blowers, Congress and the executive branch would do well to follow the example of the Continental Congress, by supporting and shielding them."

Source:
The Whistle-Blowers of 1777, The New York Times, June 12, 2011

Insurance Commissioner Dave Jones announced last week that California has joined a whistleblower lawsuit against Bristol-Myers Squibb Co., which alleges that the pharmaceutical giant bribed medical doctors to prescribe its drugs. This is described to be the largest alleged health care fraud case handled by the state to this day and has perhaps cost insurers millions of dollars.

The law suit was originally filed in 2007 by one current and two former employees of the company. The amended complaint, now including California, was filed by state insurance department lawyers in Los Angeles Superior Court two weeks ago. If the former employees and California win, the whistleblowers and the state would share damages.

Allegations claim that Bristol-Myers Squibb Co. salespeople offered physicians many perks, including paid speaking engagements, various gifts and trips, such as professional sports tickets, golf outings, meals, and luxury hotel accommodations in exchange for doctors prescribing large amounts of the company's drugs. These prescriptions were then allegedly billed to private insurers.

The current lawsuit alleges that by tracking prescription data, the company could identify low-prescribing doctors and then inform those doctors that they could lose perks. Additionally, salespeople at dinner events were allegedly instructed by the company to get physicians to prescribe for certain patient types and to then monitor new prescriptions by doctors.

Bristol -Myers Squibb has been the target of accusations involving kickbacks before. In 2007, the company agreed to a $515 million payout to settle federal whistleblower lawsuits in Massachusetts and Florida.

Source:
Calif Claims drug giant bribed docs to prescribe, The Wall Street Journal, March 18, 2011

Almost 2 years before Enron declared bankruptcy and created one of the largest financial meltdowns in history, a whistleblower tipped off the Internal Revenue Service (IRS) that the company was using illegal tax shelters to generate income.

After nearly 10 years, the IRS finally paid the whistleblower a $1.1 million reward. Ironically, if the IRS had pursued the information in 1999, when the whistleblower first came forward, the government may have realized the depth of Enron's problems and may have been able to avoid the financial disaster that ruined the portfolios of Enron investors.

The tax fraud reported by the whistleblower allowed Enron to evade taxes in amounts of more than $600 million and to report almost $300 million in false profits. The whistleblower estimates the numerous schemes he knew of and reported about involved over 10 billion taxable dollars.

The Enron whistleblower received a 15% reward for the money he helped the IRS to recover. However, the rates have increased since 1999. In 2006, the law was changed to allow whistleblowers to receive between 15% and 30% in cases involving more than $2 million.

In this case, the whistleblower received a significantly diminished amount because Enron declared bankruptcy in 2001, making the total amount the IRS could recover much smaller than the actual amount of tax fraud that occurred.

Source:
IRS pays Enron whistleblower $1.1 million, The Washington Post with Bloomberg Business, March 15, 2011

On Wednesday, March 9, 2011, congressional hearings revealed that officials at the Centers for Medicare and Medicaid Services (CMS) have developed plans for an increase in scrutiny for new providers joining these programs, as opposed to going after fraudulent behavior after the fact. Furthermore, these experts estimate that as much as $70 billion in savings could be achieved per year by going after fraudulent providers.

Peter Budetti, who is director of program integrity at the CMS, told the Senate Homeland Security subcommittee hearing, "We are going to keep out the bad guys without making things worse for honest providers, and cut off payments for things that should not be paid. We want to move from the pay and chase mode to preventing fraud."

The efforts could be cut short, however, due to lack of funding for new software that provides electronic screening that could aid in the identification of fraudulent providers. Much of the funding for the new software was included in the 2010 health care reform law, which is considered for repeal by many Republicans on Capitol Hill. On the other side of the argument regarding funding, Republicans report that the anti-fraud measures in the health care bill do not go far enough and that the Congressional Budget Office estimates that the efforts at fraud prevention would only eliminate $5.8 billion in improper payments over the next decade.

If left to continue, increases in Medicare fraud could limit the funding for the new health care reform law. Funding has also been sought for the special interagency task force that pursues and investigates fraudulent claims submissions and for receipt of kickbacks for referrals to billing for medical services that were never provided.

Source:
Medicare Fraud: A $70 Billion Taxpayer Ripoff, The Fiscal Times, March 10, 2011

Today (February 3, 2011) The Wall Street Journal reports that the attorneys general in California and Virginia are investigating whether banks overcharged public pension funds by tens of millions of dollars for foreign-exchange transactions. Other states, including Florida and Tennessee, are also conducting investigations.

The states are looking into whether certain banks charged state pension funds the most expensive foreign-exchange price possible during the day when a trade took place, instead of the rate available at the time the trade took place. This also occurred when currencies were sold. Banks paid the state the lowest price possible for the day and not the rate available at the time of the trade.

The international foreign-exchange market is a $4 trillion-a-day exchange market.

U.S. investors trading in global stock markets must convert dollars into the currencies of the foreign countries in which they invest. For example, if an investor (pension fund) buys stock in a South Korean auto maker, it converts U.S. dollars to won, and reverses that exchange when selling the stock. Custodial banks facilitate this foreign exchange function.

The suits claim the banks didn't charge the pension funds the currency rates prevailing at the time of the trades, but consistently charged them the highest currency-conversion prices of the day, and kept the difference for their own account. The suits also say the banks similarly overcharged when the investors exited the trades.

Preliminary studies by university professors indicate custodial banks generally know the price they charge their clients and the bid-ask spread within a few hours of any transaction. Customers only learn later about the price they paid and never the bid-ask spread between what sellers are offering and buyers are willing to pay.

The California case was unsealed in 2009 and estimates the fraud at $56 million. The Virginia suit was unsealed last week and seeks $150 million in damages. Details of the matters indicate that some of the whistleblowers currently or previously worked at the defendant institutions.

About 30 states have statutes that allow whistleblowers to collect as much as 15% to 30% of any government recovery in cases in which they assist.

Source:
US States Widen Currency-Trade Probes, The Wall Street Journal, February 2, 2011

The IRS modified its rules last year which seemingly made it even more difficult for whistleblowers to collect rewards on reports of uncollected taxes to the IRS. Whistleblowers and their attorneys have tried, unsuccessfully, for years to ensure that significant rewards are paid to IRS whistleblowers who help the government collect unpaid taxes.

Thankfully, on January 14, 2011, the IRS reversed its previous position and made it more likely that whistleblowers could collect rewards when reporting tax evasion to the IRS.

Senator Charles Grassley (R-Iowa) has long been a champion of exposing government waste and recently sponsored legislation that helped whistleblowers to have an incentive to identify tax fraud. Grassley noted that the IRS was undermining its own procedures by not allowing whistleblowers to collect on certain types of tax fraud.

Through Senator Grassley's work, along with private counsel for a number of whistleblowers, the IRS has modified its policy and now gives rewards for a much more broad list of tax fraud schemes.

As an example, the IRS received tips on 5,678 cases in 2009 and only paid rewards on 110 of them. This low reward rate has created a decline in the number of whistleblowers willing to come forward. With the new policies in place, Senator Grassley and officials at the IRS feel confident that more potential whistleblowers will come forward.

Source:
IRS Reverses Position, Which Could Benefit Whistleblowers, Washington Post, January 15, 2011

It's really very simple! When you order ten pounds of ground pepper to be delivered in a container from a supplier, the total combined weight of the container and pepper should be greater than ten pounds. The container weighs something. The total weight should not be ten pounds.

The False Claims Act was passed to stop this kind of activity perpetrated against the Union Army during the Civil War and to provide a way for the government to recover money from those suppliers that had profited from similar schemes to shortchange the government. The False Claims Act is often referred to as the "Lincoln Law" because President Abraham Lincoln strongly supported its passage.

The law contained a "qui tam" provision that allowed private citizens to sue, on the government's behalf, companies and individuals that were defrauding the government. "Qui tam" is short for a Latin phrase, "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which roughly means "he who brings an action for the king as well as for himself." The statute was passed on March 2, 1863.

This "qui tam" provision allows knowledgeable insiders that work for suppliers that are engaged in providing inferior or shorted products to the government and then billing the government falsely, to participate in the financial recovery on a percentage basis.

There are also protections built into the statute so those brave individuals that step forward and identify these situations will not be fired for their reporting activities. These are commonly referred to as "whistleblower protections".

Some government sectors that have been victimized by fraud include Public works projects and federal government construction; Research programs; Customs; Environmental programs; Loan guarantees; Underpayment of royalties on government-leased land; Agricultural subsidies and other agricultural programs; Municipal bonds ("yield-burning").

The reward for a whistleblower can be substantial. Fifteen to thirty percent of the recovery is called for if the whistleblower's suit is successful. Whistleblowers awards since 1986 have reached almost $1 Billion.

Former Glaxo Attorney, Lauren Stevens, has been charged with falsifying documents to influence a federal agency, obstructing an official proceeding, and making false statements to the FDA, according to an indictment issued by the United States Justice Department.

The indictment alleges that Stevens, the formal vice president and associate general counsel for GlaxoSmithKline falsely denied off-label promotion for one of Glaxo's prescription drugs. Off-label promotion is when a company or individual markets a prescription drug for unapproved uses.

According to the indictment, Stevens sent a series of letters to the FDA falsely denying that off label promotion took place, and withheld evidence that would have demonstrated that numerous doctors had been paid to give professional seminars to other doctors that included information about unapproved uses for the drug.

This is one of the unusual moments when the federal government has prosecuted individual executives in connection with off-label marketing. If convicted, each of the obstruction charges carries a maximum penalty of 20 years in prison. Glaxo has not been charged with a crime as of yet.

GlaxoSmithKline, a British pharmaceutical company, will pay $750 million to settle a case that alleged it sold and manufactured contaminated drugs. The Company will pay $150 million in criminal fines and $600 million in civil penalties. These fines and penalties are all related to its manufacturing facility in Cidra, Puerto Rico.

Although no individuals appear to have been harmed by GlaxoSmithKline's indiscretions, the potential for serious complications still exists because of the number of improper drugs that were distributed. Some of the problems at the plant included the failure to ensure that pills were free from contamination by microorganisms and distributing some controlled release tablets that did not have any therapeutic effect. The drugs affected included Paxil, Bactroban, Kytril and Advandamet.

The investigation was begun by an employee of GlaxoSmithKline, Cheryl Eckard, who discovered numerous violations including contaminated water and air systems in the manufacturing plant in Puerto Rico. She reported the problems to her superiors and eventually to the Food and Drug Administration as a whistleblower.

Eckerd will receive $96 million of the settlement under the Federal False Claims Act. This is believed to be the largest whistleblower award ever paid under the Federal False Claims Act.

Indiana Attorney General Greg Zoeller has started a program called "Blow the Whistle on Medicaid Fraud". The program encourages people with knowledge of fraud, especially those working in health care, to come forward with information of wrongdoing.

The US Department of Health and Human Services has similar programs attempting to reign in the estimated 15 to 30 percent of all Medicare and Medicaid billables which are fraudulent. These programs allow private citizens to file a lawsuit on behalf of the government against a provider or company, like a hospital.

In turn for the whistleblower's help, the government can give a substantial finder's fee to the citizen bringing the lawsuit, often as high as 15 to 30 percent.