October 26, 2012

A Tale of Two Whistleblower Offices — The Very Different Approaches of the SEC and IRS

By Gordon Schnell

By now, we all have heard about the $104 million awarded to former UBS banker Bradley Birkenfeld for blowing the whistle on the Swiss banking giant’s scheme to help thousands of Americans use offshore accounts to cheat the IRS.  See The IRS Whistleblower Office Gets Serious With Record Setting Award.  It was the largest whistleblower award on record and particularly notable as it came from an agency that historically has shown little interest in, and downright hostility towards, whistleblowers.  See The IRS Whistleblower Office  — A New Beginning Or Just a Lot of Lip Service.  What is more, the IRS made the award even though Mr. Birkenfeld went to jail for participating in the very scheme on which he reported.  The IRS could easily have disqualified him from any award given his culpability.  Instead, it made him a multi-millionaire.  It would seem that the IRS is finally getting serious about enlisting the support of whistleblowers.

But if the IRS has really turned over a new leaf in its attitude towards whistleblowers, it is not being entirely clear in its messaging.  Sure, the groundbreaking award was unprecedented in its size as well as the circumstances under which it was awarded.  And it will certainly serve as a lightning rod for future IRS whistleblowers to step forward.  But the agency has done seemingly very little to publicize the award.  The great media swell surrounding it was prompted not by the IRS, but by Mr. Birkenfeld’s attorneys in a series of press releases and statements they issued upon receipt of the award.  There was and has been little if any mention of the award on the IRS website, and no press release or statement by the IRS that could be found.  When it comes to whistleblower information, the IRS has been equally tightlipped.  The agency’s website does provide some general guidance, but it is far from detailed or prominent in its placement.  A bit of digging is required before you find any content on the subject.

This rather equivocal approach sharply contrasts with the SEC’s practice.  When it made its first whistleblower award at the end of the summer, it heavily publicized it as a signal that the SEC Whistleblower Office was serious in its desire to attract whistleblowers.  See The SEC Whistleblower Office Is Open for Business.  While the award was a relatively modest $50,000 (less than a tenth of a percent of the IRS’s whopper), the award was the exclusive subject of an SEC press release in which the agency’s most senior officials, including SEC Chief Mary Schapiro herself, trumpeted the importance of the award and the role of whistleblowers in the SEC enforcement scheme.  Click here to see the press release.  In addition, it represented a full one-third of the government’s total recovery and the maximum amount allowed under the whistleblower provisions of the Dodd-Frank Act

The SEC’s broad promotion of its first whistleblower award is consistent with how aggressive it has been in encouraging whistleblowers since its Whistleblower Office was established a year ago.  Unlike the scant information on the IRS website, the SEC site prominently displays a lot of information for whistleblowers.  In fact, appearing on screen two of a rotating three-screen display on the SEC home page is a big shiny whistle with a direct link to an entire section of the SEC website devoted to whistleblowers.  And the SEC has been quite vocal about how well the whistleblower program is doing.  Just last week, in a speech he gave on the current state of SEC enforcement efforts, SEC Commissioner Luis Aguilar highlighted the success of the whistleblower program and how many high quality tips they are receiving on a daily basis (around 8 per day, or 3,000 since the Office opened).  Click here to see the speech.

Thus marks a distinct disparity between the IRS and SEC in their handling of whistleblowers.  Its eye-popping award to Birkenfeld aside, you really have to wonder if the IRS is in the whistleblower business for the long haul.  Or whether the payment was more about silencing the legion of critics who had been questioning the IRS’ commitment to implementing Congress’ call for active IRS whistleblower enforcement.  Only time will tell what is really going on.  But if the IRS is truly serious about getting in the whistleblower game, it should follow the SEC’s lead and put a bit more mouth behind the money.  The message coming out of the agency should be one of strong and unambiguous support for whistleblowers and a clear commitment to including them as a critical part of the agency’s enforcement scheme going forward.

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