June 15, 2012

Show Me the Money – Large Rewards as an Indispensable Piece of the Whistleblower Enforcement System

By Gordon Schnell

In yet another corporate attempt to upend the surging success of the American whistleblower system, the US Chamber of Commerce recently proposed a cap on whistleblower rewards.  Under the False Claims Act as well as the recently implemented whistleblower provisions of the Dodd-Frank Wall Street Reform Act, whistleblowers are entitled to between 15% and 30% of any government recovery.  This has led to several eye-popping whistleblower recoveries with more surely on the way as the government begins to roll out awards under Dodd-Frank.

The Chamber, along with the large corporate interests on whose behalf it speaks, wants to put a stop to these rich prizes by capping any awards at $15 million.  That is a lot of money and on its face would seem eminently reasonable, especially since only a small percentage of whistleblower awards even approach, let alone exceed, that amount.  However, the idea of a cap misses the bigger picture of how important these awards — or more importantly, the promise of these awards — are to whistleblower enforcement.  They provide a much needed incentive for whistleblowers to endure what can be an extremely difficult, hostile and arduous process.  And they provide a measure of recompense for the significant financial and personal hardships so many whistleblowers suffer for standing up and speaking out.

This was the essential message of Taxpayers Against Fraud (TAF), a leading nonprofit whistleblower advocacy group, in its formal response to the Chamber’s proposal.  In its recently released report entitled The Importance of Whistleblowers to Reducing Fraud Against the Federal Government and Recovering Funds for Taxpayers, TAF attacks head on the Chamber’s assertion that capping whistleblower rewards would save the government money.  TAF argues that such a cap will have the exact opposite effect by reducing the number of fraud actions the government brings and by reducing the size of the recoveries in the actions it does bring.

The history of False Claims Act enforcement is clearly on TAF’s side.  Prior to the 1986 amendments to the statute, which provided for significantly increased whistleblower rewards, there was minimal whistleblower activity and equally meager government enforcement.  All of that changed with the boost in financial incentives.  In the twenty-five years since, the government has recovered more than $30 billion under the False Claims Act, with $3 billion recovered in the last year alone.  And almost 80 percent of these actions were initiated by whistleblowers.  With these numbers, it is hard to argue for any kind of change in the current incentive scheme, let alone one that so clearly cuts against whistleblowers.  As TAF so persuasively points out, even a slight change in the whistleblower incentive structure — impacting only one or two whistleblowers — could wipe out all of the supposed “savings” the Chamber projects from a proposed cap.

These figures also belie the arguments put forward by the Chamber and its supporters that whistleblowers are not motivated by the money.  No doubt, money is not the only motivating factor that drives whistleblower to action.  For most whistleblowers, it is not even the main driving factor; not even close.  But it is certainly a factor, and one that weighs heavily in the assessment most whistleblowers make when deciding whether they want to subject themselves to the alienation, retaliation and second-guessing that is virtually guaranteed in becoming a whistleblower.  And lest we forget, with all of the gains in whistleblower enforcement, about one-third of the roughly 70 million US workers who witness fraud in the workplace every year still fail to do anything about it.  For this disinclined group of would-be whistleblowers — about twenty-million strong — the prospect of a sizeable bounty may be the only way to get them to take a stand against corporate fraud.

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