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How Businesses Can Use Whistleblower Reward Laws to Stop Unfair Competition

Posted  July 22, 2019

Most anyone can be a whistleblower. The role is not limited to the corporate insider or company employee at the meeting, on the conference call or in receipt of the email or text message where the “smoking-gun” evidence of fraud or misconduct is disclosed. Whistleblowers can be any person, or an entity, with non-public information about fraudulent conduct giving rise to a whistleblower claim.  Often, businesses have such information about activities by their competitors.

The various whistleblower incentive programs — the federal False Claims Act, the numerous state False Claims Acts, the SEC Whistleblower Program, the CFTC Whistleblower Program, the IRS Whistleblower Program, and all the other industry-specific whistleblower programs — are designed to encourage and protect anyone with original information that assists the government in its fraud enforcement efforts. They even reward those whose efforts lead to a successful government recovery. These awards may be quite handsome, up to 30% (sometimes even more) of what the government takes in.

While the majority of whistleblowers are individuals, companies can be whistleblowers too. Increasingly, companies are using the whistleblower reward laws to report their competitors for engaging in unfair business practices to gain an improper competitive advantage. Included among the more common types of competitor fraud on which whistleblowers have reported are:

  • Bid-Rigging — Where competitors coordinate on their bidding for government contracts.
  • Price-Fixing — Where competitors coordinate on the prices they charge or the terms they set for government contracts or purchases.
  • Regulatory Approval Fraud — Where a competitor secures a key government license or approval through falsified or unsupported regulatory testing or submissions.
  • Tariff and Customs Fraud — Where a competitor is evading import tariffs through transshipment or other customs fraud schemes.
  • Buy-American Fraud — Where a competitor for a government contract fraudulently supplies products that do not comply with the Trade Agreements Act.
  • Abuse of Market Power — Where a competitor leverages its market dominance over customers, suppliers or distributors to gain a competitive advantage or impose a competitive disadvantage over others.
  • Unfair Competition — Where a competitor employs various tactics or schemes to secure favorable treatment from customers, suppliers or distributors to gain a competitive advantage.

When the government is the ultimate customer — through Medicare reimbursement, defense contracting, agency procurement, or government purchases more generally — the end result of these various forms of misconduct typically involves the government paying higher prices, receiving defective or sub-standard products, and/or having fewer purchasing options.

Traditionally, a company faced with harm from such conduct had few options.  If the conduct related to a bid for a government contract, a bid protest might be available.  If a government program or agency was being defrauded, a competitor could report to a tip line and try to get the attention of relevant authorities.  To recover for damages, a competitor may be able to sue the offender under federal or state antitrust and fair competition laws. Or, it could try to persuade the Antitrust Division of the Department Justice and/or any relevant state attorneys general to investigate the misconduct and bring their own enforcement action.

Each of these options can be problematic. Pursuing a private action can be difficult, time-consuming, expensive and can impose a significant drain and diversion of company resources. Convincing the government to get involved can be equally fraught, with no guarantee the government will move forward or even investigate, and no control over how the government proceeds even if it does decide to take action.

Whistleblower reward programs offer a powerful alternative for companies faced with competitive harm in government contracts or as a result of a competitor cheating a government program. Using the False Claims Act, a whistleblower files a lawsuit on behalf of the government.  The government then investigates the allegations raised in the lawsuit, and can take over the lawsuit if it finds actual wrongdoing.  Alternatively, the whistleblower may pursue the lawsuit on its own if the government decides to sit on the sidelines. The statute also provides for a whistleblower recovery of between 15 and 30 percent of any government recovery resulting from the lawsuit. In this way, the False Claims Act presents what can be a less burdensome and more time and cost-effective way to address competitive wrongdoing, with the potential for significant monetary gain.

It is for this reason that more companies are acting as whistleblowers to report fraud and misconduct by their competitors. Currently, there are no antitrust-specific whistleblower statutes, though draft legislation has been introduced on several occasions and the need for an antitrust whistleblower rewards program has been expressed by many. Until there exists an antitrust-specific program, however, the False Claims Act offers the best option for whistleblowers to go after anticompetitive conduct that is directly impacting government contracts and purchases.

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Tagged in: Bribery and Bid-Rigging, Customs Fraud, FCA Federal, FCA State, Government Procurement Fraud, Government Programs Fraud, Importance of Whistleblowers, Whistleblower Eligibility,