DOJ Must Fix Flaws in Whistleblower Award Plan to Motivate Tips

The Department of Justice’s announcement of a new whistleblower award program for corporate and financial misconduct is a major development. Time and time again, federal whistleblower award programs have shown to be extraordinarily effective in getting insiders to come forward and disclose fraud and misconduct.

Announcing the DOJ program on March 7, Deputy Attorney General Lisa Monaco pointed to the success of these other whistleblower programs as inspiration to the DOJ, saying they “have proven indispensable.”

“Ever since Dodd-Frank created whistleblower programs at the SEC and the CFTC, those agencies have received thousands of tips, paid out many hundreds of millions of dollars, and disgorged billions in ill-gotten gains from corporate bad actors,” Monaco said.

However, the DOJ has miles to go in establishing a whistleblower program that’s on par with programs at the Securities and Exchange Commission and the Commodity Futures Trading Commission. The program Monaco outlined actually conflicts with many of the essential features of these programs that are critical to their success.

First, the DOJ should establish a central whistleblower office that can accept anonymous and confidential complaints. These offices have been essential to the success of the Dodd-Frank programs. Whistleblowers take immense risk coming forward, and the most effective way to mitigate these risks is to provide anonymous and confidential reporting. Without such channels, whistleblowers will either not be willing to come forward or could face retaliation.

Notably, the DOJ was required to set up anonymous and confidential reporting channels under the Anti-Money Laundering Act, passed in January 2021. Yet since then, the agency has yet to establish such channels. The delay speaks to persistent anti-whistleblower sentiment within the DOJ.

The DOJ’s plan for its whistleblower award program has another major flaw—individuals who have participated in the underlying misconduct will not be eligible for it. This is a fundamental misunderstanding of what makes whistleblower award laws so successful, dating back to the False Claims Act. A secretary who places a stamp on a letter should never be denied an award for turning in their boss.

It’s a core tenet of successful whistleblower programs that individuals participating in the wrongdoing are the ones with the best information and in the best position to assist in successfully prosecuting the key players in it. In the SEC program for example, culpability is a factor in determining the size of a qualified whistleblower’s award but is not a disqualification. The same is true for all other successful whistleblower laws, including those laws that Monaco pointed to in her speech.

All the successful laws draw a distinction between those who participate in wrongdoing (and are often the best witnesses) and those who “plan and initiate” the underlying criminal conduct. For example, a Swiss banker simply doing their job in Geneva by opening a secret account for an American violates US law, and would be denied any relief under the DOJ’s program.

But we now know these bankers, who simply are implementing the policies and laws permitted in Switzerland, have proven to be the best sources of information on illegal banking. Their information has resulted in the recovery of billions of dollars from fraudsters. By denying coverage to such important witnesses, the DOJ has fundamentally misunderstood what has made these award laws so successful. Monaco’s proposal shuts the door on the most significant whistleblowers.

The DOJ program is meant to cover violations not covered under other whistleblower award programs, and Monaco is right that they “simply don’t address the full range of corporate and financial misconduct that the Department prosecutes.” But the solution she outlined will not work. She only discussed approving policies to implement the award provisions of the Justice Department’s forfeiture fund. The law creating that fund is flawed and has never worked.

First, the law permits awards under two provisions. One provision caps the amount of an award at $500,000, an amount even the Trump administration’s SEC found radically deficient to incentivize and protect whistleblowers. The second has caps in the range of $250,000 to $500,000. If a whistleblower wants to obtain a higher award, that decision becomes political. The attorney general must approve any increased amount, and only if they notify Congress of this decision. Bringing politics into whistleblower award decisions is a disaster that should be avoided.

Worse still, the law denies whistleblowers the ability to go to court and challenge a denial of an award. Every successful whistleblower law permits judicial review. The program shouldn’t deny whistleblowers due process.

Finally, the law implementing the fund vests the complete discretion to deny any whistleblower any compensation whatsoever with the DOJ. Prior whistleblower award laws which have been discretionary have been shown to rarely pay out awards, undermining the whole point of the laws. For example, from 1943 to 1986, awards were discretionary under the False Claims Act and no awards were paid. Since Congress recognized the need to have mandatory awards and amended the FCA in 1986 whistleblowers have been awarded nearly $9 billion (and whistleblower tips have allowed the DOJ to recover over $75 billion).

There is an alternative approach. It starts with making the current laws work better. As mentioned above, the DOJ has not even implemented a mandatory anonymous filing process for money laundering disclosures.

It’s encouraging that the DOJ recognizes the success of Dodd-Frank programs and is seeking to award whistleblowers, but the agency has many deep-rooted issues in how it handles whistleblowing. By straying from these proven models, the DOJ is starting its program on the wrong foot.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Stephen M. Kohn is founding partner of whistleblower law firm Kohn, Kohn & Colapinto, which collaborated with congressional offices to draft amendments to the Anti-Money Laundering Improvement Act.

Geoff Schweller contributed to this article.

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