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Whistleblowers Are Key to Fed’s Lofty Fraud Fighting Goals

March 25, 2022, 8:00 AM

In recent months, the U.S. government has sent a strong anti-fraud message to the underworld. Attorney General Merrick Garland on March 10 announced the launch of a new Covid-19 fraud enforcement task force to help recover government funds stolen during the pandemic. President Biden vowed to send billions of U.S. dollars to support Ukraine and to seize assets of Russian oligarchs who have benefited under the reign of Vladimir Putin. And last October, the Justice Department launched a civil cyber-fraud initiative to pursue cybersecurity breaches that jeopardize government programs.

These developments are good news for honest, law-abiding businesses that seek to compete on a level playing field.

However, when Congress opened the Treasury doors to flood the pandemic economy with over $6 trillion and approved billions of dollars for Ukrainian support, it failed to adequately increase spending to pay for additional anti-fraud watchdogs. Indeed, according to analysis by the Washington Post, federal oversight agencies essentially received about $1 in new money for about every $12,000 in coronavirus spending.

Accordingly, the existing agency personnel is now tasked with monitoring unprecedented levels of government spending. To compound concerns, the rush to pump funds into the U.S. economy and into Ukraine has forced the U.S. government to rely on pay-and-chase anti-fraud enforcement.

Law enforcement will—more than ever—need to rely on whistleblowers to supplement the limited resources of the government and to help ferret out evidence of wrongdoing—both in the U.S. and abroad. This increased reliance on whistleblowers will greatly benefit anti-fraud efforts, the business community, and the American taxpayer.

Here are three important reasons why.

Whistleblowers Are Good for Enforcement

First, whistleblower laws have a long, established track record of effectively recovering stolen funds. For instance, in 2013, economist Dr. Jack Meyer analyzed the cost effectiveness of federal False Claims Act whistleblower actions in the health-care sector. He determined that these actions recovered over $20 for every $1 the government expended pursuing these cases.

With annual settlement dollars climbing in recent years, the ROI of whistleblower actions have likely climbed ever higher. Our planned updated study should identify the exact ROI. However, whether it was $20 to $1 or $50 to $1, we are talking about returns that have outpaced even cryptocurrency.

The effectiveness of the federal False Claims Act has led to over 30 states passing similar laws, and many federal whistleblower programs have emerged in the past 15 years, including the IRS Whistleblower Program and the SEC Whistleblower Program. These whistleblower laws and programs have proliferated because they work.

For instance, in the lead up to the Dodd-Frank Act of 2010, a congressional hearing revealed the lack of adequate protections and incentives for whistleblowers in the financial sector. This created a veil of secrecy, allowing people like Bernie Madoff to steal with impunity.

Congress responded with the launch of the SEC Whistleblower Program, which since the program’s inception, has resulted in orders for nearly $5 billion in total monetary sanctions. These sanctions happened because private citizens were protected and incentivized to step forward as whistleblowers. SEC Chairman Gary Gensler cites the evidence provided by whistleblowers as being “among the most powerful weapons in the law enforcement of the SEC.”

Whistleblowers Are Good for Business

Second, whistleblower laws have proven to be pro-business, for they effectively target those who gain a competitive advantage by cheating the government, whether by failing to pay their fair share of taxes, misleading investors, or taking funds from the government that they are not entitled to.

As an example, Chris Riedel owned a small blood-testing laboratory in California that was struggling to compete against two large competitors, Labcorp and Quest Diagnostics. In time, he learned why—these corporate Goliaths were allegedly paying kickbacks to referring physicians. Riedel filed False Claims Act qui tam actions that exposed industry practices and recovered hundreds of millions of dollars for the Medicaid program.

While whistleblower laws allow the government to focus enforcement efforts on bad actors, traditional approaches tend to default to broad-based regulations and audits, subjecting innocent players to increased financial and legal burdens.

For example, last year, after the IRS commissioner raised concerns about the federal tax gap potentially widening to over $1 trillion a year, Congress considered dumping billions of dollars into the IRS to fund an army of auditors to blindly search for fraud. Ultimately, Congress did not fund this option, saving the business community from intrusive searches for the proverbial needle in the haystack. Instead, Congress is now considering a strengthened IRS Whistleblower Program and even a modified False Claims Act to deploy a more focused approach to close the tax gap.

Whistleblowers Are Good for Deterrence

Third, whistleblower laws deter fraud. The “see something, say something” culture puts potential fraudsters on notice that they are being watched. The deterrent level is further heightened when this crime watch is incentivized with adequate whistleblower incentives and protections.

So, in this time of historic government spending and strained government resources, law enforcement will be looking to whistleblowers to help in the fight against fraud. However, to succeed in this war against fraud, Congress must fully fund and strengthen existing whistleblower laws and programs. Now is not the time to undercut these proven anti-fraud, pro-business programs.

As a first step, Congress should pass the False Claims Act Amendments of 2021, which passed out of the Senate Judiciary Committee last October with bipartisan support, a rare feat in this Congress. These amendments make it more difficult for dishonest companies to muzzle whistleblowers.

As a second step, Congress should strengthen the IRS Whistleblower Program by finally taking up Sens. Chuck Grassley (R-Iowa) and Sen Ron Wyden’s (D-Ore.) proposed bill S. 2055, the IRS Whistleblower Program Improvement Act. This legislation encourages whistleblowers to step forward with evidence of tax fraud.

As a final step, Congress needs to substantially increase the budgets of the DOJ Civil Division, the IRS Whistleblower Office, the SEC Whistleblower Office, and the CFTC Whistleblower Office. Tremendous public servants work in each of these offices, but we need to increase their ranks and fully fund their efforts. A flood of fraud is coming, so now is the time to shore up our barriers to fraud.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Joseph E. B. “Jeb” White is the president and CEO of Taxpayers Against Fraud, a nonprofit organization dedicated to protecting government programs and the financial markets from fraud.