Whistleblower Law
According to the False Claims Act “FCA” an employee who has a claim against his employer may bring the claim under Qui Tam. The theory Qui Tam means bringing a claim “in the name of the king.” Under Whistleblower law if the employee’s disclosure results in the recovery of money for the “king” then the employee is entitled to obtain a portion of the monies recovered. By using the principle of Qui Tam, it is possible for an employee whistleblower to trace money and determined who profited from an illegal arrangement or some other fraudulent conduct and bring a claim. The plain text of the FCA's reverse claims provision is clear: any individual who "knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government" may be subject to liability.
It is crucial the employee whistleblower file the case as laid out precisely in the statute, otherwise failure to comply will disqualify the employee whistleblower from a reward. The False Claims Act goal is to make sure the information provided by the person seeking to qualify as a Whistleblower is new (no other individuals brought such information) and is as accurate as possible. The information provided must not be already publicly available. This encourages “true ‘insiders’ to step forward and provide the United States with first-hand knowledge about the frauds.”[1] In order to qualify as an “original source” the whistleblower must demonstrate that either (1) “prior to public disclosure they have voluntarily disclosed to the government the information on which the allegations or transactions in a claim are based” or; (2) that the person “has knowledge that is independent and materially adds to the publicly disclosed allegations or transaction, and had voluntarily provided the information to the government before filing an action.”[2]
The False Claims Act prohibits fraudulent financial gains gathered from taxpayer money. The False Claims Act also reaches into other programs that do not directly implicate government spending, such as the payment of royalties on government leases, false statements to obtain benefits from the government, false customs declarations, or statements made to avoid having to pay fines or fees to the US. Under the False Claims Act the Whistleblower is permitted to go to court and show that the government was financially taken advantage of.
The requirements involve proving all essential elements of cause of action including damages by a preponderance of evidence. The damages the employee is capable of recovering under the False Claims Act if the government proceeds with the lawsuit is between fifteen (15%) percent but not more than twenty-five (25%) percent from the proceeds of the action or settlement depending upon the extent to which the employee contributed to the prosecution of the action. If the government chooses not to proceed with the lawsuit, the employee whistleblower shall receive not less than twenty-five (25%) percent and not more than thirty (30%) percent. Compensation is based on a percentage of the fines and penalties paid by the wrongdoer. The awards also include reasonable attorney fees and other court costs. If the whistleblower wants to keep his/her identity secret then he/she must hire an attorney; although, if a whistleblower’s allegation result in a successful enforcement of the action and the payment of a reward, the confidential whistleblower must disclose his/her identity in order to assure the government that employee whistleblower is qualified for the payment.
The employee whistleblower must be the original source, must be of voluntary discourse, must be confidential and filed under seal, and must not go public with the such information. The employee whistleblower complaint need only to be reasonable or made in good faith, it does not have to be proved true. If the employer seeks to retaliate against the whistleblowing employee, then the employee is entitled to double pay, reinstatement, special damages, and attorney fees and costs. Furthermore, whoever knowingly (with the intent to retaliate) takes any action harmful to any person (individual/corporation) including with interference with lawful employment can result in a felony. A whistleblower employee can challenge the termination in court or before an agency like the Department of Labor.
In order to prevent retaliation against whistleblower employees, the government passed the Dodd-Frank Act. The Dodd-Frank Acts’ whistleblowing reward program has exterritorial term written in the statute; thus, it makes no difference whether the claimant was a foreign national, resides overseas, or the information was submitted from overseas, or the misconduct comprising the US securities law violations occurred entirely overseas. Furthermore, the Dodd-Frank reward provisions only kick in if the government (or SEC) obtains a total of 1 million or more in collected proceeds.
In addition to the False Claims Act, there is a Securities and Commodities Fraud whistleblower law. The Commodity Exchange Act “CEA” is similar to the SEC securities law, but instead of covering the sale of securities, it covers the sale of commodities – the “future trading” of fungible goods and assets. These fungible goods and assets include: agriculture such as grain, animal products, fruits; energy such as oil, coal, electricity; commoditized goods such as generic pharmaceuticals, and financial commodities such as foreign currencies and securities.
Under the principle of Qui Tam, the claims must be filed “in a manner established by rule or regulation” by the respective commission. The claims under Commodity Exchange Act must be filed with the Commodity Futures Trading Commission and there are very specific forms that must be completed in order to qualify for a reward. In weighing what (and how) to present information to the Commissions, the employee can seek to simultaneously present the strongest case of fraud (in order to increase the chance that the government investigators will aggressively pursue the claim), while at the same time masking the identity of the source of information. The statute permits a whistleblower to have maximum confidentiality with maximum impact. Thus, any person seeking to obtain a reward under the CEA must review the most recent version of the whistleblower rules published by the CFTC. Depending on the nature of the commodity, the whistleblower can also bring other legal actions under the Lacey Act, Endangered Species Act, and the Fish and Wildlife Improvement Act.
The enforcement action (or settlement) must result in “monetary sanctions exceeding $1 million.” Monetary Sanctions include all monies ordered to be paid to the Commissions, including fines, penalties, interest, and monies collected as part of a disgorgement of ill-gotten profits.
The whistleblower must receive “not less than 10 percent” and “not more than 30 percent” of the total amount of monetary sanctions actually collected by the government as a result of the covered administrative or judicial actions, any monies obtained from related actions, and any money recovered as a result of a settlement. In determining the percentage award, the Commissions must weigh the following factors which include: (1) the significance of the information provided; (2) the degree of assistance provided by the whistleblower or his or her attorney; (3) the programmatic interest of the Commissions in deterring violations of law by making awards to whistleblower; and (5) other factors that the Commissions may establish by rules of regulation. Although the whistleblower can be disqualified for a reward if the disqualification is primarily applied to employees whose job it is to detect fraud, such as employees of an appropriate regulatory agency, employees of the Department of Justice, or law enforcement organization(s) employees of the self-regulatory organizations and the registered futures association. Also, the whistleblower is disqualified from obtaining a reward if the Whistleblower participated in such a way including: (1) if the whistleblower is convicted for a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award; (2) if the whistleblower knowingly and willfully makes any false, fictitious, or fraudulent statement when filing his or her Qui Tam; (3) the failure to file claims in accordance with the rules published by the Commission can, standing alone, result in the denial of a claim.
Depending on the circumstances the employee may bring in the Foreign Corrupt Practices Act “FCPA” because the Act is extremely broad in scope which mandates that member countries make it a criminal offense “for any person” to “offer” or “give” money or any other “advantage” to a foreign government official in order to “obtain or retain” a “business advantage.” This target both direct payments and indirect payments made through “intermediaries,” and also prohibits the “aiding and abetting” of violations. Furthermore, “extensive physical connection to bribery act is not required,” and the FCPA permits the United States to exercise broad extraterritorial jurisdiction to target bribes paid by non-U.S. citizens to foreign officials in countries outside the United States. A bribe constitutes the “paying of anything of value.”
The FCPA requires corporations who trade on the U.S. Stock exchanges, or whose stock is traded on international markets open to investment by U.S. citizens to have strong internal controls, prohibiting off-the-books accounting. The two major requirements of the accounting provisions of the FCPA include: (1) mandates that issuer keep books, records, and accounts that, in reasonable detail accurately and fairly reflect issuers transactions and dispositions of an issuer’s assets; (2) requires that issuers devise and maintain a system of internal accounting controls sufficient to ensure management control, authority, and responsibility over the firm’s assets. These record-keeping requirements are a key enforcement method. Thus, the regulations require an accurate accounting of all assets, thereby forcing a company to admit on paper that is has a bribe or face harsh sanction. Companies can be liable for FCPA violations under a “willful blindness, deliberate ignorance” or “conscious disregard” standard. Therefore, failure to exercise due diligence over the actions of a non-US joint venture partner can trigger liability even if the non-US partner did not pay or authorize any brides.
The FCPA can also be brought in by looking at the “business purpose test.” The business purpose test is very broad and includes: payments to obtain or keep contract or lease, influence procurement process, eliminate custom duties, prevent competitors from entering the market, avoid permit requirements, circumvent importation rules, gain access to nonpublic information to help obtain a contract or government tender, evade taxes, or obtain exemptions for regulations. In order to demonstrate that the company knew or should have known that’s the third party was paying bribes, the DOJ/ SEC look at various “red flags” to determine third party liability, such as: (1) “excessive commissions” paid to “agents or consulates,” (2) “unreasonably large discounts,” (3) “consulting agreements” that include “vaguely describe services,” (4) use of a third-party who is “related to work closely associated with the foreign official,” or (5) if a third party “requests payment to offshore bank accounts.”
The penalties for FCPA violations include fines up to 2 million for each violation committed by corporations and fines up to $100,000 for each violation committed by an individual. Under the Alternative Fines Act, courts can impose “up to twice the benefit that the defendant sought to obtain by making the corrupt payment” as a penalty in an FCPA case. Even larger sanctions can be recovered under the accounting provisions of the act, which permits the SEC to obtain disgorgement penalties equal to “the gross amount of pecuniary gain to the defendant as a result of the violations.” There is no limit on disgorgement penalty. The employee whistleblower has a five-year statute of limitations for the criminal violations of the FCPA, but acts committed beyond the 5-year period may still be actionable under “conspiracy” theory if one or more of the actions were timely.
References:
[1] Stephen M. Kohn, The New Whistleblower’s Handbook, pg.77 (2017).
[2] Stephen M. Kohn, The New Whistleblower’s Handbook, pg.77-80 (2017).
