Filing the Complaint and Disclosure Statement
Separate and apart from the False Claims Act, there are government agencies that offer rewards for information involving violations of the laws and regulations within the scope of their authority. While each agency promulgates its own rules for the administration of its whistleblower program, all of the programs generally follow a similar process.
The IRS Whistleblower Program
Since 2007, the IRS Whistleblower Program has successfully recovered $6.39 billion from non-compliant taxpayers while issuing more than $1 billion in awards to whistleblowers.
Section 7623(b) of the Internal Revenue Code provides for a mandatory award when a whistleblower provides information involving a dispute that either exceeds $2 million (including tax, penalties, interest, additions to tax, and additional proceeds) or involves an individual taxpayer whose gross income exceeds $200,000 for at least one of the years at issue.
The IRS will pay an award of between 15% and 30% of the recovered proceeds. The percentage awarded is largely based on the information attributed to the whistleblower. If the whistleblower was involved in the planning and initiation of the conduct that led to the tax violations, or if the whistleblower’s information was primarily based on information from certain public sources, the IRS can reduce the amount of the award to a statutory minimum of 10%.
YLG Founder Eric Young is a nationally recognized whistleblower lawyer who secured the first-ever section 7623(b) mandatory tax whistleblower award on behalf of his client. Eric represented an anonymous corporate accountant who had information about a tax evasion scheme involving a Fortune 500 company. After the IRS investigated the information and secured a monetary recovery from the company, Eric’s client received an award of $4.5 million.
In 2012, former banker, Bradley Birkenfeld, received the largest ever IRS whistleblower reward — $104 Million — through the IRS Whistleblower Program for reporting that UBS facilitated illegal overseas tax shelters for wealthy Americans. Mr. Birkenfeld hired Eric Young to serve as his expert witness on the IRS Whistleblower Program in related litigation. Eric’s successes have earned him a reputation as one of the leading IRS whistleblower attorneys in the nation.
The IRS treats whistleblowers as confidential informants and protects their identity to the fullest extent permitted by law. The Internal Revenue Code provides that tax returns and return information are confidential, absent an applicable exception. There is, however, no exception that allows the IRS to publish data that would identify individual whistleblowers.
Although the IRS is committed to protecting the identity of whistleblowers to the fullest extent permitted by law, there are certain situations where the identity of a whistleblower might be disclosed. For example, if a whistleblower is identified as a witness and called to testify in judicial proceeding, the IRS must comply with an order issued by a court of competent jurisdiction.
In cases where a whistleblower is not listed as a witness, the IRS will neither confirm nor deny the existence of a whistleblower in response to a discovery request. Notwithstanding this policy, a court could make an unfavorable discovery ruling which could result in the disclosure of information that could indirectly reveal a whistleblower’s identity.
The Taxpayer First Act of 2019 added anti-retaliation protections for whistleblowers similar to those provided under Sarbanes-Oxley and the False Claims Act. The Taxpayer First Act prohibits an employer, or anyone acting on an employer’s behalf, from terminating or retaliating against an employee who engages in protected activity under the Act.
The penalties for violating the anti-retaliation provisions of the Act include “all relief necessary to make the employee whole” and compensatory damages such as reinstatement, 200% of any back pay, and special damages including litigation costs, expert witness and attorney fees.
The Occupational Safety and Health Administration is authorized to handle retaliation cases involving employees who report tax violations by their employers. The Taxpayer First Act also prohibits retaliation against employees who testify, assist, or participate in any administrative or judicial action involving tax fraud or other violations of the Internal Revenue Code.
The SEC Whistleblower Program
The Securities and Exchange Commission’s (SEC) Whistleblower Program was created by the Dodd-Frank Act in 2010 and went into effect in 2011. Since that time, the SEC has awarded more than $1.3 billion to whistleblowers who provided information that led to recoveries by the SEC and other federal agencies in related actions.
In Fiscal Year (FY) 2022, the Commission awarded $229 million to 103 whistleblowers making it the second highest year in both dollar amounts and number of awards. Only the awards issued in FY 2021 surpassed these figures.
The SEC offers monetary awards to eligible whistleblowers who “voluntarily” provide “original information” involving violations of federal securities laws. The Commission is more likely to investigate timely and credible information that contains detailed facts. Examples of such information include facts about specific individuals involved in a particular scheme or undisclosed evidence corroborating allegations of securities laws violations.
SEC Rule 21F-4(a) defines “voluntarily” as providing information to the SEC, or another law enforcement agency, before a request, inquiry, or demand that relates to the same subject matter is directed to the whistleblower or anyone representing the whistleblower.
“Original information” is defined in SEC Rule 21F-4(b) as facts that are:
- derived from the whistleblower’s independent knowledge or independent analysis;
- not already known to the SEC or any other source (unless the whistleblower is the original source of the information); and
- not derived exclusively from allegations made in a judicial or administrative hearing; a governmental report, hearing, audit, or investigation; or from the news media (unless the whistleblower is a source of the information).
Original information can be partially comprised of publicly available information provided that it contains independent analysis and is not already known to the SEC.
In cases where the amount of the award is $5 million or less, and there are no contravening factors, there is a rebuttable presumption that the SEC will award 30% of the collected proceeds.
The 30% presumption can be rebutted if the whistleblower provided limited assistance during the investigation or if a maximum award would be inconsistent with the public interest, the promotion of investor protection, or the objectives of the whistleblower program.
When the amount of the award exceeds $5 million, the SEC considers additional factors in determining whether to increase or decrease the award percentage.
Factors that weigh in favor of increasing the percentage include:
- the significance of the information provided;
- the level of assistance provided with the investigation;
- the deterrent effects on certain types of securities violations; and
- the extent of the whistleblower’s participation in their company’s internal compliance process.
The dollar amount of the award is only taken into consideration for purposes of increasing, but not decreasing, the award percentage.
The Commission will also consider a reduction in the percentage awarded based on factors such as:
- the whistleblower’s role and/or scope of involvement in the securities violations;
- unreasonable delays in reporting the violations to the SEC; and
- whether the whistleblower interfered with the company’s internal compliance and reporting processes.
The SEC has a policy of protecting the anonymity of a whistleblower to the extent allowable under the law. For example, the Commission will not reveal a whistleblower’s identity in response to a Freedom of Information Act request.
Like any other federal agency, the SEC can be compelled to disclose a whistleblower’s identity in certain circumstances. For example, during a judicial proceeding, a court could order the Commission to produce information or documents that would reveal the identity of a whistleblower.
While the SEC permits information to be submitted anonymously to its whistleblower program, a whistleblower must be represented by an attorney to be eligible for an award.
The Dodd-Frank Act prohibits employers from discharging, demoting, suspending, harassing, or in any way discriminating against an employee who provides information to the SEC through its whistleblower program, or an employee who assists the SEC in an investigation or proceeding based on the information submitted.
Under the Sarbanes-Oxley Act, employees of certain categories of companies can also file a complaint with the Department of Labor if they are retaliated against for reporting violations of securities laws.
The CFTC Whistleblower Program
The Commodity Futures Trading Commission’s (CFTC) Whistleblower Program was created by the Dodd-Frank Act in 2010. The Customer Protection Fund, which provides funds for whistleblower awards, was also established by Dodd-Frank. Since the first whistleblower award was issued in 2014, the CFTC has recovered more than $3 billion and awarded over $330 million to whistleblowers.
The CFTC and SEC Whistleblower Programs operate within the same framework for the evaluation of information received from whistleblowers. Both agencies have claims review staff who issue preliminary determinations and perform initial assessments for the grant or denial of an award. Both programs also allow whistleblowers to review the record in their case and contest the denial of an award during the preliminary determination stage.
The CFTC seeks “original information” that is “voluntarily submitted” involving violations of the Commodity Exchange Act. If the information results in a successful enforcement action with monetary sanctions exceeding $1 million, an eligible whistleblower will receive an award from the Customer Protection Fund.
“Original information” means information that is previously unknown to the CFTC and derived from the whistleblower’s independent knowledge or independent analysis. Independent knowledge is information possessed by the whistleblower that is not generally known or available to the public. Independent analysis means an assessment of information that may be available to the public provided that the information resulting from the evaluation of the information is not generally known.
“Voluntary submission” means providing information before the Commission issues a request, inquiry or demand to the whistleblower, the whistleblower’s attorney or the whistleblower’s employer.
The CFTC Whistleblower Program offers rewards ranging from 10% to 30% for eligible whistleblowers who provide original information that leads to a successful recovery in a “Covered Action.” A Covered Action is a judicial or administrative action brought by the CFTC that results in the recovery of over $1million in monetary sanctions.
Whistleblowers are also eligible for a monetary award if their information results in the successful enforcement of a “Related Action.” A Related Action is a judicial or administrative action brought by certain government entities that is based on the information provided through the CFTC Whistleblower Program. A whistleblower can only be eligible for a reward in a Related Action if their information led to a successful resolution of an action brought by the Commission.
The CFTC utilizes the same factors as the SEC to determine whether a whistleblower is eligible for an increase or decrease in the award percentage.
Factors that could increase the percentage include:
- the significance of the information provided;
- the level of assistance provided with the investigation;
- the deterrent effects on certain types of securities violations; and
- the extent of the whistleblower’s participation in their company’s internal compliance process.
Conversely, the CFTC could decrease the award percentage based on factors such as:
- the whistleblower’s role and/or extent of involvement in the misconduct;
- unreasonable delays in reporting a violation to the CFTC; and
- whether the whistleblower interfered with the company’s internal compliance and reporting processes.
The awards paid by the CFTC and SEC whistleblower programs are both funded in a similar manner that does not impact investors who have suffered a financial loss due to a company’s misconduct. The CFTC pays awards from its Customer Protection Fund which is financed through monetary sanctions paid by violators. Similarly, the SEC pays monetary awards from an investor protection fund that is financed entirely by monetary sanctions collected from securities law violators.
A whistleblower is permitted to submit information anonymously to the CFTC Whistleblower Program, but they must be represented by an attorney to be eligible for an award. Prior to issuing an award payment, the CFTC requires that the whistleblower verify their identity in a manner that meets the Commission’s requirements.
The Commodity Exchange Act mandates that the CFTC protect the anonymity of a whistleblower by not disclosing information that could reveal their identity. There are, however, circumstances when the Commission might be compelled to disclose such information, such as in a judicial or administrative proceeding.
The CFTC is also authorized by the Commodity Exchange Act to provide whistleblower information to other federal or state agencies, such as the Department of Justice, when it is deemed necessary to accomplish the purposes of the Act and to protect customers. In those circumstances, the information retains its status as confidential whistleblower information.
Under the Dodd-Frank Act, employers are prohibited from discharging, demoting, suspending, threatening, directly or indirectly harassing, or discriminating against a whistleblower in the terms and conditions of their employment. This also includes any action that would prevent a putative whistleblower from communicating with the CFTC about a suspected violation of the Commodity Exchange Act. Employers are also prohibited from enforcing, or threatening to enforce, a confidentiality provision in an employment agreement when it would impede an employee from communicating with the Commission.
A whistleblower who has been subjected to wrongful retaliation can bring a private action against their employer in federal court. If successful, the remedies can potentially include reinstatement, back pay, litigation costs, and expert witness and attorneys’ fees. The Commission is also authorized to bring an enforcement action against an employer who engages in retaliation against a whistleblower for reporting a violation to the CFTC.
The Auto Whistleblower Program
The National Highway Traffic Safety Administration (NHTSA), which is part of the Department of Transportation, is responsible for promulgating the rules and administering the Auto Whistleblower Program. The Vehicle Safety Act authorizes NHTSA to pay monetary awards to eligible whistleblowers who voluntarily provide original information that results in a successful enforcement action.
NHTSA accepts information covering a broad range of issues, including safety defects; failure to comply with motor vehicle safety standards; and violations of notification and reporting requirements. In the case of safety-related defects, a violation must be one that is likely to cause serious physical injury or unreasonable risk of death. Defects involving the fit and finish of a vehicle or other noncritical components are not eligible for an award.
Unlike most other whistleblower programs that offer a reward for original information, eligibility for a monetary award from the Auto Whistleblower Program is limited to individuals employed in the industry. Only employees or contractors of motor vehicle manufacturers, part suppliers, or dealerships are eligible to receive an award.
NHTSA offers rewards for whistleblowers who provide “original information” that results in the successful resolution of an enforcement action for violations of the Vehicle Safety Act and other applicable laws.
‘‘Original information’’ is defined as information that is:
- derived from the independent knowledge or analysis of a whistleblower;
- not known to NHTSA or the Department of Transportation from another source; and
- not exclusively based on information from a judicial or an administrative proceeding, a governmental report or investigation, or from the news media.
In the case of the latter two situations, a whistleblower is still considered to have provided original information if they are the original source of that information.
The Auto Whistleblower Program offers rewards for eligible whistleblowers whose information leads to the successful resolution of a covered action or a related action. The Act defines a “covered action” as a judicial or administrative action brought by NHTSA that results in monetary sanctions exceeding $1 million.
A whistleblower who meets all the necessary requirements can receive an award ranging from 10% to 30%. NHTSA has discretion in whether an award will be issued and, if so, the award percentage. The Act includes a list of criteria that may be considered when determining the award percentage:
- whether the whistleblower reported or attempted to report the information internally;
- the significance of the original information provided by the whistleblower to the successful resolution of the covered action;
- the degree of assistance provided by the whistleblower and the whistleblower’s attorney in the investigation and enforcement action; and
- any additional factors that NHTSA deems relevant.
The Department of Transportation and NHTSA are generally prohibited from disclosing information that could reveal the identity of a whistleblower. There are, however, limited exceptions such as when a court orders disclosure in a judicial or administrative proceeding; the whistleblower voluntarily provides prior written consent; or NHTSA receives the information from another source and is authorized to release it.
Even when a whistleblower provides a waiver that permits disclosure of the information, NHTSA still takes reasonable measures to protect the identity of the whistleblower.
The Moving Ahead for Progress in the 21st Century Act (MAP-21) contains provisions that protect auto whistleblowers from employer retaliation. Manufacturers, part suppliers, and dealerships are prohibited from discriminating against any employee or contractor who reports a violation, participates in an investigation, testifies in a proceeding, or refuses to engage in an activity that the employee reasonably believes is a violation of MAP-21.
Employers cannot discriminate against a whistleblower with respect their compensation, terms, conditions, or privileges of employment. If an employer engages in any prohibited action, a whistleblower can file a complaint with the Occupational Safety and Health Administration (OSHA). If OSHA’s investigation finds that an employee has been subject to retaliation, it can order appropriate relief such as reinstatement with the terms, conditions, and privileges of their position, compensatory damages, and litigation costs and expenses including attorneys’ and expert witness fees.
The Anti-Money Laundering Whistleblower Improvement Act
The Anti-Money Laundering (AML) Act of 2020 was enacted on January 1, 2021 to establish retaliation protection for whistleblowers who report suspected money laundering violations or engage in other related protected activities.
Nearly two years later, the Anti-Money Laundering Whistleblower Improvement Act was created to enhance the enforcement of the AML Act. It offers a monetary incentive similar to many other whistleblower programs and creates a fund from fines collected by the Department of Justice and the Treasury Department that will be used to pay whistleblower awards.
An eligible whistleblower who voluntarily provides original information involving a violation of the International Emergency Economic Powers Act; the Foreign Narcotics Kingpin Designation Act; and/or the Trading with the Enemy Act, that leads to a successful enforcement action, will receive an award ranging from 10% to 30% of the collected proceeds in the action or a related action.
The AML Act of 2020 already included an anti-retaliation provision that protects whistleblowers from employer discrimination involving the terms and conditions of their employment or post-employment for reporting suspected violations of the Act.
Over $ 1 Recovered
Over 1 Years Experience
