by Stephen Kohn
Following this lead, more than half of the states have now enacted whistle-blower reward laws for government procurement and contracting. It is only a question of time before all the states also follow the federal lead and expand the scope of whistleblower reward programs. Why? Because they work.
It is difficult to imagine whistleblowers obtaining multimillion dollar rewards for simply doing the right thing, but that is now reality and the law.
Legal Changes in the Workplace
The profound changes in workplace ethics and practices rightly caused by this whistleblower revolution include the following:
• Laws that provide whistleblowers with monetary rewards are now recognized as the most “effective” method to detect fraud.
• The Obama administration’s Attorney General and Chair of the Securities and Exchange Commission publicly praised whistleblowers and supported paying large rewards, as have leading Republicans.
• The Foreign Corrupt Practices Act has become the first transnational whistleblower law, permitting workers from foreign countries to obtain rewards in the United States.
• Employees can now blow the whistle confidentially or anonymously on corporate fraud and tax evasion.
• Environmental and public safety laws now include “rewards” provisions, including the auto safety law, the Act to Prevent Pollution from Ships and laws that prohibit wildlife trafficking and illegal logging.
• It is a criminal obstruction of justice for any employer to interfere with the “lawful employment” of any worker who provides law enforcement with “truthful information” relating to the “possible commission of any Federal offense.”
• Every publicly traded corporation in the United States is now legally required to operate an “independent” employee concerns program, which must act on confidential whistleblower complaints.
• Forty-nine states now protect workers who are fired for blowing the whistle.
• Congress has enacted numerous laws prohibiting retaliation against workers who blow the whistle on matters as diverse as environmental protection, consumer safety, and corporate fraud.
• Compliance programs and strict quality assurance/auditing requirements are the norm within all government agencies and large corporations.
• Millions of employees must sign oaths that they will report wrongdoing to the appropriate authorities, thus requiring them to “blow the whistle” when necessary.
• Under a Presidential Executive Order, all federal employees are under a mandatory duty to report abuses of power, and this right has allowed for thousands to do so every year.
• “Nondisclosure” agreements that prohibit employees from reporting fraud or violations of law to law enforcement have been struck down as illegal.
• Federal and state laws permit employees to obtain millions of dollars in financial rewards for blowing the whistle. Any business that ignores these new rules faces civil fines, bad press, lost profits, and, in many cases, criminal charges. These reward laws apply to violations of law that occur in foreign countries, and foreign nationals can also qualify for the reward.
• The need to protect whistleblowers has obtained international recognition under international law, including both United Nations and Council of Europe Conventions on fighting corruption.
The Risks and Potential Consequences
Although the laws have matured, workplace culture has not. Difficult choices face employees who uncover wrongdoing. According to a study published in the New England Journal of Medicine, even whistleblowers who won their cases had a most difficult time, both at work and at home. While fighting their cases they suffered “devastating” “financial consequences,” including being forced to sell their homes, having their cars repossessed, and losing their retirement accounts. Many whistleblowers simply reported that they had “lost everything.” The NEJM also documented how these “financial difficulties” often caused severe “personal problems,” such as “divorces, severe marital strain,” and other “family conflicts.” Worse still, the whistleblowers suffered “stress-related health problems,” including panic attacks, insomnia, migraine headaches, and auto-immune disorders.
“Nobody likes a rat: On the willingness to report lies and the consequences thereof.” That was the title of major research findings published in the Journal of Economic Behavior & Organization, authored by two professors from the Columbia University Business School. The title speaks for itself. Organizations that could “select their members” fostered a culture where “lying” could be “prevalent.” Members of those groups willing to report these lies were “nonexistent.”
Most employees who witness wrongdoing understandably fear for their jobs and careers, regardless of whether they have the courage to step forward. But for many employees, their job is more than just a paycheck. Many employees insist that their companies follow the law, and workers for years have been in the vanguard of disclosing health and safety violations. What motivates an employee to become a whistleblower? The NEJM’s study identified “four non-mutually exclusive themes” that explain why employees blow the whistle: “integrity,” “altruism,” a concern for “public safety,” and a belief in “justice.” A fifth factor also plays a key role among many workers: “self-preservation.” These employees do not want to be blamed for the misconduct they witness at work, and they understand their own obligations under applicable policies or laws. The other motivations also center on an employee’s basic sense of right and wrong.
The Whistleblower’s Handbook
Despite the risks employees take when they blow the whistle, despite the rewards that may be available, despite the long list of laws that may protect those who “do the right thing,” almost every American worker, supervisor, and top boss remains unaware of the rules governing whistleblowing. Many employees learn these rules the hard way, through lost cases, public embarrassment, or missed opportunities to create real and meaningful change. Whistleblowers are still fired, managers are still ignorant about employee rights, and the public remains largely unaware of how whistleblowing has changed the face of American democracy, as well as how it can be further changed in the future. Likewise, many managers also learn these rules the hard way—bad press, long and expensive court battles, increased government scrutiny and, in the worst-case scenario, being compelled to pay whistleblowers large financial rewards.
This handbook is designed for honest employees anywhere in the world who need to know the rules for whistleblowing, how to qualify for a whistle-blower reward, and how to protect themselves from the retaliation that often follows an honest report of wrongdoing.
Step-by-step The New Whistleblower’s Handbook explains the rules for whistle-blowing. The book provides practical guidance for Americans who must decide whether or not to blow the whistle. For those who choose to move forward, it will guide them on how to not only blow the whistle but also how to win their cases.
The New Whistleblower’s Handbook is based on insight gained from thousands of whistleblower cases. It is designed to provide guidance not only to the impacted employee but also to all of those directly involved in the case. Beyond setting forth critical “do’s and don’ts,” The New Whistleblower’s Handbook is about individual responsibility, citizen empowerment, and democratic processes within the American workplace.
The changes in whistleblower protections in the American workplace have been nothing short of revolutionary. Every job has been impacted by the transformation. New obligations and responsibilities now govern every major work-place. But the risks facing whistleblowers remain—even strong cases are hotly contested, costly, and hard to win.
The laws protecting whistleblowers are confusing, and many are riddled with loopholes. There is no one “National Whistleblower Protection Act.” Unlike other areas of employment law, such as the federal laws prohibiting race, sex, or age discrimination, there is no uniform national law creating understandable rules and procedures. Instead, there are over fifty sepa
rate federal whistleblower laws and literally hundreds of state statutory or common law protections.
These laws have not been passed in any logical manner. For the most part the laws have been scandal-driven. Only after two Alaska Airline crashes, Congress voted to protect pilots and mechanics who exposed airline safety problems. It was not until the corporate giants Enron and WorldCom collapsed that whistleblower protections prohibiting fraud against shareholders were signed into law. The consumer safety laws were amended to ensure that workers who identified health threats to consumers were protected after “toxic” toys, many containing hazardous lead paint, were discovered being sold across the United States. Each law was a step forward, but each law set forth its own standards for protection.
More than fifty different federal whistleblower protection or financial reward laws mean that there are over fifty unique definitions of protected activity, fifty different statutes of limitation, and fifty separate procedures for filing claims.
Whistleblower protections do not end at the federal level. Whistleblowers are now offered some protection in almost every state. Some state laws are better than their federal counterparts, while others can best be described as pathetic. A majority of states also have financial reward laws.
No one should read this handbook and conclude, “Voilá—I can win my case!” If only life were so simple. Unfortunately, strong cases can be lost, and good people, who tried to serve the public interest, lose their jobs and careers. In today’s work environment, however, no employee or employer can afford to remain unaware of the revolution in whistleblower rights.
This handbook is about a new way to look at one’s job. Whistleblowing is more than simply winning an employment case or obtaining a financial judgment. It concerns the process of how change occurs at a most fundamental grassroots level—the factory floor. It challenges all employers to make a decision whether honesty and ethics are to be rewarded, or whether outdated notions of loyalty, often demanded at the expense of safety, will govern the contemporary workplace. It is about using the ideals for freedom of speech, fought for by our country’s Founding Fathers, to ensure accountability and honesty in government and big business.
RULE 1Use the New Legal Tools
New legal tools have changed the landscape for whistleblowers and have strengthened the ability of employees to combat fraud in large corporations while incentivizing them to report tax evasion, securities violations, money laundering, fraud in government programs, and bribery of foreign government officials. Under the new laws, whistleblowers can protect their identities and obtain financial rewards if their information helps stop crime and results in a successful prosecution.
What Transformed Whistleblowing?
Forget every preconceived notion you have about whistleblowers and their behavior. To understand how whistleblowing has evolved over the past thirty-five years, you must rethink old assumptions and stereotypes. Even the term “whistleblower” now fails to capture the nature of modern-day whistleblowing.
In the past, whistleblowing came to mean high-profile public exposés calculated to call public attention to major scandals. But the new whistleblowing permits anonymous and confidential filings. Many whistleblowers still make sensational public exposures, but the majority of today’s whistleblowers follow a radically different path. The new laws promote anonymous disclosures to shield whistleblowers from retaliation (because their bosses do not know they exposed wrongdoing to federal law enforcement) and permit law enforcement to conduct investigations without revealing their sources. Thousands of whistleblowers are taking advantage of confidentiality protections, and as a consequence, their cases never make the press, and their contributions are not publicly known.
Today, two very different systems governing whistleblowing coexist. One system is made up of old whistleblower laws, based on an antiretaliation model. The whistleblower raises a concern. The boss knows who the whistle-blower is. The whistleblower is fired. The antiretaliation law kicks in, and the whistleblower can challenge the termination in court or before an agency like the Department of Labor. The whistleblower is paid compensation commensurate with the damages suffered. These cases are the focus of public attention, often widely publicized.
The second system is a new one, which I lay out below. Understanding how the new whistleblower laws work will allow whistleblowers to avoid many of the pitfalls that have historically made whistleblowing very painful.
The new whistleblower laws are reward-based. You obtain compensation not because you suffer retaliation, but because your information can be used to hold wrongdoers accountable. The focus is on using a whistleblower’s insider status to uncover hidden frauds. By protecting a whistleblower’s identity, he or she can remain on-the-job and continue to assist in investigations. Compensation is based on being right. The news laws are:
• False Claims Act (fraud in government contracting). Cases are filed “under seal” and remain confidential during the first phase of the proceeding. Eligible whistleblowers are entitled to a reward of 15 to 30 percent of collected proceeds obtained by the government. See Rule 6.
• State False Claims Acts (covering fraud in state and local government spending). More than twenty-six states have such laws, including California and New York. With some notable exceptions, these laws are modeled on the federal FCA.
• Tax Fraud and Underpayments. The IRS treats all whistleblower information as strictly confidential. Rewards are 15 to 30 percent of collected proceeds obtained by the government. See Rule 7.
• Securities Exchange Act (fraud in publicly traded companies). Whistleblowers can file anonymous claims. Rewards are 10 to 30 percent of collected proceeds obtained by the government. See Rule 8.
• Commodity Exchange Act (fraud in commodities trading, oil, food, electricity, gold, etc.). Whistleblowers can file anonymous claims. Rewards are 10 to 30 percent of collected proceeds obtained by the government. See Rule 8.
• Foreign Corrupt Practices Act (bribery of foreign government officials). Whistleblowers can file anonymous claims. Rewards are 10 to 30 percent of collected proceeds obtained by the government. See Rule 9.
• Motor Vehicle Safety Act. Whistleblowers can file confidential claims. Rewards are 10 to 30 percent of collected proceeds obtained by the government. See Rule 10.
• Ocean Pollution (Act to Prevent Pollution from Ships). No specific rules on confidentiality. Whistleblower is entitled to up to 50 percent of collected proceeds obtained by the government for the APPS violation. See Rule 11.
• Lacey Act (prohibiting wildlife trafficking in animals, fish, and plants). No minimum or maximum award. No rules on confidentiality. See Rule 12.
• Endangered Species Act. No minimum or maximum award. No rules on confidentiality. See Rule 12.
• Fish and Wildlife Improvement Act. Unique rewards law that permits Fish and Wildlife Service and Marine Fisheries to pay rewards for reporting violations, even if no collected proceeds ever obtained. No minimum or maximum reward, and the agencies can use general funds to compensate whistleblowers for valuable information. See Rule 12.
• Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Limited reward provision for banking frauds. See Rule 4.
How We Got Here
The change started in 1986 when Congress modernized the False Claims Act. The FCA contained a qui tam provision that permitted whistleblowers to file lawsuits alleging that a government contractor had ripped off the taxpayers. If the whistleblower’s allegations were proven, the whistleblower would obtain a reward of 15 to 30 percent of the monies collected on behalf of the government. The lawsuits are filed under “seal,” and the government would have time to investigate the case. During the investigation the company would not know about the lawsuit or the identity of the whistleblower.
No one knew if this law would work but an experiment was under way. Were whistleblowers simply disgruntled employees, or were they the key to fraud detection in major corporati
ons? For the first time, the effectiveness of whistleblowers could be objectively quantified. Because whistleblowers were entitled to a reward, the government would have to evaluate each fraud case, determine whether the whistleblower’s information was the reason the case was successfully prosecuted, and allocate an award based on the whistleblower’s contribution. In this manner, the effectiveness of whistleblowing could be calculated to the penny.
The results of this experiment surprised even the strongest whistleblower advocates. They were phenomenal. When the law was initially amended in 1986 to include a modern reward law, the government was having a very difficult time detecting fraud. In 1987, the government collected a total of $86 million in civil penalties from fraudsters nationwide. The amount attributed to whistleblowers was $0. Within six years the total recoveries obtained by the United States dramatically increased. In 1993, the government recovered $372 million from corrupt government contractors. Whistleblowers were directly responsible for more than half of those recoveries. The increases continued every year, and the percentage of recoveries directly attributed to the high quality of the whistleblower disclosures skyrocketed. Twenty-nine years after the FCA was amended, whistleblowers were responsible for identifying 70 percent of the civil fraud recoveries from corrupt contractors. Figure 2 tracks the total sanctions obtained from the U.S. government thanks to whistleblowers from 1985 to 2015, broken down in three-year blocks.
This is why the top officials in the Department of Justice continuously praise the FCA and supported its expansion. Whistleblowing works.
While the FCA was demonstrating, in dollars and cents, the effectiveness of reward-based whistleblowing in government contracting cases, the stock market was being rocked by scandal. In 2002, corporate giants went bankrupt, caused in large part by fraud committed by top executives. Thousands of investors lost their retirements and life savings. Private sector companies and their trade associations started to study the science of fraud detection. They wanted to learn how corporations could prevent meltdowns, as well as protecting themselves from misconduct.