Congress needs to implement an effective ethics agenda. Important anti-corruption legislation has been sitting in various Senate and House committees awaiting action. Strong corporate ethics laws, based on incentivizing whistleblowers to report frauds, are urgently needed, especially in light of the trillions of dollars in actual or proposed federal spending for COVID-19 relief efforts or infrastructure. These whistleblower-based ethics laws are based on procedures that have triggered thousands of successful prosecutions and billions of dollars recovered from fraudsters. As explained by the than-Attorney General Eric Holder, the “impact” of these whistleblower laws have “been nothing short of profound.” The whistleblower laws have “saved lives” and “saved money. They have a “remarkable track record” in “eradicate(ing) the scourge of fraud from some of government’s most critical programs.” Similar remarkshave been made by a wide range of top Democratic and Republican officials.
Americans Support an Ethics Agenda
It is not for want of public support that ethics initiatives have been languishing. In September 2020, the highly respected Marist Poll (rated A+ by the polling website “FiveThirtyEight”) conducted a scientific survey of likely voters and their attitude toward whistleblowers. The question was straight forward: Should Congress “priorit(ize)” passing “stronger laws protecting employees who report corporate fraud?” The results were stunning. Across every segment of the population, regardless of political party, race, age, or geographic location, American voters want Congress to prioritize laws that protect whistleblowers who disclose frauds:
All Likely Voters 81%
Democrats 88%
Republicans 74%
Independents 82%
Other subgroups of Americans, where partisan divides are often seen, also supported Congress prioritizing passing stronger corporate whistleblower laws. There was no gender gap (83% of men and 82% of women voiced support), no education gap (82% of college graduates and 83% of likely voters with no college supported stronger corporate whistleblower laws) and there was no “big city” and “rural” gap (84% support of city residents and 82% of those living in rural areas supported the whistleblower priorities). Both the well-to-do (85%) and the poor (81%) endorsed stronger corporate whistleblower laws.
The path to healing the divisions within the United States includes the implementation of a strong anti-corruption agenda. Indeed, the perception that the rich and powerful can avoid accountably fuels the distrust, cynicism, and extremism.
Ethics-Whistleblower Laws Work
The debate is over. Modernized whistleblower laws designed to increase the detection and prosecution of white collar crimes work, and they work surprisingly well. Law enforcement officials have not minced their praise. They all describe the revolutionary impact whistleblower laws have had on fighting corporate crime. Department of Justice officials with responsibility for enforcing the False Claims Act qui tam whistleblower law could not be clearer: The Assistant Attorney General Stuart Deleryunder President Obama: “[Whistleblower reward laws are] the most powerful tool the American people have to protect the government from fraud.” Similarly , the Acting Assistant Attorney General Jeffrey Clark under President Trump: “Whistleblowers with insider information are critical to identifying and pursuing new and evolving fraud schemes that might otherwise remain undetected.”
Similarly, the top officials at the U.S. Securities and Exchange Commission (“SEC”) strongly endorsed the Dodd-Frank Act whistleblower law. The Trump appointed Chairman of the SEC, Mr. Jay Clayton said it best: “Over the past ten years, the whistleblower program has been a critical component of the Commission’s efforts to detect wrongdoing . . . particularly where fraud is well-hidden or difficult to detect. Enforcement actions from whistleblower tips have resulted in more than $2.5 billion in ordered financial remedies.” His voice was joined by the Biden administration’s Acting SEC Chair Allison Herren Lee: “Since its inception, the Commission’s whistleblower program has enabled us to identify and pursue fraudulent conduct, ongoing regulatory violations, and other wrongdoing that would otherwise have gone undetected. . . As a result of the success of our whistleblower program, we have been able to stop schemes in their tracks, and to return millions to victims of fraud.”
Similar praise from numerous other government officials are plastered across the public record. The raw numbers back them up. Under the False Claims Act alone whistleblowers were responsible for 72% of all fraud recoveries. Cases initiated by whistleblowers delivered $46.520 billion paid-back to the taxpayers fraudsters.
Finish the Work Congress Started Last Term
During the last two years of the Trump administration Members of Congress, from both political parties, introduced well-crafted corporate whistleblower laws. But Congress has historically failed to prioritize anti-corruption legislation. This lack of urgency is not surprising, given the number of special interests that benefit from the loopholes in whistleblower protections. This must change. The following reforms, stalled in Congress, are at the heart of an ethics agenda needed to help restore faith in government institutions and hold fraudsters accountable:
Clarify the scope of the False Claims Act (“FCA”): The FCA is recognized as America’s most effective anti-corruption law. Since it was modernized by a bipartisan effort led by Senator Charles Grassley and former Congressman Howard Berman, taxpayers have directly recovered over $65 billion in sanctions from fraudsters. Large corporations that illegally profit from government contracts have long tried to kill this law. Currently, the law is under attack in the court by corporations trying to escape liability for fraud, claiming willful violations of contracting requirements are not “material,” even if they cost the taxpayers millions. Senator Charles Grassley is proposing a bi-partisan amendment to close this loophole.
Fix the Anti-Money Laundering Act: Money laundering is extremely difficult to detect. The essence of money laundering is to hide the source of ill-gotten wealth. Without insider information, this multi-trillion dollar highly corrupt international business cannot be stopped. Last term, Congress passed the Anti-Money Laundering (“AML”) Act of 2020. Although a first start, the AML law contained crippling weakness highlighted by an ineffective whistleblower law. Unlike the Dodd-Frank and False Claims Acts, the AML law does not guarantee whistleblower any meaningful compensation and is unfunded. The anti-retaliation provisions of the law do not cover employees at FDIC insured institutions or credit unions.
The fix needed for this law is simple. The Senate had unanimously passed a version of the law modeled on the Dodd-Frank Act. The original Senate version of the law needs to be reintroduced and approved.
Amend the Consumer Financial Protection Bureau law: The Consumer Financial Protection Bureau (CFPB) plays a central role in protecting the consumers from unfair, abusive, and deceptive scams in a wide range of areas, including auto loans, home mortgages, reverse mortgages, credit cards, payday loans, and coronavirus payments. In 2019 the Trump appointed CFPB leadership urged Congress to amend the laws to incentivize informants based on the highly successful SEC reward program.
Bills were introduced in the House and Senate modelled on the Dodd-Frank Act. The proposals would permit anonymous reporting and incentivize whistleblowers to report frauds. This law is needed to stop fraudsters from preying on the most vulnerable Americans.
Pass the Wildlife Trafficking Whistleblower Law: Most people do not see wildlife trafficking as big business. But it is. The illegal trade in timber, fish, and animals is a multi-billion dollar business. A joint report issued by INTERPOL and the United Nations estimates that crimes implicating illegal fishing, lumbering and animal trafficking are estimated between $91 billion and $258 billion annually. Supported by all of the major wildlife protection organizations, including the Association of Zoos and Aquariums, a bill to incentivize whistleblowers was introduced in the House of Representatives. This bill has strong bipartisan support and no known opposition. It should be reintroduced and quickly passed.
Pass the Public Company Accounting Whistleblower Act (“PCAWA): Auditors are notoriously subjected to pressure to water down their results. A study by the Institute of Internal Auditors found that 55% of Chief Audit Executives were directed to omit findings from reports, and 49% were directed not to audit “high risk areas. Congress introduced the PCAWA to fix this problem. It is based on the highly successful Dodd-Frank Act (DFA) and needs to be passed.
Close loopholes in Dodd-Frank Act: A bipartisan group of Senators introduced the Whistleblower Programs Improvement Act in 2019. The bill is very straightforward. It closes loopholes in the DFA by protecting employees who report concerns internally to their bosses from being fired. It also requires that the SEC and Commodity Futures Trading Commission (CFTC) issue decisions in whistleblower cases within one year. An additional bill was introduced to this term ensure that the CTFC would have funds available to make timely payments to whistleblowers. These fixes are not controversial.
Approve the Antitrust Law Enforcement Reform Act: Last term Congress approved a broad anti-retaliation law covering employees who report anti-trust violations. This term Congress is posed to finish the job. The Senate introduced a whistleblower reward law modelled on the Dodd-Frank Act. Unfortunately, the bill does not track essential provisions in the highly successful DFA. As introduced the bill does not insure that whistleblowers will be paid any awards, regardless of their sacrifices or contributions. The bill should be amended to conform to Dodd-Frank.
Conclusion
When it comes to whistleblower reforms, three things are clear.
First, the overwhelming majority of the American people want Congress to increase protections for corporate whistleblowers.
Second, whistleblower law, like the DFA, work.
Third, there are a host of bills, most of which were introduced in the last Congress, that can and should be readily approved by Congress. These bills are based on existing whistleblower legislation, proven to be highly effective. It is time to implement a lasting ethics agenda.
