/>iOn August 1, 2024, the U.S Department of Justice announced the rules governing its new corporate whistleblower program. Unfortunately for whistleblowers, the Justice Department based its new program on proposals long advocated by the U.S. Chamber of Commerce and Wall Street special interests.
These Wall Street-friendly features contain most of the major elements of a long dreamed of “wish list” sought by the very companies that have been successfully prosecuted as a result of whistleblower disclosures. This wish list includes: making the payment of awards discretionary, capping the amount of awards, blocking the best informants from coverage, pushing whistleblowers into internal compliance programs instead of having them report directly to the government, and placing a major caveat on the right to file anonymous claims.
In adopting this Wall Street wish-list, the Justice Department ignored the empirical data demonstrating that programs which reject these proposals, such as the Dodd-Frank Act, have proven to be the most successful fraud-detection whistleblower laws.
New Program Announced
Deputy Attorney General (DAG) Lisa Monaco first announced the DOJ’s decision to establish a new whistleblower award program during her keynote remarks at the American Bar Association’s 39th National Institute on White Collar Crime on March 7. She recognized the importance of paying monetary awards to whistleblowers and how such programs have created massive opportunities to pursue major fraud prosecutions:
“Ever since Dodd-Frank created whistleblower programs at the SEC and the CFTC, those agencies have received thousands of tips, paid out many hundreds of millions of dollars, and disgorged billions in ill-gotten gains from corporate bad actors.”
“These programs have proven indispensable — but they resemble a patchwork quilt that doesn’t cover the whole bed. They simply don’t address the full range of corporate and financial misconduct that the Department prosecutes.
“So, we are filling these gaps.”
Monaco detailed that the Pilot Program would use existing statutory authorities under the little-used Asset Forfeiture Whistleblower Award Law, 28 U.S.C. § 524, as a basis for paying whistleblower awards. This law, in existence since 1984, was, for years, ignored by the DOJ. For example, in FY 2023, the United States obtained $3.4 billion from asset forfeitures but only used $13 million to compensate whistleblowers or informants. All whistleblower payments were made by the Drug Enforcement Authority ($12 million) or the FBI ($1 million)).
The failure to pay whistleblowers from the Fund has contributed to the Fund’s massive balance. As of the end of FY 2023, the Fund had $8.5 billion in assets. The Justice Department’s annual Asset Forfeiture Fund report confirmed that whistleblower-initiated cases were a major driving force in adding billions to the Fund. The report identified income from the Danske Bank money laundering case as the largest contributor to increasing the Fund’s assets. As Danske Bank itself admitted, that scandal, and the resulting enforcement actions were initiated by a whistleblower report, and the DOJ admitted that $1.2 billion was deposited into the Fund from that case.
Significantly, Congress entrusted the Justice Department to establish rules for paying whistleblowers or other informants. Unlike other whistleblower award laws such as the False Claims or Dodd-Frank Acts, Congress did not establish mandatory guidelines limiting the ability of the Department to compensate whistleblowers. Instead, the Justice Department could establish progressive and pro-whistleblower regulations to fully achieve the goals behind establishing the Fund. As explained by the Justice Department, the Fund is supposed to be “an essential component of the Department’s efforts to combat the most sophisticated criminal actors and organizations – including terrorist financiers, cyber criminals, fraudsters, human traffickers, and transnational drug cartels.”
Thus, whistleblower advocates were optimistic when the DAG announced the DOJ’s intent to use its authority under the Asset Forfeiture Fund to build a new corporate whistleblower program. Not only had the DAG acknowledged the success of the Dodd-Frank model for incentivizing informants, but the DOJ also clearly understood the international nature of many of the crimes resulting in asset forfeiture (including the DOJ’s acknowledgment that the Fund was created to combat “transnational drug cartels,” “human traffickers” and “terrorist financiers”). Advocates hoped that the Justice Department would incorporate policies outlined in the United States Strategy on Countering Corruption into the new program. Under this Strategy, the United States pledged to act in “solidarity” with whistleblowers and bolster human rights defenders, investigative journalists, and other key players in the worldwide fight against corruption.
After the DAG’s announcement,, the Justice Department engaged in “listening sessions” to “gather information” so they could “design a thoughtful, well-informed program.” Numerous whistleblower experts met with the Justice Department team crafting the new program and provided input. Additionally, written guidance was provided by leading whistleblower law firms, a former SEC Commissioner with expertise on the Dodd-Frank whistleblower law, and all the major whistleblower advocacy groups, including 23 international anti-corruption organizations, the National Whistleblower Center, Transparency International (USA), The Anti-Fraud Coalition (TAF), and the Government Accountability Project. These persons and groups endorsed a framework modeled on the Dodd-Frank Act consistent with the legal structure explained in the paper “Why Whistleblowing Works: A New Look at the Economic Theory of Crime.”
The groundwork was set for the creation of a highly effective, transnational anti-corruption whistleblower program, that was designed to close gaps in existing laws, and use the billions in assets sitting in the Asset Forfeiture Fund to incentivize reporting and ensure that whistleblowers were properly compensated.
What Happened? The DOJ Adopts Proposals Advocated by Anti-Whistleblower Corporate Lobbyists
For years, the U.S. Chamber of Commerce and numerous corporations (many of which have pleaded guilty to committing frauds) have lobbied against highly successful qui tam whistleblower award laws. They actively lobbied to water-down both the Dodd-Frank and False Claims Act. Given the unquestionable effectiveness of these qui tam laws, the Chamber and its numerous members that were found to have committed frauds promoted tactics that would impede the ability of whistleblowers to use the laws or obtain compensation.
In December 2010, the Chamber urged the SEC to implement proposed rules that would have crippled the Dodd-Frank Act, but the SEC rejected those proposals. In 2013, the Chamber issued a comprehensive report, entitled “Fixing the False Claims Act,” which likewise urged Congress to enact legislation that would cripple the False Claims Act. Congress ignored these proposals.
However, the Justice Department adopted the main proposals advocated by the Chamber, all of which have been discredited by empirical evidence. By following the lead of the Chamber of Commerce, Justice ignored guidelines Congress incorporated into the leading whistleblower award laws, and instead yielded to the lobbying power of Wall Street.
Mandatory Awards
All of the successful whistleblower award laws require the government to pay qualified whistleblowers a mandatory award if they adhere to the criteria established by law or regulation. The mandatory nature of the award laws is the single most important feature of every successful whistleblower qui tam law. The most successful whistleblower laws in the United States require the payment of an award, not less than 10% and not more than 30% of the monies collected by the United States. Thus, whistleblowers are not compensated by taxpayer funds, but instead monies obtained from the fraudsters they report are used to pay the awards.
What did Justice Do?
Although the Justice Department had the discretion to follow the precedent under Dodd-Frank, False Claims, and AML laws, it ignored these precedents and created a discretionary program. In other words, the Justice Department can deny a fully qualified whistleblower, for any reason or no reason. There is no appeal. The Justice Department’s written regulations are clear: “The Department’s Award Determination is entirely discretionary, and neither appealable nor subject to judicial review.”
A whistleblower whose information results in hundreds of millions of dollars in recoveries, but who suffers tremendous retaliation, simply has no right to an award.
Not surprisingly, all discretionary whistleblower award laws have failed. Why should a whistleblower risk everything if the government has no obligation whatsoever to live up to its end of the bargain?
Limits on Award Amounts
The successful whistleblower award laws have no caps on the amount of an award. Awards are based on the quality of information provided, the cooperation a whistleblower provides to the government, the risks or sacrifices of the whistleblower, and the size of the frauds or crimes the whistleblower uncovers and reports. All awards are tied to the amount of actual recovery collected from the fraudster.
The Chamber of Commerce has tried, for years, to cap or limit the amount of an award. They fully understand that the handful of very large awards drives thousands of whistleblowers to come forward. Large awards publicize the programs, send a message that the government will honor its commitments, and incentivizes well-paid and high-level executives to become whistleblowers. Thus, capping the amount of an award is the number one goal of the corporate lobbyists attempting to weaken or undermine whistleblower rights.
In 2018 the SEC instituted a rulemaking proceeding which would have limited the amount of awards paid to whistleblowers in large cases. The initial proposal was approved in a 3-2 vote (all of the SEC Commissioners more supportive of Wall Street interests voted for limiting the size of awards). The proposal was debated internally within the SEC for two years, and leading whistleblower experts and advocates provided empirical evidence that large awards were a cornerstone to the program, incentivized some of the most important whistleblowers, and had a deterrent effect on wrongdoing.
Based on the objective evidence the Commission, 5-0, withdrew the proposal and rejected a rule that would have limited awards in large cases.
What did Justice Do?
Breaking with 35-years of Congressional legislation and ignoring the empirical evidence concerning the importance of large awards, the Justice Department, in an unprecedented move, decided to cap the amount of awards. This was the most significant victory Wall Street, and the Chamber of Commerce obtained, and it sets a terrible precedent.
Incredibly, the Justice Department instituted a rule that was even more regressive than the proposal made by the Chamber of Commerce. In its report Fixing the False Claims Act, the Chamber advocated changing the False Claims Act’s mandatory minimum 15% award, to a sliding scale that would create a “Graduated Reduction” in a whistleblower’s award. The amount of awards would be slowly reduced, and ultimately whistleblowers would only obtain “1 to 3 percent of amounts recovered above $100 million.”
The Justice Department took an even more extreme position. They adopted the Chamber’s recommendation to gradually reduce the size of an award, but instead of permitting tiny awards in large cases, they decided to zero these awards out, and pay nothing. Under the DOJ criteria, a whistleblower would not be entitled to any compensation based on recoveries that topped $500 million and would be subjected to a 5% cap on recoveries above $100 million. These caps need to be understood in the context of the right of the DOJ to reduce or deny awards at will. The DOJ capped the maximum amount of awards, yet established no minimum award, and provided itself with authority to pay no awards to fully qualified whistleblowers. The Chamber of Commerce never went this far in its proposal to undermine the False Claims Act.
Criminal Culpability
All the existing award laws have addressed the issue of the potential criminal culpability of the whistleblower. The original False Claims Act fully recognized this issue when it was signed into law by President Abraham Lincoln on March 2, 1863. The Senate sponsors of the bill explicitly called for participants in the frauds to step forward and use the law to assist the government in detecting these types of crimes. The Senate sponsor of the original False Claims Act recognized that it “takes a rogue to catch a rogue” and the primary intent of the award laws was to induce persons involved in the criminal conspiracy to turn on their fellow conspirators.
Thus, all successful whistleblower award laws permit participants in the frauds to turn in their co-conspirators and collect an award. This aspect of the law is perhaps the most important tool in incentivizing highly placed whistleblowers to step forward. In the context of asset forfeiture, there are no better sources of who the bad actors are who are hiding their assets than the bankers who opened their accounts. All of the laws prohibit persons convicted of the crime they are reporting from collecting an award. But likewise, all of the laws encourage participants, such as international bankers, to step forward.
What did Justice Do?
The Chamber of Commerce and its corporate allies have long advocated against the primary goal of the qui tam laws, i.e. to induce conspirators to turn on their co-conspirators. The fact that “trusted” persons sitting around a corporate board when the company is discussing paying a bribe sends chills within corporate America. In 2010,, the Chamber of Commerce made its position on this issue perfectly clear: “Exclude culpable individuals from award eligibility . . . corporate employees should not be rewarded if they engage in, perpetuate, or fail to take action to stop internal wrongdoing. Individuals who participated in wrongdoing should be excluded from award eligibility.”
Although Congress has continuously rejected such a broad disqualification, and the SEC explicitly rejected this proposal submitted by the Chamber and numerous corporate allies, the Justice Department has now adopted the essence of this position. Under the DOJ’s rules, the vast majority of participants in any fraud are now blocked from obtaining an award.
The DOJ regulation bars anyone who “meaningfully participated” in the fraud. This would cover the overwhelming majority of the best sources of information, and would give comfort to corporate insiders knowing that their co-conspirators could not obtain an award if they turned them in. The only exception would be for those who had a “minimal role,” i.e. those who would have the least valuable information, such as a secretary who may have mailed a letter related to the fraud. The regulation states: “An individual is not eligible for payment if they meaningfully participated in the criminal activity, including by directing, planning, initiating, or knowingly profiting from that criminal activity” (emphasis in original).
Confidential Reporting
Dodd-Frank and the new AML whistleblower award law permits confidential and anonymous filing.
What did Justice Do?
Although the Justice Department permits anonymous filings, the regulations require that an anonymous whistleblower be identified whenever the Justice Department requests it. The regulation states: “The Department reserves the right to require information regarding your identity at any time the Department, in its sole discretion, deems it necessary to the prosecution of a case or to meet the Department’s legal obligations, policies, or procedures.”
Thus, DOJ can waive confidentiality and anonymity at-will, unbound by the legal restraints contained in Dodd-Frank and the AML whistleblower laws.
Internal Reporting
The DOJ’s new program strongly encourages whistleblowers to make internal reports to the very companies they suspect are violating the law. Similarly, the program provides companies who “self-report,” even after whistleblowers disclose violations of law to the government, major benefits and radical reductions in the amount of fines and penalties.
According to the DOJ factsheet:
“DOJ recognizes the value of companies’ internal compliance programs and has designed the pilot program to encourage employees to report misconduct internally before submitting information to DOJ.” (emphasis added).
This focus on encouraging whistleblowers to report to their companies ignored the fact that the very companies that benefit from these internal reports have lobbied and successfully fought in court to strip whistleblowers of protection against retaliation. In other words, the DOJ is encouraging employees to engage in a behavior that is not protected under federal law, and can result in their being fired and harassed, without legal protections.
All whistleblower laws protect employees who report to the government. But the following laws do not:
- Commodity Exchange Act: No protection for internal disclosures.
- Security Exchange Act/Foreign Corrupt Practices Act: No protection for internal disclosures.
- Federal Obstruction of Justice Whistleblower Law: No protection for internal disclosures.
- Anti-Money Laundering and Sanctions Whistleblower Law: No protection for internal disclosures for any employees who work for FDIC insured institutions or credit unions.
- Asset Forfeiture Whistleblower Award (Fund): No protection for internal disclosures.
A recent study published in SSRN demonstrated that 92% of all corporate whistleblower retaliation cases arise from employees who make internal disclosure, while only 5% of retaliation cases arise from employees who report to the government, but avoid internal compliance programs.
It is extremely troubling that the DOJ would encourage whistleblowers to engage in behaviors that are not protected under federal law, will result in many of them losing the ability to report confidentially, and that the empirical evidence demonstrates is the most dangerous method for an employee to report concerns.
Moreover, the DOJ ignored the fact that Wall Street, led by the Chamber of Commerce, strongly argued that internal reporting should not be protected under the Dodd-Frank Act. The Chamber succeeded in having the Supreme Court overturn an SEC regulation that protected internal whistleblower disclosures from protection under law and resulted in stripping employees who reported to corporate counsel, corporate boards, corporate audit committees, or corporate compliance programs from all protections against retaliation under Dodd-Frank.
Options for Whistleblowers
The DOJ’s Corporate Whistleblower Awards Pilot Program represents a colossal lost opportunity to use a Fund created by Congress to combat major financial crimes to incentivize and compensate whistleblowers and otherwise encourage human rights defenders to assist in reporting domestic and international corruption. The Fund has billions of dollars that could have been creatively, aggressively and effectively utilized to fill loopholes in current laws and implement the important recommendations of the United States Strategy on Countering Corruption.
However, existing whistleblower award laws, that do not share the defects of the DOJ Pilot Program, can still be used by whistleblowers. Given the broad scope of these laws, much of the negative impact of the Justice Department’s regulations can be mitigated. Dodd-Frank can be used to report foreign bribery by most corporations worldwide; the Anti-money laundering laws can be used to hold banks and financial exchanges accountable, and to report violations of U.S. sanctions; the IRS program can be used to report tax evasion and permits awards for IRS investigations related to asset forfeiture; and finally, the Commodity Exchange Act can be used to report foreign corruption in the international commodities markets.
Employees who report directly to federal law enforcement authorities are also fully protected under the federal obstruction of justice laws. Under the obstruction law passed as part of the Sarbanes-Oxley corporate reform law, employers who fire employees for reporting to federal law enforcement are subjected to fines and up to ten years in prison.
These numerous (and highly effective) laws do not contain the problems that undermine whistleblower rights under the DOJ Pilot Program, and they should be used whenever available.
Conclusion
The Justice Department adopted proposals long sought after by Wall Street special interests and the Chamber of Commerce and created a program that delivered on the corporate wish-list for undercutting the effectiveness of whistleblower award programs. By making the program discretionary, capping the amount of awards, blocking the best informants from coverage, and placing a major caveat on the right to file anonymous claims, the Justice Department’s program runs counter to the significant amount of empirical evidence concerning the specific policies and procedures necessary to operate a successful program. Worse still, it creates a dangerous precedent for future whistleblower laws.
To understand just how terrible discretionary programs with compensation caps are and why Congress has repeatedly rejected them since 1986, one need only look at older and discredited award programs.
For example, between 1989 and 2010, the SEC had a discretionary award program covering whistleblowers who disclosed insider trading. The SEC Inspector General reviewed that program and found that it was a total failure and was unable to stop frauds like the ENRON scandal or frauds associated with the 2008 financial collapse.
The Inspector General described the program and its operation over its eleven years of existence as follows:
“All bounty determinations, including whether, to whom, or in what amount to make payments, are within the sole discretion of the SEC.”
“Since the inception of the SEC bounty program in 1989, the SEC has paid a total of $159,537 to five claimants.”
Thus, in July 2010, Congress repealed this discredited law and passed Dodd-Frank, which has mandatory award laws, no caps, and no discretion to deny qualified whistleblowers compensation.
The old IRS law and the False Claims Act of 1943 had similar problems, and both laws were amended to make the payment of awards mandatory, eliminate all caps, and end the discretion of government agencies to deny awards. All of the modern award laws also permit whistleblowers to challenge any denial in court.
The Justice Department had the discretion to create a highly effective program based on the Dodd-Frank Act. They dropped the ball. Now Congress needs to fix the mess Justice created.
In the meantime, whistleblowers should continue to use the highly effective award laws: the False Claims Act, the Dodd-Frank Act, the AML Whistleblower Improvement Act and the Foreign Corrupt Practices Act. Whistleblowers should also take advantage of the strong protections offered under the federal obstruction of justice statutes by reporting concerns directly to law enforcement.
The Justice Department did get one thing right. As part of its pilot program, Justice ruled that whistleblowers who are covered under the existing highly effective whistleblower laws cannot obtain any awards under the pilot program. Intentionally or not, this was the best advice Justice could give to whistleblowers: Make sure you use the existing laws and not rely on the pilot program.
