Record Setting Whistleblower Recoveries in FY 2010
Fiscal Year 2010 was a record-setting year for recoveries under the False Claims Act (FCA). The United States Department of Justice announced in November 2010 that it had secured $3 billion in civil settlements and judgments in cases involving fraud against the United States in FY 2010. This includes $2.5 billion in health care fraud recoveries-the largest in history-and represents the second largest annual recovery of civil fraud claims. Moreover, amounts recovered under the False Claims Act since January 2009 have eclipsed any previous two-year period with $5.4 billion in taxpayer dollars returned to federal programs and the Treasury. Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $27 billion. Some of the noteworthy whistleblower settlements in FY 2010 included:
For more information, please visit www.falseclaimsact.com
IRS Proposes Amendments to Its Informant Reward Program
In 2006, Congress passed the Tax Relief and Health Care Act, which created the IRS Whistleblower office and made rewards to whistleblowers less discretionary than in the past. Under Internal Revenue Code 7623(a), the IRS shall pay awards to people who provide “specific and credible information” to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from a noncompliant taxpayer. The IRS wants specific information about significant tax issues. “Significant” is defined by the IRS as taxes, penalties, and interest owed in excess of $2 million. This is not the venue to report speculative concerns, air personal disputes, drop a dime on a former spouse, or to report isolated events such as a waiter failing to declare his tips as income.
There are two basic tracks currently in place for whistleblower complaints that are filed with the IRS. On the first track, whistleblowers submit information concerning amounts in dispute (back taxes, interest, and penalties) in excess of $2 million. In these cases, the IRS is looking for non-compliant taxpayers with annual gross income of more than $200,000. If the IRS successfully obtains a recovery from a non-compliant taxpayer, the IRS is required to pay the whistleblower between 15 and 30% of the recovery. Whistleblowers on this track who are not satisfied with the reward may appeal to the United States Tax Court located in Washington, D.C.
The second track applies to cases involving less than $2 million in dispute. If the IRS obtains a recovery in these cases, payment of a reward to the whistleblower is discretionary, with a maximum of 15% of the recovery up to a maximum of $10 million. Whistleblowers on this track cannot appeal to the United States Tax Court.
On January 18, 2011, the IRS published notice of proposed rulemaking that will redefine how whistleblowers may be compensated by the government. The proposed amendments allow for rewards to be paid to whistleblowers if the information they provide results in the denial of a claim for a refund that the IRS would have otherwise paid or reduces an overpayment credit balance. In other words, if the whistleblower’s tip prevents the IRS from paying an improper refund to the putative defendant, the amount of that refund will be included in the calculation of the recovery by the government. This represents a significant change from the law as it currently stands. It seeks to monetize prospective violations as opposed to recovering amounts that previously were paid. Similarly, if the whistleblower provides the IRS with information that a putative defendant tried to claim a fraudulent loss as an offset to tax liability, the resulting amount of taxes owed will be included when calculating the whistleblower’s reward.
These proposed changes, if adopted, will open the whistleblower program up to a whole new population of citizens with credible information. Claims for rewards that would have previously been denied may now be granted.
For more information on the IRS Whistleblower Program, visit:
Whistleblower Secrecy Remains Safe … For Now
In a split 2-1 decision on March 28, 2011, the 4th Circuit U.S. Court of Appeals upheld the automatic 60 day sealing provision of the False Claims Act. The suit, brought by the American Civil Liberties Union, the Government Accountability Project and OMB Watch, alleges the secrecy unlawfully blocks the public’s access to judicial proceedings and violates the whistleblower’s right to freedom of speech by forbidding them to discuss the misconduct. They also argue it violates the separation of powers doctrine by not allowing judges to decide on case by case basis whether the matter should be sealed. The ACLU alleged specifically that the sealing of Qui Tam lawsuits was hiding Iraq war costs as well as the possibility of war profiteering. Judge James Dever, III states in the majority decision that the sealing provision protects the integrity of ongoing fraud investigations. In response to the plaintiffs’ claim that sealing Qui Tam complaints violates the separation of powers doctrine, Dever wrote that the complaints are subject to judicial review after 60 days and ultimately, all cases will be unsealed for public review. Additionally, the majority opinion states that whistleblowers are not forbidden from discussing the underlying misconduct that caused them to bring the complaint, rather they are only prohibited from discussing the existence of the complaint. They also ruled the plaintiffs had no standing to make the argument, since they could not produce a whistleblower who wanted to talk about the fraud and abuse but was prohibited from doing so.
In a dissenting opinion, Judge Roger Gregory stated transparency was key to the fight against fraud and abuse. Additionally, he stated the seal provision should be decided by judges on a case by case basis, allowing for more public review. Additionally, he stated whistleblowers should be more free to discuss their allegations of abuse and fraud in public, thereby reducing the risk that the government will under-enforce the FCA for “political reasons.
False Claims Act Includes Broad Protections Against Whistleblower Retaliation
Recent amendments to the federal False Claims Act strengthened the broad protections against retaliation of qui tam whistleblowers. 31 U.S.C. Section 3730(h) was amended in 2009 and 2010 to expand the protections for those who try to stop false claims for payment to the federal government. No longer is the protection limited to retaliation against employees by their employers for lawful acts done in furtherance of a false claims act lawsuit. The FCA now protects against retaliation against employees, contractors, and agents by anyone for lawful acts in furtherance of efforts to stop 1 or more violations of the FCA. These amendments add important new protections for whistleblowers because they: (1) expand those protected by the law; (2) remove the employer as the only potential defendant (and potentially add supervisors and others); and (3) expand the protection to acts in furtherance of efforts to stop 1 or more violations – as opposed to acts done in furtherance of an FCA lawsuit. For more information about qui tam lawsuits, visit www.falselcaimsact.com
Ohio and Washington Introduce Bills to Enact State False Claims Acts
Bills recently introduced in Ohio and Washington would enact State False Claims Acts to encourage whistleblowers (known as qui tam “relators”) to step forward and file a lawsuit against those who submit false claims for payment to the state government. The Ohio False Claims Act (Senate Bill 143) would, similar to the federal FCA, cover all State spending; while the Washington False Claims Act (Senate Bill 5458) would cover claims to the Washington State Medicaid Program. Currently, 28 States have enacted State False Claims Acts, most of which are modeled on the federal False Claims Act (which has been used to recover more than $27 Billion since 1986). For copies of all 28 State False Claims Acts visit http://www.falseclaimsact.com/sfca_overview.php
RECENT WHISTLEBLOWER EVENTS
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