The Government’s Most Valuable Resource for Fraud Recovery

Each year the U.S. Department of Justice (DOJ) announces the recovery of billions of dollars from companies and individuals that cheat and commit fraud in government grants, contracts, and programs.  In fiscal year (FY) 2018 DOJ announced that the False Claims Act (FCA) led to over $2.88 billion in recoveries for taxpayers.1

The importance of whistleblowers to the government’s efforts to detect fraud cannot be overstated.  In FY 2018, DOJ reported that $2.11 of the $2.88 billion in settlements and judgments obtained under the FCA were related to lawsuits filed under the FCA’s qui tam provision, which permit a whistleblower to bring a lawsuit on behalf of the government, in exchange for a monetary reward if the suit is successful.2    In other words,  73% of the taxpayer funds recovered were in some part due to the disclosures made by whistleblowers.  A number of cases resulted in significant recoveries for whistleblowers.  For example, on the high end, in the AmerisourceBergan Corporation cancer drug settlement the whistleblower’s share of the $625 million settlement was over $93 million.3  In a mid-range case, involving defective bullet proof vests, the government recovered $66 million and the whistleblower received $5.7 million.4  In a case on the lower end of the recoveries in 2018, the government recovered $9.1 million for defective earplugs.  The whistleblower received almost $2 million. Overall, whistleblowers received over $301 million of the total recoveries in 2018.

Despite the potential for a financial reward, whistleblowing is risky on many levels. Once identified, whistleblowers are often shunned, demeaned, and marginalized within their organizations. If they persist or if their disclosures are significantly threatening, then they are terminated. Terminated whistleblowers are often blacklisted and have significant difficulties continuing in their profession. Many are jobless for extended periods or must change careers.

A lack of support for whistleblowing disclosures helps create a chilling environment that discourages reporting. In 2018, the Ethics and Compliance Initiative Global Business Survey reported that “one-half of all employees observed at least one incident of misconduct in the previous 12 months. Of those employees, 1 in 4 chose not to report at least one of the incidents they observed.”7 Not surprisingly, many whistleblowers remain silent because they fear retaliation.

In a study of factors that may influence internal whistleblowing, researchers from Bucknell University and North Carolina State University found that where the threat of retaliation is low, there is a higher level of “whistleblowing intention.” However, where the retaliation threat is high, even monetary incentives may be insufficient to encourage whistleblowing. The authors conclude: “it is imperative to have and enforce policies to protect whistleblowers from retaliation; only then might monetary incentives be effective.” This article offers the government a roadmap for protecting its most valuable sources for discovering and remedying the fraud that permeates government-funded activities.

Isn’t the Possibility of an Award Enough?

The relationship between FCA whistleblowers and government investigators and attorneys is a complex one. To some in government, the whistleblower is merely a source who may be well compensated if her/his allegations can be proven. Their view is that the risks taken by the whistleblower and damage sustained in taking those risks are compensated by the award that may be provided at the end of a successful case. But in the world of often high stakes FCA litigation, many cases do not succeed or may only result in modest financial success. Only about 100-150 cases per year are positively resolved. Half of those cases successfully resolved settle for $2 million or less with the whistleblower receiving maybe a few hundred thousand dollars or less before taxes.9

Despite the significant risks to whistleblowers and the critical role they play in recovering taxpayer dollars, government attorneys and investigators often convey that there is not much they can do to remedy retaliation and prevent further harm to the whistleblower. For example, if the whistleblower still works for the company that is the subject of an FCA investigation, it is entirely likely that, if not already known, s/he will be discovered or suspected as the government’s source. When this happens, whistleblowers are often harassed and set up for termination. And if the whistleblower no longer works for the company but is still in the industry, then a covert or sometimes not so covert effort may be made to disrupt current employment or efforts to seek new jobs and to secure career advancement.

To appreciate the nature of the problem, consider the difficulties faced by whistleblowers who work for government contractors. For example, in a 2016 report, the Government Accountability Office (GAO) found that the U.S. Department of Energy (DOE) had “taken limited or no action against contractors that create a chilled work environment and has not developed effective policies for doing so.”10 That same report noted that “DOE has infrequently used its enforcement authority to hold contractors accountable for unlawful retaliation, issuing two violation notices in the past 20 years.” Unfortunately, DOE is not alone in its failure to protect whistleblowers.11 But there are whistleblower protection laws that, if used correctly, could serve to protect whistleblowers early in the process and limit or prevent some of the very personal losses they often sustain. More whistleblowers would likely come forward if they thought that the government would make every effort to protect them.

Protections Exist but Are Not Utilized

Two laws that are relatively recent additions to the federal whistleblower protection framework provide all of the legal authority Federal agencies need to protect government contractor or grantee whistleblowers adequately. These laws protect government contractor employees who blow the whistle on gross mismanagement of a Federal contract, gross waste of Federal funds, abuses of authority related to a Federal contract or grant, substantial and specific danger to public health or safety, and violations of law, rule or regulation related to a Federal contract. 41 U.S.C. § 4712(a)(1); 10 U.S.C. § 2409(a)(1). By including a broad scope of protected activities, Congress has made clear its intent to encourage whistleblowing on a variety of important issues.

As a first step, each of these whistleblower protection laws requires the whistleblower to file a complaint with the Inspector General of the executive agency at issue. See, 41 USC 4712(b)(1); 10 USC 2409(b)(1).12 The Inspector General then has 180 days to investigate the complaint and make a report to the head of the executive agency. 41 USC 4712(b)(2)(A); 10 USC 2409(b)(2)(A). Once in the hands of the head of the agency or her designee, a determination of whether “there is sufficient basis to conclude that the contractor . . . has subjected the complainant to a reprisal” must be made. If the agency concludes that a reprisal has taken place, it shall order relief. 41 USC 4712(c); 10 USC 2409(c).

The term “reprisal” is defined in the statutes. “An employee of a contractor, subcontractor, grantee, or subgrantee or personal services contractor may not be discharged, demoted, or otherwise discriminated against as a reprisal for” making a protected disclosure (emphasis added). The phrase “otherwise discriminated against” has been interpreted broadly by agencies and courts that have considered its scope. The phrase is part of the description of prohibitions connected to statutorily protected actions or protected classes. For example, in the context of protecting the right of employees to organize, one court described the breadth of “otherwise discriminate against” as follows-

Congress demonstrated it had no such narrow interest in mind by employing the broadest language it could find. The use of the words ‘or otherwise discriminate’ in the disjunctive after ‘discharge’ indicates clearly that Congress sought to extend Board scrutiny to all forms of discrimination.

John Hancock Mut. Life Ins. Co. v. NLRB, 191 F.2d 483, 485-86 (D.C. Cir. 1951).

The remedies available include “affirmative action to abate the reprisal,” reinstatement, compensatory damages, back pay, attorneys’ fees, and costs, and the reinstatement of “other terms and conditions of employment that would apply to the person in that position if the reprisal had not been taken.” 42 USC 4712(c)(1); 10 USC 2409(c)(1). The references to affirmative action to abate the reprisal and reinstating other terms and conditions of employment make clear Congress’ intent to allow the agency to order remedies to prevent an employee from being “discharged, demoted, or otherwise discriminated against” and preserve the status quo. For example, if harassment of a government contractor employee is creating a toxic environment for that employee and may result in either forcing her to resign or could lead to her termination, then it is important for the government to step in. Actions available under current law could include a rapid IG investigation and report corroborating harassment and other discrimination against the whistleblower followed by an interim or final decision by the agency head providing the necessary protections or other relief. The agency head can order an abatement of those harassing and related actions, effectively placing the whistleblower in a protected status.

Government action before the compounded trauma of on-going harassment takes hold, and that prevents a resignation or termination, could be critical to protecting a whistleblower and making him feel more secure to fully engage and participate in a qui tam investigation and litigation.13 Most recently, the individual hardships of whistleblowers were explored in a thoughtful article published in The New Yorker.14 The article describes how a qui tam whistleblower was victimized after his company learned that he was cooperating in a government investigation. The whistleblower: was locked out of his office computer; had his personal laptop taken (it was never recovered); was placed on administrative leave; involuntarily resigned after five months of administrative leave; and was disparaged by his former employer, which prevented him from being reemployed.15 These types of retaliatory and harassing activities — and worse — are frequently imposed upon conscientious whistleblowers.

Is the Operation a Success if the Patient Dies?

It is not enough to reward some whistleblowers at the end of a long qui tam investigation and litigation, or to award back pay and other modest relief after the damage is done. See, e.g., 31 USC 3730(h) (FCA employee protection provision). While some employees will continue to come forward under that framework, many others will ignore the call to report fraud because they sensibly fear the likely retaliation. If the government is serious about protecting whistleblowers and wants a robust reporting structure to help recover more taxpayer dollars as well as prevent and detect fraud, it needs to focus much more effort on the preservation of whistleblowers. IGs and agency heads can use current laws to create that protective structure and should assemble teams that can rapidly respond to the crises whistleblowers typically face.

Richard E. Condit (https://findjustice.com/attorneys/richard-condit/) and Cleveland Lawrence III (https://findjustice.com/attorneys/cleveland-lawrence/) are the co-chairs of Mehri & Skalet’s Whistleblower Law Practice Group