Reporting fraud: The anatomy of a corporate whistleblower case

As long as there are rules, there always will be ways for the rules to be broken by nefarious entities looking to capitalize. As companies earn higher profits, some company leaders may see an incentive to disregard administrative rules. The balancing factor in those cases may be whistleblowers.

A whistleblower is a person who exposes information or activities within a private, public, or government organization that is deemed illegal, unethical, or incorrect. This can include a variety of issues such as fraud, corruption, safety violations, or other forms of misconduct. Governmental and corporate protections for whistleblowers can vary, but many jurisdictions have laws in place to protect whistleblowers from retaliation by management.

While the definition of a whistleblower seems straightforward, these cases often are complex and unique, with each situation presenting its own set of challenges. It is important to note that a whistleblower case cannot and should not be manufactured or pursued with malicious intent. Instead, such cases often begin with an individual, usually an employee, noticing something that is illegal or unethical and making the decision to take action.

Reporting via a whistleblower reward program

The first question on the mind of a potential whistleblower usually is whether to report the perceived misconduct internally, to company management, or externally, to government regulators. One of the reasons why whistleblowers prefer to report internally first is that they may hope to resolve the issue without exposing the organization to public scrutiny or legal action. The whistleblower may also feel a sense of loyalty or attachment to their employer and want to give management a chance to correct the problem. However, internal reporting can also be risky, as whistleblowers may face retaliation from their managers or co-workers, such as harassment, demotion, termination, or even physical threats. Therefore, whistleblowers should document their concerns and actions, seek legal advice, and be aware of their rights and protections under the law.

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For more Whistleblower Facts & Figures, check out this infographic

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A prototypical whistleblower is an insider, who witness wrongdoing in their companies, according to Poppy Alexander, founder of Whistleblower Partners, adding that when these whistleblowers report internally, however, they often face rejection and retaliation from their employers, which is a mistake and contrary to what management should do.

And if the whistleblower is a former employee, chances are very good that they’ve been fired or otherwise retaliated against for trying to blow the whistle internally, Alexander explains. On the other hand, whistleblowers do not have to be insiders or former insiders, they may also be competitors or outsiders with unique, non-public information.

After internal reporting, the case may progress to external reporting if internal reporting does not resolve it. Whistleblowers may decide to tell the government about the fraud as a means of addressing it. In fact, there are various whistleblower reward programs in the United States that allow individuals to do so via formal mechanisms.

Different programs have different procedures; for example, the False Claims Act needs a legal action to be initiated before advancing to the next steps. Government agency cases — such as those filed with the Securities and Exchange Commission (SEC), or the Commodity Futures Trading Commission (CFTC) — do not involve filing a legal suit, but they have a common process. Alexander explains that due to the complexity of the different programs, people often seek out counsel to triage the tip and guide them through the whistleblower process. Depending on the type of tip, the filings can go to the SEC, the CFTC, the Financial Crimes Enforcement Network (FinCEN) or even through the Federal False Claims Act. Each program is different, but the underlying principle is the same — they each provide a formal path for individuals to report corporate or government fraud to the correct government agency to address the particular issue.

US whistleblower protection programs

In the United States, several laws provide protections for whistleblowers in order to better encourage the reporting of illegal or unethical activities and to shield whistleblowers from retaliation. These laws are separate, but related, to the whistleblower incentive or reward laws. Here are some key federal whistleblower protection laws:

• • • Whistleblower Protection Act (WPA) of 1989 — This act protects federal employees who disclose information about government misconduct. It prohibits retaliation against employees who report waste, fraud, abuse, or other violations.
    • Sarbanes-Oxley Act (SOX) of 2002 — This law provides protections for employees of publicly traded companies who report corporate fraud. It includes provisions for reinstatement, back pay, and compensation for damages in cases of retaliation.
    • Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — This act established the whistleblower programs within the SEC and CFTC, which both offer financial rewards for information leading to successful enforcement actions. It also provides protections against retaliation.
    • Occupational Safety and Health Act (OSHA) — This act protects employees who report violations of workplace safety and health standards. OSHA enforces whistleblower provisions under more than 20 federal laws.
    • False Claims Act (FCA) — Also known as the Lincoln Law, this act allows individuals (known as relators) to file lawsuits on behalf of the government against entities that may be committing fraud involving federal programs. It includes provisions for financial rewards and protections against retaliation.
    • National Defense Authorization Act (NDAA) — This law includes provisions that protect whistleblowers in the defense industry, including contractors and subcontractors, who report fraud, waste, or abuse.
    • Whistleblower Protection Enhancement Act (WPEA) of 2012 — This act strengthens the protections provided under the 1989 WPA, including expanding the scope of protected disclosures and improving remedies for whistleblowers.

In addition to these federal laws, many states have their own whistleblower protection statutes that cover a range of industries and activities within their jurisdiction.

Resolution of a whistleblower case

Once a whistleblower case is resolved, there may be ways for the whistleblower to collect a reward, Alexander says. For example, whistleblowers can get a reward if the government uses their information to take action. The award often is a portion of the money that the government recovers, usually 15% to 30% for the False Claims Act and 10% to 30% for the agency programs. The award also depends on how much the whistleblower contributed, including how many tips they provided, what type of tip, and how engaged the whistleblower was (for example, how many meetings or how much information the whistleblower gave in a tip).

After the case is resolved, the organization may make changes to prevent future misconduct, such as updating policies, enhancing training programs, or strengthening internal controls, especially if it is being compelled by federal agencies to do so.