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Alexandra Wrage
President and Founder, TRACE

Contributors

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Nicola Bonucci 
International Lawyer and former
Director for Legal Affairs OECD
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Dave Lee
FCPA Compliance Consultant, TRACE
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Sunny McCall
Senior Director II, Compliance Training, TRACE
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Lee Nelson
Independent Compliance and
Ethics Attorney
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Jessica Tillipman
Associate Dean for Government Procurement Law, The GW University Law School
Water Droplet

Corruption is notoriously difficult to detect. As I describe in the book that I recently published with Professor Sope Williams, The Routledge Handbook of Public Procurement Corruption, to help expose illegal activities, governments often rely on a series of tools designed to incentivize disclosures of wrongdoing. The most powerful incentive, by far, is whistleblower rewards. Yet despite evidence demonstrating the effectiveness of whistleblower programs, very few governments embrace them.


It is well accepted that whistleblowing is a risky endeavor–often resulting in grave consequences for the brave individuals who step forward to report wrongdoing. Unfortunately, many whistleblowers experience severe retaliation both professionally and personally because of their actions. To reduce the risk of backlash these individuals may encounter, many governments have passed whistleblower laws to protect them against retaliation.


To further incentivize the reporting of illegal activity, some governments offer whistleblowers financial “rewards” for disclosing information that leads to successful enforcement actions. The United States utilizes two different models in its whistleblower reward programs. The “qui tam” model, associated with the False Claims Act, empowers whistleblowers (qui tam relators) to file “fraud” cases on behalf of the U.S. government. If the case is successful, whistleblowers receive a 10 to 30 percent share of the recoveries. Notably, this “qui tam” model enables whistleblowers to litigate fraud cases on behalf of the government even when the government declines to intervene in the matter itself. Widely considered one of the most powerful anti-fraud statutes in the world, annual False Claims Act recoveries often exceed a billion dollars.


In contrast, the other whistleblower reward programs in the United States use a “gatekeeper” model. The Dodd-Frank whistleblower program is a prominent example of this model. In a “gatekeeper” model, the government retains the exclusive right to bring an enforcement action based on the information shared by the whistleblower. But if the case is successful (resulting in over $1m in sanctions), a whistleblower may still receive between 10 and 30 percent of the money collected. U.S. agencies, such as the Internal Revenue Service and the Treasury Department, also maintain similar rewards programs.


To be clear: when it comes to whistleblower rewards, the United States is all in – making them available in an ever-growing list of enforcement actions. Indeed, in April 2024, the U.S. Department of Justice (DOJ) announced that it would be creating a new, department-wide whistleblower rewards program to further incentivize reporting of corporate or financial misconduct to the DOJ.


When you consider the data, it is easy to see why the United States has firmly embraced this tool. Whistleblower rewards work. A 2021 study found that rewards programs help expose corporate misconduct. Similarly, a 2021 working paper found that “whistleblower reward programs work well and increase detection and deterrence of crime in a cost-effective way.” Yet another study found that “offering financial rewards to whistleblowers can make a regulator more effective, deters wrongdoing, and strengthens the internal governance of regulated entities.”


Despite many governments' desire to increase whistleblower reporting, few have implemented rewards programs (and those that have are significantly more limited in scope and scale than in the United States). Critics often argue that rewards programs encourage abuse and frivolous lawsuits. Although any program offering monetary incentives has the potential to be abused, studies have shown that with appropriate safeguards, the potential for abuse can be minimized. For example, in the United States, the DOJ has been increasingly exercising its authority to dismiss meritless qui tam cases (though many critics reasonably argue that DOJ could be even more aggressive in this regard). In addition, the agencies that utilize the “gatekeeper” model maintain the ability to weed out cases with little likelihood of success.


Critics also often complain that rewards programs undermine corporate whistleblowing programs by encouraging individuals to avoid internal reporting channels in favor of government rewards. Yet numerous studies and reports have debunked this claim, finding that the overwhelming majority of whistleblowers first report their concerns internally before sharing this information with the government.


Others raise concerns over the possibility that whistleblower reward programs create an opportunity for false reports, opportunistic reports, entrapment, and conflicts of interest. Nevertheless, statistics illustrate that these worries are misplaced and do not outweigh the benefits of rewards programs.


Further, countries may perceive the complex nature of reward program administration as a costly bar to implementation. While it is true that any government program that pays reward money to individuals will have its fair share of bureaucratic red tape, a rough back-of-the-envelope analysis demonstrates how these programs can pay for themselves.


And of course, there is my personal favorite: that whistleblowing rewards are morally distasteful or simply “wacky.” Frankly, I do not have a satisfying response to critics who claim that whistleblowers’ motives must be pure and altruistic. If we required this of all cooperators in government enforcement actions, the U.S. criminal justice system would crumble.


This leads me back to my initial question. If whistleblower rewards programs work, why aren’t more governments adopting them? Whether it is genuine concern about the potential for abuse, the complexity of administration, or simply a lack of inertia, governments desiring to increase the reporting of wrongdoing should strongly consider the benefits of buttressing any current reporting incentives with a rewards program. With an increasing number of studies demonstrating that the benefits of these programs outweigh the costs, rewards should be considered a global “best practice” alongside anti-retaliation protections in whistleblowing regimes.



Jessica Tillipman

Jessica Tillipman is the Associate Dean for Government Procurement Law at The George Washington University Law School. She would like to thank GW Law student, Brittany Broome, for her excellent assistance and contributions to this post.



 

Note: Some actions initiated against individuals in the first quarter of 2024 may have been filed under seal, so the view may change in the coming months as indictments are unsealed by the courts.

Cell phone with YouTube Logo

Donald Trump and Eric Garner don’t seem to have much in common, but in the eyes of New York law enforcement, they are both the same class of felon.


The two, however, were treated vastly differently by the criminal justice system.


Trump fudged $420,000 worth of business records, but that alone does not make him a felon in New York. To be as culpable as the man accused (falsely, no less) of selling 50 cartons worth of untaxed cigarettes, Trump had to use those lies to cover up another crime, cheating in an election.


It defies any notion of fairness that the two sets of actions should trigger the same potential penalties, but the example illustrates how existing laws treat white-collar criminals much more leniently than those involved in street crimes.


To be fair, the different nature of each transgression makes it difficult to compare the two. But consider that Garner  could have been sent to prison for four years for not paying taxes on those cigarettes, while a person who cheats by the same degree on their federal tax returns faces six months. But it is not just about the penalties that the laws call for; it’s about how prosecutors and judges apply those laws.


In 2022, U.S. federal attorneys prosecuted 7 out of every 10 criminal referrals they received; but for white-collar crimes, that rate was less than 4. Judges are allowed to set prison terms below the federal sentencing guidelines, and in white-collar cases, they do so about twice as often as they do for simple burglary/trespassing cases. When judges do stick to the guidelines, the white-collar criminal is twice as likely to receive only the minimum sentence.


Looking at these figures, judges seem to think the law treats white-collar crimes too harshly, and they appear to make a stark distinction between the person who steals using a fountain pen and the one who uses his hands.


Long-proffered arguments justifying this kind of discrepancy include the notion, widely held by federal judges, that prison terms are unnecessary because white-collar criminals suffer enough by “loss of job, professional licenses, and status in the community,” and that a shorter prison sentence for, say, the college-educated embezzler feels just as punitive as a longer term for the car thief. One respected law professor even points to Michael Milken to argue that white collar criminals should be released sooner so that they can go on to launder their reputations through charitable giving – a favored tactic for oligarchs, dope pushers, and worse. (She does not explain why Milken needed to be out of prison to donate the money.)


These arguments are morally dubious – essentially making poverty an aggravating factor, if not an outright crime – and based on incorrect facts. They oddly ignore the plain fact that poor people, too, suffer from the loss of community standing and job prospects (and to a greater degree); and while the notion that manicured executives are especially ill-suited for prison life may make for mediocre comedy, it is probably incorrect.


Moreover, the arguments narrowly consider immediate economic loss, while ignoring the downstream costs of white-collar crime. As scholars of corruption already understand, these types of crimes open a path to deadly consequences, and inflict untold collateral damage. Although the extent of such harm is difficult to quantify, we do have snippets of insight. For instance, let’s say a local health department cuts funding by $10 per capita – whether because of tax evasion, fraud, or other reasons. That drop correlates to a 7.4 percent increase in infectious disease deaths. Similarly, researchers have found strong evidence that corruption increases child mortality rates, perhaps contributing to the deaths of 140,000 young children every year. In the U.S., being poor can cost you 10 years of life expectancy – for victims of financial crime, years of life may be at risk.


Of the many explanations for why white-collar crimes are punished less severely than so-called “street” crimes, the most compelling may be that they lack the threat of immediate physical harm. Indirect consequences aside, the sentencing discrepancy is not explained by this factor alone. If you beat someone up and take their wallet, you might see a prison term of 72 months – the median sentence for robbery. Yet if you bilked him in a business deal and later attacked him in a road rage incident, you might see 45 months behind bars – the combined median sentences for assault and fraud/theft/embezzlement.


A prominent University of Chicago Law professor, who went on to become a highly influential federal judge, made a straight-faced argument that white-collar criminals should be able to buy their way out of prison terms. As problematic as this notion is, whatever “price” it is that white-collar criminals are currently paying for their misdeeds, it is far less than what other criminals face.


Sam Bankman-Fried, who was convicted of stealing $8 billion, received a 25-year sentence for fraud – one day behind bars for every $875,000 or so pilfered. Given that the wildly popular YouTube star MrBeast received more than 200 million views of a clip purporting to offer a colleague $10,000 for each day he spends in a (simulated) prison, Bankman-Fried’s hypothetical return on investment seems quite hefty.  Even Bernie Madoff, whose 150-year sentence was touted as “strong signal” to would-be wrongdoers, stole about $310,000 for each day he was to be locked up.


The message here is that white-collar crime can be quite lucrative, and criminals seem to have caught on. While the scale of white-collar crime is difficult to calculate, in part because the federal government simply does not track the data, it appears to vastly exceed the scale of loss from street crime.


And what if Eric Garner had not been killed, but given the maximum sentence for the crime he did not commit? The daily “yield” for his prison time would have been less than two dollars.



FCPA Compliance Consultant, TRACE


 

Note: Data from the U.S. Sentencing Commission was used to calculate figures relating to prison sentences. Unless otherwise noted, the figures reflect activity between 2021 and 2023, filtered for the lowest tier of prior criminal history (given the perceived higher rate of recidivism in street crime convictions). That Mr. Garner was targeted under a tax law, and the discrepancies that this highlights, was a point raised earlier by Jennifer Taub in Big Dirty Money.

Water Droplet

Despite the DOJ’s repeated emphasis on holding individuals criminally responsible for corporate misconduct, such as the remarks by Lisa H. Miller, Deputy Assistant Attorney General for the DOJ’s Fraud and Appellate Sections in 2022, the number of individual defendants charged with FCPA-related violations by the SEC and DOJ has steadily declined in recent years. The SEC has not initiated an FCPA-related action against an individual since 2020.


The slow start in 2024 seems to reflect that trend may continue. According to MoFo’s FCPA Year in Review, despite a steady increase in FCPA enforcement actions generally, the enforcement actions against individuals fell from 28 in 2021, to 16 in 2022, and just 7 in 2023.


In the first quarter of 2024, the DOJ initiated just two enforcement actions against individual defendants. Mauricio Gomez Baez and Abraham Cigarroa Cervantes were high-level employees at Stericycle, Inc., a U.S.-based waste management company, which already resolved its own FCPA-related enforcement actions with the SEC and DOJ in 2022 for misconduct in Latin America. The two executives in Stericycle’s Latin America subsidiary were indicted for their roles in a scheme to bribe officials in Mexico, Brazil, and Argentina.


In April 2024, the DOJ’s Criminal Division announced a new pilot program that offers wrongdoers non-prosecution agreements if they voluntarily turn in themselves and their co-conspirators and meet a host of very specific criteria. Principal Deputy Assistant Attorney General Nicole M. Argentieri explained in a blog post published on the DOJ website that the pilot program is meant to “provide clear incentives and encourage individuals to come forward,” which, in turn, allows the DOJ to “to prosecute more culpable individuals and to hold companies to account.”


According to Argentieri, under the new program, culpable individuals will receive a non-prosecution agreement if they (1) voluntarily, (2) truthfully, and (3) completely self-disclose original information regarding misconduct that was unknown to the department in certain high-priority enforcement areas, (4) fully cooperate and are able to provide substantial assistance against those equally or more culpable, and (5) forfeit any ill-gotten gains and compensate victims.  This program is different from the Whistleblower Pilot Program announced by DOJ in March 2024 which offers financial incentives to individuals not involved in criminal activity to come forward with information. 


It remains to be seen how much, if any, impact the pilot program will have on the trends related to individual prosecutions.



CCEP, PMP, CPMP, SSGB, GRCP, TASA

 


 

Note: Some actions initiated against individuals in the first quarter of 2024 may have been filed under seal, so the view may change in the coming months as indictments are unsealed by the courts.

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