The Chamber of Commerce has commenced a well-financed and aggressive lobbying campaign to undermine America’s most effective whistleblower law, the False Claims Act. To justify its anti-whistleblower campaign the Chamber published a report entitled, “Fixing the False Claims Act: the Case For Compliance-Focused Reforms.” The purpose of this blog series is to combat the Chamber’s misinformation, and explain why the False Claims Act must be protected.
Whistleblowers and their supporters are strongly urged to read this blog series and share it with friends. In addition, an Action Alert has been issued by the National Whistleblower Center so members of the public inform their representatives that the False Claims Act should not be “reformed” as proposed by the Chamber.
Fact Number 8:
Large whistleblower rewards are key to obtaining voluntary compliance with federal anti-fraud laws. Such rewards encourage employees to overcome their well-grounded fears that inhibit reporting and, specifically, encourage highly compensated employees to risk their careers to expose fraud and serve the public interest.
The Chamber’s report makes it appear as if whistleblowers regularly make big windfalls when they file FCA cases. This is simply not true. Large rewards are few and far between. Since the FCA was amended in 1986, the average reward obtained by whistleblowers that filed a FCA case has been under $465,000.
Interestingly, the government does not publicize the fact that most FCA awards are either negligible or very modest. If one looks at the average reward and then takes into consideration a 20% chance of any recovery whatsoever, the federal and state taxes that relators must pay on their rewards, and the requirement to pay attorney fees and costs, the record actually demonstrates that relator are, on average, undercompensated.
The Chamber ignores the cruel financial reality facing most whistleblowers, and ignores the fact that many outrageous fraud cases result in criminal prosecution, and bankruptcy.
The fraudsters may go to jail, and their schemes are broken, but in these cases there is little or no recovery for the whistleblowers.
Large rewards serve the public interest. They trigger significant voluntary compliance, provide positive publicity for the programs, and are the key for inducing reluctant high-level and well-paid employees with inside knowledge of fraud to step forward. In order to recruit the best and brightest corporate managers, there is no cap on executive compensation. The same is true for the qui tam programs. Not every CEO is paid hundreds of millions of dollars, but the absence of a cap is an incentive for excellence and permits the free market to do what it does best – motivate positive actions.
Placing limits on whistleblower rewards would undermine the FCA. Since the overwhelming majority of qui tam rewards are very modest, the government needs to pay very large rewards on major cases in order to induce employees to provide inside information about major fraud to appropriate officials.
“There is no empirical support for the Chamber’s proposed award limits.”
Modest rewards would not motivate the vast majority of reluctant employees to risk their entire career simply to stand a 20% chance of obtaining a small recovery. Potentially large rewards will motivate reluctant whistleblowers.
When President Lincoln signed the FCA into law in 1863, the rewards were set at 50%.10 Today, the average award paid to a whistleblower is only 15%. If anything, the actions of the Department of Justice should be questioned as to why their average award is set at the lowest possible level.
Rewards are designed to incentivize high-risk behavior that serves the government’s and the taxpayer’s best interests. These rewards have nothing to do with paying out compensation for damages an individual may suffer from a tort. Large rewards have nothing in common with the abuse of punitive damage awards or runaway jury verdicts.
The amount of damages owed to the government is carefully set forth in the statute and readily subject to policing by the courts. The amount of a reward is not paid by the taxpayer; rather, it comes out of the fines and penalties actually obtained from the government that can be directly attributed to the specific contribution of the whistleblower disclosing fraud against the taxpayer.
There is no empirical support for the Chamber’s proposed award limits. Given the scarcity of such awards, even if these rare exceptions posed a problem , there would still be no justification for amending the Act simply to address such anomalies. Capping rewards undermines the entire purpose of the law. Arbitrary limits do not serve the public interest but discourage some of the most important potential sources of information on fraud against the government from ever coming forward.