September 11, 2012
Capping a celebrated whistleblower case this week, U.S. tax authorities awarded $104 million to a former UBS employee in a major tax fraud case against the Swiss mega- bank that widened a government crackdown on Americans who avoid taxes in Switzerland.
The employee, Bradley Birkenfeld, had sought a large payout for his role in a tax-dodging case that resulted in UBS entering into a deferred prosecution agreement in early 2009 and paying $780 million in fines, penalties, interest and restitution.
The IRS announcement comes at a time when an increasing number of Americans are blowing the whistle on illegal or improper conduct by their employees and risking the loss of their jobs or retaliation during a period of slow economic recovery. While federal laws, including the IRS whistleblower law and the 2010 Dodd-Frank overhaul of the financial industry, provide protections and financial incentives for whistleblowers, turning on an employer remains a highly dangerous course of action.
Birkenfeld turned over information about UBS to the authorities, but later was jailed after the government said he withheld other information and admitted to conspiracy in helping a former rich client conceal large sums at UBS. Birkenfeld was freed last month, and on Monday his lawyer, Andrew Carr, announced that Birkenfeld had been awarded $104 million through an Internal Revenue Service whistleblower program.
In addition to employees who blow the whistle on fraud and other illegal activities, employees are also pointing fingers at workplace misconduct, including sexual harassment, discrimination, and conflicts of interest. One in five corporate employees who report workplace misconduct will experience some form of perceived retaliation, potentially ranging anywhere from harassment and physical violence to demotion or termination, according to the ERC. The report estimates that retaliation cases have increased by 7 percent since 2009, or roughly 2.3 million cases per year since then.
The report also shows a surge in retaliation involving physical harm to workers and their property, which shot up by 31 percent between 2009 and 2011. These cases range from pushing and physical abuse to damage to computers, desks and other office equipment.
Donna Boehme, a principal at Compliance Strategists in New Jersey, said employees are increasingly experiencing retaliation because their companies don’t have effective whistleblower policies, despite the passage of Dodd Frank. “It’s relatively easy in the ‘balloons and barbeques’ stage of [a whistleblower] program rollout for managers to vocally support doing the right thing,” Boehme said. “You’ve got senior leaders that say they want their employees to come forward. But once they do, the reporters become ‘dirty, rotten traitors.’”
Boehme pointed to the case of Sherry Hunt, a woman who blew the whistle on banking giant Citigroup last spring when she discovered that the corporation was engaged in mortgage fraud. Hunt claimed she was threatened by one of her supervisors for not covering up the fraud, one year after the whistleblower protections were implemented under Dodd Frank. When Hunt decided to pursue legal action, the U.S. Justice Department joined her suit.
Citigroup didn’t dispute Hunt’s allegations, and instead agreed to pay $158.3 million to the U.S. government to settle the case. Hunt was awarded $31 million out of the settlement on Feb. 15, before taxes and attorney fees. “Many workers don’t come forward because [the situation] generally ends in tears. Especially in this economy, many people can’t afford to come forward and risk losing their jobs,” Boehme told The Fiscal Times.
In one particularly egregious case, Boehme said, a woman who had spoken out about her company “cooking” its revenue figures showed up for work only to discover her employer had removed her computer, desk and chair as punishment after she refused to “play the game.” The woman – who has declined to be identified in public reports – was eventually fired.
Brian Donnelly, an attorney for California-based Employer Advocates Group, who represents private employers in whistleblower retaliation cases, said most companies are aware of the need to have effective policies and enforcement procedures in place, not only to protect employees but to protect their businesses as well. “There seems to be a cognizant effort to prevent these claims from happening because these cases are so expensive and most employers can’t afford to have them,” Donnelly said.
Sean Becker, an attorney at Vinson & Elkins, a Texas-based law firm, said he believes the financial incentives in the new laws could explain why more employees are reporting workplace misconduct as well as filing retaliation claims.
Becker said the increased number of recorded retaliations in the workplace doesn’t necessarily mean that retaliations are on the rise, but that more people are inclined to speak up now under the increased statuary protections of Dodd Frank and state whistleblower laws. “It could also have to do with increased employee awareness, which leads to more aggressive plaintiffs’ attorneys,” Becker said. “It’s a financial incentive for both employees and attorneys because the claim may result in a settlement.”
Under Dodd-Frank, whistleblowers who provide information to the U.S. Securities and Exchange Commission (SEC) or the U.S. Commodity Future Trading Commission (CFTC) will receive a monetary reward ranging from 10 to 30 percent of the amount of money recouped stemming from the whistleblower’s report.
Dodd Frank strengthened the whistleblower protection provisions of the Sarbanes-Oxley Act, which provides protection to whistleblowers in publically traded companies. Dodd-Frank also strengthens the False Claims Act, which created the “qui tam” provision, or whistleblower lawsuit. It allows employees reporting misconduct that involves defrauding government programs to file actions on behalf of the government and to receive a percentage of the recovered damages. The government has recovered nearly $22 billion under the False Claims Act between 1987 and 2008, according to the Department of Justice.
While Becker and other experts say the increased reporting is largely due to financial incentives, the ERC said the results of their research are evidence that employees care more about doing what is right. “What we see is that workers are concerned about doing the right thing. Our research shows that reporters’ desire to help their companies is a stronger incentive to report than even a financial reward,” Patricia Harned, director of the ERC, told The Fiscal Times.