The United States is putting out a call to international whistleblowers, seeking help in the battle against fraud - and for good reason. In many cases, whistleblowers located outside of the United States are best positioned to uncover schemes involving fraudulent bills submitted to the U.S. government, tax evasion, and/or securities fraud involving U.S. companies. This effort is producing results.
On April 18, 2016, the U.S. Department of Justice ("DOJ") announced that the California division of Winds Enterprises, Ltd., a Hong Kong corporation, had agreed to pay $1.5 million to settle claims that it illegally evaded import duties on sportswear imported from China and Madagascar by lying about the value of the goods. The recovery was made possible by information provided to the DOJ by a Hong Kong-based former employee of the company, who will receive $300,000 for the essential role he played in uncovering the fraud.
Last October, the U.S. Government criminally prosecuted and recovered more than $1 million from British defense contractor ECL Solutions Limited, Inc. ("ECL") thanks to the help of whistleblower Todd Mihajlovic from the United Kingdom. Mr. Mihajlovic, a former employee of ECL, reported that ECL hid the fact that the steel racking systems it sold to the U.S. military were made in China. This deception enabled ECL to pass off its shelving product as compliant with the Buy American Act and Trade Agreements Act when, in fact, it was using prohibited Chinese steel.
Similarly, last summer, American expat whistleblowers in Nicaragua uncovered a $25 million dollar fraud. The scheme involved a Florida health insurance company that illegally billed Medicare, a U.S. government-funded healthcare system, for services performed in Nicaragua on former U.S. residents. The scheme was uncovered when the defendants' brazen marketing practices in Nicaragua aroused the suspicions of the expat whistleblowers and they informed U.S. Embassy officials.
International whistleblowers like these, including foreign citizens, can sometimes receive monetary awards under U.S. anti-fraud statutes. One of the most notable international whistleblowers is Dinesh Thakur, a chemical engineer at Indian pharmaceutical company Ranbaxy. Thakur uncovered a massive internal scheme to falsify critical information about the safety and efficacy of Ranbaxy's drugs and reported his findings the U.S. Food and Drug Administration. Based on Thakur's report, Ranbaxy pled guilty to seven criminal felony charges and paid more than $500 million in fines and settlements.
Thakur received $48.6 million for stepping forward through a U.S. law known as the False Claims Act (FCA), the oldest and best known of America's whistleblower rewards programs. The law allows individuals to bring lawsuits on behalf of the United States against companies or individuals who fraudulently seek money from the government in a wide range of arenas including healthcare, defense, infrastructure construction, customs duties, education, mortgage guarantees, and research grants. Often referred to as "Lincoln's Law," named for U.S. President Abraham Lincoln, the statute was enacted in 1863 to fight widespread fraud by companies selling rotten food, sickly mules, and defective weapons to the Union Army during the Civil War. The law allows private citizens, known as relators, to bring a lawsuit on the government's behalf, rewarding them with a significant portion of the government's recovery (between 15% and 30%).
But the idea of allowing private citizens to sue on behalf of the Government, and receive a reward for doing so, is much older than America. According to the U.S. Congressional Research Service: "The earliest cited example of a qui tam provision is the 695 declaration of King Wihtred of Kent [England] which stated that 'If a freeman works during the forbidden time [i.e., the Sabbath], he shall forfeit his healsfang, and the man who informs against him shall have half the fine, and [the profits arising] from the labour.' By the fourteenth, fifteenth, and sixteenth century, qui tam statutes had become a common feature of English law."
In keeping with their international roots, and because all good information is valuable, under the U.S. whistleblower rewards programs, whistleblowers need not be U.S. citizens or even residents. Anyone with knowledge of fraudulent conduct can file a claim under the FCA, or under the whistleblower programs of the Internal Revenue Service (for tax fraud), the Securities and Exchange Commission (for securities fraud), or the Commodity Futures Trading Commission (for commodities fraud).
In 2014, a whistleblower living abroad received over $30 million for providing a tip about a massive securities manipulation fraud to the U.S. Securities and Exchange Commission (SEC) under the whistleblower program created by the 2010 Dodd-Frank financial reform law. The Dodd-Frank Act program applies to violations of U.S. securities laws such as Ponzi schemes, insider trading, accounting fraud, unauthorized trading, market manipulation and bribery in violation of the Foreign Corrupt Practices Act. As with the False Claims Act, whistleblowers under the SEC program are eligible for rewards of up to 30% of the amount recovered. Since the inception of the program, the agency has paid awards to more than 26 whistleblowers.
Additionally, this significant award was the SEC's fourth to a whistleblower living outside the U.S. Because of the SEC's policy of strictly guarding the confidentiality of whistleblowers, we know little about this whistleblower other than the fact that s/he lived in a foreign country and the approximate amount of money the SEC paid him/her. The SEC is so dedicated to protecting the identity of whistleblowers that it permits anonymous reporting, so long as the whistleblower has the assistance of an American lawyer to make the required filings.
The IRS whistleblower program also offers the promise of substantial rewards to whistleblowers who report fraudulent avoidance of U.S. taxes. Although the IRS program has been less prominent, reports indicate that the IRS has a particular interest in hearing about: "US taxpayers with illegal offshore accounts around the world - especially Hong Kong, Singapore and Central America."
American regulators are welcoming foreign whistleblowers -- both in action and word. Sean McKessy, Director of the SEC's Whistleblower Office has stated outright "we effectively utilize tips from anyone, anywhere to bring wrongdoers to justice." The DOJ has similarly demonstrated its commitment to pursuing tips from foreign sources through criminal prosecution and substantial monetary recoveries. This is crucial to U.S. anti-corruption efforts, because in a flat world, where big fraud follows big money, the American taxpayers need all the help they can get.