Informants & whistleblowers

Criminals are sometimes the best people to use to catch other criminals. However, CFEs should follow the important rules when using and managing informants, whistleblowers and cooperating defendants to avoid sabotaging their cases.

This article is excerpted and adapted from “Faces of Fraud: Cases and Lessons from a Life Fighting Fraudsters,” by Martin T. Biegelman, published by John Wiley & Sons Inc. © 2013 used with permission. 

No one knows the faces of fraud better than those people intimately involved in misconduct, whether as willing participants or eyewitnesses to wrongdoing. Experience teaches us that fraud is often uncovered and reported by people with inside knowledge, including employees, vendors and customers. The longtime administrative assistant or bookkeeper who has been with the company for ages may know where all the “bodies are buried,” and if given the opportunity will provide valuable information to an all-too-willing-to-listen federal agent, prosecutor or news reporter.

I truly value informants and the information they can provide. Informants have provided me with evidence I would never have been able to find on my own. Many of these informants were defendants I had arrested for various fraud schemes and flipped into cooperating defendants. They provided me with valuable evidence against their co-conspirators as well as reporting other frauds they became aware of. I used informants in undercover capacities and placed them in fraudulent operations to obtain evidence for prosecutions. I used them as witnesses at trials. Informants who fully cooperated and provided truthful information made me very successful as a criminal investigator, and I continue to use informants in my work in the corporate sector and now as a consultant.

Informants, whistleblowers and cooperating defendants helped expose and prosecute corporate fraudsters in some of the biggest business scandals ever seen. WorldCom’s Cynthia Cooper discovered the cooking of the books by the corporate leadership of her company. (See “Extraordinary Circumstances: An Interview with Cynthia Cooper,” by Dick Carozza, CFE, in the March/April 2008 Fraud Magazine.) In the process, she became a respected whistleblower and was recognized by Time magazine as a 2002 Person of the Year. Later, former WorldCom CFO Scott Sullivan became a cooperating defendant, testifying against former WorldCom CEO Bernard Ebbers. Sullivan was the government’s star witness against Ebbers with firsthand accounts of how he, Ebbers and others falsified the company’s financial results and misled investors. Ebbers was convicted and sentenced to 25 years in prison.

Yet, it’s not always so simple to just use an informant, whistleblower or cooperating defendant and expect good results. It’s been said that if someone wants information on crimes, it’s more likely to come from criminals than honest citizens. Every defense attorney will attack the credibility of a cooperating defendant, especially one who was originally part of the conspiracy. Although one would prefer witnesses without “baggage” for the defense to attack, the fact is that prosecutors have to play the cards they’re dealt, and that includes using criminals to testify against other criminals.

The problem is that informants, whistleblowers and cooperating defendants often have their own agendas and have been known to lie and obstruct justice while claiming to be helping investigate and prosecute fraud and corruption. Rather than help the case, they can sabotage and destroy prosecutions. 

MANAGING CONFIDENTIAL INFORMANTS

Remember the opening to Charles Dickens’ “A Tale of Two Cities”: “It was the best of times; it was the worst of times”? That can also be applied to the use of confidential informants (CIs) in investigations. They can be the best things that ever happened to an investigator because they can provide information and details only known to criminal insiders. They can advance a fraud investigation, lead to a successful conclusion of the case and make any investigator look like a superstar. They can also lie and deceive, ruin a fraud examination and destroy one’s reputation, or worse.

The FBI’s success against organized crime is directly attributable to its ability to turn high-level mobsters into informants. In one of the most significant mob trials on record, when Sammy “the Bull” Gravano made a deal with the government to testify against crime boss John Gotti, the “Teflon Don’s” fate was sealed.

Law enforcement authorities aren’t the only ones to use CIs. Often private investigators without law enforcement resources use CIs to obtain needed information. While there are some distinctions between a CI used by law enforcement and one used by a private investigator, the basic rules remain the same. Understanding an informant’s motives for providing information is fundamental when using CIs.

WHAT IS A CONFIDENTIAL INFORMANT?

A confidential informant is an individual who supplies information with the understanding that his or her identity won’t normally be revealed. It needs to be understood by all parties that there is always the possibility the informant’s testimony will be needed at some point in a court of law, thus compromising his or her confidentiality.

The assistance of an insider in a fraud to detail the scheme and the role of other fraudsters can help resolve the case quickly. CIs also can warn of a planned crime, assist in the recovery of stolen property and enable asset forfeiture. They can also be used to lower criminal morale and create distrust among the criminals.

Using a CI is sometimes considered a shortcut approach, but that thought can be misleading. Much work goes into developing, documenting and managing CIs. Their use involves a highly personal relationship between an investigator and the CI.

TYPES OF INFORMANTS

Sources of information may be anonymous callers, police officers, citizen informants and others. Citizen informants generally provide information as a result of their belief in good citizenship, or because they’re either witnesses to or victims of crime. Criminals provide information for a variety of reasons as detailed below, and the veracity of any information provided must always be scrutinized.

Tested informants have provided information that has proven reliable in the past. Untested informants haven’t provided information before, thus corroboration is a key factor before any information can be used. The easiest way for an investigator to damage his case is to rely on uncorroborated information from a CI.

In 1883, at the murder trial of Frank James, the brother of outlaw Jesse James, prosecutor William H. Wallace explained to the jury why he was using a former member of the James gang to provide testimony against Frank James. Mr. Wallace stated:

When men are about to commit a crime, they do not sound a trumpet before them. They do their work in secret and in darkness. Neither when they are forming bands for plunder or death, do they select conscientious, honest citizens. A man contemplating murder would not say, ‘come along and join me in my fiendish task.’ Their work is done when honest, law-abiding men are asleep and beasts creep forth. For this reason, when the state must break up a band of criminals, it must depend upon the assistance of one of their peers in crime to do it. Hence, it is a custom, as old as the law, to pick out from a desperate band one of their own number, and use him as a guide to hunt the others down. (See “Speeches and Writings of Wm. H. Wallace; With Autobiography” by William H. Wallace, Kansas City, MO: Western Baptist Publishing Company, 1914, p. 137.)

What was true in 1883 regarding informants is still true now.

WHY DO PEOPLE INFORM?

It’s important to determine why a person is willing to act as an informant. People become informants for the following reasons:

• Revenge.
• Jealousy.
• Fear of jail/resolution of criminal charge/working off a case.
• Good citizenship/the ordinary citizen who wants to do his civic duty.
• Repentance.
• Money.
• Elimination of competition.
• Eccentrics.
• Police buffs.

DEVELOPMENT AND PROPER USE OF CIS

Developing CIs should be a continuous process for any investigator. You must always be on the lookout for possible informants. Any person an investigator comes into contact with in the course of an examination is a potential informant. Contacts and referrals from law enforcement are another possible source. Administrative assistants and bookkeepers in businesses under investigation should be given primary consideration for CI development because they usually know the skeletons in the closet. Additional sources include ex-spouses and ex-girlfriends/boyfriends. Remember there’s a fine line between love and hate.

Potential informants may also be doormen, mail carriers, janitors, security guards, restaurant servers and business merchants. The investigator’s experience and imagination are the only limits to seeing potential CIs. Proper treatment of defendants, witnesses and others could result in future informants, and a good relationship with a CI can result in the long-term use of that informant.

A CI is only as good as the information provided, so it’s important to learn if the CI has access to the needed information. Can they provide it? Do they have the common sense, intelligence and street smarts to reason and correlate information? If the CI will be working with criminals, do they trust the CI? Also consider their age, health and personality traits.

Has the person worked as a CI before? Examine past performances. What is the history and pattern of truth or deceit? Even if they were reliable, you need to continually monitor and evaluate the CIs. You must use background investigations to learn everything possible about potential CIs.

An investigator must always prove or disprove all information a CI provides. An independent corroboration of everything protects all parties involved. There must be zero tolerance for lies. If an investigator continues to use a CI after it’s discovered that he or she has lied, the entire case can be tainted.

CIs need to understand that they can’t break any laws, what entrapment is and that they can’t entrap any individual during the course of an investigation.

In a more recent case, the FBI was embarrassed over its handling of a cooperating defendant in a high-profile corruption prosecution. It was the first time a large-scale sting operation was used in a Foreign Corrupt Practices Act investigation. An FBI agent posed as the fictitious defense minister of the African country of Gabon, who was allegedly taking bribes in exchange for awarding government contracts to military and law enforcement suppliers. The cooperating defendant, Richard Bistrong, was the intermediary between the undercover FBI agent and the suppliers.

While the case initially seemed to be a huge success, everything went downhill during trial. Defense attorney Eric Bruce in court papers filed on May 12, 2011, argued that the “prosecution is built entirely around an irredeemably corrupt conman, Richard Bistrong, and that, by mishandling him and by other misconduct, the government allowed Bistrong to contaminate every aspect of the operation.” (See “Prosecutors, Defense Lawyers Picking Jury in FCPA Case in D.C.,” by Mike Scarcella, LegalTimes blog entry, May 16, 2011.) The defense attorneys claimed that the FBI agents on the case broke internal rules when dealing with cooperating informants, including failing to record all of the conversations between the defendants and Bistrong.

Defense attorneys requested and obtained text messages between the agents and Bistrong, and it proved to be the undoing of the prosecution. The text messages revealed that the FBI agents and the informant joked about sex, booty calls, prostitutes and made vulgar and off-color comments and insinuations. “Defense attorneys used the questionable messages to savage the credibility and professionalism of FBI agents, who not only seemed to share their informant’s offensive sense of humor but also appeared to like him.” (See “Racy Vulgar Texts Hurt Justice Department’s Largest Sting Operation Targeting Foreign Bribery,” by Del Quentin Webber, Washington Post, Feb. 13, 2012.) On Feb. 21, 2012, the federal judge on the case dismissed the prosecution as well as the remaining indictments that were yet to come to trial.

In many cases, the CI may be paid for his or her work as an informant. Money is frequently a motivating factor. Follow certain guidelines. Since most payments will usually be in the form of cash, obtain receipts, signed by both the handler and the CI and witnessed by another investigator. Payments may later become an issue if the CI testifies in court. Tell CIs that all payments must be claimed on their tax returns.

Maintain a file on informants’ pertinent information including: personal data, results of the background investigation, details of meetings with the CI, information provided by the CI, payments made to them, evaluations of their work and any other related details. Regularly update contact information, such as home address, telephone number and mobile phone.

Protection of a CI is a constant consideration. While most of the work a CI will perform in a fraud case may not result in the potential for danger, the handler must always be aware of possible risks. Protect the CI’s identity as much as possible. Use a code in written reports instead of the CI’s name. Hold meetings with the CI outside of the office, where a connection won’t be readily made. Make sure the CI knows they may have to testify and plan for contingencies should that occur. Safety should always be an overriding consideration.

ASSESSMENTS OF CIS

The investigator needs to continually assess the CI. Control is vital in handling CIs, as is the need to continuously test their information. If law allows, consider using a body transmitter and/or recording device when a CI participates in meetings with subjects of the investigation, which can provide an accurate record of what was said. It corroborates the CI and improves reliability. It also keeps the CI honest and protects the fraud investigator. And they could alert the investigator that the CI is lying.

Supervisors must oversee the handler and the informants. Investigators who use the same CIs for a long period of time can lose objectivity and not see developing problems. Consider a polygraph if a CI’s credibility and reliability come into question and can’t be independently resolved. Consider a CI undesirable and deactivate him or her for any of the following reasons:

• Acting in a way that endangered his or her life, the life of the investigator or anyone else associated with the investigation.
• Lying while under oath or not.
• Providing false information.
• Omitting pertinent facts and details central to the investigation.
• Engaging in criminal activities while acting as a CI.
• Inability to act in an informant capacity.

AVOIDING THE COMMON PITFALLS

Investigators must always follow the proper procedures in managing informants and operate within these guidelines:

• Never lose objectivity. An investigator’s hunger for information can blind one from seeing the true nature of the CI.
• Remember that some CIs will say anything they believe the investigator wants to hear. The information may have no basis in truth.
• Remember that all information must be tested for reliability and corroboration before being used.
• At the outset, make it clear what the CI is and isn’t allowed to do.
• Don’t make promises to the CI that can’t be kept.
• Don’t lie to the CI.
• Don’t let the CI engage in illegal activities.
• Immediately discontinue the use of an unreliable CI.
• The investigator always controls the investigation and the CI, not the other way around.
• Always maintain a professional relationship with the CI.
• Never fall in love with your CI, either figuratively or literally. It can and has happened with disastrous results.
• Beware of personal entanglements that can easily happen.
• Never borrow money from or lend money to a CI.
• Never socialize with them.
• Never invite them to your home or have them meet your family.
• Never discuss other cases or other informants in the presence of your CI.
• Don’t meet informants of the opposite sex alone.
• Remember that your CI may be secretly taping you. Always remember to guard what you say to them because they might repeat it on the witness stand.
• Document all payments made to CIs.
• Don’t overpay CIs. Make them earn any payments. Remember, all payments will be scrutinized if the case ends up in court.
• Remember that a bad informant may permanently damage your credibility and reputation.
• Always use good common sense and judgment when dealing with CIs.

AVOID A FAILED INVESTIGATION

There’s no doubt that certain investigations, including fraud investigations, can benefit from the use of CIs. Informants provide a valuable tool that is often underutilized. The successful use of CIs requires a certain level of skill and experience. Nothing is more important than the appropriate supervision and continuous evaluation of informants. Their improper management can leave the fraud investigator open to criticism and a failed investigation, as well as possible legal action and criminal sanctions. Long after the work of a good informant is forgotten, the improper actions of the bad informants won’t be forgotten or forgiven.  

Martin T. Biegelman, CFE, ACFE Fellow, CCEP, is executive vice president at IPSA International. 

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Sidebar:

Informants gone bad

It’s not uncommon for informants to go bad. Standard operating procedure with all informants is to strongly communicate from the start that the first rule of being an informant is to always tell the truth and not hold any information back. I used to tell my informants that the truth is like being pregnant. One can’t be almost pregnant. Either you’re pregnant, or you’re not. Either you provide all the information and knowledge you have, or you’re useless as an informant. While the great majority of my informants were completely open, there were some who decided to hold back certain critical information.

One such example was an insurance fraudster I arrested for staging and inflating property claims. He was a public adjuster and represented the interests of insureds against insurance companies. He’d been involved in hundreds of fraudulent insurance claims over the years, and I was able to convince him to cooperate. When we first entered into a cooperation agreement with him, the federal prosecutor and I stressed over and over the need to be fully truthful with us and to provide all knowledge he had on fraudulent insurance claims, the people involved in those claims and any other knowledge of fraud and wrongdoing. We emphasized that he needed to hold nothing back in order to comply with the cooperation requirements; that included any knowledge about friends and family he might have. He agreed to tell us everything.

During our debriefing session, this now cooperating informant provided specific details on the hundreds of fraudulent insurance claims in which he was involved. He reviewed the insurance files with us pointing out details and information on the other people involved. His list of co-conspirators over the years went on page after page. I continually reinforced that he needed to hold nothing back. I reminded him that he may remember things as we worked together and to let us know when he had recollections of information. He always agreed that he would be 100 percent truthful and fully cooperative.

We decided to use this informant in an undercover capacity to obtain further evidence on some of his co-conspirators. As a public adjuster, he maintained an office we could use for the undercover meetings. We set up hidden cameras and recording devices in his office and monitored the meetings he had with other suspects. In almost every instance we knew in advance whom our informant would be meeting with, so we could prepare questions for the informant. The undercover operation was working well, and we obtained valuable videos and audio recordings.

One day while we were monitoring a meeting that was about to occur, an unexpected person walked into the public adjuster’s office and started to discuss something. Our informant was clearly surprised that this person had come to his office unannounced. We could see that from the video and hear it in his voice via the transmitter we secreted in his office. Our informant jumped up from his desk, grabbed the visitor by the arm and briskly walked him out of his office and out of our viewing and hearing range. I remember looking at my partner and saying this was strange. It was clear to me that the informant didn’t want us to hear what the visitor was about to say. This was a disturbing turn of events and in violation of our agreement for the informant to always tell us everything.

When we were able to speak to the informant, he said the person was a close friend and had a personal matter to discuss that the informant felt was inappropriate to discuss on tape. I asked who this person was. I could see that the informant hesitated, but he eventually said his name. I quickly recognized the name as another public adjustor we had suspicions about, but our informant had never named him as a fraudster.

I told the informant I knew who his friend was, and I asked if the conversation out of our hearing and recording range had anything at all to do with insurance fraud or our investigation. The informant said it didn’t and that his friend wasn’t involved in the fraud, as far as he knew. I didn’t believe him, but I couldn’t prove he was lying. I needed to know for sure.

I employed the old axiom: to set a thief to catch a thief. I had a stable of informants who didn’t know that each other was an informant. One was close to this other informant. My trusted informant had also committed insurance fraud, but no one knew he had been quietly prosecuted and was cooperating with the government. I asked this trusted informant to let me know if he heard anything from the public adjustor I was concerned about. In short order, the trusted informant had a conversation with the other informant who related that he was cooperating with the government but was holding back information on his friends. He said that he had provided so much information that the government would never know he hadn’t told them everything. He wrongly believed he could get away with it.

I wired up my trusted informant to get this new information on tape, and the other informant repeated what he’d said. We confronted the informant in question with his attorney present. He admitted that he was holding back certain information, and he now knew how wrong he had been to do that. He started crying and begging for mercy for us to give him one more chance, but that was not to be.

We tore up his cooperation agreement. We lost months of investigative work because we couldn’t use this deceitful person as a government witness. We made sure to let the sentencing judge know he’d lied to us and how it had hurt the investigation. The judge sentenced him to a prison term rather than the possible probation or shortened jail sentence he would have received for full and truthful cooperation.

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