In November of last year, Daniel McCollum, a South Carolina-based chiropractor, pleaded guilty to illegal kickbacks and defrauding health care programs by billing for unnecessary services. He now faces a $9 million civil judgment, a possible $250,000 criminal fine and up to five years in prison.
McCollum allegedly paid kickbacks to providers for urine drug-testing referrals and then billed federal health care programs for those tests at even higher rates than he paid the lab. Urine tests, which are reportedly standard practice at pain care centers, can cost up to a whopping $4,000 each. McCollum was also accused of writing prescriptions for unnecessary pain creams often without the knowledge or approval of patients’ health care providers. [See “United States Obtains $140 Million in False Claims Act Judgments Against South Carolina Pain Management Clinics,” U.S Department of Justice (DOJ), Sept. 3, 2021, and “Upstate SC chiropractor pleads guilty in pain management fraud; faces prison, $9M judgment,” by Eric Connor, The Post and Courier, Nov 23, 2021.)
The discovery of McCollum’s wrongdoing was largely thanks to several whistleblowers — Donna Rauch, Muriel Calhoun, Brandy Knight, Karen Mathewson and Tracy Hawkins — former employees who’d worked in pain clinics owned and operated by McCollum in South Carolina, North Carolina and Tennessee. All five filed complaints under the qui tam, or whistleblower provisions, of the False Claims Act (FCA), which allows private whistleblowers (also known as “relators”) to file actions on behalf of the U.S. government and be compensated with portions of the recoveries. (See “South Carolina Chiropractor Pleads Guilty and Agrees to $9 Million False Claims Act Consent Judgment,” DOJ, Office of Public Affairs, Nov. 22, 2021, and “United States of America ex rel. Donna Rauch, Muriel Calhoun, and Brandy Knight, plaintiffs, v. Oaktree Medical Centre, P.C., et. al,” U.S District Court of South Carolina, Nov. 8, 2021.)
This is just one of many cases whistleblowers have brought under the FCA since the U.S. Congress passed the act during the American Civil War. Since the 1980s when Congress amended the act to make it more effective, the FCA has proven to be a key tool in the government’s fight against corruption and fraud. (See “What is the False Claims Act?” Phillips & Cohen.)
Between October 1986 and September 2020, whistleblowers filing under the FCA helped the U.S. government recover just over $64 billion, while relators were compensated with $7.8 billion over the same period, according to the DOJ. (See “Fraud Statistics Overview, Oct. 1, 1986 – Sept. 30, 2020,” Civil Division, DOJ, page 3.)
Other U.S. agencies have created their own whistleblowing programs with monetary incentives following the success of the FCA — the Securities and Exchange Commission’s (SEC) Office of the Whistleblower and the Commodities, Futures and Trading Commission’s (CFTC) Whistleblower Program. Both emerged from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. During fiscal year 2021, the SEC awarded about $564 million to 108 whistleblowers, both record numbers for the regulator. (See “Office of the Whistleblower,” SEC, and “The Whistleblower Program,” CFTC.)
“The SEC’s whistleblower program was built on the back of the False Claims Act,” Steve Spiegelhalter, managing director with Alvarez & Marsal’s Disputes and Investigations practice, tells Fraud Magazine.
“The FCA has been paying relators for years to bring these cases, and I think people recognize it has deterred a lot of bad conduct. And everyone rightly recognizes that it is the amount of money involved that incentivizes people to come out of the woodwork and risk their careers.”
The ACFE has long recognized the bravery and importance of whistleblowers through the Cliff Robertson Sentinel Award, which Pav Gill, the lawyer who exposed fraudulent practices at German payment processor Wirecard, will receive this year. (See the March/April 2022 Fraud Magazine cover story, “Wirecard’s whistleblower,” by Paul Kilby.) And in that vein, countries around the globe are increasingly encouraging people to step forward to expose fraud and corruption.
Governments in other parts of the world, where speaking out against wrongdoing has long conflicted with cultural norms, are slowly adopting similar whistleblowing incentives and protections as those found in the FCA and at the SEC program. More countries are starting to expand their definitions of whistleblowers and have strengthened protections for them, as local populaces demand greater accountability from those in power. European countries, for instance, are only just coordinating the passage of an EU Whistleblower Directive designed to shield whistleblowers against reprisals as well as create internal and external channels for those who wish to report wrongdoing. In the Asia-Pacific region, Korea, Japan, Australia and New Zealand have also recently better enabled whistleblowers to act. (See “A New Age of Accountability: Global Whistleblowing on the Rise,” by Kristy Grant-Hart and Karin Henriksson, Navex, April 1, 2021.)
In the U.S., efforts to amend the FCA so that the government can better combat fraud and protect whistleblowers have also been gathering momentum. Chuck Grassley and a group of fellow senators are calling for more protection for relators under the FCA as well as other amendments. And a watered-down version of these concerns is winding its way through a bill in Congress. (See “Strengthening the False Claims Act” at the end of this article.)
Against that evolving backdrop, CFEs can keep current on what constitutes a whistleblower, plus the ways whistleblowers are protected in the U.S. and other part of the world so whistleblowers can speak out unobstructed against corruption and fraud. Here are some points to bear in mind.
In the U.S., anyone can “blow the whistle” (whistleblowing) on what they believe to be improper conduct, whether they’re a private citizen, a government employee or a contractor employee. At the simplest level, a whistleblower is someone who reports waste, fraud, abuse, corruption, or dangers to public health and safety to someone in a position designated to rectify the wrongdoing. A whistleblower typically works inside an organization where such wrongdoing is taking place. But what matters is the disclosure of specific information of wrongdoing that otherwise may have gone unreported or unknown to a person(s) authorized to receive the information. (See “What is a Whistleblower?” National Whistleblower Center.)
Whistleblower (WB) retaliation can occur in many forms, including harassment, demotions, pay cuts, negative evaluations, being passed over for a promotion, and even losing jobs. The U.S. has multiple WB laws, including one of the most recent, the Veterans Administration (VA) Accountability First Act of 2017, which, as its name implies, protects staff at the Department of Veterans Affairs who expose fraud and other types of wrongdoing. (See “Congress Passes Bill To Increase Accountability Among VA Employees,” by Geoff Bennett, NPR, June 13, 2017.) Perhaps the best-known U.S. federal laws of this type are the Whistleblower Protection Act of 1989 and the Whistleblower Protection Enhancement Act of 2012, which both protects federal employees from retaliation. (See “Whistleblower Protection Act: An Overview,” FindLaw, updated Dec. 16, 2021.) Others include the Sarbanes-Oxley Act and the Dodd-Frank Act, which produced the SEC and CFTC whistleblower programs.
The vast number of federal U.S. laws to shield whistleblowers from harm can be confusing. So, remember that the type of legal protections depends on the law and agency under which a whistleblower is reporting the wrongdoing. For instance, in 2018, a U.S. Supreme Court ruling held that whistleblowers must first report wrongdoing to the SEC under its whistleblower program to benefit from Dodd-Frank’s anti-retaliation protections. (See “Supreme Court Rules on Whistleblower Reporting to SEC,” Jones Day, February 2018.)
However, a common thread runs through most of these laws — whistleblowers remain protected from employer retaliation, even if their allegations are found to be incorrect, if they reported them in good faith. (See “What Happens if a Whistleblower Is Wrong?” SwartzSwidler LLC.)
Along with the federal government, most American states also have their own WB laws designed to protect those reporting concerns from retaliation of their employers. For example, the Florida Whistleblower Act makes clear the intent of WB protection is to “prevent agencies or independent contractors from taking retaliatory action against an employee who reports to an appropriate agency violations of law on the part of a public employer or independent contractor that create a substantial and specific danger to the public’s health, safety, or welfare.” (See “The 2021 Florida Statutes,” Online Sunshine, Florida Legislature internet site.)
Again, depending on the jurisdiction, any U.S. government employer that wrongfully retaliates against a whistleblower may face legal damages that can be quite substantial under both federal and state laws. Employees who undergo retaliation can also claim whistleblower rights under various types of legislation, such as the Occupational Safety and Health Administration (OSHA) regulations and other similar administrative mechanisms. (See “OSHA’s Whistleblower Protection Program,” OSHA FactSheet, U.S. Department of Labor.)
Many countries have recognized the role of whistleblowing in fraud-fighting efforts and have pledged to enact or have enacted WB protection laws to varying degrees. Internationally, you’ll find various examples of legislation that protect WBs from employer retaliation consistent with the U.S. (See “Whistleblower Laws Around the World,” and “Guidance for Whistleblowers Outside the U.S.,” National Whistleblower Center.)
Some countries, however, have protections that are arguably too narrow. In Ethiopia, for example, Proclamation Number 699/2010, “Protection of Witness and Whistleblowers of Criminal Offences,” provides protection for witnesses and whistleblowers involved in criminal offenses from direct or indirect danger and attack they may face as a consequence of being witnesses in investigations or trials. (See “Proclamation No. 699/2010,” Federal Negarit Gazeta, Feb. 11, 2011.) These types of protections include:
Yet this law provides no protection for a whistleblower exposing waste of government resources, or abuse of one’s position, that isn’t related to a criminal action. Ethiopia doesn’t have a WB protection for noncriminal violations, though it’s currently working on a revision to this law and hopefully will consider extending protection beyond only criminal reporting. [See “UNODC supports Government of Ethiopia to review Proclamation on Witness Protection and Whistleblowers,” United Nations Office on Drugs and Crime (UNODC), Aug. 4, 2021.] That’s important because not all reporting of potential misconduct reaches the level of criminal behavior. Nor is every witness in a criminal trial risking threat of physical harm or death.
Leaving out protection from employer retaliation in laws and guidelines can have a chilling effect and prevent employees from reporting gross waste, mismanagement of government funds or administrative misconduct.
Nondisclosure agreements, or NDAs, are common across numerous industries. They’re designed to prevent companies’ sensitive information from getting into the hands of competitors.
However, organizations can use such agreements to attempt to silence whistleblowers from revealing illegal activity. Some NDAs are so restrictive that they may even prohibit employees from informing governments of the existence of NDAs and the restrictions placed upon them. (See “Non-Disclosure Agreements and Whistleblowers,” National Whistleblower Center.)
U.S. federal statutes and regulations prohibit these restrictive nondisclosure agreements in federal government contracts and for government-funded business. The Federal Acquisition Regulation (FAR), the primary regulation U.S. agencies use when acquiring supplies and services through appropriated funds, spells out these restrictions. FAR prohibits a contractor from requiring “its employees or subcontractors to sign or comply with internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting waste, fraud, or abuse related to the performance of a Government contract to a designated investigative or law enforcement representative … ” (See “52.203-19 Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements,” Acquisition.gov.)
Multiple public laws include clauses that prohibit restrictions on U.S. federal employees to communicate to Congress or file whistleblower claims. In the Consolidated Appropriations Act of 2016 [Public Law No. 114-113 § 713 (2015)], Congress prohibited funds appropriated by the act to be made available for “a contract, grant, or cooperative agreement with an entity that requires employees or contractors of such entity seeking to report fraud, waste, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or contractors from lawfully reporting such waste, fraud, or abuse.” (See “Public Law 114-113, Consolidated Appropriations Act, 2016,” govinfo.gov, Dec. 18, 2015.)
Under the Whistleblower Protection Enhancement Act, any nondisclosure policy, form or agreement from the government shall include a statement noting that it shall “not supersede, conflict, or alter the employee obligations, rights, or liabilities created by existing statute or Executive order relating” to classified information, communications to Congress, reporting to an inspector general or any other whistleblower protection. (See “Whistleblower Protection and Non-disclosure Policies, Forms, or Agreements,” DOJ.)
Some WB legislation contains what’s called a “good will” or a “good faith” provision, which basically requires that a whistleblower reports wrongdoing with honest or good faith intentions. For example, in the state of Oregon any worker may report actions they believe violate local, state or federal laws. These reports are protected, which means that it’s illegal for employers to discharge, demote, suspend, or in any manner discriminate or retaliate against a worker for making a good faith report of information the worker believes violates the law. A report doesn’t have to be substantiated for the whistleblower to be protected from employer retaliation. The worker must simply have a good faith belief when reporting a violation of law or unsafe working conditions. (See “Whistleblowing protections,” Oregon Bureau of Labor & Industries.)
However, good will requirements can be cause for consternation and raise several questions during the course of an investigation, such as when reports are unsubstantiated. In such cases, does an investigator focus on a whistleblower to determine if they made the report in bad faith? What burden of proof is required for a good faith report? Must it be “beyond a reasonable doubt” as in a criminal case or does it require a “preponderance of evidence” as in a civil case? Should the employer hold an administrative hearing? And while interviewing witnesses is a routine part of any investigation, should law enforcement or other agencies dedicate resources to first validate a whistleblower’s accusations?
Whistleblowers sometimes blow the whistle in bad faith, or they submit baseless reports, especially when a government can monetarily compensate them. Late last year, for example, the SEC announced that it had barred two individuals from its whistleblower programming, noting that they’d filed hundreds of frivolous award applications. (See “SEC Bars Two Individuals from Whistleblower Award Program,” SEC, Sept. 28, 2021.)
All this, of course, costs time and money. Lawyers encourage companies to quickly approach regulators when whistleblowers make meritless claims or simply are mistaken to prevent cases from going further. (See “When a Whistleblower Is Wrong—Time for a Proactive Defense,” by John J. Carney and Alexandra Karambelas, Baker & Hostetler, Bloomberg.)
Individual jurisdictions need to determine if good-faith provisions are logical requirements. They have to strike the right balance between encouraging good-faith whistleblowers and deterring those with malicious intentions. As countries become more accepting of whistleblowing and its effectiveness in fighting fraud and corruption, here are some basic tenets from various organizations that are worth remembering:
For more information on designing your organizational whistleblower program, please contact the authors at procurement-integrity.net.
Sheryl Goodman and Tom Caulfield, CFE, are co-owners of Procurement Integrity Consulting Services, an international management consulting company. Caulfield is an instructor for the ACFE Contract and Procurement Fraud Workshop and Government Fraud course. Contact Goodman at Sheryl@procurement-integrity.net and Caulfield at Tom@procurement-integrity.net.
A bipartisan group of senators, led by Chuck Grassley of Iowa, are hoping to strengthen the False Claims Act (FCA) to hold companies more accountable for fraud and better enable whistleblowers to speak up against wrongdoing amid a spike in COVID-relief fraud.
The FCA — passed during the American Civil War to stop crooked contractors who’d been defrauding the Union Army with everything from dud rifles to fetid food — allows whistleblowers (also known as “relators”) to sue fraudsters on behalf of the U.S. government and garner a portion of the recovery from successful lawsuits.
The FCA has been an important tool in holding individuals and companies accountable for defrauding the federal government, helping the state recover billions of dollars in recent years and paying whistleblowers handsomely in return.
Grassley also led a charge in the 1980s to give more firepower to the FCA, which at the time was failing to tackle increasingly sophisticated frauds. In 1986, the FCA was amended to increase damages against fraudsters and upped the amount whistleblowers could collect from lawsuits. (See “What is the False Claims Act?” Price Armstrong.)
The time to further strengthen the FCA has come amid a surge in fraud on the back of massive COVID-relief programs, says Grassley. “In light of the trillions of dollars that Congress has appropriated recently for COVID relief, these bills are needed, more than ever, to fight the significant amounts of fraud that we are already seeing,” Grassley said last year in July when he originally introduced the bill.(See “Senators Introduce Bipartisan Legislation To Fight Government Waste, Fraud,” Chuck Grassley, July 26, 2021.)
The senators also say that amendments are required to clarify any confusion over the “Supreme Court decision in United Health Services v. United States ex rel. Escobar, which has made it all too easy for fraudsters to argue that their obvious fraud was not material.”
In 2016, the U.S. Supreme Court ruled in Universal Health Services v. United States ex rel. Escobar that a fraud lawsuit could be dismissed if the government continued to pay the contractor. The court reasoned that if the government continues to pay a company despite the knowledge of fraudulent activity, then the fraud isn’t “material” to the contract.
Critics say this definition of what’s material is too vague and has effectively eroded the FCA’s ability to combat fraud, as it’s impractical to expect the government to suddenly stop and review every payment from large military contracts to Medicare. (See “Pfizer is lobbying to thwart whistleblowers from exposing fraud,” by Lee Fang, The Intercept, Nov. 29, 2021.)
A Senate Judicial Committee watered down the bill last year, rejecting an original proposed shift in the burden of proving materiality to the defendant. Nevertheless, legal experts say the revised wording will still likely make it more difficult for contractors, health care providers and other entities that work with the government to contest FCA claims on grounds of materiality. [See “Senate to Consider Pared Down, But Still Unfavorable, Amendments to FCA,” The National Law Review, Nov. 22, 2021, and “Proposed False Claims Act Amendments of 2021: Materiality (Part Deux),” by Anna Dover, FCA Legal News, Bracker & Marcus LLC, Dec. 17, 2021.)
The latest version, however, has retained an anti-retaliation provision, which extends protection to whistleblowers after they’ve left employers whom they accused of fraud. Some lawyers think that’s an important step in further shielding whistleblowers from reprisals. (See “False Claims Amendments Act of 2021 Continues to Wind Through Congress,” by Thomas Sullivan, Policy & Medicine, Dec. 19, 2021.)
“Right now, my interpretation of the law is that past employers might feel like they can speak freely in a way that might materially damage the entire employability of the whistleblower in the future,” Steve Spiegelhalter, managing director with Alvarez & Marsal’s Disputes and Investigations practice, tells Fraud Magazine. “If that changes, that is going to be significant.”
The proposed bill does have its detractors, however. Large companies such as drugmaker Pfizer, which in the past paid billions of dollars in fines under the FCA, have reportedly been lobbying against the Grassley-led amendment. (See “Pfizer is lobbying to thwart whistleblowers from exposing fraud,” by Lee Fang, The Intercept, Nov. 29, 2021; “Justice Department Announces Largest Health Care Fraud Settlement in Its History,” DOJ, Sept.2 2009; and “Pfizer is Reportedly Lobbying Against Key Amendments to the False Claims Act,” The National Law Review, Nov. 30, 2021.)
In a letter, dated Oct. 27, 2021, to Senators Dick Durbin and Chuck Grassley, 25 different organizations also detailed why they opposed the proposed bill. Among other points, the signatories to the letter said the proposed bill would narrow the ability of the U.S. Department of Justice to dismiss problematic qui tam suits that it finds to be meritless.
Senator Tom Cotton also raised objections to key elements in the proposed bill during a Judiciary Committee hearing. He voiced concerns that it “potentially could increase health care costs,” echoing industry claims that litigation from the FCA would force health care interests to raise prices. (See “Pfizer Is Lobbying To Thwart Whistleblowers From Exposing Fraud,” by Lee Fang, The Intercept.)
The proposed bill is still winding its way through Congress. If the Senate passes it, the U.S. House of Representatives would also need to pass the bill and the president eventually sign it.
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