How Whistleblower Reward Laws Work

There are several whistleblower reward laws, and they work a little differently. Whereas the False Claims Act and the state False Claims Act equivalents all provide incentives to report fraud and allow for a right of action, the rest of those reward laws do not allow for a private right of action.

How whistleblower reward laws work is by providing the government with information, and then it is pretty much up to the government to follow along and to take action. Then the whistleblower gets to establish whistleblowers’ rights and obtain the award. If you want to know more about whistleblower reward laws, consult a knowledgeable whistleblower lawyer that could answer your questions.

Different Types of Whistleblower Reward Programs

There are the Securities and Exchange Commission whistleblower program and the Commodity Future Trading Commission whistleblower reward programs as well. So how whistleblower reward laws work is they allow whistleblowers to come forward and report fraud, and they have to hope that their report leads to a successful collection by those agencies or by agencies who would then take the information referred to them by the SEC or CFTC. At that point, the whistleblower would be entitled to a collection. It is not nearly as independent as having a False Claims Act, but these two programs allow a whistleblower to come forward, provide them with information on an anonymous basis, and wait to see if there is a collection to be made. They could be entitled to between 10% and 30% of a successful collection by either of those agencies.

Exposing Private Fraud

Obviously, these can be powerful incentives to provide information on either securities or commodities fraud being committed in the United States. It is important to realize that these are also areas that opened up huge new areas for whistleblowers to report fraud. Prior to these programs, there was not much of a way to report fraud to the federal government, at least not in a reward setting, and expect that the government would be in a position to do much about it. The Federal False Claims Act covers false claims for fraud committed against the United States government.

State False Claims Acts by and large follow a similar practice, but State False Claims Acts also only provide for jurisdiction over fraud committed against state governments. So to have whistleblower rewards that potentially award a whistleblower for exposing private frauds has been a major expansion in the incentives available to whistleblowers and has resulted in an expansion of important information provided to government agencies to fight fraud. The whistleblower rewards for those two agencies have certainly done their job.

IRS Whistleblower Laws

There is also, of course, the IRS whistleblower law, which is a little different. It provides for a whistleblower on tax fraud. Now, it has to be understood that under the Federal False Claims Act, tax fraud is specifically excluded from any collection.

A person simply cannot sue under the Federal False Claims Act for fraud, that is not how whistleblower reward laws work so the IRS whistleblower program was enacted by Congress to allow for incentives for people to report fraud. The incentive is between 15% and 30% and a minimal amount in controversy of $2 million is required.

Differences Between the IRS, SEC, and CFTC Whistleblower Laws

The difference between the IRS and SEC and the CFTC whistleblower law is that while it is generally treated confidentially by the IRS to report fraud to them, one is still required to sign the document containing the penalties of perjury. It is not possible to anonymously report fraud to the IRS and expect to obtain an award therefrom. Nonetheless, it is an important reward policy and important incentive to report major tax fraud. Some State False Claims Acts also allow for reporting state tax fraud, but those are the exceptions. Generally, to report tax fraud, one has to report to the IRS whistleblower program.While the level of whistleblower reward in terms of percentages is not what was initially described back in 1863, it is worth noting that the incentives do appear to work.

For example, in 2017, some $3.4 billion was collected under the Federal False Claims Act alone, and that is at least in part attributable to the fact that whistleblowers were incentivized to obtain awards. It also provided whistleblowers with the means to pursue such cases with professional counsel who are able to take cases on knowing that if they are successful, they at least have a chance of obtaining an award for their client that will pay their fees. Otherwise, pursuing such cases with whistleblowers who may not have the means to pay counsel would be very difficult indeed. If an individual wants to know more about how whistleblower reward laws work, they should consult a knowledgeable attorney that could help.