On March 7, 2024, in a speech before the American Bar Association, Deputy Attorney General Lisa Monaco announced a “90-day sprint” to establish a new Justice Department whistleblower program.  In her speech, Monaco pointed to other highly successful whistleblower laws, explaining that the Justice Department’s goal was to fill “gaps” in current protections to enhance the ability of the United States to combat fraud and corruption:

Ever since Dodd-Frank created whistleblower programs at the SEC and the CFTC, those agencies have received thousands of tips, paid out many hundreds of millions of dollars, and disgorged billions in ill-gotten gains from corporate bad actors.

Yet both programs, and similar ones at IRS and FinCEN — by their very nature — are limited in scope.. . .

These programs have proven indispensable — but they resemble a patchwork quilt that doesn’t cover the whole bed. They simply don’t address the full range of corporate and financial misconduct that the Department prosecutes.

So, we are filling these gaps.

Will the Justice Department’s efforts to fill the “gaps” in existing laws work?  The answer rests on whether the Justice Department fully understands why the SEC, CFTC, and IRS programs have “proven” to be “indispensable,” and follows the procedures necessary to encourage, compensate, and protect whistleblowers.

Understand Why the SEC, CFTC, IRS, and False Claims Act Whistleblower Laws Work

Underlying the Justice Department’s “sprint” to create a new whistleblower program is the recognition that certain whistleblower programs have worked well.   A body of knowledge developed over 40 years shows why programs created under the Dodd-Frank and False Claims Act have worked, and why other whistleblower programs have failed.  Most of the key features of successful whistleblower laws, all of which should be implemented by the Justice Department, are outlined below.

Exercise the Justice Department’s Discretion to Use the Asset Forfeiture Fund (“AFF”) to Fill the “Gaps” Consistent With Dodd-Frank

The deputy attorney general stated that the Justice Department will base the new whistleblower program on  an existing whistleblower law governing payments under the Asset Forfeiture Fund (“AFF”).  This law enables the Justice Department to exercise discretion Congress gave it to effectively encourage, protect, and reward whistleblowers.

First, the AFF whistleblower law concerns payments under a special earmarked fund created by Congress.  That fund is similar to the funds created to pay whistleblowers under the SEC, CFTC, and AML whistleblower laws.  No taxpayer money is used to award whistleblowers.  All of the awards are paid from funds seized as criminal assets of the fraudsters reported by the whistleblowers.  If a whistleblower’s information leads to finding these fraudsters culpable for violating criminal or civil laws, the monetary forfeitures obtained from these fraudsters is placed into a special fund.  Congress explicitly permitted the Justice Department to pay whistleblowers from that fund;  no new legislation is needed.

This is the same funding mechanism used in other successful whistleblower laws.  Similar special funds were created to pay whistleblowers from assets obtained from fraudsters under the Securities Exchange Act, the Commodity Exchange Act, and the Bank Secrecy/Anti-Money Laundering Act.  The process is simple:  A whistleblower’s “original information” triggers an enforcement action.  That action results in the payment of fines and penalties paid by the wrongdoer.  The money obtained from the fraudsters is thereafter used to pay victims, cover other federal funding priorities, and pay whistleblowers.  The AFF works in the same manner, targeting money obtained in asset forfeiture and thereafter permitting the Justice Department to use those funds for beneficial purposes, including paying the informants or whistleblowers whose information resulted in obtaining the funds in the first place.

Second, under the AFF whistleblower law the Justice Department has the discretion to approve procedures and operating practices that directly mirror the successful aspects of the SEC, CFTC, IRS, and False Claims Act laws.  The AFF grants the attorney general nearly total discretion in establishing rules for qualifying for an award and determining the amount of the award

Thus, no law would prevent the Justice Department from adopting a Dodd-Frank style whistleblower program under the AFF.  The only issue is whether the leadership in the Justice Department will exercise the discretion Congress gave it.

Adopt the Procedures Used in Highly Successful “Targeted” Whistleblower Programs

The deputy attorney general recognized that the Justice Department never took full advantage of the AFF.  In the past, payments under the law were only made “here and there,” she said, and that the AFF was never used as “part of a targeted program.”

Monaco clearly understood that, based on the success of the SEC, CFTC, False Claims, and IRS laws,  the Justice Department should establish a “targeted program” focusing on using the AFF.   Whistleblowers should be able to report where the assets of drug cartels, Russian oligarchs, and those profiting from violating sanctions on countries like Iran or groups like ISIS are hidden.  Whistleblowers also need to know that the Justice Department has their backs.  The only way this can be accomplished is for Justice to design its program along the same lines as the successful whistleblower programs Monaco praised in her speech.

The basic structure of these programs are publicly known, and advertised on websites published by the SEC, IRS, and CFTC.  These websites explain that award payments are mandatory for those who qualify, set forth the specific rules that whistleblowers must follow to obtain an award, provide online access to the controlling statutes and procedures, and publish guidance to whistleblowers on how to file a complaint, how to apply for an award, and what types of violations are investigated by each agency.

The deputy attorney general has set a 90-day deadline to announce the rules governing the new program.  The only way for the Justice Department to meet thedeadline and avoid prejudicing whistleblowers or repeating past mistakes is to adopt, as appropriate, the procedures and practices of the existing programs.

Mandatory Awards

At the heart of each successful whistleblower program is a requirement that the United States pay fully qualified whistleblowers a minimum award of 10 percent of the “collected proceeds” obtained from the government as a result of a whistleblower’s disclosures.  All the successful programs also permit the government to pay awards as high as 30 percent, based on factors designed to encourage whistleblowers to fully cooperate with the government throughout any investigation or trial.

This payment structure creates an ingenious circle of accountability.  The whistleblower is given an incentive to report crimes that the government is not aware of and could not investigate or prosecute without the whistleblower’s information.  Awards are only paid on successful cases and so have an incentive to provide the best evidence on the biggest crimes.  They also have an incentive to fully cooperate with the prosecution.  Once a case is successful, the wrongdoers are fined or sanctioned, or their criminal assets are seized.  The whistleblower is only compensated from the money obtained from the fraudster.  T taxpayers pay nothing, but they (and the victims of these crimes) collect the vast majority of any money collected as a result of the risks taken and hardships faced by the whistleblowers.  Under these laws, the government collects from 70 to 90percent of the fines, penalties, and forfeitures based on the whistleblower’s disclosures.  Thus, the “good guys” are the big winners.

Ensuring that qualified whistleblowers are rewarded is the single most important component necessary to make the new DOJ program work. We know this because  all discretionary whistleblower award laws that do not require mandatory payments have failed.  For example, the IRS and SEC whistleblower laws originally granted the heads of those agencies the discretion to approve or deny awards.  The respective inspectors general harshly criticized these laws, and they were subsequently amended to make the payment of awards to qualified whistleblowers mandatory.  The AML whistleblower law met a similar fate.  Consequently, Congress, generally with unanimous and bipartisan support, amended the SEC, IRS, AML, and False Claims Act whistleblower laws to require mandatory awards of from 10 to 30 percent.

No Blanket Exclusion for Potentially Culpable Whistleblowers

In her March 7, 2024 speech the deputy attorney general  expressed concern about compensating criminally culpable whistleblowers.   This concern has been properly addressed in all the whistleblower laws that the DAG cited as “indispensable” in the fight against fraud and corruption.  The Justice Department should follow the precedent set by Congress under the False Claims Act, SEC, CFTC, IRS, and AML award programs and exercise its discretion to limit the ability of culpable whistleblowers to obtain an award.

The successful precedent for addressing this issue can be found in both the False Claims and IRS whistleblower laws.  They prevent culpable whistleblowers from obtaining any awards in certain circumstances and permit the courts or agencies to reduce the awards in other instances.  These criminal exclusions are as follows:

False Claims Act

Whether or not the Government proceeds with the action, if the court finds that the action was brought by a person who planned and initiated the violation of section 3729 upon which the action was brought, then the court may, to the extent the court considers appropriate, reduce the share of the proceeds of the action which the person would otherwise receive under paragraph (1) or (2) of this subsection, taking into account the role of that person in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the person bringing the action is convicted of criminal conduct arising from his or her role in the violation of section 3729, that person shall be dismissedfrom the civil action and shall not receive any share of the proceeds of the action. Such dismissal shall not prejudice the right of the United States to continue the action, represented by the Department of Justice. [31 U.S. Code § 3730(d)(3)(emphasis added).]

IRS Whistleblower Law

If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award. [26 U.S. Code § 7623(b)(3)(emphasis added).]

Significantly, these provisions have not been controversial and have not led to any congressional action to further restrict culpable whistleblowers from obtaining an award.  In fact, the SEC, CFTC, and AML programs adopted nearly identical criminal exclusions.

The Justice Department should pay particular attention to how Congress addressed this issue – without any dissent – in the AML whistleblower law.

The AML criminal exclusion follows the prior precedents: “No award” “may be made” “to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section.”  The AFF does not require excluding whistleblowers who are criminally liable.  However, the attorney general when implementing the new program can exercise discretion and follow the reasonable precedents under the False Claims, IRS, SEC, CFTC, IRS, and AML programs.   Failure to adhere to these precedents will create confusion, hardship, and ultimately deny the Justice Department access to invaluable whistleblower information.

Conclusion

The Justice Department should take advantage of other agencies’  experiences to examine what makes a whistleblower program fail, and what makes one “indispensable.”  Scholarly literature and empirical data support the Justice Department’s adoption of the basic framework and procedures set forth above in creating a new program that will also prove “indispensable” in holding some of the worst criminal elements exploiting the United States’ financial system, violating sanctions, and laundering dirty money accountable.

This post comes to us from Stephen M. Kohn, a partner at the law firm of Kohn, Kohn & Colapinto, LLP.