When the government contracts with private parties, the risk of fraud runs high. Fraud against the government hurts everyone: taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. To combat fraud, Congress has developed several statutory frameworks to encourage whistleblowers to come forward and report wrongdoing in exchange for a monetary reward. The federal False Claims Act allows whistleblowers to file an action in federal court on behalf of the United States, and to share in any recovery. Under the DoddFrank Act, the SEC Office of the Whistleblower investigates tips provided by whistleblowers and, in the event of a successful prosecution, pays an award to the tipster. The False Claims Act and SEC program both protect whistleblowers from retaliatory action from their employer. But the SEC program goes a step further: SEC Rule 21F-17 also prevents an employer from taking any action to interfere with the reporting of fraud. In this way, the SEC program protects not only whistleblowers, but also whistleblowing itself. It's time for the False Claims Act to catch up. Congress should look to SEC Rule 21F-17 as a model for how it could amend the False Claims to establish a cause of action against contractors who take steps to chill or restrict their employees from bringing forward claims of fraud. In doing so, it will vindicate the original intent and purpose of the False Claims Act and encourage whistleblowers to come forward and put an end to corporate wrongdoing. Protecting whistleblowing benefits the government, taxpayers, and whistleblowers--and ensures that the False Claims Act remains an effective instrument in the fight against fraud.
TABLE OF CONTENTS INTRODUCTION I. FIGHTING FRAUD: A TALE OF TWO WHISTLEBLOWER PROGRAMS A. The False Claims Act B. The SEC Whistleblower Program C. Rule 21F-17 II. PROTECTING WHISTLEBLOWERS: RETALIATION UNDER THE FALSE CLAIMS ACT A. The Need to Protect Whistleblowers B. The Goals of Antiretaliation Legislation 1. Chilling Activity 2. Restrictive Activity III. PROTECTING WHISTLEBLOWING: RULE 21F-17 AS A MODEL FOR REFORM CONCLUSION INTRODUCTION
When the government contracts with private parties, the specter of fraud always looms. The massive amounts of money at stake in government contracts, combined with an often-overburdened infrastructure with limited oversight, make federal contracting a field particularly ripe for abuse. As government activity increases, so too does the use of third parties to provide procurement and contracting services. But with increased reliance on thirdparty contractors comes a heightened risk that those services are tainted by fraud. Fraud against the government hurts everyone. Taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. The costs of fraud include not only direct financial loss, but also potential endangerment of public health and national security: major fraud prosecutions have involved the sale of adulterated or misbranded drugs to Medicare and Medicaid patients, (1) or the provision of defective supplies to the military. (2)
To combat such wrongdoing, the government has developed an arsenal of legislative and administrative tools designed to detect fraud against the government and punish those who perpetrate it. Perhaps the most potent of these tools is the federal False Claims Act. The False Claims Act ("FCA") has been described as "the government's most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs." (3) Congress implemented the FCA during the Civil War in the face of widespread fraud against the government. Its unique qui tam provisions allow an individual whistleblower to initiate a claim against a wrongdoer on behalf of the government, and to share in a portion of any ultimate recovery. In this way, the FCA provides a compelling incentive for those with knowledge of fraud to come forward. Today, the FCA remains an active and effective enforcement mechanism: in 2015 alone, FCA litigation resulted in over $3.5 billion in recovery to the United States. (4)
Like other whistleblowing statutes and programs, the FCA contains antiretaliation provisions that aim to protect would-be whistleblowers by prohibiting employers from taking retaliatory action against an employee for engaging in whistleblowing activity. This makes sense--such provisions increase the likelihood that insiders will report wrongdoing, thus protecting the government and taxpayers at large from fraud and abuse. They also protect employees from suffering personal harm for serving the public interest in combating fraud.
By contrast, the SEC whistleblower program--which Congress developed in response to the 2008 financial crisis--includes antiretaliation protections similar to those in the FCA that protect whistleblowers from professional or personal backlash. But the SEC has also established a rule that prohibits employers from taking any action that interferes with whistleblowing activity. The SEC has used this rule to target a wide range of activity, including confidentiality agreements, employment agreements, and severance agreements, that might chill whistleblowers from pursuing legitimate claims. In other words, unlike the FCA, the SEC rules protect not only whistleblowers, but also whistleblowing itself.
It's time for the FCA to catch up. Congress should amend the FCA to enact similar prohibitions against antiwhistleblowing activity so that the Act continues to serve as a robust tool to deter and combat government fraud. By doing so, Congress could ensure that, like the SEC program, the FCA best serves its public interest aims by protecting whistleblowing, and not just whistleblowers.
Part I of this Note provides a history and overview of the FCA and the SEC Office of the Whistleblower. It also examines one of the SEC program's rules, Rule 2IF-17, which targets antiwhistleblowing activity. Part II focuses on the antiretaliation provisions of the FCA. It shows that the FCA provisions are less robust than the SEC rules because of the FCA's narrower focus on protecting whistleblowers. Part III argues that judges and lawmakers should recognize the important--but distinct--functions that whistleblower-protection and whistleblowing-protection laws accomplish, and implement this framework in their decisionmaking and legislating processes. To begin that reform, Congress should look to SEC Rule 2IF-17 as a model and implement a similar cause of action within the FCA. Focusing on protecting both whistleblowers and whistleblowing promotes the underlying purpose and intent of the law and bolsters the ability of the government to root out and combat fraud.
FIGHTING FRAUD: A TALE OF TWO WHISTLEBLOWER PROGRAMS
This Note focuses on two major bodies of modern whistleblower law in the United States: actions under the FCA, which are litigated in federal courts, and the administrative SEC whistleblower program, which was established by the Dodd-Frank Act. Both are tools Congress created to use information provided by whistleblowers to identify and prosecute fraud. Indeed, the SEC whistleblower program was based on the fraud-combatting success of the FCA and borrows much of its design. But the programs operate in fundamentally different ways and offer different protections. This Part provides an overview of the history and functioning of each program and an overview of one of the rules governing the SEC whistleblower program: Rule 21F-17.
The False Claims Act
The roots of the FCA stretch back to the early days of the American Civil War. (5) Amid the massive wartime effort, the United States saw a substantial increase in government spending, accompanied by a shift in responsibilities from the local to federal level for contracting with third parties for war-related supplies. (6) In the consolidated procurement effort, "the various Northern states ... [gave] up independent procurement authority to the U.S. bureaus," which in turn entered into "thousands of agreements with hundreds of prime contractors all over the country." (7) Centralizing this contracting activity offered a number of economic efficiencies, but it also gave rise to a new problem: rampant fraud in the procurement process. As the use of outside contractors became "routine and essential to the Union's war effort," (8) purchasing contracts for Union army supplies were plagued by "unimaginable levels of fraud." (9) Soldiers were hindered by a slew of defective and substandard clothing and equipment, including shoes, uniforms, coats, blankets, guns, ammunition, and even horses. (10) Congress enacted the legislation that would become the FCA on March 2, 1863. (11) The statute--titled "An Act to Prevent and Punish Frauds upon the Government of the United States"--prohibited the making or presentment of "false, fictitious, or fraudulent" claims against the government and its officers. (12) It enumerated a range of fraudulent conduct, including making false vouchers, oaths, or signatures; forging papers; conspiring to defraud; stealing or embezzling; delivering false receipts; and concealing property. (13) A person found guilty of violating the statute was subject to a term of imprisonment between one and five years and liable to the government for the amount of $2,000 plus double the amount of actual damages sustained. (14)
Finally, and most importantly, the statute allowed a suit to be "brought and carried on by any person, as well for himself as for the United States." (15) An individual who brought suit under the statute would be entitled to onehalf of the amount recovered, plus the costs of bringing the suit, and the government would receive the other half of the award. (16) The statute allowed whistleblowers to bring suit on behalf of the United States, and to receive a bounty in the...