On December 20, 2021, the Vice President, the National Security Advisor, a majority of the President’s Cabinet, among other top government officials,1 must submit their proposals to President Joseph Biden on how the U.S. government can “significantly bolster” its ability to “prevent and combat corruption,” “combat all forms of illicit finance,” and “hold accountable corrupt individuals.” This is in response to a mandate issued by the President entitled “Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest” (hereinafter “Anti-Corruption Memorandum” or “Memorandum”). That Memorandum placed the fight against corruption as a “core” policy of the United States.
These top officials are required to address how to utilize various strategies to “promote good governance; bring transparency to the United States and global financial systems; prevent and combat corruption at home and abroad, and make it increasingly difficult for corrupt actors to shield their activities.” Why did enhancing the government’s ability to combat corruption become such a high priority? As the Memorandum explained: “Corruption corrodes public trust; hobbles effective governance; distorts markets . . . undercuts development efforts; contributes extremism . . . and provides authoritarian leaders a means to undermine democracies worldwide.”
The Biden Memorandum contained specific provisions that open the door for the United States to officially capitalize on its highly successful whistleblower programs, many of which are effectively used in fighting international corruption. The Memorandum called for recommendations on how to “support and strengthen” non-governmental “accountability actors” to “investigate and uncover corruption.”
When protected and incentivized by well-drafted laws, whistleblowers have proven to be highly important “accountability actors,” if not the most important of such actors.
The Contribution Whistleblowers Can Play in Fighting Corruption
The Biden Anti-Corruption Memorandum paves the way for whistleblowers to play a major role in implementing America’s anti-corruption strategy. It is now well-documented that transnational whistleblowers play a major role in detecting and prosecuting international corruption cases. For example, since 2011, under the Dodd-Frank Act alone, over 4538 non-U.S. citizens from 129 countries filed whistleblower cases, primarily under the Foreign Corrupt Practices Act (FCPA). Similarly, whistleblowers have played a key role in detecting illegal foreign banking2 and money laundering. For example, the Danske Bank money laundering scandal reported to be the largest in history ($240 billion laundered from the former Soviet Union to Western banks via the Estonian branch of the Danske Bank) was first exposed by a whistleblower.
The importance of enacting laws that properly incentivize and protect whistleblowers is well documented. All major government officials responsible for the law enforcement programs that have utilized whistleblowers (including international whistleblowers) have praised the role of whistleblowers in fighting corruption in glowing terms,3 along with numerous academic experts4 and the Senate Judiciary Committee. The Chairman of the SEC, the agency responsible for FCPA whistleblower cases, has heaped lavish praise on the whistleblower program.5 Under the Act to Prevent Pollution on Ships representatives from the U.S. Department of Justice have, for years, praised the role of international whistleblowers, and explained the unique problems they face outside the United States. Compensating these whistleblowers through monetary rewards is essential. A full accounting of these numerous APPS cases, and the Justice Department motions supporting international whistleblowers, are linked here. Likewise, the Organization for Economic Co-operation and Development (“OECD”) has specifically praised the Dodd-Frank Act’s whistleblower law in its report on the U.S. implementation of the OECD’s anti-bribery convention.
Despite these successes, the actual state of transnational whistleblowing is in disarray. Whistleblower protections are ineffective or non-existent in most countries outside the United States. Although some major U.S. laws have proven to be highly successful, there are numerous gaps in coverage, whistleblower programs lack resources, and the potential contributions whistleblowers can make to fight corruption have barely been tapped. Below are specific steps that should be incorporated into President Biden’s anti-corruption program. If followed, these steps will have a dramatic impact on the ability of the United States to leverage its resources to reduce corruption worldwide and provide examples for creating effective anti-corruption programs outside the United States.
There is Strong Public Support for Enhancing Whistleblower Protections
Not only does the empirical record fully support the implementation of Dodd-Frank Act style whistleblower protections as a critical component for any international anti-corruption efforts, polling shows that the vast majority of Americans, across every segment of the population, overwhelmingly support whistleblowers. A recent Marist Poll (a highly respected pollster, rated “A” by FiveThirtyEight ) found that over 85% of the American people wanted stronger protections for whistleblowers. In the same poll 81% of “likely voters” wanted increased whistleblower protections to be a “priority” in Congress, with over one in four likely voters demanding increased protections as an “immediate priority.”
The across the board support for whistleblowers should be taken into consideration when evaluating the government’s priorities for fighting corruption. The respondents were asked the following question: “Do you think passing stronger laws that protect employees who report corporate fraud should be an immediate priority for Congress, a priority but not an immediate one, or do you think this should not be a priority at all?”
In response the following percentage of respondents stated that enhancing corporate whistleblower protections should be either an immediate priority of Congress, or simply a priority:
People from the Northeast: 82%
College Educated: 82%
Non-College Educated: 83%
Big City: 84%
Given the strong support for whistleblowers demonstrated by the government officials responsible for implementing effective whistleblower programs and the overwhelming support of the American people, enhanced whistleblower protections should be included as a meaningful component of President Biden’s “fighting corruption” program.
Recommendation # 1: Implement OECD Recommendations for Fighting International Bribery.
The Organization for Economic Co-operation and Development (OECD) carefully studied the United States’ international anti-corruption program and issued a highly detailed “Phase IV Report” covering every aspect of the U.S.’s anti-bribery program. They issued a series of recommendations, among them was to “enhance protections for whistleblowers.” The recommendation should be fully implemented.
The OECD study was comprehensive. Based on a peer monitoring process that followed a year-long review, the study was conducted by international officials with expertise in fighting corruption. These officials interviewed government, private sector, academic, and civil society experts and also reviewed all of the prosecutions undertaken by the United States over a ten-year period
In its report, the OECD recognized the vital role the Dodd-Frank Act whistleblower provisions play in enhancing the ability of the United States to detect and prosecute foreign corruption. They directly praised “Dodd-Frank Act’s multi-faceted protections,” including its “powerful incentives for qualified whistleblowers to report foreign bribery allegations” as among the U.S. government’s best practices.
Consistent with the OECD’s recommendations the United States needs to enhance other laws beyond the Foreign Corrupt Practices Act in order to effectively fight international corruption. Among these reforms are: Amending the money laundering whistleblower law to include the key provisions of the Dodd-Frank Act that make the law effective (See Recommendation #2 below); Fully funding the Commodity Exchange Act’s international anti-corruption whistleblower program (See Recommendation #3 below); Supporting the bi-partisan Congressional effort to enact a DFA-based whistleblower law to aid in the detection and prosecution of trafficking and illegal timbering (See Recommendation #3 below); and Endorsing amendments to the IRS tax evasion whistleblower law (and fully funding the IRS Office of the Whistleblower) to ensure that illegal offshore banking is policed and other forms of tax evasion are prosecuted; (See Recommendation #4 below).
Recommendation # 2: Amend the AML Law to Conform to the Dodd-Frank Act’s Highly Effective Whistleblower Act.
Given the role of money laundering in promoting international corruption, ensuring that U.S. and foreign law enforcement agencies have the best tools for combatting these crimes is essential for any transnational anti-corruption program. Without the best legal tools to support AML programs, the fight against international corruption will be crippled.
On January 1, 2021, Congress passed a whistleblower law covering money laundering as part of the National Defense Authorization Act. The law passed by Congress is gravely defective and will undermine efforts to combat money laundering. It will not work in practice, result in hardships for numerous whistleblowers, and undermine the trust necessary for an effective law enforcement program to work.
When originally introduced in the U.S. Senate, the initial version of the AML whistleblower law was modelled on the highly successful Dodd-Frank Act. However, when ultimately passed, the law failed to include the most important guardrails that make the Dodd-Frank Act work. As designed, the law is more of a trap than a safety net. Although the law purports to permit the Secretary of Treasury to reward whistleblowers “up to 30%” of monies obtained in a whistleblower-triggered civil case, the law did not provide a mechanism to pay for these rewards. Without a fund to pay the awards, it is improbable (if not impossible) that the Secretary of Treasury will ever compensate any whistleblower. Consistent with this loophole, the law also gave the Secretary of Treasury discretionary authority to deny fully qualified whistleblowers any award whatsoever. This discretionary authority has been completely discredited in other whistleblower laws, all of which were eventually amended to ensure that a fully qualified whistleblower would be entitled to collect a minimum award (usually around 10% of the collected proceeds). Laws that failed due to the lack of a mandatory award and were subsequently amended include the False Claims Act, IRS whistleblower law, and the securities whistleblower law.
As whistleblowers learn that the current framework for the AML whistleblower law is more of a trap than a protection law, there will be a chilling effect on the entire AML-disclosure process, which will also undermine trust in ongoing whistleblower programs. Given the destructive role money laundering plays in facilitating international corruption, fixing this law should be the number one priority of the Biden administration.
Recommendation # 3: Support Efforts to Expand the Commodity Futures Trading Commission’s Role in Fighting International Corruption.
Among the most exciting developments in fighting international corruption was the Commodity Futures Trading Commission’s (“CFTC”) recent enforcement action against oil trading company Vitol, Inc. The enforcement action against Vitol, Inc (a non-publicly traded Dutch company) demonstrated the potentially broad reach of the CFTC and the central role that agency can play in fighting corruption. The CTFC whistleblower program is currently radically underfunded and nearly went bankrupt in early 2021. Likewise, the entire CFTC is underfunded and clearly needs additional resources to bolster its international anti-corruption enforcement efforts.
Significantly, as explained below, the Commodity Exchange Act’s whistleblower protection law has the potential to help implement the recommendation of the OECD to use whistleblowers in holding “non-issuers” accountable in foreign corruption cases. See OECD Phase IV Report, p. 112 (The United States should “consider how it can enhance protections for whistleblowers who report suspected acts of foreign bribery by non-issuers.”).
By way of background, after Dodd-Frank was passed, whistleblowing under the commodities law exploded, uncovering billions in corruption in oil trading, price-fixing, illegal foreign exchange manipulation, and other frauds impacting numerous consumer products. Where applicable to the Commodity Exchange Act, the whistleblower law covers disclosures of a broad range of foreign corruption violations, including violations of the Bank Secrecy Act, AML, and the FCPA. Enacted in 2010 as part of the Dodd-Frank act, the whistleblower law includes the right to file anonymous claims and mandatory rewards for fully qualified whistleblowers. It is a model for future whistleblower laws.
Unfortunately, Congress did not fully fund the CFTC’s whistleblower program, and in 2021 the program nearly went bankrupt, despite its record-setting enforcement actions. A bipartisan group of senators, led by Senators Charles Grassley (R-Iowa) and Maggie Hassan (D-NH), are trying to address these problems – they need the support of Congress and the White House. They succeeded in getting a short-term fix to the program, the law will not be fully effective without adequate funding.
It is important to understand the tremendous potential of using the Commodity Exchange Act’s (CEA) whistleblower and enforcement provisions in fighting international corruption. Gibson and Dunn, a leading defense firm that represents white-collar and corporate criminals, explained the importance of using the CEA in fighting corruption:
The CFTC’s action rests on an aggressive theory that seeks to approach allegations of corruption through its historic ability to pursue fraud and manipulation . . . . . We expect to see the continued convergence of enforcement by a variety of U.S. enforcement authorities . . . and regulators approaching aspects of alleged foreign corruption from a range of angles [including] the Foreign Corrupt Practices Act . . . money laundering . . . [and for] violations of the CEA where commodities trading is involved.
In sum, the CFTC will likely become increasingly active in using the CEA as a tool to go after perceived foreign corruption in the commodities markets, claiming such conduct constitutes manipulation or even fraud, while working in parallel with the DOJ and possibly other domestic and foreign regulators intent on vindicating their particular enforcement mandate.
Gibson and Dunn directly referenced the CFTC’s advocacy of its whistleblower program as a potential driving force behind its international anti-corruption program:
The CFTC’s 2019 issuance of a whistleblower alert soliciting tips about foreign corrupt practices further shows that it is serious about bringing enforcement actions in this area. The CFTC’s whistleblower program pays a qualified tipster 10 to 30 percent of any fine over $1 million levied against a firm for violations of CFTC regulations, and it has significantly enhanced the CFTC’s enforcement program. Whistleblowing is likely to increase . . . Just as the Dodd-Frank whistleblowing award program has significantly increased FCPA tips to the SEC (and DOJ), we expect the CFTC’s whistleblowing push could significantly increase the amount of information the CFTC receives and, in turn, the CFTC’s ability to bring enforcement actions relating to foreign corruption.
Gibson and Dunn’s analysis of the role whistleblowers will play in the anti-corruption investigations is accurate. It provides further support for incorporating aggressive support of the CTFC program as part of the official “fight against corruption.”
Recommendation # 4: Enact Whistleblower Protections for Trafficking and Illegal Timbering.
Trafficking and illegal timbering is a significant contributor to transnational crime and corruption. For example, as explained by INTERPOL, illegal timbering is big business and a major driver of international corruption:
“Worth almost USD 152 billion a year, the illegal timber industry accounts for up to 90% of tropical deforestation in some countries and attracts the world’s biggest organized crime groups. It causes serious economic, environmental and social damage and fuels conflict in forest regions where criminal gangs compete for available markets.”
“Tax evasion, corruption, violent crime, fraud and money laundering, and even the hacking of government websites to obtain permits, are commonplace on the forestry crime landscape.”
Last term, Congress, with strong bipartisan support and almost universal support from the leading organizations advocating for the protection of rainforests, fisheries, and wildlife, introduced a whistleblower bill that would solve the problems facing employees who desire to report these crimes. The bill was based on the highly successful Dodd-Frank Act whistleblower framework. The White House should urge the Wildlife Conservation and Anti-Trafficking Act (H.R.864) to be reintroduced in the current Congress. If it is reintroduced, the White House should strongly support its passage.6
Recommendation # 5: Proper Funding and Administrative Support for the IRS Whistleblower Program.
In 2006, Congress passed a strong whistleblower law covering tax frauds. The positive results were immediate. Swiss bankers turned in U.S. tax cheats, and the U.S. collected billions in fines. But the good times quickly came to an end. Like the Commodity program, the tax whistleblower program was effectively repealed by economic starvation. The IRS Office of the Whistleblower does not have the resources to administer this highly effective anti-fraud whistleblower program. It now takes the IRS ten years to process the average whistleblower case. The IRS Whistleblower Office has reported that numerous whistleblowers have died before the IRS could pay their award claims. Senators Charles Grassley and Ron Wyden have introduced S-2055, legislation to fix these delays and solve other problems undermining tax whistleblowers – including enhancing their right to remain anonymous and allowing whistleblowers meaningful judicial review when their claims are denied. As part of an effective anti-corruption program, it is essential that all the whistleblower programs that have successfully combatted international corruption be fully funded and supported.
Recommendation # 6: Review Current U.S. Whistleblower/Anti-Corruption Laws to Maximize their Potential for Fighting International Corruption.
There are a number of existing U.S. laws that have already played a critical role in fighting corruption. These include the Securities and Exchange Act’s whistleblower law, the Commodity Exchange Act whistleblower law, the Foreign Corrupt Practices Act, the False Claims Act qui tam law, and the IRS tax whistleblower law. These laws share important characteristics that officials must duplicate when creating other anti-corruption programs either legislatively or administratively.
The SEC, CFTC, and IRS laws provide a safe and confidential method for whistleblowers to file concerns directly with the U.S. government. They also have highly effective dedicated whistleblower offices that coordinate the programs and help ensure confidentiality. The central ingredient for the success of these programs is the requirement that federal agencies pay a minimum reward (between 10-15% of all collected proceeds) whenever a whistleblower meets the qualifications of the program, and their information triggers a successful enforcement action. This mandatory reward program is what makes the laws effective.
By policy or rulemaking, several administrative agencies can implement laws similar to the SEC, CFTC, False Claims, and IRS whistleblower laws. The White House should review current authorities within agencies like the Departments of Interior, Treasury, Justice, Agriculture, Coast Guard, and Commerce. These agencies have the legal authority to administratively establish whistleblower programs that can incorporate many of the best practices used in the SEC, CFTC, and IRS laws.
Recommendation # 7: Implement the Recommendation of the OECD to Enhance Whistleblower Protections by Increasing Support for International Whistleblower Trainings and Educational Programs.
In its Phase IV Report (page 112) on the United States’ implementation of the anti-bribery convention the OECD recommended the United States “enhance guidance about the protections available to whistleblowers who report suspected acts of foreign bribery.” This recommendation comes at a time when there is growing (and in some sectors massive) interest worldwide in learning about successful U.S. whistleblower/anti-corruption programs and implementing such programs worldwide.
The growing international interest in whistleblower laws is exemplified by the recent adoption by the European Union of a Directive requiring all EU nations to enact whistleblower laws. Likewise, at its 2021 World Congress, the leading transnational environmental organization, the International Union for Conservation of Nature (IUCN), included as part of its official Programme for 2021-24, a member-approved plan of action to “promote whistleblower protection and reward laws.” This action is consistent with numerous resolutions enacted by the IUCN promoting whistleblowing, including a strong whistleblower resolution adopted in September 2021 by a vote of 106 to 6 (government members of the IUCN) and 586 to 6 (NGO members of the IUCN).7 Even without U.S. support, a growing number of international organizations are sponsoring training by leading U.S. whistleblower NGO organizations, such as the National Whistleblower Center.8 The United States must exploit the current (and significantly growing) interest in whistleblowing and help nations develop effective programs and train NGOs how to work effectively with whistleblowers who are reporting corruption.
The U.S. Agency for International Development (AID), the Department of State, and various U.S. embassies have supported training and educational programs for foreign government officials, foreign NGOs, and foreign representatives of the news media concerning the role of whistleblowers in fighting corruption. These activities should continue and be enhanced. The United States needs to play a stronger role both within international institutions and on-the-ground in various countries in supporting effective whistleblower laws and educating the international leaders/NGOs/whistleblowers as to the ability of non-U.S. citizens to use existing U.S. whistleblower laws in the absence of effective domestic legislation.
Recommendation # 8: Create an International Whistleblower Office (“IWO”).
The SEC’s Office of the Whistleblower is a model on how a federal agency can create a whistleblower office to educate the public concerning whistleblower rights, create an easy-to-use anonymous online reporting structure, centralize whistleblower intakes so they can be properly shared with appropriate offices, ensure confidentiality, and assist in the adjudication of any whistleblower reward application. The SEC’s Whistleblower Office’s highly useful website is linked here.
An International Whistleblower Office (IWO) can perform a similar function. These functions should include: (a) becoming a clearinghouse for whistleblower intakes, ensuring that the intake is referred to the appropriate agency for review; (b) facilitating interagency cooperation when more than one law is impacted by the corrupt activities; (c) providing online resources and information about whistleblower laws and programs for reporting international corruption; (d) create a confidential reporting process similar to the SEC’s process; (e) create an administrative process for managing the whistleblower intakes and review process; (f) facilitate educational programming and publish materials in relevant languages.
The U.S. Agency for International Development (AID) would appear as a logical choice to house an IWO. They have established missions in a number of countries that will play a significant role in fighting corruption and often have established contacts with NGOs and government officials interested in working with the U.S. in fighting corruption.
Recommendation # 9: Implement the Recommendations the U.S. Senate has Unanimously Supported Over the Past 10-years in Promoting National Whistleblower Appreciation Day.
Commencing in 2013, the U.S. Senate has unanimously passed a resolution calling upon the executive branch to educate their employees and the public about the contributions made by whistleblowers. The Senate used the history behind America’s first whistleblower law as the starting point for promoting whistleblower appreciation throughout the entire federal government. During the height of the American Revolution, the Founders of the American Republic took specific steps to support whistleblowing, even when the disclosures could be embarrassing to the newly formed government. See Legislation of July 30, 1778, reprinted in Journals of the Continental Congress, 1774-1789, ed. Worthington C. Ford et al. (Washington, DC, 1904), 11:732.
America’s first whistleblower law passed on July 30, 1778, stated: “That it is the duty of all persons in the service of the United States, as well as all other the inhabitants thereof, to give the earliest information to Congress or other proper authority of any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge.''
Based on this significant historical precedent, the Senate unanimously called upon the federal agencies to:
[E]nsure that the Federal Government implements the intent of the Founding Fathers, as reflected in the legislation passed on July 30, 1778 (relating to whistleblowers), by encouraging each executive agency to recognize National Whistleblower Appreciation Day by—
(A) informing employees, contractors working on behalf of the taxpayers of the United States, and members of the public about the legal right of a United States citizen to ``blow the whistle'' . . .; and
(B) acknowledging the contributions of whistleblowers . . .9
Implementing, through an Executive Order, the recommendations made by the U.S. Senate would play an important role in affirming the key role whistleblowers play in our democracy and the right of all people to report waste, fraud, and abuses to the appropriate authorities.
The empirical record fully supports aggressively implementing and supporting Dodd-Frank Act style whistleblower programs as a critical component of the United States’ international anti-corruption efforts. Supporting these programs will generate billions in sanctions that can be reinvested into the anti-corruption program and will enjoy the overwhelming support of anti-corruption NGOs and government officials around the world. The American people will back up these programs, and given the effectiveness in protecting taxpayers and investors, will profit from a robust transnational approach to anti-corruption and whistleblower protections.
1. These include the Assistant to the President for Economic Policy and the Assistant for Domestic Policy, along with the Departments of Justice, Treasury, Defense, Commerce, Energy, State, and Homeland Security, the CIA, the Mission to the United Nations, the NSA, and the Agency for International Development.
2. The IRS whistleblower law made historic gains in combatting illegal offshore banking and should be duplicated and exploited. The IRS successfully worked with a number of whistleblowers at Switzerland’s largest and oldest banks and triggered the most effective prosecutions of illegal offshore banking. The international impact of the IRS whistleblower law was fully described by Professor Dennis Ventry, who served as Chairman of the IRS Advisory Panel. Professor Ventry explained how the whistleblower law played a vital role in forcing the closure of nearly every known illegal U.S. account in Switzerland and permitted the United States to obtain over $13 billion in sanctions.
3. Chairman of the IRS Advisory Panel; SEC Director of Enforcement (under President Trump); former SEC Chairman (under President Obama); former Attorney General Eric Holder; Assistant Attorney General (under President Obama); Assistant Attorney General (under President Trump); former Chairman of the Senate Judiciary Committee.
4. Promarket (publication of the University of Chicago Booth School of Business); “Who Blows the Whistle on Fraud” (leading economists from the University of Chicago and University of Toronto); University of Rome and Stockholm School of Economics; Stockholm Institute for Transition Economics; “A Fresh Look at Whistleblower Rewards (University of Stockholm School of Economics).
5. Since the enactment of the Dodd-Frank Act, every Chairman of the SEC (Democrat and Republican) has praised the law’s ability to attract high quality whistleblowers with insider information, and incentivize these informants to assist in major securities law violations, including violations of the FCPA. For example,
6. Last term, the bill’s original sponsors were Representatives John Garamendi (D-CA) and Don Young (R-AK). In a recent interview, Representative Young, often referred to as the Dean of the Republican Caucus in the House, voiced his strong support for wildlife whistleblower law. Additionally, the leading wildlife and forest protection organizations have all endorsed the bill. These include: the African Wildlife Foundation, Animal Welfare Institute, Association of Zoos and Aquariums, Center for Biological Diversity, Conservation International, Earth Day Network, Environmental Investigation Agency, The Humane Society International, Humane Society Legislative Fund, International Fund for Animal Welfare, Mission Blue / Sylvia Earle Alliance, National Whistleblower Center, Natural Resources Defense Council, Oceana, Panthera, Sea Turtle Conservancy, Thinking Animals United, Vulcan, Inc., Wildlife Conservation Society, and the World Wildlife Fund (WWF).
7. The IUCN has previously passed four resolutions supporting whistleblowers and their contributions toward fighting organized crime.
8. See e.g., Keynote Address, International Annual Conference on Integrity (premier regional anti-corruption conference sponsored by governments of South and Central America); Belgrade Anti-Corruption Conference; the Regional Anti-Corruption Initiative (sponsored by the EU and eight countries in South Eastern Europe including Albania, Bulgaria, Moldova, and Romania), TNRC trainings sponsored in part by AID, and the Sarajevo Whistleblower Week conference focused on the use of the DFA-FCPA program.
9. A growing number of agencies, Members of Congress, and government leaders, such as the Secretary of Labor, the Inspectors General from the Department of Justice and National Security Agency, the Chairman of the SEC have formally recognized National Whistleblower Appreciation Day.