Whistling For Cash
By Sharona CouttsMarch 30, 2012
The federal government is soon to reveal its plans to protect whistle-blowers. It’s a welcome step but should go much further.
In the recent blockbuster settlement against a rogues' gallery of banks, the US government won USD25 billion to be used in partially redressing wrongs done to mortgage-holders through the fraud and incompetence of some of the nation's largest financial companies.
It's a significant step towards addressing the colossal backlog of houses that are worth less than the mortgages on them, and helping borrowers who remain stuck between the Scylla of paying more than what they should on a mortgage, and the Charybdis of defaulting, losing a home they love and devastating their ability to borrow in the future.
One aspect of the deal especially caught my attention: the role of whistleblowers in bringing the claims to light. Six individual plaintiffs split nearly $50 million for their role in exposing the waste, fraud and abuse of the banks.
When confronted with wrongdoing, instead of doing what many would — keeping quiet, staying out of the line of fire — whistleblowers speak up, often at great risk to their jobs, careers, privacy and their personal and financial security.
Yet in many cases, instead of being rewarded for their courage, whistleblowers suffer devastating consequences.
Think of one of the most famous whistleblowers in Australia, Toni Hoffman, the Queensland nurse who helped expose Jayant Patel, the surgeon who would later become known as the "Butcher of Bundaberg" and who has since been convicted of three counts of manslaughter and inflicting grievous bodily harm. (The High Court earlier this year granted him leave to appeal those convictions.)
Hoffman was decorated with a "local hero" gong in the 2006 Australian of the Year awards but then endured years of hardship and ill health as a result of speaking out, according to statements from her attorneys, who say Hoffman was treated "abysmally, even though she saved lives".
Earlier this month — nearly a decade after Patel began work at Bundaberg — Hoffman reached a confidential agreement with her employer, Queensland Health, to settle her claim for compensation for the mental anguish and financial losses she says she suffered as a result of her involvement in blowing the whistle on Patel.
Sadly, Hoffman's experience is typical of how whistleblowers are treated in Australia, experts told The Global Mail.
"It's a very painful experience," says Kim Sawyer, an academic at the University of Melbourne and an expert on the topic of whistle-blowing.
"The discrimination against whistle-blowers is extreme," he says. "Your life goes through a total inversion. People don't trust you. You lose so many friends."
Australia is poised finally to introduce legislation that would protect at least a few whistle-blowers. The government is finalizing a bill known as the Public Interest Disclosure Bill, according to a spokesman from the Department of Finance, which would "facilitate reporting of, and provide for the investigation of, serious alleged wrongdoing in the Commonwealth public sector".
Though the draft legislation hasn't been made public, we have some indication of what it might contain, thanks to an official discussion paper released in March 2010, in which the government responded to recommendations from the House Standing Committee on Legal and Constitutional Affairs.
The discussion paper recommends granting whistle-blowers immunity from "criminal liability, from liability for civil penalties, from civil actions such as defamation and breach of confidence, and from administrative sanction."
While those proposals would lead to a much-needed boost in whistle-blower protections, wouldn't it be nice if we could go further and actually reward people for their courage in speaking up?
The United States provides a great example of a system that gives people an incentive to do the right thing, through use of its False Claims Act, which allows private citizens to sue on behalf of the United States, where they have evidence that taxpayers have been defrauded.
The False Claims Act made the US bank deal possible, and the whistle-blowers who helped the government also got their share.
Lynn Szymoniak, a 63-year-old Florida resident, did not back down when Deutsche Bank attempted in 2008 to seize her house, which had once been worth $1.3 million.
She stopped paying her mortgage after a bout of cancer depleted her savings and she had to reduce her working hours to care for her ill mother, according to news reports.
Szymoniak, who worked as an attorney investigating insurance fraud, noticed some irregularities in Deutsche Bank's paperwork that led her to investigate further. She went to examine other documents at the Palm Beach County courthouse, where she discovered that the bank had forged signatures and incorrectly served foreclosure documents on people.
Szymoniak became one of six whistle-blowers in the court case that led to the $25 billion settlement, and her share of the action came to $18 million.
The US False Claims Act contains a provision that allows individuals who bring whistle-blower suits to claim up to 30 per cent of whatever fraudulently obtained funds the government recovers as a result of the lawsuit. In Szymoniak's case, the public funds involved came from the government programs that underwrite many mortgages in the United States.
The legal provision, called a qui tam action, has an ancient heritage. Its full title — qui tam pro domino rege, &c, quam pro seipso in hac parte sequitur — translates as "he who prosecutes for himself as well as for the King," according to a research paper from the Congressional Research Service.
And Americans are increasingly availing themselves of the law.
The US Department of Justice says the number of cases jumped from a high of 433 between 2004 and 2009, to nearly 640 last year.
Kenneth L. Nolan, a Florida attorney who specializes in this kind of action, says qui tam suits benefit plaintiffs but also "exponentially increase the government's ability to police fraud.
"This has ranged from pharmaceutical companies and medical device companies promoting their products for uses that not only are off-label, but later are determined to be harmful if used for the particular off-label use; to hospitals that rewarded physicians who performed unnecessary heart surgeries; to nursing home chains that systematically and routinely provided inadequate care," Nolan wrote in an email to The Global Mail.
Between 1986 and 2011, the United States reclaimed more than $30 billion thanks to the act, according to the Justice Department.
As an education reporter in the United States, I covered the gargantuan for-profit university industry, whose major players often rely on taxpayer funds for up to 90 per cent of their revenue. One company alone, the Apollo Group, which owns the University of Phoenix — a controversial online university — received billions of dollars from government grants and loans made to low-income students to help them pay for college.
In the course of my reporting, I encountered numerous current and former employees who described questionable recruitment tactics by some of these universities. A number of the companies that own for-profit colleges have been subject to false claims actions by people with evidence suggesting the companies have defrauded the public and left students mired in tens of thousands of dollars of debt, often with no degree to show for it.
Some successful whistle-blowers received tens of millions of dollars. In one case alone, the Apollo Group shelled out more than $67.5 million to settle a case.
The evidence adduced in these cases also contributed to controversial government attempts to curb these abuses. The reforms aimed at saving taxpayer dollars and preventing young people from falling into debt they could not repay.
Of course, the law has the potential for misuse. Former US Attorney A. Brian Albritton now works as a defence lawyer representing companies accused of defrauding the government, through False Claims Act cases.
"Qui tam by its very nature is an action that's brought on behalf of the government by a private party for a bounty," he says. "I've seen some really weak lawsuits by people trying to get a bounty."
And while plaintiffs need only prove that it is more likely than not that a defendant defrauded the government, the consequences of a successful false claims case can be severe.
"In the defence and health care industries, where these suits are most frequently used, companies that have been subject to findings under the False Claims Act can lose their right to do business with the government," says Albritton, who writes a blog about false claims actions. That can be "ruinous" for many companies, he says.
Nevertheless, Albritton says the existence of the qui tam law is essential in stamping out fraud.
"Increasingly, you have public spending that goes into almost every sphere of American life, and where there's public spending, there's opportunity for people to steal from the government," he says. "I was the one who oversaw these cases in my district when I was a US Attorney, and in most instances, these cases are well-founded."
Despite similar trends in pubic spending, the Australian government's response to the standing committee's recommendations is explicitly aimed at public employees.
When it comes to protecting or encouraging whistle-blowing in the private sector, "Australia is largely missing in action," says AJ Brown, professor of public law at Griffith University. Brown says this is a "huge gap".
Qui tam provisions can go some way toward filling that gap, but they are not a panacea. For one, the American version covers only financial wrongdoing. It wouldn't, for instance, protect someone such as Bradley Manning, the young US Army intelligence analyst currently facing 22 charges for his alleged role in handing hundreds of thousands of diplomatic cables and intelligence reports to perhaps the world's most famous proponent of whistle-blowers — the Australian Julian Assange, founder of WikiLeaks.
Manning, who is next slated to face a military judge in late April, faces a life sentence if convicted of the charges, which include aiding the enemy.
In Australia, state secrets acts have a similar chilling effect on those who might wish to speak out about wrongdoing, according to Brian Martin, professor of social sciences at the University of Wollongong, who has written extensively on whistle-blowers.
"They're hardly ever used but they're an incredible deterrent," he says. "Public servants are afraid to speak out because this might be used against them."
And in a nation without a constitutional guarantee of free speech, defamation looms large in the minds of those who might otherwise alert authorities or the public to wrongdoing, Martin says.
"These are the greatest deterrents to people actually trying to fix problems," Martin says. "There are people who are afraid to speak out because they're afraid of being sued."
If the government is serious about protecting whistle-blowers, it needs to allow a way for whistle-blowers to pass on important information without fear of repercussions from defamation suits or the state secrets acts.
But that's not enough.
As governments across Australia increasingly outsource services to for-profit and not-for-profit organisations — in areas such as aged care, health, education, defence, the environment — the potential for systemic fraud should be counter-balanced by introducing a law that not only would protect those who want to speak up, but also would encourage them to do so.
Not everyone likes the idea. Allan Kessing, who was convicted of leaking a damning report on security lapses at Sydney airport, says financial incentives could "muddy the waters", and that people should blow the whistle as a matter of principle.
But given the financial devastation that many whistle-blowers face, an Australian qui tam law would at least give some people the possibility of recouping some of those losses.
And such a law would let every chief executive, manager and supervisor know that even the secretary or intern could stand to gain significantly more than their salary by blowing the whistle on fraud.
Wouldn't that be a good thing?
Send us your thoughts, by clicking on the comment below, or email the reporter at Sharona@theglobalmail.org.