Whistleblowers who expose fraud, misconduct, or violations of the law often take significant personal and professional risks. To incentivize such individuals to come forward, several U.S. laws provide financial rewards for whistleblowers whose disclosures lead to successful government enforcement actions. Understanding how whistleblower compensation works under different programs is essential for anyone considering blowing the whistle. Below, we explain how compensation is calculated under the False Claims Act, CFTC and SEC whistleblower programs, and the IRS whistleblower program.
False Claims Act Whistleblower Compensation
The False Claims Act (FCA) is the primary law used to combat fraud against the U.S. government, covering a wide range of fraudulent activities, particularly in government contracting, healthcare, and procurement. Under the FCA, private citizens, known as “relators,” can file qui tam lawsuits on behalf of the government and receive a portion of the funds recovered in successful cases.
Whistleblowers are entitled to 15% to 25% of the government’s recovery if the government intervenes in the case. If the government declines to intervene and the whistleblower pursues the case on their own, the reward increases to 25% to 30% of the recovery.
The amount awarded to the whistleblower depends on several factors, including:
- The quality and value of the information provided.
- The whistleblower’s role in the investigation and prosecution.
- Whether the government was able to recover treble damages (three times the amount of the loss due to fraud) or settle for less.
Qui tam cases often result in significant financial recoveries, and whistleblowers have received millions of dollars for their efforts. The largest FCA whistleblower award to date is $266 million.
SEC and CFTC Whistleblower Compensation Under the Dodd-Frank Act
The Dodd-Frank Act, enacted after the 2008 financial crisis, established whistleblower programs under the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These programs provide financial incentives for individuals who report securities and commodities fraud, respectively.
Under both the CFTC and SEC whistleblower programs, whistleblowers can receive 10% to 30% of the monetary sanctions collected in successful enforcement actions, provided that the sanctions exceed $1 million. The exact percentage awarded depends on several factors, such as:
- The significance of the whistleblower’s information.
- The whistleblower’s cooperation and assistance during the investigation.
- The degree to which the case deters future violations.
Notably, whistleblowers can file claims anonymously under these programs, provided they are represented by an attorney. This confidentiality, along with the potential for substantial financial rewards, has made the SEC and CFTC whistleblower programs highly effective. The largest SEC whistleblower award to date is $279 million, while the largest CFTC award is $200 million.
IRS Whistleblower Compensation
The IRS whistleblower program offers rewards for individuals who report tax fraud or underpayment of taxes. This program is essential for uncovering complex tax evasion schemes that result in significant losses to the U.S. Treasury.
Whistleblowers can receive 15% to 30% of the amount collected by the IRS as a result of their tip, provided the recovery exceeds $2 million and the taxpayer in question has an annual gross income of more than $200,000. As with other whistleblower programs, the exact percentage awarded depends on factors such as the value of the information provided and the whistleblower’s contribution to the case.
The largest reward under the IRS whistleblower program is $104 million, demonstrating the significant financial impact that whistleblower tips can have in uncovering tax fraud.
Factors That Influence Whistleblower Compensation
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- False Claims Act/Whistleblower Lawsuits
- Import Duty Evasion & Customs Fraud
- COVID-19 Relief Fraud
- Healthcare Fraud
- Government Contracting & Procurement Fraud
- Grant Fraud
- Federal Credit Assistance Fraud
- Securities Law Violations & the SEC Whistleblower Program
- Tax Fraud & the IRS and New York State Whistleblower Programs
- State False Claims Acts
