Information from the public is an integral tool for government investigations and asset recovery. The House Ways and Means Committee recently recognized this by voting unanimously to strengthen the IRS whistleblower program. The United States Government Accountability Office (“GAO”). The GAO, which audits and investigates for Congress, confirmed these findings in a recent report. Released on March 3rd, the report “Protections for Whistleblowers and Others: Selected Agency Actions Regarding Reports of Potential Wrongdoing” demonstrates that whistleblowers contribute to recovery efforts, boost efficiency, and maintain accountability.
This report was written in response to requests from representatives Jan Schakowsky and Lori Trahan, both longtime supporters of whistleblowers. The GAO was asked to determine which private-sector employment practices create incentives or barriers to reporting wrongdoing, how federal agencies enforce private-sector whistleblower protections, and the challenges federal agencies face in receiving whistleblower information.
To conduct this study, the GAO utilized document analysis, agency data, and interviews to gather information from various organizations that deal with individuals who disclose information. The study analyzed four government agencies that “employed certain identified strategies to facilitate whistleblowing” (the Federal Trade Commission (FTC), the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and the Occupational Safety and Health Administration (OSHA)) and six government offices that work with whistleblowers (the FTC, IRS Whistleblower Office, SEC Office of the Whistleblower, OSHA Whistleblower Protection Program, and the Office of the Whistleblower Ombuds for the House of Representatives).
The report refers to this group as “disclosers,” but in this article, they will be referred to as “whistleblowers.”
Key Finding: Whistleblowers Matter
Three of the four agencies studied found that whistleblower protections helped them recover lost funds, increase corporate compliance, and boost enforcement efficiency. The IRS stated that “the IRS Whistleblower Program is a critical element of tax administration,” recovering over $1.2 billion in recoverable funds from fiscal year 2021 to 2024. Both the IRS and SEC told the GAO “they believe the incentives and identity protections provided by award programs strengthen voluntary compliance and deterrence in the areas they regulate.”
Whistleblower reports can deter future economic fraud, as companies are less likely to engage in fraud when they know that internal reporting could lead to sanctions; overall, this encourages businesses to remain accountable. SEC officials reported that “they believe that cultural change towards increased compliance is created when businesses know someone may be willing to offer or provide information.” This belief is supported by research showing that the imposition of whistleblower incentives under the Dodd-Frank Act reduces large companies’ likelihood of committing fraud by 12-22% when first implemented.
Agencies specifically credited whistleblowers with making the government aware of fraud it would otherwise never have found. The IRS reported that whistleblower reports are essential to increasing fairness and accountability in identifying fraud, both nationally and abroad. Insider reports provide “information on schemes that were previously unknown to IRS, and which can extend beyond U.S. borders.” Whistleblowers provide unique, insider information that would regularly be inaccessible to government agencies and can change the course of anti-corruption work on a global scale.
Whistleblowers who provide insider information that would normally be inaccessible to government agencies can change the course of global anti-corruption efforts. Two examples of this global impact are whistleblowers Bradley Birkenfeld and Harold Wilkinson. Birkenfeld, a former UBS Bank employee in Switzerland, reported that the bank facilitated tax evasion by allowing clients to hide assets in secret Swiss bank accounts. Birkenfeld’s information opened up a wave of investigations into Swiss banking, allowing the U.S. government to leverage a $780 million fine and issue over 120 criminal indictments. Of the total $16.19 billion recovered funds, Birkenfeld was awarded $104 million and credited with ending this scheme.
Similarly, Wilkinson uncovered a complex transnational money laundering scheme implicating Danske Bank, Bank of America, and J.P. Morgan. The former Danske Bank manager jump-started an investigation that revealed the bank’s false accounts, its relationships with companies already engaged in criminal activity, and its weak internal reporting channels. Wilkinson’s efforts enabled over $178.6 million of recovered proceeds to be returned to fraud victims and led to changes in corporate anti-fraud enforcement policies by government officials in the US and across Europe.
But anti-fraud enforcement can be greatly bolstered by whistleblowers, even if the government would have become aware of the fraud without their help. The SEC also reported: “disclosures from company insiders can direct SEC to useful documents or explain how practices work. The time and resource savings allow SEC to more efficiently conduct investigations.” Industry- and company-specific practices can be difficult for outsiders to understand, so whistleblowers are needed to assist agencies in interpreting fraudulent transactions. Assistance from outside reporters helps government agencies expend fewer resources, increasing the efficiency of investigations.
Overall, whistleblowers have been instrumental in returning U.S. dollars lost to fraud. The GAO found that “enforcement work by the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Internal Revenue Service (IRS), using information from the public, has resulted in billions of dollars in collections returned to the U.S. Treasury since 2019.” That figure is confirmed by whistleblower offices’ annual reports. While the FTC does not publish data on its whistleblower program, the SEC and IRS whistleblower programs have netted a combined total of between $15 billion and $28 billion since their inception, and these statistics are known to substantially underestimate the total amount of recoveries resulting from whistleblower disclosures.
Key Finding: Illegal Threats and NDAs Deter Whistleblowing
Despite the demonstrated impact of whistleblower tips, the GAO also found that potential whistleblowers are being deterred from reporting in various ways. First, threats of retaliation through loss of employment, reputation, or becoming blacklisted from the industry prevent potential whistleblowers from speaking up. The high costs associated with legal representation when filing a retaliation complaint form a second barrier. Finally, non-disclosure agreements (“NDAs”) restricting the disclosure of internal information make whistleblowers fearful of violating these agreements and, therefore, unwilling to draw attention to potentially suspicious activity. To counter these barriers, the GAO provided evidence that agencies protect whistleblowers by maintaining confidentiality.
While the second issue will remain a challenge for whistleblowers to some degree (although many whistleblower attorneys will work on contingency), the first and third deterrents can largely be addressed through effective education for whistleblowers. Whistleblowers are protected from retaliation by the strict confidentiality protections available from virtually every federal whistleblower program. Throughout the entire enforcement process, the SEC is legally required to conceal whistleblowers’ identities, ensuring employers have no mechanism to identify the whistleblower. IRS whistleblower program rules classify whistleblower reports as “taxpayer return information,” subjecting these reports to the same strict confidentiality protections as other taxpayer information. While whistleblowers take risks in providing government agencies with insider information, they are granted numerous protections against retaliation through confidentiality regulations and can often avoid retaliation by taking advantage of these protections.
The use of restrictive NDAs underscores the need for whistleblower education. An NDA cannot legally prohibit a whistleblower from making a good-faith report about their employer’s misconduct (even if the NDA’s text says it does), but many whistleblowers are unaware of this, making restrictive NDAs a highly effective deterrent even though they cannot be legally enforced against a whistleblower.
Three of the four agencies surveyed have taken a public position on restrictive NDAs, in addition to the statutory prohibitions. For example, SEC rule F-17(a) states that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.” Similarly, the FTC’s Policy Statement of the Federal Trade Commission on Franchisors’ Use of Contract Provisions, Including Non-Disparagement, Goodwill, and Confidentiality Clause states that contracts prohibiting “free communication about potential law violations with an administrative agency acting within its statutory mandate are void and unenforceable.”
Agencies have identified NDAs as a barrier to effective enforcement and have taken steps to ensure their policies prohibit their use to muzzle potential whistleblowers. But these policies will not increase disclosures until whistleblowers know that NDAs are unenforceable when deciding whether to make a report.
Research on the potentially harmful impacts of non-disclosure agreements (NDAs) on whistleblower reports comes at a time when whistleblower advocates are concerned about their restrictive use. The use of ‘muzzle’ NDAs has become a hot-button issue for big tech and AI companies, which, in recent years, have repeatedly been accused of using them to keep current and former employees silent about illicit business practices. Even when legally neutralized, these agreements prevent whistleblowers from claiming monetary rewards by scaring them out of disclosing. In doing so, they allow for more fraud to go undetected.
Conclusion
The GAO’s report confirmed what has been evident for decades: whistleblowers are an integral component of fraud investigation, and numerous benefits to the government are associated with increasing protections for whistleblowers. Across agencies and types of fraud, whether a whistleblower unearths a conspiracy or simply guides investigators through the evidence, whistleblower tips are essential to US anti-corruption efforts.
The report also highlighted the need for education on whistleblowers’ rights under US law. Many of the most powerful reporting deterrents – restrictive NDAs and threats of retaliation – have been successfully addressed by whistleblower protection laws and agency regulations, but they will remain until whistleblowers are fully aware of the legal provisions that protect them. In addition to addressing remaining functional issues with whistleblower programs at the legislative or judicial level, whistleblower advocates ought to focus on education to improve the efficacy of the strong whistleblower programs the US already has.
