Abstract

http://ssrn.com/abstract=2394687
 


 



Bounties for Bad Behavior: Rewarding Culpable Whistleblowers under the Dodd-Frank Act and Internal Revenue Code


Jennifer M. Pacella


City University of New York, Baruch College, Zicklin School of Business

February 2014


Abstract:     
In 2012, Bradley Birkenfeld received a $104 million reward or “bounty” from the Internal Revenue Service (“IRS”) for blowing the whistle on his employer, UBS, which facilitated a major offshore tax fraud scheme by assisting thousands of U.S. taxpayers to hide their assets in Switzerland. Birkenfeld does not fit the mold of the public’s common perception of a whistleblower. He was himself complicit in this crime and even served time in prison for his involvement. Despite his conviction, Birkenfeld was still eligible for a sizable whistleblower bounty under the IRS Whistleblower Program, which allows rewards for whistleblowers who are convicted conspirators, excluding only those convicted of “planning and initiating” the underlying action. In contrast, the whistleblower program of the Securities and Exchange Commission (“SEC”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was modeled after the IRS program, precludes rewards for any whistleblower convicted of a criminal violation that is “related to” a securities enforcement proceeding. Therefore, because of his conviction, Birkenfeld would not have been granted a bounty under Dodd-Frank had he blown the whistle on a violation of the federal securities laws, rather than tax evasion. This Article will explore an area that has been void of much scholarly attention — the rationale behind providing bounties to whistleblowers who have unclean hands and the differences between federal whisteblower programs in this regard. After analyzing the history and structure of the IRS and SEC programs and the public policy concerns associated with rewarding culpable whistleblowers, this Article will conclude with various observations justifying and supporting the SEC model. This Article will critique the IRS’s practice of including the criminally convicted among those who are eligible for bounty awards by suggesting that the existence of alternative whistleblower incentive structures, such as leniency and immunity, are more appropriate for a potential whistleblower facing a criminal conviction. In addition, the IRS model diverges from the legal structure upon which it is based, the False Claims Act, which does not allow convicted whistleblowers to receive a bounty. In response to potential counterarguments that tax fraud reporting may not be analogous to securities fraud reporting, this Article will also explore the SEC’s recent trend of acting increasingly as a “punisher” akin to a criminal, rather than a civil, enforcement entity like the IRS. In conclusion, this Article will suggest that the SEC’s approach represents a reasonable middle ground that reconciles the conflict between allowing wrongdoers to benefit from their own misconduct and incentivizing culpable insiders to come forward, as such persons often possess the most crucial information in bringing violations of the law to light.

Number of Pages in PDF File: 39

Keywords: IRS, SEC, whistleblower programs, Bradley Birkenfeld, awarding culpable or complicit whistleblowers

working papers series


Download This Paper

Date posted: February 14, 2014 ; Last revised: February 16, 2014

Suggested Citation

Pacella, Jennifer M., Bounties for Bad Behavior: Rewarding Culpable Whistleblowers under the Dodd-Frank Act and Internal Revenue Code (February 2014). Available at SSRN: http://ssrn.com/abstract=2394687 or http://dx.doi.org/10.2139/ssrn.2394687

Contact Information

Jennifer M. Pacella (Contact Author)
City University of New York, Baruch College, Zicklin School of Business ( email )
1 Bernard Baruch Way, B9-225
New York, NY 10010
United States
646-312-3607 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 374
Downloads: 72
Download Rank: 192,743

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.234 seconds