But it’s not Fraud, is it?

While I was listening to the audience respond to my presentation at a fraud specialist convention, I realized that some folks have a more narrow definition of fraud than I do.  Many accountants believe fraud is a criminal act only.  They could be missing out on whistleblower rewards.

Tax Underpayment not just Tax Evasion

There are all kinds of fraud that are punished (or ignored!) in all sorts of ways.  In addition to criminal fraud, there’s civil fraud, waste and abuse of public money, concealment and omissions – you name it.  In the world of tax whistleblowing, a relator/whistleblower can get an award for reporting tax underpayment as well as for tax evasion.  The whistleblower’s claim does not have to be proved beyond a reasonable doubt, and for many whistleblower reward programs, intent to defraud does not have to be proven.

SEC Actions are Civil not Criminal

The SEC’s whistleblower program is an example of a system that focuses primarily on civil violations.  The SEC itself does not get involved in punishing criminals; it focuses on adherence to securities rules.  When a case becomes a criminal matter, the SEC will often continue to investigate the civil violations but works with other government agencies to see that the criminal violations are prosecuted.  Obviously, it follows that a successful whistleblower claim does not need to report a criminal activity.

It May Not Be Criminal, but the Government May Not Want to Pay for It

In the world of False Claims against the government’s interests, the keys to sizing up a good case revolve around identifying a nexus with government funding and how misconduct affected that government funding.  Some of the biggest cases in the False Claims world have involved off-label marketing by pharmaceutical companies.  Because the pharmaceutical companies have been slow to stop the practice, anti-fraud folks have, in limited cases, brought criminal charges against pharma executives who endorsed and promoted off-label marketing.  Those cases lost significant ground this week, when the U.S. Court of Appeals for the Second Circuit in New York decided on December 4, 2012 that off-label marketing is protected by the right of commercial free speech.  It will be interesting to see how this endorsement of off-label marketing affects False Claims attorneys, some of whom run almost their entire practice on off-label marketing cases.

All that said, whistleblower claims that involve criminal activity will often be acted upon more quickly by government investigators.  There is so much fraud, waste, and abuse of government funds that prosecutors focus on the most egregious cases first.

The Takeaway:

Even if your claim doesn’t involve criminal activity, you can still have a good whistleblower claim.  Check with an attorney to make sure.

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