President Obama’s Whistleblower Legacy (Part Two)

This is the second of a multi-part blog series about President Barack Obama’s legacy on whistleblower rights. Today, we focus on where whistleblower rights stood when President Obama took office.

If anyone is going to objectively consider what went right and what went wrong to protect whistleblowers under President Obama, we need to first examine what whistleblower rights existed in 2009, before he took office. For good reason, there were extensive efforts underway to reform and improve whistleblower laws affecting corporate and private industry employees as well as federal government employees and government contractors in the years preceding President Obama’s election in 2008.

Over time, whistleblower rights that had been enacted by Congress were targeted by judicial decisions and government policies mostly aimed at favoring businesses and concentrating government power to protect national security in the wake of the 9/11 tragedy. On paper, there were some great sounding whistleblower laws, with laudable goals, such as the Whistleblower Protection Act of 1989 (WPA) for federal employees and the Sarbanes-Oxley Act of 2002 (SOX) whistleblower provisions for employees of publicly traded companies. But these and other whistleblower laws, like the False Claims Act, were substantially weakened by the courts in the years following their passage. Government agencies that were supposed to enforce these laws also became outright hostile towards whistleblowers, making it virtually impossible to effectively blow the whistle on government or corporate misconduct and obtain justice for whistleblower retaliation. This, of course, was the exact opposite of what Congress intended when it enacted these whistleblower laws.

For example, the obstacles erected to dilute whistleblower protections for federal employees under the WPA resulted in staggering losses for employees who blew the whistle on misconduct by government agencies. Between 1994 and 2009, the U.S. Court of Appeals for the Federal Circuit ruled in favor of whistleblowers about 1.5% of the time (in just 3 out of 204 cases) appealed under the WPA.

When Congress enacted the WPA, it specifically protected “any disclosure” of wrongdoing, such as a violation of any law, rule, or regulation, but the Federal Circuit repeatedly issued opinions that narrowed the scope of protected activity by creating loopholes that were contrary to Congressional intent. In Horton v. Dep’t of the Navy the court held that disclosures to the alleged wrongdoer were not protected. In Willis v. Dep’t of Agriculture, the court said that a disclosure made as part of an employee’s normal job duties was not protected, and in other decisions it held that disclosures of information already known are not protected even if the agency violated the law.

The Merit Systems Protection Board (MSPB), the agency charged with giving federal whistleblowers a fair hearing, also did very little to protect whistleblowers. Between 2000 and 2009, the MSPB ruled against whistleblowers over 94% of the time (granting relief to whistleblowers in just 3 out of 53 cases).

The Office of Special Counsel (OSC) is also charged under law with investigating federal employee whistleblower complaints. But OSC, headed by Scott Bloch, was considered a failure for whistleblowers during the George W. Bush administration. Bloch’s tenure was plagued by accusations of failing to enforce the law and had its own scandal of law-breaking. In May of 2008, the OSC was raided by the FBI, along with the home of agency head Scott Bloch, after Bloch and his agency came under investigation for obstruction of justice stemming from an ongoing probe in which Bloch and other managers at the OSC were themselves accused of retaliating against whistleblowers in that agency. Bloch eventually was forced to resign, after which he was criminally indicted and pleaded guilty to a misdemeanor for damage to property for “willfully and unlawfully withholding pertinent information from a House committee investigating his decision to have several government computers wiped.”

The Department of Defense Inspector General also received over 3,000 whistleblower claims between 2002-2008, but it found no wrongdoing by the military over 90% of the time; 73% of the cases were closed after only a “preliminary review”; and a confidential survey of the workers and managers in DoD IG found that the workforce was “demoralized and ambivalent.”

By December of 2007, the New York Times published an editorial supporting bi-partisan “veto-proof” efforts in Congress to enact strong reforms to whistleblower laws to enhance protections and court access and jury trials for all federal employees, including those who worked at the FBI and in the intelligence community. However, whistleblower reform became stalled in Congress during a presidential election year and the country focused on the financial crisis that threatened an economic depression. Whistleblower reform would have to wait several more years.

Overall, the Bush administration consistently opposed laws proposed to increase whistleblower rights for employees of the federal government and government contractors. Veto threats were issued against whistleblower protection legislation that was proposed by Congress. The Bush administration even claimed that protecting whistleblowers could harm national security, even though the evidence shows strong whistleblower laws help keep the country safe and secure, as well as save billions of dollars in wasted revenue.

In addition to weakening the WPA, whistleblower laws governing Wall Street and corporate America also came under relentless attack during the decade preceding the Obama administration. Congress passed new corporate whistleblower provisions in its SOX Act of 2002 in response to the Wall Street crisis at the turn of the century after corporate scandals such as Enron and WorldCom. However, a study published in 2007 showed that in the three years after the SOX whistleblower provisions were enacted, only 3.6% of SOX whistleblowers won relief through the initial administrative process handling such claims, and only 6.5% of whistleblowers won appeals. The courts and the Department of Labor interpreted the SOX whistleblower provisions so narrowly, and they failed to properly apply the burdens of proof, that hardly anyone who worked in the large banks and corporations and witnessed financial fraud were protected. An unduly short 90-day statute of limitations also contributed to many meritorious cases being thrown out on a technicality.

Slowly, the courts also picked apart the qui tam provisions of the False Claims Act of 1986, which was aimed at combating fraud committed by federal government contractors. In a series of court decisions valid whistleblower qui tam cases were thrown out of court and whistleblowers were denied their share of recoveries.

One of the few areas of expansion of whistleblower rights was the 2006 amendments to the IRS whistleblower law. While enactment of mandatory qui tam type awards for whistleblowers who reported major tax frauds was one bright light in a decade of setbacks for whistleblowers, it too became marred. The first major whistleblower insider who came forward to use that law to expose the biggest tax fraud in history, Bradley Birkenfeld, a former international banker and former wealth manager at UBS in Switzerland, found himself arrested and indicted by the Bush administration. In 2012, Mr. Birkenfeld made history when he obtained the largest whistleblower reward ever given to an individual whistleblower in the twenty-five year history of federal qui tam or whistleblower reward laws, for reporting IRS Tax Fraud. But, that whistleblower success would only come after years of hardship and unnecessary pain inflicted by the U.S. government upon one of the country’s most important whistleblowers.

This was the state of whistleblower rights in 2008, when the United States faced the worst financial disaster since the Great Depression. Despite the unprecedented need for whistleblowers to combat fraud, corruption and wrongdoing in the government and corporations, the laws protecting whistleblowers were in a general state of decline. But there was also a growing bi-partisan consensus that whistleblower laws were broken and did not meet either the original intent of Congress when they were enacted or the current challenges that faced the country in 2007-2008. Reform efforts to increase whistleblower protections were already extremely popular amongst the public before the 2008 financial crisis and Wall Street bailouts. Amongst members of Congress there was widespread recognition of the need for strong whistleblower reforms that had been advanced but failed to pass during the Bush administration, and the need for reform became even more apparent after the financial crisis. The next Congress and administration in 2009 would present the greatest opportunity to try to fix what had gone wrong and enhance whistleblower rights for the next generation.

Our series will continue in the coming days with additional blog posts examining the successes and failures of whistleblower reform efforts during the Obama administration.

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Follow David Colapinto on Twitter: @dcolapinto