RULE 4

“It Takes a Rogue to Catch a Rogue”

Introduction

Originally created to address defective gunpowder in the Civil War, qui tam laws like the False Claims Act now underpin billion-dollar sanctions against multinational companies. These laws encourage individuals to report fraudulent activities, operating on the principle that it takes a “rogue to catch a rogue,” to expose wrongdoings effectively. Individuals involved in the fraud, including co-conspirators, can file claims and often serve as valuable resources in investigations. While immunity is not guaranteed for all informants and crime kingpins have never been rewarded, insiders play a crucial role in catching perpetrators. The substantial sanctions and the ever-present threat of whistleblowers contribute to the deterrence effect of the False Claims Act, making it a highly successful law at the federal, and sometimes state and city levels.

Can participants in the fraud be rewarded?

Yes. Both the SEC and CFTC permit participants in the underlying frauds to qualify for a reward.

Although participants can qualify for a reward, the issue of potential criminal liability for admitting to the underlying violations is always a concern. This is especially true when providing information to the U.S. Department of Justice. Unlike the SEC, IRS and CFTC, the DOJ does not have a Whistleblower Office, is not required to grant whistleblowers confidentiality and has no provision for accepting anonymous claims.

However, DOJ is responsible for the criminal investigations triggered by whistleblower disclosures. This creates an obvious tension between the right of a “participant” in a fraud to become a whistleblower, and the potential risk that the whistleblower may be prosecuted based on the information they voluntarily provide to the government.

The Justice Department has a variety of tools at its disposal to resolve this tension. However, even if a whistleblower is granted immunity, enters into a non-prosecution agreement, or reaches another understanding with Justice concerning their potential criminal liability, the failure to strictly adhere to any of these agreements can result in prosecution.

Additionally, some whistleblowers try to hide their own involvement during interviews with the government. Providing false, misleading or incomplete information to the government can result in being disqualified from an award. Worse still, it is a serious crime to provide false information to a federal official.

18 U.S.C. § 1001

Rules covering the specific reward laws that permit participants to obtain compensation are:

17 (False Claims Act)
18 (Tax)
19 (Dodd-Frank)
20 (FCPA)
21 (AML)
22 (Auto Safety)

Additional Resources

The original legislative history of the False Claims Act with Senator Howard’s remarks was published in the Congressional Globe on February 14, 1863, p. 956. In these statements he confirms a core law enforcement principle underlying all effective reward laws: It can take a “rogue to catch a rogue.”

The SEC discussed participant eligibility for rewards at:

76 Federal Register 34300, 34549-50 and n. 389 (June 13, 2011)

The SEC rule covers both securities fraud and reports concerning the Foreign Corrupt Practices Act.

The CFTC discussed participant eligibility for rewards at:

76 Federal Register 53172 at 53191-92 (Aug. 25, 2011)

Related Rules

Rules covering the specific reward laws that permit participants to obtain compensation are:

Practice Tips

Senator Jacob M. Howard’s statement discussing the intent behind the False Claims Act: Congressional Globe, 37th Cong., 3rd Sess., pp. 955–56 (Feb. 14, 1863).
SEC discussion on culpable whistleblowers: 76 Federal Register 34300, pp. 34349–51 (June 13, 2011).
False Claims Act authority to reduce rewards to whistleblowers who “planned and initiated” and exclude whistleblowers convicted of criminal conduct: 31 U.S.C. § 3730(d)(3); Schroeder v. U.S., 793 F.3d 1080 (9th Cir. 2015).

Frequently Asked Questions

Related Rules

RULE 32
Your Disclosures Must be Protected Under Law
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RULE 31
Winning a Case
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