The $104 million dollar reward recently paid out by the Internal Revenue Service to former UBS AG banker Bradley Birkenfeld has served as a reminder that other agencies besides the SEC have their own reward laws for those who expose wrongdoing and fraud. The federal tax agency paid out the hefty award to Birkenfeld for providing information about the Swiss bankâ€™s role in helping wealthy taxpayers hide money in offshore accounts. It was the largest reward ever given to an individual whistleblower.
Last month, the SEC program, mandated by the Dodd-Frank law,Â issued its first rewardâ€”almost $50,000â€”since the programâ€™s conception about a year ago. The five-figure award may pale in comparison to Birkenfeldâ€™s bounty, but with the rewardÂ the SEC made clearÂ that its whistleblower reward system is very much â€śopen for business.â€ť
The SEC Dodd-Frank whistleblower program has been receiving generally more attention than the IRS program, due to its greater efficiency. Lengthy delays in processing cases led to a decline in the IRS whistleblower programâ€™s new cases reported and tax dollars collected last year. The IRS increased reward levels for individuals who offer information that leads to tax recovery in 2006. Because of the time it takes to work through a case however, we may see an increase in rewards in the near future.
The two programs have other differences as well. The IRS whistleblower program provides for payment of 15 percent to 30 percent of the amount collected, provided the amounts in dispute exceed $2 million. Dodd-Frank authorized the SEC whistleblower program to reward individuals for information that leads to a minimum of $1 million in sanctions ordered. SEC awards can range from 10 percent to 30 percent of the money collected.
The SEC and the IRS also have different credentials for recipients of rewards. The IRS makes individuals eligible for a reward even if they had some amount of participation in the fraud at issue, as long as they were not the initiator of the fraud. The SEC, however, does not permit a wrongdoer who was involved in the fraud in any way to receive any sort of reward.
The SEC and IRS also differ in terms of the identity protection of their whistleblowers. The SEC cannot disclose any information that could reasonably be expected to directly or indirectly reveal a whistleblowerâ€™s identity. Although the IRS vows to protect the identity of the whistleblower to the fullest extent permitted by the law, under certain circumstances, pursuing the investigation may not be possible without revealing the informantâ€™s identity