Recently, Attorney General Eric Holder called on Congress to increase the financial incentives presently offered to corporate insiders who blow the whistle on white collar crime. Holder cited to the troubling return of many of the risky behaviors that led to the 2008 financial crisis as requiring increased incentives to encourage whistleblowers.
Holder’s remarks came the same week that Lehman Brothers’ collapse sent the financial markets into chaos six years ago. Holder stated that now, the government has the opportunity to leverage the lessons, insights, and experience learned from investigating the last financial crisis to the potential for more issues unfolding around us today.
For years, the Justice Department has been harshly criticized for failing to criminally prosecute the senior officers of banks that pushed risky mortgage securities as part of the overall web of deception that caused the monumental burst in the U.S. housing market.
Holder countered such criticisms by noting that the Justice Department recently obtaining guilty pleas from the French bank BNP and Swiss bank Credit Suisse. These verdicts were said to end significant speculation that some banks are too big to prosecute.
Holder did stress, however, that reconstructing crimes after the fact is both complex and difficult. Building a case against often insulated senior officers, who have often shielded themselves skillfully with written disclosures and advice of counsel defenses is never easy. As such, Holder states, it is important to uncover and police illegal activity as it occurs. To accomplish this, the Justice Department needs whistleblowers as cooperating witnesses.
Currently, the federal False Claims Act offers whistleblowers who alert authorities to fraud, scams, or crimes against the government a recovery of up to one third of what the investigators recover for taxpayers. This figure has led to the recovery of more than $22 billion since just 2009.
However, in recent years, the Justice Department has increasingly relied on a 1991 law designed to build mortgage-related cases accusing banks and other financial institutions of internal fraud. These cases have led to major settlements with large financial institutions, including Citigroup, JP Morgan, and Bank of America.
The problem with this law is that is caps the recovery of whistleblowers at $1.6 million. This sum, for an individual who is likely risking his or her entire career to cooperate with investigators and uncover fraud, is paltry, according to Holder. Holder pointed out that in the last year, the collective bonus pool was over $26 billion and the median pay among executives is $15 million and rising.
Employees with lucrative careers in the financial sector are unlikely to be induced to blow the whistle for the sum of $1.6 million. As such, Holder is urging an increase in incentives under the Financial Institutions Reform, Recovery, and Enforcement Act.
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