Whistleblower Lawyer Blog

As we have discussed previously, bribery of foreign government officials is the subject of many cases filed by the SEC under the Foreign Corrupt Practices Act. Those cases, which often bring significant recoveries, will increase in number as a result of rewards to whistleblowers under the new SEC Whistleblower program that we have followed.

The SEC today announced the successful conclusion of an FCPA investigation of Maxwell Technologies, Inc. The SEC announced it had filed a "settled" case through which Maxwell agreed to pay $6.3 million in disgorgement and interest, based on allegations that a Maxwell subsidiary "repeatedly" paid bribes to Chinese government officials. The object was to obtain business from Chinese entities owned by the state.

In a related criminal case, Maxwell reportedly agreed to pay an $8 million criminal penalty in installments.

According to the SEC's announcement, as a result of this "bribery scheme, Maxwell SA was awarded contracts that generated over $15 million in revenues and $5.6 million in profits for Maxwell."

FCPA cases should only increase based on the new rewards to SEC Whistleblowers.

I recently had the opportunity to meet and discuss the developing rules for the new SEC Whistleblower program with SEC Chairman Mary Schapiro, Director of Division of Enforcement Robert Khuzami, and SEC staff, as well as separately with each of the other Commissioners Luis A. Aguilar, Kathleen L. Casey, Troy A. Paredes, and Elisse B. Walter. I was impressed by the close attention each is paying to establishing what we hope will be a meaningful SEC Whistleblower program.

So long as industry representatives do not convince the SEC to jettison the proven procedures followed in the most highly successful whistleblower rewards programs under the False Claims Act and the IRS Whistleblower statute, the nation will have an historic opportunity to stop fraud that falls within the SEC's jurisdiction.

The SEC's release today is linked here:

As the IRS continues its increasing focus on international tax issues, a new IRS offshore disclosure program announced in December continues to take shape. While the IRS has not made public a full description of the program, details have emerged in comments of IRS officials over the past weeks.

Using the 2009 IRS voluntary disclosure program as a template, the IRS is apparently tweaking the approach that generated approximately 15,000 disclosures in the 2009 effort.

The IRS Criminal Investigative Division ("CI")--already quite busy with UBS account holders identified through the Swiss bank's Deferred Prosecution Agreement with the U.S.--was the "entry point" for the 2009 disclosure program. CI reportedly will retain that role, but will centralize the process in its Philadelphia office.

Most interesting was the comment this week by IRS spokesman Frank Keith that the new disclosure program will not be as "generous" to taxpayers as the 2009 IRS voluntary disclosure program. That comment surprises some international tax practitioners with clients who felt that the 2009 program was not "generous" enough--and decided not to disclose their offshore accounts as a result.

Nonetheless, IRS scrutiny of offshore accounts has exploded in recent years, with the 2009 voluntary disclosure program, the UBS settlement, the "re-alignment" of what is now the IRS Large Business and International Division, and the other IRS international tax initiatives we have followed. "CI has never had as many banks under investigation or access to as much information about international financial transactions as it does now," according to Tax Notes' summary of comments by Leslie DeMarco, Special Agent in Charge of CI's Los Angeles field office.

Those using offshore accounts to evade taxes may think twice about bypassing this new program. The IRS Whistleblower Program has generated many disclosures by whistleblowers with detailed knowledge of offshore tax abuses--so taxpayers' offshore accounts may be revealed to the IRS either way.

We have written previously about Senator Grassley's pointed criticisms of aspects of the IRS whistleblower rules proposed in June 2010. The IRS's delay in finalizing those rules is a principal reason why the IRS has not yet paid whistleblowers who have come forward since the December 2006 creation of the new IRS Whistleblower Program.

Today, the IRS took a large step to correct one major flaw that Grassley urged be corrected: re-writing a bizarre rule that would deny rewards to valuable whistleblowers who prevent improper refunds, or reduce a credit balance by a taxpayer. From what we can tell, that nonsensical rule was not the creation of the IRS Whistleblower Office, but of others within the IRS.

The IRS today announced a new IRS whistleblower rule to correct that anomaly, to be published for comment in the Federal Register.

Specifically, in a June 21, 2010 letter to Treasury Secretary Tim Geitner, Grassley challenged the IRS to write a sensible rule to correct this result:

In addition to the IRS posting the new [Internal Revenue Manual] provisions without public comment, there are many substantive concerns within the IRM. For example, the new definition of "collected proceeds" is particularly troubling because it seems to limit the payment of awards to whistleblowers only in those instances where the IRS receives cash payment from a taxpayer. . . . The denial of a whistleblower award where the whistleblower's information leads to the denial of a claim for refund seems to create a perverse incentive for the whistleblower to wait until the IRS has paid an improper refund. In addition, the IRM says that satisfaction of a taxpayer's liabilities by reducing a credit balance is not within the scope of collected proceeds so the whistleblower would receive no award.

The new proposed rule attempts at least a partial fix. It provides that rewards may now be paid on "amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided."

Today's proposed rule does nothing to address Grassley's other criticisms of the June 2010 proposed rules.

Continue reading "Long-Awaited IRS Whistleblower Rule "Fix" Is Released for Comment" »

Citing many developments in the IRS Large Business and International Division in 2010, Tax Analysts this week named IRS LB&I Commissioner Heather Maloy as its "Tax Person of the Year."

Among those developments that we have followed previously are the international focus of the restructured LB&I division (formerly known as the Large and Mid-Size Business Division (LMSB)), and the creation of the new Global High Wealth Industry Group within LB&I. That group within LB&I is already is working some very significant IRS Whistleblower cases.

Also mentioned by Tax Notes was one of my favorite IRS professionals who assisted the new IRS Whistleblower Program in its infancy, Stuart Mann:

Continue reading "Activities of IRS Large Business and International Division Earn Its Commissioner Recognition As "Tax Person of the Year"" »