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Whistleblower Incentives: the Privatization of Oversight

— May 4, 2015


Last week, the U.S. Senate unanimously passed a bill that incentivizes whistleblower complaints within the automotive industry. The bill, modeled off of similar measures for the Internal Revenue Service and the Securities and Exchange Commission (SEC), allows the U.S. Secretary of Transportation to award up to 30 percent of revenue collected in excess of $1 million to any former or current auto employee who reveals dangers that have not been discovered by regulators like the National Highway Transportation Safety Administration (NHTSA). The bill will be awaiting passage in the House of Representatives, where another measure authored by Florida Republican, Jeff Miller, is currently being debated regarding whistleblower protections within the Veterans Administration (VA) system. Miller’s bill follows alarming testimony last month regarding whistleblower retaliation throughout the VA in light of the national wait-time scandal last year. Additionally, the Center for Public Integrity (CPI) unveiled a series of whistleblower lawsuits that indicate a massive price-inflation loophole in the private Medicare Advantage program for seniors costing as much as $12 billion per year, and another campaign led by whistleblowers began in February regarding USDA meat inspections at Hormel processing plants. These examples highlight the growing prevalence and admitted reliance on whistleblowers throughout federal regulatory agencies.

Representative Jeff Miller (R-FL) has introduced a bill to combat whistleblower retaliation within the Department of Veterans Affairs.
Representative Jeff Miller (R-FL) has introduced a bill to combat whistleblower retaliation within the Department of Veterans Affairs.

The increased reliance on whistleblowers makes sense in many ways, given the realities of federal bureaucracy. The auto bill for example, in light of the massive amount of recalls industry-wide, is an attempt to catch problems before they happen. Senator John Thune (R-SD), chairman of the Commerce committee, praised the measure saying, “While laws and regulations currently provide certain penalties for unaddressed safety failures, this legislation seeks to help identify and stop problems before anyone is killed or seriously injured.” In the Medicare Advantage example, health fraud expert Malcom Sparrow notes, “Overall this is quite bad news, because in the majority of instances no whistleblower steps forward—as it’s a difficult, risky and highly stressful thing to do,” said Sparrow. “It shows the incentives provided for whistleblowers are working well, and all the other controls and detection systems are failing miserably.” In addition to the national scrutiny given to the VA wait-time scandal, which was brought to light by whistleblowers, at least 25 former employees were awarded some form of compensation despite few removals of the personnel they accused. In general, most whistleblower laws award between 15 and 30 percent of revenue collected by the government as a result of legal action brought about by the complainant on behalf of the government. The government then has the option of joining the case, a move that is often the difference between success and failure given the very high standard required for culpability.

While there is no doubt that whistleblowers, and the laws that protect them, are proving to be a vital asset in providing more ubiquitous assurance against wrongdoing, both in the public and private sectors, the encouragement of such actions can also be problematic. By essentially privatizing the oversight process, it often shifts the professional and sometimes even personal risk onto conscientious employees. Take for example, a recent article in the Pacific Standard, regarding the case of Tony Menendez, a former Haliburton executive who brought forth concerns to the SEC in 2006 about the company’s misleading accounting practices under the presumption of confidentiality. Knowledge of this was leaked throughout the company, and he was essentially left to languish by the agency after the SEC dropped its investigation. The ensuing legal process included altered testimony of witness statements, a claim also made in the VA retaliation hearings, as well as Haliburton’s lawyers using his devotion to principle, the fact that he wasn’t seeking damages, against him citing that it didn’t personally affect him. The judge in the 2007 trial sided with the company, stating “It is not unreasonable that they would be reticent to communicate with him about the topics being investigated. That reluctance was not retaliation for whistle blowing, but recognition of complainant’s role as an SEC agent.” (Emphasis added). The judge essentially told him that “snitches get stitches,” even in the corporate world.

Much like the incidents I highlighted during last month’s VA congressional testimony, individual whistleblowers often face becoming professionally blacklisted with a “scarlet W,” as writer Jesse Eisinger notes, “Many whistleblowers come undone after they launch their fights. They have trouble keeping their jobs, their marriages, (and) their sobriety.” Despite winning $30,000 after 7 years of appeals, the results of the incident have left Menendez’s professional viability in question, and several years of his life wasted.  Another frequently cited example is Chris Kirkpatrick, a VA psychologist and whistleblower who was reprimanded, fired, and eventually committed suicide in 2009, several years before the wait-time scandal. While legislation protecting whistleblowers may continue to help overt retaliation, it is difficult to assess subtler measures of retribution, internal pressure to conform, or the cumulative effects of general distrust brought about by an increased reliance on whistleblowing. Finally, even though whistleblowers represent the government during legal proceedings, it is generally up to the government’s discretion whether or not to join the case, with or without regard to the fate of the original complainant.

The aforementioned examples follow many others that indicate a culture of retaliation relating to whistleblowers, but there is another, perhaps a more closeted reason for its increased incentivization. As evidenced by former NHTSA administrator, David Strickland, who resigned his position in the middle of the recall crisis to take a consulting position for a lobbying firm that specializes in the auto industry, as well as former USDA head, Elsa Murano, who now serves on Hormel’s board of directors, there exists a “revolving door” among regulators and the companies they oversee. These cases are not unique, as 63 former NHTSA employees have gone on to work for automakers since 1984, and CPI exposed a startling level of cronyism between food companies and experts who regulate the safety of ingredients, many being former big tobacco advocates. Incentivizing whistleblowers, while likely beneficial in a vacuum, shifts the professional responsibility from regulators to citizens, while the regulators who are paid to conduct oversight are too often auditioning for future careers. This is another reason why the movement toward whistleblower culture should be met with a healthy dose of skepticism.


The Detroit News – David Shepardson

Mother Jones – Tom Philpott

Pacific Standard – Jesse Eisinger

USA Today – Donovan Slack

Washington Post – Joe Davidson



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