The False Claims Act is possibly the most important corporate crime busting law on the books. It’s not a criminal law. But it promises a bounty to company insiders who blow the whistle on fraud against the government. And it has deterred maybe $500 billion or so in fraud since the modern amendments were passed in 1986.
The man behind those amendments is John Phillips. He drafted the law. Then got it passed through Congress. And somehow got Ronald Reagan to sign it in 1986. He’s been litigating under the law ever since.
Phillips says that the law has recovered close to $50 billion for the U.S. Treasury. And twenty percent of that – $10 billion – has been recovered by cases brought by his firm – Phillips & Cohen.
But that’s just the tip of the iceberg. Phillips estimates that the law has saved the government fully half a trillion dollars – that would be $500 billion since 1986. That’s what he estimates would have been ripped off had the law not been in place. How?
One word – deterrence. Most importantly, Phillips says that it’s the concept of the law – private attorneys bringing cases on behalf of the government – that should be spread beyond the False Claims Act.
Take the Internal Revenue Service whistleblower law. It doesn’t work. Why not? Because only the IRS can bring the cases. “There are some 2,000 or more cases pending before the IRS,” Phillips told Corporate Crime Reporter last week. “And not one has been resolved. And we can’t do anything about it. We can’t go to a judge, we can’t go to court.”
What about the whistleblower law at the Securities and Exchange Commission?
“That one is doing a little better, and we can put a little bit more pressure on the SEC,” Phillips said. “But I would like to see this action-forcing mechanism that works so well in the False Claims Act, extended to each of those areas. And we shouldn’t give up. The whole concept is private enforcement of public laws. It’s an efficient, well tested mechanism that has worked extremely well. And we should be looking to apply that mechanism in many other areas of enforcement.”
Why do you have a better shot with the SEC than with the IRS?
“Mary Schapiro, the chairwoman of the SEC, has an interest. She is pretty staunchly in favor of this. We can’t pursue the case in their absence. That’s a real weakness. We have both SEC and IRS cases.”
“New York state has such a provision. And they have a great Attorney General up there. That’s where the money is.”
“There is $400 billion a year in unpaid taxes. And many of these cases that we and others have are huge cases against these hedge funds, against all of these manipulations by high level people in the company. It’s not a fraud statute. They are not paying their taxes. There is so much money there. It’s just languishing. Why? Because there is real bureaucratic resistance within the IRS to this whole concept.”
“Meeting with the IRS, it’s unbelievable.”
But you think that these tax cases will be coming out of New York because they have a qui tam provision?
“Yes, because they have an aggressive Attorney General who is anxious to have these cases brought. He’s about as good a state Attorney General that I’ve ever seen. And he has a whole concept on how to implement this.”
“And he has an assistant who is really way out in front. And they are saying to us – come to us. Bring us your cases.”
“We will work with you. We will give you access to documents.”
“We will let you run with cases where we can’t provide all of the resources necessary. And that is supposed to be how it works. And so, we can bring all of these IRS cases that have a New York connection up there and put the pressure on the IRS.”
[For the complete transcript of the Interview with John Phillips, see 26 Corporate Crime Reporter 32(10), August 6, 2012, print edition only.]