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On Apr. 5, 2013, the District Court of the District of Columbia ordered the Inter-American Investment Corporation (IIC), the multilateral private sector lending arm of the Inter-American Development Bank (IDB), to turn over documents to Jorge Vila, who is suing the institution. The ruling read:
it is hereby ORDERED that the defendant shall produce to the plaintiff any contracts for consulting services or reports created by consultants that contain references to the work allegedly performed by the plaintiff, the value of the type of work allegedly performed by the plaintiff, or the value of an initiative involving the type of work the plaintiff allegedly performed if the defendant had chosen to pursue it. Contracts and reports that do not contain any of these references need not be produced. It is further ORDERED that the defendant shall produce to the plaintiff any information regarding salaries and bonuses paid to employees who perform work for the defendant that is similar to the type of work allegedly performed by the plaintiff.
The ruling definitively penetrates the legal immunities that have largely protected intergovernmental organizations in the United States from external scrutiny of their contracting practices for decades.
The following piece is a guest editorial by Gary J. Aguirre, former SEC Senior Counsel and client of GAP attorneys, who presently heads a law practice focused on financial litigation that includes whistleblower representation.
Whistleblowers who receive an award from the Securities and Exchange Commission (SEC) or Commodity Futures Trading Commission (CFTC) for disclosing violations of securities or commodities laws are subject to uniquely unfair tax liability. They pay income tax on their entire award, including the portion paid to their attorney under a contingent fee agreement. This is in addition to the income tax their attorneys pay on the same fee.
An example best illustrates the point: Assume a whistleblower receives a $500,000 award from the SEC pursuant to the Dodd-Frank Act. The net award is about $350,000 after the whistleblower pays his attorney $150,000 pursuant to a contingent fee agreement. One might expect the whistleblower to be taxed on the net amount: $350,000. Wrong, the whistleblower would be taxed on the entire amount of the award ($500,000), since taxes would likely be computed using the federal Alternative Minimum Tax (AMT) of 28%, which would include the $150,000 of attorney’s fees. It gets worse when the state, e.g., New York, has its own AMT. In this scenario, the unhappy whistleblower could easily net only one-third of his $500,000 award: $166,000.
This problem originates with Commissioner v. Banks, 543 U.S. 426 (2005), where the Supreme Court held the plaintiff’s entire recovery of economic damages in a civil rights case was taxable income, including the portion paid to the plaintiff’s attorney under a contingent fee agreement. Although the amount paid as attorney’s fees may be claimed as an itemized deduction (Campbell v. Commissioner, 134 T.C. 20 (2010)), it is still subject to the AMT (28%) and to the 2% floor on miscellaneous deductions. Banks had disastrous effects for the False Claims Act (FCA) whistleblower in Campbell. In addition to holding that the attorney’s fees were taxable to the whistleblower, the tax court tacked on a 20% penalty for trying to circumvent the law. After the events in Campbell, but prior to the decision, Congress enacted an above-the-line exclusion for attorney’s fees for FCA whistleblowers (26 USC § 62(a)(20)), but the Campbell Court declined to apply that statute retroactively.
In October 2004, the Civil Rights Tax Relief Act eliminated double taxation in whistleblower reprisal cases, discrimination cases and other employment-related cases. The statute permits an above-the-line exclusion of attorney’s fees, meaning the fees are not taxable to the plaintiff. Accordingly, whistleblowers in reprisal cases – including reprisal cases under the DFA – only pay taxes on their net recovery. Likewise, a FCA whistleblower only pays taxes on his net recovery (26 USC § 62(a)(20)). The same is true for a whistleblower who receives an award from the IRS (26 USC § 62(a)(20)). However, since no statutory exclusion applies to the attorney’s fees paid by a whistleblower who obtains an award from the SEC or CFTC under Dodd-Frank, he must go the itemized deduction route, which means the 2% floor and the 28% AMT.
There is no apparent reason for taxing the attorneys’ fees paid by whistleblowers under Dodd-Frank while excluding such fees from gross income for whistleblowers who obtained an award under the FCA or the IRS’s whistleblower program, the model used by Dodd-Frank. Maybe it is time to ask Congress to remedy this injustice.
Gary J. Aguirre is a former SEC Senior Counsel and client of GAP attorneys, who presently heads a law practice focused on financial litigation that includes whistleblower representation.
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Politico: Bradley Manning, Media Score Court Martial Wins
Returning to court yesterday, military whistleblower Bradley Manning won a possibly significant ruling after the judge stated that the prosecution will have to prove that Manning acted with the knowledge that his whistleblowing could put US national security at risk. This is significant as the prosecution aims to convict Manning of ‘aiding the enemy,’ using as primary evidence digital copies of documents given by the soldier to WikiLeaks that were found inside Osama bin Laden’s compound. The requirement to prove intent will make the prosecution’s job considerably more difficult, as Manning has given testimony stating his intent was not to bring such harm.
In other trial news, the prosecution is expected to call as a witness one of the Navy SEALs that participated in the Abbottabad, Pakistan raid that resulted in the death of bin Laden.
Manning’s ongoing trial is sending a terrifying message to future civilian and military whistleblowers. As this editorial makes clear, in one of his most exemplary acts of whistleblowing – for which he faces life in prison – Manning informed Reuters how two of their journalists died. The continued prosecution of this type of truth-telling is dangerous and does nothing to protect the future of US national security.
President's Budget Reflects Proposed Implementation of Flawed Poultry Rule
Yesterday, President Obama released a proposed FY2014 budget for the Department of Agriculture that indicated savings from the agency's poultry inspection plan – a troubling development that USDA whistleblowers have come out against. GAP's Food Integrity Campaign, which has worked to prevent the plan's implementation, explains.
In Budget Debate, Congress Should Review ICIJ Exposé
Much has been revealed about the entrenchment of high-profile international figures from both government and major financial institutions in the global offshore banking scheme since the International Consortium of Investigative Journalists' (ICIJ) latest report. GAP Executive and International Director Bea Edwards explains why the revealing documents should be considered by Congress and the White House as they discuss the federal budget.
Al Jazeera: UN Accused of Failing to Protect Whistleblowers
More coverage of the recent press conference in New York City that featured UN whistleblower James Wasserstrom and GAP International Officer Shelley Walden. Wasserstrom blew the whistle on corruption in the UN Mission in Kosovo (UNMIK) and experienced retaliation. The miniscule settlement offered him has left Wasserstrom worse off than he started, sending a negative message to future whistleblowers inside the international organization.
Key Quote: (from GAP International Officer Shelley Walden) Ban Ki–moon said publicly in 2011 that he really supports whistleblowers and that he supports creating a better culture for whistleblowers in the United Nations but unfortunately his words and his actions don’t meet up.
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The International Consortium of Investigative Journalists (ICIJ) is mining the largest stash of leaked corporate documents everDeutsche Bank is among those accused of encouraging offshore accounts delivered to any group beyond those involved in the schemes exposed. The group’s website reveals that the massive investigation began “after a computer hard drive packed with corporate data and personal information and e-mails arrived in the mail.”
An anonymous source or sources sent the hard drive to Gerard Ryle, ICIJ’s director, “as a result of his three-year investigation of Australia’s Firepower scandal, a case involving offshore havens and corporate fraud.”
In the multi-year project, a large team of investigative journalists is analyzing the data, which consists of “four large databases plus half a million text, PDF, spreadsheet, image and web files.”
Much remains to be done, of course, but already ICIJ teams have assembled data clearly linking the first family of Azerbaijan, the campaign treasurer of the French President, and the daughter of Ferdinand and Imelda Marcos, among many others, to offshore tax
havens and companies built behind walls of secrecy.
Of the Americans identified in the databases and other documents, “at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct...” including Raj Rajaratnam, the billionaire hedge fund manager convicted of insider trading in 2011.
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Reuters: Hearing to Expose IRS Informant Program to Scrutiny
The IRS has faced criticism for some time of not doing enough to promote whistleblower disclosures. The agency has increasingly come under scrutiny since it adopted a new whistleblower law seven years ago, which stipulates monetary incentives for whistleblowers to come forward. Since then, only one whistleblower has been publicly awarded. Most other claims received by the office are delayed for years or never responded to at all. However, the agency will soon be forced to act. In June, a hearing will be held in Tax Court for a whistleblower complaint sent to the IRS in 2007. After waiting five years with no word from the tax–agency, the whistleblower took his claim to Tax Court in 2012, compelling the IRS to respond.
Key Quote: Compared to programs at the Justice Department, the Securities and Exchange Commission and the Commodity Futures Trading Commission, the IRS program offers the fewest protections for whistleblowers, said Tom Devine, of the Government Accountability Project, a non-profit group that advocates for whistleblowers.
Missouri Senator Roy Blunt Helped Secure 'Monsanto Protection Act'
Senator Roy Blunt (R-Mo) owned up to having worked with Monsanto on crafting the provision – now referred to as the 'Monsanto Protection Act' – that would prevent judicial review of genetically engineered crop approval. The provision was included as a rider in the recently enacted appropriations bill that sets the government budget through September. GAP's Food Integrity Campaign has the details.
Holland & Knight: United States – SOX Whistleblower Protection Expanded by a Federal Appeals Court
A new federal appeals court ruling has significantly facilitated the process of filing wrongful termination claims for whistleblowers under the Sarbanes Oxley Act (SOX). The ruling came about as a result of a former accountant’s wrongful termination suit, alleging he was fired after raising questions about several large expenses. The new ruling will allow courts to take on more non-shareholder related and pre-emptive complaints concerning wrongful accounting practices.
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New York Times: Aggrieved UN Whistleblower Seeks Withholding of American Funds
James Wasserstrom, the UN whistleblower retaliated against for reporting corruption within the multilateral organization’s mission in Kosovo – and who subsequently underwent an intense legal battle – made his case yesterday in New York City at a press conference. Before members of the media, he emphasized the negative message that his case’s meager settlement sends to future UN whistleblowers. GAP International Officer Shelley Walden also spoke at the conference where Wasserstrom outlined the letter he had sent to Secretary of State John Kerry and lawmakers requesting the US uphold a law detailing the withholding of 15 percent of its UN funding in the case that whistleblower protections are not being implemented properly. GAP represents Wasserstrom on advocacy issues.
Key Quote: Mr. Wasserstrom, who is now an anticorruption adviser at the United States Embassy in Kabul, Afghanistan, released the text of the letter at a New York news conference arranged with the help of the Government Accountability Project, a nonprofit group that advocates for whistle-blowers. Copies of the letter also were sent to American officials, including Ambassador Susan E. Rice and more than two dozen members of Congress who sit on committees that have a say about budget allocations to the United Nations…
Shelley Walden, the international program officer of the Government Accountability Project, who appeared with Mr. Wasserstrom at the news conference, told reporters that after his prolonged legal brawl, “Mr. Wasserstrom is far worse off financially than if he had simply remained silent"…
Under the whistle-blowing program instituted in 2006, the Ethics Office had received at least 343 inquiries from whistle-blowers about protection against retaliation as of last June, according to the Government Accountability Project, but only 1 percent of them were ultimately validated as retaliation. Mr. Wasserstrom said in his letter that such a record “defies logic, probability and common sense.”
Related Articles: Reuters, Associated Press, The Hill, Inner City Press
Ag Gag Undercover #5: In the Dark
Yesterday, GAP's Food Integrity Campaign released the fifth video in its "Ag Gag Undercover" series, which aims to raise awareness about the anti-whistleblower Ag Gag bills that would criminalize undercover videotaping in animal agriculture. Watch all of the series videos here.
Also, a New York Times op-ed calls for upfront transparency in the food system that would negate the need for undercover video in the first place, including the requirement of slaughterhouses to install webcams at key stages of their operations.
Additionally, the language of Indiana's Ag Gag bill was reworked to focus on limiting trespassing rather than mentioning videos or photos, according to the Indianapolis Star. Concerns remain, however, regarding employees' ability to safely blow the whistle without fear of intimidation from their employers.
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Wall Street Journal: UN Aide to Seek Redress on Cash Award
James Wasserstrom, the UN whistleblower who was awarded only a fraction of his claim despite winning a wrongful dismissal case after he pointed out corruption in the organization’s Kosovo operations, is in New York City today petitioning the State Department to uphold the law, under the circumstances, and withhold a portion of its funding to the international organization. GAP International Officer Shelley Walden spoke at the event in New York City along with Wasserstrom.
Read GAP’s blog post on Wasserstrom’s case here.
New York Times: Taping of Farm Cruelty is Becoming the Crime
Indiana and Tennessee are expected to vote on their respective 'Ag Gag' bills, which would make it illegal to take undercover video at livestock farms and criminalize whistleblowers. Other states are considering similar legislation, including California and Pennsylvania. Ag Gag measures in New Mexico, New Hampshire and Wyoming have failed to pass.
The fifth video in GAP's Food Integrity Campaign (FIC) series, "Ag Gag Undercover," will be released later today.
Sign up for FIC emails to find out when the new video goes up.
Forbes: Anonymous Whistleblower Behind Exposé of Massive Corruption by Banks and Others
Last week, the International Consortium of Investigative Journalists (ICIJ) released a groundbreaking report on secretive offshore holdings totaling trillions of dollars belonging to elite individuals from business and government around the world. The investigation relied heavily on the 2.5 million electronic files sent to the ICIJ by an anonymous whistleblower. The inside information – the most ever obtained about the offshore system by a media organization – accuses most of the world’s major banks of participating in or encouraging the widespread scheme.
The Mythology of Capture vs. Kill
GAP National Security & Human Rights Director Jesselyn Radack analyzes the Obama administration’s rhetoric emphasizing the human capture, trial and imprisonment of terrorist suspects, while at the same time continuing to bolster its drone assassination program – the goal of which is always to kill and never to capture.