Multinational Monitor

OCT/NOV 2002
VOL 23 No. 10


Chartering a New Course: Revoking Corporations’ Right to Exist
by Charlie Cray

Global Rules for Corporate Accountability: The Proposal to Establish a Corporate Accountability Convention
by Matt Phillips

Divide and Conquer: Restraining Vertical Integration and Cross-Industry Ownership
by Robert Weissman


Trust-Busting: The State of Antitrust
an interview with
Robert Pitofsky

New Rules for the New Localism: Favoring Communities, Deterring Corporate Chains
an interview with
Stacy Mitchell

Challenging Corporate Personhood: Corporations, the U.S. Constitution and Democracy
an interview with
Jan Edwards

Blowing the Whistle on Corporate Wrongdoing
an interview with
Tom Devine


Behind the Lines

Corporate Mandates

The Front
Titanic Struggle in Kenya - Household’s Predatory Plea

The Lawrence Summers Memorial Award

Names In the News


Blowing the Whistle on Corporate Wrongdoing

An Interview with Tom Devine

Tom Devine is legal director of the Government Accountability Project (GAP). Founded in 1977, GAP is the nation's leading whistleblower organization. GAP promotes government and corporate accountability by advocating occupational free speech, litigating whistleblower cases, publicizing whistleblower concerns, and developing policy and legal reforms of whistleblower laws.

Multinational Monitor: What is a whistleblower?

Tom Devine: Going beyond legal technicalities, a whistleblower is an employee who exercises free speech rights to challenge institutional abuses of power that betray the public trust.

MM: Why is whistleblower protection a matter of broad public interest?

Devine: Because the consequences are severe when a government agency or corporation decides to put its self interest over the public. The whistleblower acts as an early warning signal and defense mechanism for the citizens at large.

MM: What are some examples of abuses that whistleblowers have revealed on the corporate side and reforms that have followed?

Devine: They have exposed and stopped countless instances of the food industry trying to make money off of products likely to sicken consumers, such as contaminated government-approved meat and poultry, or illegal drugs in the supply of animal feed that ends up in milk or other products.

They have forced the shutdown of nuclear power plants that were 97 and 82 percent complete, by demonstrating that companies had either colluded with or hoodwinked the Nuclear Regulatory Commission into rubber-stamping facilities that were accidents waiting to happen.

They have revealed that, contrary to government contractor figures conceding 5,000 gallons of radioactive waste lost from the Hanford Nuclear Weapons reservation and waste disposal site, that actually 440 billion gallons had been leaked into the air and groundwater in the Columbia River basin. Those disclosures forced an amendment to cut emissions by 60 percent at that facility.

They have exposed numerous instances where incinerators were illegally burning mercury, arsenic and other heavy metals near residential sites and black churches in the South or even near or next to schoolyards. Those disclosures forced the shutdown of toxic incinerators.

MM: What kinds of constitutional protection do whistleblowers have in the United States?

Devine: Since 1968, government employees have been covered by the First Amendment. Before that time, you could challenge government misconduct as a private citizen but not as a knowledgeable insider.

Those First Amendment protections are very uncertain and squishy at best, however. A whistleblower never knows in advance if retaliation will be illegal, because relief depends upon winning a case-by-case balancing test, which asks: Does the value of your free speech for the public outweigh the disruption of legitimate organizational interest? That is impossible to predict until the trial is over.

MM: Do whistleblowers in the private sector, at big corporations, have any constitutional protections?

Devine: No, the constitution only extends to government free speech repression.

The long-established law for the private sector has been the at-will doctrine, which means you can be hired or fired at whim.

That began to change in 1959, when California adopted the public policy exception to the at-will doctrine in common law. It allows employees to sue for punitive damages if they're fired or harassed for defending the public against some type of corporate misconduct, and has since been picked up by 40 states.

Unfortunately, unless you're an expert, you never know whether you're on the right or wrong side of the protected speech border. And the track record has been very spotty for litigation through those law suits. Occasionally, an employee will receive a six to seven figure punitive damages award, but that is the rare exception. Further, those lawsuits don't provide for the employees' reinstatement; they are limited to damages as compensation.

Eighteen states have adopted statutory protection for corporate workers. Those rights are adjudicated before administrative boards which tend to be extremely hostile, almost to the point of being minor league kangaroo courts. As remedies, they provide for reinstatement rather than any kind of punitive damages.

MM: What are federal protections for corporate whistleblowers?

Devine: There are over two dozen federal statutes that can provide protection for corporate workers. Prior to passage of the Sarbanes-Oxley corporate accountability bill passed this summer, they broke down into two models.

The most common model involves witness protection clauses in various public health and safety laws addressing specific problems. For example, the Clean Air Act, the Superfund law and similar environmental laws all have witness protection clauses that are just another name for whistleblower rights. Congress passed an analogous law for airline safety in 2000.

Enforcement of these clauses involves the Department of Labor administrative law system, which tends to be highly politicized, and which is a black hole for expeditious rulings in high-profile or politically controversial cases.

Whistleblowers commonly wait two to three years for a ruling, with no possible interim or injunctive relief.

The other primary model in federal law prior to Sarbanes-Oxley, is the False Claims Act. That is the only statute that allows whistleblowers to go on the attack and challenge corporate misconduct as well as protect themselves against job-related retaliation.

The law is nicknamed the Lincoln Law because President Lincoln championed its passage during the Civil War when there were so many shoddy defense contractors that Union troops regularly were getting killed by their own weapons backfiring -- a preview of today's defense contractors.

The government was not able to effectively inspect the quality of the weapons purchased for the troops, so Lincoln successfully championed a private attorney general law allowing individual citizens to file lawsuits, on behalf of the government, challenging fraud in government contracts. Whistle-blowing company employees were authorized to file civil suits against the firms where they worked, for defrauding the taxpayers.

That law was eroded and stopped being very relevant by the end of World War II.

However, in 1986, Congress revived and modernized the False Claims Act. It is now the most effective whistleblower statute on the books. If the employee files suit and prevails, the company which defrauded the government has to pay treble damages for the misconduct. In an early stage in the suit, the Department of Justice can adopt the litigation and relieve the whistleblower of most cost and expenses from continuing to prosecute the case, which may not be financially realistic for the long haul.

But the whistleblower gets to remain a part of the process as an intervenor and to continue filing briefs. At the end of the lawsuit, if the case is successful, the whistleblower can receive anywhere from 10 to 30 percent of the recovery.

The statute has been very effective. The year before it was modernized, the Department of Justice had collected $26 million for civil fraud in government contracts, and 1985 was a good year for them -- their normal haul was $5 million to $6 million. In the first 10 years after the False Claims Act was modernized and whistleblowers were enfranchised to challenge fraud in court, the average recovery increased to roughly $200 million a year.

Last year, there was recovery of over $800 million in one case alone. And the totals are now exceeding $1.5 billion annually.

The False Claims Act also has an employee protection clause which allows corporate workers to have a trial in U.S. district court, which is a cut above the witness protection clauses in the environmental and other remedial laws.

MM: What possibilities do you see for adapting the False Claims Act approach to other kinds of abuses besides defrauding the government?

Devine: That's our next goal, following passage of the Sarbanes-Oxley corporate accountability law. We view this law as a beachhead for more ambitious reforms allowing corporate whistleblowers more generally to go on the attack against institutional misconduct using the False Claims Act or similar models in a wider context.

Our group has been pushing for a Citizens Enforcement Act, which would allow citizens to act as private attorneys general against any corporate illegality, not just fraud in government contracts.

The Organization of American States actually recommended the Citizens Enforcement Act for all member nations in 2000 as part of the implementation of its Inter-American Convention Against Corruption, which the United States ratified last fall.

Another way to help whistleblowers make a difference would be adopting something akin to the disclosure channels in the whistleblower protection act for federal government employees.

Under that law, they can file evidence of bureaucratic misconduct with a good government agency whose job it is to screen the wheat from the chaff among the allegations. It's called the Office of Special Counsel.

If the Special Counsel decides there is a substantial likelihood that the whistleblowers are accurate, it can order the department, the cabinet secretary or agency chief to investigate and report back what the institution is going to do about the problem. The whistleblower gets to evaluate whether the report was a good faith resolution or a whitewash; the Special Counsel can flunk the report and send the agency back to the drawing board if they don't agree it was a good faith response. And then the entire package gets sent to Congress and the president, and placed in a public file; it's available for anyone at the Office of Special Counsel headquarters or through the Freedom of Information Act.

Interestingly enough, there is a very analogous precedent for this in the corporate world, initiated by Stanley Sporkin when he was head of the Securities and Exchange Commission's (SEC's) enforcement division in the early 1970s.

Sporkin used a similar model to enforce as the cornerstone for consent decrees settling SEC investigations of improper political payments involving both foreign bribery and improper payments to Nixon's Committee to Re-Elect the President. In exchange for not formally litigating against the suspected wrongdoers, Sporkin accepted their internal housecleaning effort where the board of directors, through an audit committee or subcommittee of outside directors, had to conduct an outside investigation of the alleged corporation.

The SEC monitored and approved how the investigation would be conducted.

When the report came in, the SEC assessed it until satisfied, and then all those reports were placed in the public record.

They were a goldmine for investigative journalists and others researching political corruption in the late 1960s and early 1970s.

That is strikingly similar to the system available for federal whistleblowers in the civil service system and it sparked the same provision that is the key for protected speech in the Leahy-Grassley whistleblower provisions approved this summer as part of the overall Sarbanes-Oxley corporate accountability bill.

Sporkin's hook for negotiating these extraordinary series of corporate spotlights on the company's own misconduct was that the companies had concealed information which could have a material impact on the value of shareholders' investments.

Bribery can have a serious impact on the value of company stock if it's caught and prosecuted.

So can almost any serious corporate misconduct, whether it is toxic dumping, cheating on the value of earnings, selling tires that could cause auto accidents or any other corporate cheating that could have serious consequences.

If the impact on the public could be significant, the risk for the corporation is equally high.

MM: What do the Leahy-Grassley provisions of the Sarbanes-Oxley bill do to protect whistleblowers?

Devine: Any employee of a publicly traded corporation is protected against retaliation for disclosing information that he or she reasonably believes the shareholders have a right to know because it could have a material impact on the value of their investment.

That provision sweeps aside all the previously existing distinctions between what industry an employee works in and the subject matter of his or her dissent.

To illustrate: under prior law, you could work at a chicken processing plant and have whistleblower rights if you blew the whistle on water pollution from drain off after the day's production activities. But you could be fired at will for warning the USDA inspector that the company was slipping through contaminated poultry that could cause an epidemic of food poisoning.

Under the Leahy-Grassley whistleblower law, those distinctions are all swept aside.

Only two loopholes are left, though they're serious ones.

First, the law doesn't cover employees of privately traded corporations.

Second, the law can be preempted or trumped by employment clauses giving corporations the right to supercede statutory free speech protections with company-sponsored arbitration hearings.

So the Leahy-Grassley whistleblower provision is not a panacea; it only covers publicly traded firms and companies can preempt it through employment clauses that cancel access to this federal law. Those are additional challenges that have to be met for a seamless system of corporate whistleblower protection.

Otherwise, however, this law is a breakthrough that means we've reached the promised land!

GAP has been fighting to get this law passed since 1985. That's the only word for it; we've reached the promised land for this scenario for dissent. Without question, the law represents a revolution in corporate freedom of speech and it far surpasses, indeed laps, the rights available for government workers.

MM: The Sarbanes-Oxley bill essentially says that whistleblowers who were revealing information of material interest to investors are protected?

Devine: It says they are protected for disclosing corporate crime and fraudulent misconduct and any violation of SEC rules. The cornerstone SEC rule is the shareholders' right to know any information that would have a material impact of the value of their investment.

MM: You read that provision not just to cover disclosures related to fraud against stockholders and that sort of thing?

Devine: There is no way this law is limited to schemes to cook the books. If corporate misconduct could sabotage the value of a shareholder's investment, it's fair game for protected speech by a whistleblower.

MM: Would there be a threshold level of significance for the protections to kick in?

Devine: The protection of speech would cover either violation of criminal law or the threshold for materiality, which is financial significance, something that could affect a shareholder's decision.

MM: One area where there is very serious consequences but very low fines or corporate liability is in workplace safety and health.

Devine: If it is a criminal violation, the whistleblower would be covered. If not, it could go either way, but it would be a long shot, because it is so unlikely that a workplace safety citation would create a ripple on the stock market.

MM: Whereas more major environmental abuses, even if they were civil violations, would be protected?

Devine: Absolutely, yes.

The other thing that is significant about the law is the unrestricted scope of the audience for protected whistleblowing.

Right after the law was passed, the Bush administration issued an interpretation that it only applies for corporate workers making disclosures to specific congressional committees with formal oversight authority after they've opened an official investigation. That interpretation flunked the laugh test.

The law lists protection for disclosure to individual congressional offices or committees, but it also lists protection for disclosures within the corporation to prevent misconduct.

Longstanding Department of Labor law since 1980 has defined that disclosure to include members of the public, to nongovernmental organizations, to the media or to local government outlets.

The reason is this is the routine research base for any law enforcement or regulatory agency worth its salt; they read the newspapers.

The legal theory which has been in effect for over two decades, is that by speaking to the media, you're blowing the whistle to the government as well, and that triggers your free speech rights.

That doctrine is now under attack. Recently, Eugene Scalia, the solicitor of labor [the top lawyer and legal adviser at the U.S. Department of Labor, and son of U.S. Supreme Court Justice Antonin Scalia], has challenged that current whistleblower statutes even protect unrestricted disclosures to Congress, let alone to the public.

And the Labor Department is asserting the Bush administration theory that only official committees with official oversight duties that have opened formal investigations are a safe outlet for corporate whistleblowers.

But that theory flies in the face of over 20 years of consistent legal precedents throughout the administrative law system and the courts.

That will remain the law until there is an authoritative decision overruling the doctrine that there are no boundaries on the scope of a protected audience for a corporate whistleblower.

MM: So this will all be resolved if and when there is a court determination?

Devine: Yes, this will probably play itself out over the next few years.

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