© Associated Press
This powerful voice from Iowa has been a beacon in the storm during an Obama Administration that has targeted whistleblowers and prevented accountability as never before. The Pentagon is also under Senator Grassley's fire for failing to examine 1,700 of the 5,200 reports of employees doing child porn. The Pentagon claimed it "wasn't a priority." Senator Grassley and his staff have made it one. The closed investigation into wide-spread use of child porn at the Pentagon is now re-opened.
There is a national crisis of federal employees engaged in the child porn industry and a related epidemic at the state level. I've documented two states,Vermont and Maine, that appear to be running state protected child trafficking rings with evidence of cops, judges, lawyers, clergy and government employees covering for each other. This kind of racketeering creates powerful, and extremely profitable, pedophile rings.
Money drives the crime. It is estimated that a criminal willing to molest a child in front of a live webcam can earn $1,000 a night. In Kittery Maine, at the "Danish Health Club," one bust yielded $6.1 million in "door fees" over a five year period with "prostitutes" earning $12 million. Pimps' earnings were not reported. The "door man" was a retired police officer whose wife worked in back. This bust happened because of one hard-working IRS agent, Rod Giguere.
An estimated $1.4 billion has been collected by the IRS's Whistleblower program since 2006; $464 million collected in 2010 but only $48 million in 2011. Half of all global child porn is produced in America. Ten new images of children are posted daily. Estimates of the global profits from child porn range from $3-20 billion. Imagine what the IRS Whistleblower program could collect if they focused on child trafficking as Agent Rod Giguere did in Maine.
The Department of Justice (DOJ)'s Child Exploitation and Obscenities unit has been, by many accounts, totally disabled under US Attorney General Eric Holder. Mr. Holder even refused to prosecute his own Assistant United States Attorney caught doing child porn on DOJ computers. The IRS wants 4,000 new agents and a $300 million budget to enforce ObamaCare. Instead, these resources should be allocated, entirely, for an IRS Child Exploitation & Trafficking Unit.
With so many police, judges, clergy, state and federal employees across America involved in the child porn industry Americans should be able to turn to the IRS's Whistleblower program. Richard Weber, Chief of IRS's Criminal Division in Washington DC, is one point of contact. Apparently, the IRS cares about trafficked children. That's good news because America's Attorney General, Eric Holder, does not.
Child trafficking and porn are the fastest growing crimes in America. With billions being laundered in black money it makes solid economic sense for the IRS to focus on the child porn industry. Eric Holder's Department of Justicehas demonstrated they have no interest in prosecuting pedophiles, not even their own. The IRS should be given substantial resources to compensate for DOJ's disgraceful failure. American tax-payers, not to mention America's children, will reap huge rewards.
Perhaps Senator Grassley will raise his powerful voice in support.
Lori Handrahan, Ph.D., is a professor at American University's School of International Service researching the national and international security ramifications of America's child porn industry. She can be reached athandraha@american.edu
Part 1)
Would be a dream if there was a section of government capable of doing the job expected if it, but anybody thinking the IRS Whistleblower program is a decent proxy for an enforce-nothing DOJ will be sadly mistaken. The Keystone Kops of the WBO can't even do their basic job and the IRS' bureaucracy doesn't want them to.
The IRS Whistleblower program is moribund. It would almost be more productive to submit a WB tip into a black hole.
The IRS complains about a shortage of personnel resources but instead of leveraging WB's tips, it instead handicaps this potential source through sluggishness, incompetence and disincentivising policies.
If good enforcement is efficient enforcement, then why does the IRS systematically disincentivize one of the largest potential sources of information that will help them target large scale tax cheats?
Doing the right thing is essential to the orderly operation of a free and law-abiding society. Studies repeatedly show most white collar fraud investigations start with a WB's tip.
However, WB's can be forgiven for not martyring themselves and risking their family's well-being in an attempt to help law-enforcement, especially when there are so many WB's broken via fraudster retaliation and few properly functioning retaliation remedies, recoveries, or rewards nowadays through law (excepting for FCA qui tam relators) or tax enforcement bodies.
No potential WB who's seen what has happened to those who blew the whistle before can be blamed for deciding it is better to hang one's head and move on than to try and right a wrong. There are just too many disincentives, enforcement-fails, or corrupted initiatives (like the IRS WB program, which with every annual report to Congress, increasingly reveals itself as a pernicious pretentious charade.)
I am probably the poster child of what Sen. Grassley has feared coming to pass: The IRS WB initiative dying the death of a thousand disincentivising cuts by driving off that which it was established to leverage.
Potential WB’s, like myself, who have taken an analytical wait and see approach to the development of the IRS’ WB program, can not be encouraged by the WBO’s 2013 Report (which itself runs less than 30 pages, a vast portion of which is copy/paste from last year’s report, is still wonderfully opaque and took 6 months to produce – talk about a prime indicator of the lack of vigor, attention and priority given to this program.)
Suffering retaliation from my employer, damage to my career and professional relationships, and my family’s well-being, by trying to prevent my management from perpetrating fraud, with no subsequent remedy available (as under FCA), has made me loath (translation: afraid) to approach the WB office given their track-record and that the IRS Chief Counsel’s proposed reward regulations seem to codify a game rigged against an expansive view of calculating WB rewards (and to add insult to injury, the IRS claws back massive portions of any long-delayed and scrupulously minimized rewards by deducting a Sequester Surcharge of 7.2% and then taxes the remainder at ~30%).
Anybody who has ever had a conversation with the WBO like I had, would be forgiven for thinking they had called into an ADD-affected college surf or pizza shop for the lack of professionalism and knowledge displayed by the folks that I spoke to. (This in severe contrast to my previous calls into competent helpful folks at the IRS’ general 800-number.)
(Continued)
Part 2)
Despite the departures of former Chief Counsel Korb (who famously said “The IRS didn’t ask for these rules; they were forced on it by the Congress”), former Commissioner Schulman and former Director of Enforcement and disgraced Commissioner Miller, it is hard to see any kind of sea change in the institutional resistance or the bureaucrats' apparent viewpoint that, sans whistleblowers, they already possess all the tools necessary (and given infinite time) to find all non-compliances.
Despite the ascension of self-avowed "whistleblower fan" Koskinen to the Commissioner's chair, is difficult to detect new institutional enthusiasm for, or a desire to cooperate with, a resource that solely benefits the public fisc. Rather, it feels as if slow-walking and deliberate barriers are intended to discourage that resource from embarrassing the Service by reminding the public that some frauds are not possible to discover, contour or prosecute without the help of a WB.
Even that grand old man, the congressional patron of WB’s everywhere, Sen. Grassley, released a very mild statement on the WBO's lackluster 2013 report. It seems as if the Service (in a strategy of frustration, fatigue and waiting-out biological inevitability, or maybe just plain bungling and dumb luck) has finally bested this old warhorse and he is giving up.
Much rhetoric is devoted to the importance of the WB programs, but over the last 4 years, there are so few successes and no real actions to optimize legislation to improve protections and incentives and to remove barriers. Sure, Sen. G. has coerced commitments from IRS honchos by putting holds on nominees, but such tactual action is non-sustainable opportunism and can't replace strong strategic legislation. (Nor does it obviate the growing impression that the Service is engaged in a form of malicious compliance while the Congress has run out of gas.)
Suggestions for Improvement:
1. Anti-retaliation remedy for any WB making a new submission to the WBO. As under FCA allow WB to be made whole if WB acted in good faith to prevent fraud and suffered as a result of this (regardless of whether there are collected proceeds). Don’t subject this provision to a shorter statute of limitations than the crime it is related to.
2. Force the Service to utilize an expansive reward compensation and Related Proceeds calculation scheme, rather than the stingy and disincentivizing scheme that seems sure to drop any day now;
3. Communications outreach plan? From the organization that seems so adept at hiding its lamp under a bushel? (Go to the IRS’ homepage, where is the link to the WBO?). Best communications outreach are strong protections and incentives for potential WB’s as well as delivering on these in a very generous and timely way. Good would be for Mr. Whitlock to start by hanging out his shingle on the IRS’s homepage (as per SEC’s example) and 1040′s, and to robustly declare the WBO as “Open For Business”;
4. Fix the code to:
a) index all penalties for inflation (effective back to the date the penalty was enacted);
b) increase the penalty for tax fraud from 75%, to parallel the civil treble damage fines used under the FCA;
c) require the Service to amend WBO submission Form 211 to incorporate by reference the responsibility for each WB (and counsel) to be bound by the obligations of the Service’s 6103(n) non-disclosure agreement. Revise the “infrequent and unusual” language from the JCT to authorize “frequent and normal”, to eliminate this as a justification by the IRS for avoiding using 6103(n) NDA’s, and promote “frequent, normal and expected” as the IRS’ new rules for WB engagement;
d) make deep engagement and utilization of the WB in investigations a part of each IRS employee’s compensation package.
e) revise the tax code to name and shame those brought to justice as a result of a WB’s input. Such action should not be reserved to only those tax scofflaws who have been brought to justice under criminal statutes. Downstream benefits: 1) tax-fraudster deterrence, 2) WB encouragement, and 3) Improved WBO annual report due to less aggregation of data);
f) building on e) above, require the WBO to write a synopsis of each recovery due to a WB tip and release these as a press release, then include these in a case-study manual for potential WB’s, such that individuals can be made aware of how schemes are perpetrated be in the lookout for such activity;
g) limit the Service’s discretion for reducing or eliminating fines, fees, penalties and interest for tax scofflaws brought to justice due to a WB’s input;
h) revise the Victims of Crime statutes to allow WB’s a share of all fines, recoveries, restitution ordered due to a criminal prosecution in conjunction with a WB’s input;
i) revise IRC to eliminate taxation of WB rewards (if we want to encourage a universal ethic that whistleblowing is socially beneficial, eliminating this 30% hit should apply to all government-sanctioned WB rewards.);
j) enact legislation exempting WB rewards from the 7.2% Sequester Surcharge.
(Continued)
Part 3/3)
The WB system as it is is being abused and frustrated by the IRS culture from top to bottom and from input thru output. What kind of committed and competent enterprise fails to pick low-hanging fruit (or does) but just leaves it to rot? This is the result when the IRS closes WB files because of "lack of resources" or "too short statute of limitations" (despite having policies to extend the SOL with the TP's consent.
What should be a closed-loop virtuous cycle resulting in more and better WB submissions and less tax scofflawism, begins and ends with strong anti-retaliation remedies, fat incentives, seamless communication and expeditiously competent processing of WB’s tips, not the polar-opposite approach in use today.
Whether the current situation is mostly due to bureaucratic sluggishness, institutional enmity, leadership malfeasance, incompetence, overwork, or congressional neglect is hard to say, but each of these disincentives are in play and being placed before WB’s by both the IRS AND the Congress.
Unless real reforms and further optimizations of the protections, rewards and procedures relating to the Service’s WB program are (again) forced upon it by Congress, nothing will change in terms of IRS commitment and involvement or in terms of recovery and deterrence.
Until something drastically changes, nothing can change for citizens such as myself that see the personal risks as too great to come forward. I am very disappointed in my government's administrative and legislative branches for practicing bait-and-switch and demolition via neglect respectively.
The failure of the WBO program (and this points directly to the dolts, where found and as appropriate, in the Commissioner’s Office, the Chief Counsel’s Office, the WB Office and the rest of the IRS’ bureaucracy in general) well reflects my mashed-up adage of:
“He who knows the price of everything but the value of nothing,
Is destined to be both penny-wise and pound foolish”
This is the ethic that has killed the IRS WB Program.
p.s. For kicks, please read the following article from 2006 and see how little has changed: [Link]
Thanks and regards,
the erstwhile hopeful IRS whistleblower,
FCA Aficionado