Whistleblowing against the Grain
Brandon Garrett’s 2014 book, Too Big to Jail: How Prosecutors Compromise with Corporations, takes
its title from complaints
the banks responsible for the 2007-8 financial crash were never properly punished. Going into the recession, the government had feared
that if a major bank failed, the economy could tank. It was a short step from “too big to fail” to
“too big to jail.” And whistleblowers lost
as a result.
Garrett studied reports from federal lawsuits against all
sorts of offenders. They included banks
but also others accused of fraud, safety, environmental and other federal
violations.
According to Garrett, many reasons explain seemingly weak-willed
actions against wrongdoers. First,
there’s the deniability of guilt. White
collar crime has long been considered difficult to prove[1]. Garrett points to layers of corporate
organization and decentralized decision-making that complicate prosecution. Violations are committed in distant offices,
divisions, or subsidiaries over which control is ambiguous. Senior managers claim they were unaware of misdeeds
as junior managers maintain they only did what was expected of them.
In my small HomeFirst world, I admitted intent
is difficult to prove. HomeFirst claimed it
really wanted to address the violations I identified. But each time it tried to fix one, I came up
with another. The board aimed
to act properly, but they relied on advice from the CEO who said things
were fine.
Organizations also protect themselves with written policies
that demand ethical behavior even where culture expects the opposite. Before its problems were obvious, Enron
famously had
an ethics policy. As did Wells Fargo Bank before
its fraudulent
accounts came to light. HomeFirst
had one when it fired me.
Second, prosecutors may go easy on offending organizations
because they need insider help to get evidence against guilty parties. Or because they decide the community could
lose more than it gains by punishing the organization.
Whistleblower John
Kopchinski sued pharma giant Pfizer for illegally marketing its painkiller
Bextra. While Pfizer paid $2.3 billion
in fines and penalties in 2009[2],
the one convicted of felonies was a subsidiary.
Pfizer itself avoided conviction, which would have meant a devastating disbarment
from Medicare/Medicaid business.
Similar logic can apply in much smaller cases. The Department of Housing and Urban
Development didn’t
demand repayment of $1.2
million overbilled by HomeFirst, citing HomeFirst’s critical role in the
community. The County of Santa Clara let
$140,446
overbilled by HomeFirst go for the same
reason. Although the County found HomeFirst
had violated
licensing regulations, it called the company a vital organization and granted
a temporary
waiver. After I complained about
HomeFirst’s apparently
illegal bid collusion, a Department of Justice attorney said they didn’t
like to charge companies that do good.
Garrett reported prosecutors often trade heavy penalties for
promises to change future behavior. Pfizer,
for example, accepted a 2009 Corporate Integrity
Agreement even while denying Kopchinski’s allegations. Despite its new resolve, Pfizer signed
more settlements with the DoJ in 2011, 2012 (2), 2013, 2015, and 2016.
After HUD discovered HomeFirst’s $1.2 million in overbillings
from 2003-2006, it modified its reimbursement procedures. Still, HomeFirst
charged HUD for expenses related to ineligible clients in 2009.
Third, getting convictions can be tough because corporations
have rights, too, and the legal resources they employ in their defense often outmatch
their prosecutors’.
James
Garbe discovered Kmart
offered cash customers one price for medications and Medicare and other
insurance plans a higher price. That meant
it violated the law, charging Medicare more than the usual and customary rate. Kmart never seriously challenged the facts of
the case, but for nearly 10 years it raised various technical legal challenges. Garbe eventually won. The DOJ settled for $32 million, not the $100
million it first sought. Garbe was
awarded $9.3 million, of which $7.4
million went to pay his legal costs.
By then, Garbe had developed dementia, so his share went to a guardian
for his estate.
Armstrong
is famous for his recovery from testicular cancer, seven Tour de France
wins, and his eventual admission of having used performance-enhancing drugs. Not as well-known is the whistleblower who
helped bring him down.
Floyd Landis
joined the USPS cycling team with Armstrong in 2002, and he ran into his own doping
problems in 2006. He continued to both
race and have drug problems for years afterward. Like Armstrong, he insisted on his innocence,
but he was convicted in 2009.
The big year was 2010. Landis admitted having doped and he filed a False
Claims Act suit against Armstrong, Tailwind Sports, which had the contract with
USPS, and related parties. He
charged the defendants billed USPS $42 million from 1996 to 2004 despite contract
provisions that barred use of illegal drugs and violation of cycling rules. On behalf of the government he demanded
treble damages – more than $120 million.
Armstrong tried unsuccessfully to stop the suit. Through 2012 he called all doping allegations
heinous and outlandish. Then in 2013 he
admitted using illegal drugs. He lost sponsorships
worth
$75 million. Still he and the other defendants
fought for five more years.
After eight years of fights and legal expense, the DoJ
settled in 2018. For $5 million. Landis will receive $1.1 million, plus
$1.65 million for his legal costs. Armstrong
still claims the action was unfair and without merit.
Garrett lays out a case for supposing society – authorities,
the powers that be, most people – doesn’t really value whistleblowing the way
we hope. That’s why the organizations we
accuse are seldom severely punished while we routinely suffer. We go into our whistleblowing expecting
justice – against our accused and for us.
Garrett suggests justice is messier than that.
Turning from Garrett’s book, we can question our heroic
whistleblowing fantasy. Not only is the
offender’s guilt unclear, we are impelled to act by many motivations. Some are honorable, some base; some social,
some personal; some rational, some not; based on accurate or inaccurate
understandings.
If we do not always do
the ‘right” thing and if we must occasionally admit we made a mistake[3],
in our whistleblowing we lived and acted.
[1] See,
for example, Sutherland, Edwin H. White
Collar Crime. New York:
Holt, Rinehart and Winston, Inc. 1949; and Friedrichs, David
O. Trusted Criminals: White Collar Crime in
Contemporary Society. 3rd ed. Belmont, Cal.: Thomson
Higher Education. 2007
[2]
This amounted to 4.6% of total
revenue in 2009. Despite the charge,
2009 operating income of $8.6 billion was higher than in 2008.
[3] Cf. Tavris, Carol and Elliott Aronson. Mistakes
Were Made (but not by me): Why We Justify Foolish Beliefs, Bad Decisions, and
Hurtful Acts.
New York: Harcourt, Inc. 2007
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