PGS, a subsidiary of the large security firm Securitas Security Services, was providing security services for a Department of Energy installation between 2001 and 2005. During that time, the company was reimbursed by the DOE for all costs, including the costs of providing health insurance to employees, according to a statement by the Department of Justice. PGS allegedly overcharged for those health care costs.

The case was brought to the attention of the DOJ by two whistleblowers who filed a qui tam suit against the company under the False Claims Act. The two whistleblowers will receive a total of $172,805 from the settlement, according to the DOJ.

One of the biggest changes brought about by the new bill is the reversal of the recent Supreme Court Decision in Allison Engine Co. v. United States. That decision created a loophole in which subcontractors receiving government money would not be liable under the False Claims Act, according to a statement released by the National Whistleblowers Center.

With the new legislation, a company can be charged under the FCA if an employee “knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the Federal Government; with an agent acting on the Government’s behalf; or with a third party contractor, grantee, or other recipient of such money or property.”

Previously, government subcontractors could only be charged under the FCA if they knowingly and intentionally defrauded the government, not the primary contractor.

The bill was first introduced by Senators Patrick Leahy of Vermont and Chuck Grassley of Iowa in February.

If you’re so inclined, you can read the full text of the bill here. Of course, the simplest way to protect yourself and keep this all straight is…just don’t defraud anyone.

The ruling came after a complaint was filed with OSHA by an in-house attorney who worked for a publicly traded company (the attorney’s name and company seem to have been withheld). After the attorney learned that her company had sent misleading information to the SEC, she reported the information to the Board of Directors.

Her company hired a privately held, outside consulting firm to help reorganize. This is important because, after the attorney followed up on her report to the Board, she was fired by the outside company.

The attorney then sued both her company and the outside, privately-held firm that fired her, alleging that they both violated the whistle-blower provisions of Sarbanes-Oxley. An administrative law judge, as well as the DOL’s Administrative Review Board, ruled in her favor.

Two police officers who allegedly gave information to the journalists are also going on trial for “deliberately revealing state secrets,” according to an AP report on the story.

The Economist has a good description of the corruption that the reporters uncovered, saying the “case was a scandal at the transport ministry in 2006 in which newspapers revealed how officials had gambled around $750,000 of public money on the outcomes of football matches. In the clean-up that followed, the head of a road-building department at the ministry was jailed, along with seven others.”

In a related story, The China Post reports that seven journalists had their press cards taken away in retaliation for covering the corruption story.

Media watchdog groups rightly argue for the release of the two journalists, arguing that jail time will discourage other would-be whistle-blowers and investigative journalists from reporting on government crimes.

The trial could last two days according to a court official, and the charge of “abusing freedom and democracy” has a maximum sentence of seven years in jail.

The ruling stems from a case involving Navy subcontractors tasked with building destroyers. According to the story on the UPI, the Navy contracted with two different shipyards, which needed generators. The shipyards subcontracted with a company called General Tool Co. to assemble the generators, and GTC in turn subcontracted with another group to build the generator’s bases and enclosures. All of the subcontracts reportedly included clauses that require products to have a “certificate of performance,” guaranteeing they met Navy standards.

Two GTC employees blew the whistle on Allison, the subcontractor that built the bases and enclosures, for allegedly issuing certificates of performance under false pretenses. According to the report, a federal appeals court sided with the two employees, but the Supreme Court overturned that decision.

While those two employees can get some satisfaction out of the fact that they discovered allegedly illegal activity, and stopped it in its tracks, they’re probably more concerned with the fact that whistleblowers generally get a cut of any fine levied against a company because of their tip. Now their potentially large payday is in limbo, as they have to wait for the case to be sent through the appellate system once again.

With recent publicized stories of whistle-blowers making small fortunes for calling-out cartels, and after the success of German and British authorities paying informants for the names of people evading taxes through Liechtenstein bank accounts, the hope is that this new plan will encourage more employees to speak up about their companies’ illegal habits. According to the Independent:

Simon Williams, the OFT’s senior director of cartels and criminal enforcement, said: “We believe that it is in the public interest to offer financial incentives in the hope that it will encourage more people who have good information about the existence of hard-core cartel activity to come forward.”

Obviously, the information has to be good – whistleblowers will only get paid after a successful prosecution. The OFT has established a hotline (0800 085 1664) as well as an email address (cartelshotline@oft.gsi.gov.uk) that aspiring whistle-blowers can use to report bad behavior.

The raids came after German authorities came into possession of a data DVD containing information on wealthy German citizens who transferred large amounts of money to Liechtenstein banks (Liechtenstein often frustrates Western nations due to the lack of transparency in its banking system). German citizens have been using it for years to shelter their wealth and avoid paying large taxes, though unfortunately for them, “everybody’s doing it” isn’t a proper legal defense. German prosecutors promise that charges will be brought against offenders, and say it’s only a matter of time until enough evidence is collected to file suit.

So far the only individual named as a suspect in the case is Klaus Zumwinkel (pictured), the former Chief Executive of Deutsche Post, the German mail company. Although he was a respected businessman in his country, these allegations forced him to resign last Friday.

German Chancellor Angela Merkel pledged to put pressure on Liechtenstein Prime Minister Otmar Hasler (who also doubles as his country’s finance minister) to increase transparency between Liechtenstein banks and the rest of Europe. Though Liechtenstein lies in the heart of the European Continent, it is not a member of the EU and therefore does not have to abide by the financial laws of the bloc.

“He did it because he really, truly thought that Merck was doing the wrong thing and he just couldn’t abide by it, even though he was putting his career on hold,” said Steinke’s lawyer, Steven Cohen of Chicago.

The important thing about this is that Steinke’s reward just gave a lot of incentive for employees to report wrong-doing at their own companies. This is a welcome change of pace compared to the all-too-common story of careers ending, marriages falling apart or the generally depressing fallout by being a whistle blower (if you want to see Hollywood’s take, watch ‘The Insider’ starring Russell Crowe and Al Pacino).

It appears that Steinke, who is married but has no kids, has already embraced retirement. He recently left his new job at a smaller pharmaceutical company, one that “shared his values.”

Originally, Stolt-Nielsen was given amnesty from prosecution for spilling the beans on a price fixing scheme between the three tanker companies and fully cooperating in the Department of Justice’s investigation. Later, “based on evidence from one of the others accused,” the DOJ revoked the amnesty and brought charges against the company. Stolt-Nielsen moved for dismissal, and Judge Bruce W. Kauffman from Pennsylvania agreed, saying:

“The [DOJ's antitrust] division has no reasonable basis upon which to void or revoke the agreement because it has not demonstrated any breach by Stolt-Nielsen or the individual defendants…Accordingly, the indictment will be dismissed.”

Mr. Stolt-Nielsen, obviously relieved, said in a statement, “We are pleased that justice has been served.” Now Stolt-Nielsen is not only the first company to have amnesty revoked by the DOJ, but it’s the first to have it reinstated as well.

As for the Department of Justice, they are fairly unhappy about the decision and plan to review their options. Whether or not they appeal this decision, their intent on hunting down and prosecuting cartels has been duly noted.

According to one report, LDK’s stock dropped by a quarter immediately after the accusations became public. Morgan Stanley, the company that underwrote LDK’s IPO, sent out something of a press release to inquiring minds:

“The CFO also thought that [the whistleblower, Charlie Situ] might have incorrectly classified scrap silicon as unusable raw material, whereas in fact scrap silicon accounts for more than 80 percent of the raw material needs at LDK.”

Since the announcement, LDK Solar has been downgraded by more than one financial firm.

Lynn Brewer is very well known in the world of corporate compliance and ethics. She is a founding member of Open Compliance and Ethics Group (OCEG) and has given speeches on at least five continents. She was even recognized by the Nobel Peace Center in a freedom of speech exhibition for her “bravery” as a whistleblower.

Her fame came from giving speeches about the internal failings of Enron. She claims she was an executive there before its collapse. However, according to USA Today, she was a researcher and even her former bosses weren’t considered “executives.”

“EddieLynn is a good nurse who is trying to claim she was a brain surgeon,” Tony Mends said, a former boss of Brewer.

The article describes several inconsistencies and exaggerations in her book, Confessions of an Enron Executive: A Whistleblower’s Story, as well. One alleged tall-tale is Brewer’s association with a Texas natural gas deal the company put together. Brewer claims she discovered bank fraud. Her former boss said that never happened.

According to the article, Brewer was fired from Enron after she was sent to London to conduct a one-week training session for the company, but instead rented a car and traveled around England with her husband for most of the week.

Read the entire article here.

Commentary: Enron fraud continues even after its collapse…

The posting claimed Zheng, China’s food and drug commissioner from 1998 to 2005, allowed pharmaceutical companies to bypass the drug approval process. One company is accused of killing at least ten people through faulty antibiotics.

Zheng was sentenced to death in May for taking bribes from companies in exchange for easing governmental standards.

Commentary: Zheng’s punishment is noted as unusually harsh even by Chinese standards. Although Zhang was ultimately imprisoned for ten months, his release and compensation is a step toward a more ethically minded Chinese government.

Additionally, it’s alleged the Stamford, Conn.-based manufacturer violated the Berry Amendment, which requires the Pentagon to give preference in procurement to domestically produced, manufactured or homegrown products. The government has alleged that some of Crane’s valve
products did not comply with the amendment’s provisions, as well as the Buy America Act, in that some of the components were not domestically produced.

Commentary This grew out of a whistleblower claim by a former employee of the company. While False Claims Act violations are a dime a dozen these days, the Buy America Act is far less frequently invoked.

The game went live last week on July 25th and it has already been downloaded over 100,000 times, with hundreds of players engaging online simultaneously.

Why so popular? Because the hero of the game is an “honest and upright official” whose mission is to weed out corrupt officials (along with their mistresses).

Weeding out, however, does not mean “putting in jail.” It means by torture and slaughter. Whenever the player kills a corrupt official, he or she gains “experience points.” As points add up, the player increases powers in “Combating Corruption,” “Moral Character,” and a rating of being “Corruption Free.”

The highest level of the game is the “Honest and Corruption-Free Paradise.” Reportedly, that level is full of singing birds, fragrant flowers, and representations of a “peaceful and prosperous nation.”

Commentary: To increase the game’s appeal nod to China’s long history, the designers of the game used 165 characters from history – both good and bad. For example, Hai Rui and Lord Bao represent strong and honest leaders, while corrupt and evil players are represented by such individuals as the angry enuch Zhao Gao and Heshen.

While we like the historical element of the game, we are a bit perplexed as to how all of the women in China seem to walk around in communist red bikinis. How things must have changed since our last visit! Anyhow, if you can speak Chinese (or if you can’t and simply want to see more pictures), you can visit the NanFang Daily newspaper website for more about the game.

On another interesting note, as some game users have pointed out, the graphics are heavily “borrowed” from another game, “Romance of the Three Kingdoms,” offered by a for-profit software company. Not surprisingly, this might leave some wondering if the fact that the government itself made this game means that they don’t have to respect copyrights?

Two former employees filed suit against the company, contending that the fraud was an attempt to skirt Medicare’s policy of paying companies that sell dialysis supplies only if the company is independent of a dialysis facility. The Renal Care Group and Renal Care Group Supply Company, both German firms acquired by Fresnius last year, allegedly set up “sham” businesses and submitted false claims and bills to the government.

This case could stand to match or beat a similar suit filed against rival DaVita Inc.’s Gambro Healthcare a few years back – that company paid $350 million, one of the government’s largest health care fraud settlements, to settle accusations of fraudulent “shell” companies used to supply dialysis equipment.

Commentary: Recently, German corporations have been getting a five-alarm wake-up call about corporate compliance and fraud.

This new online tool, called BRIBEline, is backed by many leading organizations and companies such as Wal-Mart, International Paper, the World Bank, UPS, Tyco International, and Rolls-Royce.

BRIBEline (the acronym stands for the “Business Registry for International Bribery and Extortion”) is essentially an online survey that is available in 14 languages. While no names are required or collected, the survey asks participants to respond to ten multiple-choice questions. All information is kept anonymous so that reports cannot be used for legal investigations or prosecutions.

Ultimately, the information gathered through BRIBEline will be collected and publicly reported by TRACE in hopes of highlighting where the worst offenders reside in terms of country, ministry, or sector. This in turn will help companies target their compliance and anti-corruption efforts.

Commentary: We think that this is a fabulous tool that reflects the excellent leadership in anti-corruption demonstrated by TRACE’s leader, Alexandra Wrage. There has been a real dearth of information about where bribes are occurring, with companies limited to examining only their own experience and DOJ prosecution and investigation records.

We strongly encourage companies to get involved with BRIBEline and look forward to some of the interesting trends and information that come as a result.

David van Duyn, who worked as an anti-money laundering advisor for the company, accused Fidelity executives of instructing him to sidestep the Patriot Act, which laid out requirements for monitoring and reporting client transactions. To top things off, he accuses his former superiors of handing down orders to falsify documents. Duyn claims the company blatantly violated the Act and other laws intended to track money laundering and funding for terrorist networks.

Fidelity has countered with a suit of its own in an effort to prevent Duyn from divulging “confidential information” – which Fidelity insists would violate the company’s non-disclosure agreement signed by employees. The suit is in addition to its hurried efforts to stamp out from the public record any potentially damaging information or allegations surrounding its internal policies and possible negligence of customer accounts.

Commentary: Gotta hate it when the compliance officer himself is the whistleblower. That just doesn’t reflect well on the company. No wonder Fidelity is reportedly in a mad scramble to try and get all documents and filings related to the case put under seal.

The survey, Fraud Risk Mitigation in Europe, interviewed 1300 employees of multinational companies in eight Western European and five Central and Eastern European countries (100 respondents in each country), and invited their views on how anti-fraud measures were implemented within their employer organizations.

The report shows that employees in France (39%) feel the least at ease about blowing the whistle in the work place because they fear reprisals. The Czech Republic (42%) and Austria (44%) also scored very low on confidence.

At the other end of the spectrum, Brits were happy to report wrongdoing. Within the UK, a full 86% of employees said that they would feel comfortable blowing the whistle at work if they suspected fraud or other wrongdoing. This was by far the highest percentage across the 13 European countries covered in the survey.

John Smart, Fraud Investigation & Dispute Services Partner at Ernst & Young, says that the huge differences are down to culture, legislation and regulation in each country. “The UK has developed a very strong reporting culture, based on an anonymous route to inform wrongdoing, which is supported by law, such as the 1998 Public Interest Disclosure Act, that forbids employees from sacking whistle-blowers who act in good faith,” he says.

“But it was only after the Sarbanes Oxley Act 2002 (SOX) was introduced that other European countries, such as France, were forced to review guidelines on anonymous corporate whistle-blowing mechanisms – including the introduction of anonymous whistleblower hotlines.”

Commentary: This is actually a very interesting and useful study. Many global companies do not understand the local cultural complexities that interfere with the utilization of a whistleblowing system. This analysis helps elucidate the differences and expectations that will be encountered by companies operating in a multi-national environment – and show them where more communication and training may be necessary if they want the reporting systems to be used more frequently.

Harkness had been with the company for three years and is seeking reinstatement, lost wages, and damages. Fieldstone has been embattled recently due to mortgage market troubles. OSHA, which handles Sarbanes-Oxley whistleblowing complaints, said that it was investigating.

Commentary: We remain somewhat amused that OSHA is the investigative body for Sarbanes-Oxley whistleblowing complaints, as opposed to a more financially-savvy group such as the SEC. Not only are SOX whistleblowing complaints extremely rare (we can just about count all on one hand), but the history of the whistleblower in this case is fascinating. Cynthia’s prior employer?: Enron – the very company that largely gave rise to the Sarbanes-Oxley Act in the first place. From 1999 to 2002 she was the Assistant General Counsel of Enron North America. Back in 2002 Vanity Fair’s story “The Enron Wars” talked about how astounded she was by the Fastow accounting maneuvers and how they came across as a pyramid scheme – although she was not the whistleblower in that case.

Judge S. M. A. Abidi sentenced seven co-conspirators to life in prison and suspended the death sentence of Pawan, or Monu Mittal, until it is reviewed by a higher court, the Times of India reported. The defendants were sentenced in the November 2005 death of Manjunath Shanmugam, who the newspaper said had discovered a corrupt system among gas dealers who were shortchanging customers. The judge broke the nib of his pen signing the death sentence.“It is a planned murder … the victim was unarmed when put to death … he was put to death without provocation … hence I reach the conclusion that it is rarest among the rare cases so far as Pawan Mittal is concerned,” the judge said during sentencing.

Commentary: For those of you who are not familiar with this case, the victim, Manjunath Shanmugam – was a 27-year old marketing engineer with Indian Oil Corporation. He discovered a skimming plan where employees were selling adulterated fuel and ordered the pumps closed. Within days he was abducted and killed – having been shot six times.

We regularly encounter global corporations who don’t understand the resistance and reluctance of overseas employees to report observed misconduct through their “hotlines”. This case should help such companies better understand. To learn more specifically about compliance and ethics issues in India, you may want to review the web symposium that the Ethisphere Council recently did on India.

Manjunath’s friends and former classmates have set up a trust fund and award to help promote ethical behavior in his memory. Of particular frustration to colleagues and former classmates of Manjunath is that Indian Oil has not been cooperative in their efforts to try and introduce legislation to protect whistleblowers in the future.

In a 6-2 decision, the Court backed its decision by citing the False Claims Act – the same act which provides whistleblowers a portion of the proceeds of fraud lawsuits against government contractors. The majority asserted that Stone had predicted – and not witnessed – faulty water-disposal designs that would eventually lead to water and soil contamination, thereby failing to meet the requirements of the Act because his prediction cannot be considered direct and independent knowledge. Rockwell still must pay nearly $4.2 million for the fraud connected with the environmental cleanup at the Rocky Flats plant in Denver.

Commentary: The Bush administration actually supported the whistleblower’s position, as it argued that it is in the government’s interest to encourage whistleblowers. This is despite the fact that the government actually gets to keep more money now that Stone lost. It remains to be seen whether or not this will have an impact on the willingness of whistleblowers to come forward (although it will certainly have an impact on the ability of a whistleblower to be able to secure rights to come forward).

It appears that Kodak simply sped along a separation process that was already going to occur, as The Better Business Bureau had initiated explusion proceedings against Kodak for failing to adequately share information about how they handled (or didn’t handle) customer compliants.

According to local news reports in Rochester, people didn’t seem surprised that Kodak was on the verge of getting kicked out of the BBB due to declining service standards.

Commentary: This is a sad development at, and reflection upon, what used to be a terrific company. And to think that Kodak allegedly simply had to provide information on how it handled 183 customer complaints – which it refused to do. There have been a series of mistakes and poor judgments in recent years which, in our opinion, are a reflection of a poor ethical corporate culture and lack of effective leadership on compliance and ethics. Beyond the BBB explusion proceedings, there have been whistleblowers alleging Kodak illegally tampers with digital photos stored on its system resulting in permanent degradation, as well as benefited from tax accountants who took kickbacks from vendors and illegally worked to artificially lower tax valuations on Kodak’s properties. Charges on that latter case continue to come, including even today.

1. the bank’s failure to conduct any significant reference or background checking on her before giving her the job (and access to customer accounts);
2. employees transferring customers into lower-interest accounts, without the customers’ knowledge, in order to earn commissions;
3. mis-selling unnecessary plans and add-ons, as well as insurance, to unsuspecting customers; and
4. misrepresenting themselves and their intent in calling customers.

The full BBC story is here. Barclay’s response can be found here.

Commentary: BBC seems to have the financial services industry in its cross-hairs, so far too little impact. Last summer in Ethisphere we covered a BBC series with a whistleblower from the U.K. banking industry who outlined a disturbing series of unethical sales practices designed to keep people in debt. Most disturbing, at least eight recent customer suicides were directly blamed on the sales practices. Barclays must have ignored that report, considering that it came out nine months ago, yet in this week’s story the Barclay’s bank manager stated that the pressure to make sales instead of provide customer service “in the last six months I’ve never seen [negative] change like it – and so quickly. It’s going to get worse before it gets better.”

Last summer we recommended to our financial services industry clients that they include sales practices and brand damage potential as part of their compliance and ethic risk assessments. We also posed the question to Ethisphere readers in light of the BBC whistleblower report: “at what point would a bank be liable for emotional distress [or worse] by a customer due to its lending practices?” That case law is still to be determined. With tightened bankruptcy laws and the subprime mortgage industry going up in flames, could predatory and misleading lending be the next tort area?

Commentary: While little noticed in the mainstream (or even much of the government contracting community), this ruling is very significant in that it makes it much easier for non-governmental employees to sue government contractors for fraud and should give pause to government contractor compliance departments. We would not be surprised if a cottage industry quickly sprung up of FOIA-savvy attorneys pursuing government contractors (particularly in light of the build-up and broad spend in the Homeland Security Department, which introduced a whole new host of inexperienced government contractors to government contracting.

Commentary: Mercy, that would have been an awkward first day back on the job. However, several weeks later, a U.S. district judge ruled that the Department of Labor didn’t have the authority to require this reinstatement-so this litmus test for Sarbanes-Oxley whistleblower protections will now be punted to the U.S. Court of Appeals.