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Sing for your supper: why Australia should reward corporate informants

Laws rewarding informants could help crack down on fraud regarding medicines. anolobb/Flickr

Federal and state governments in Australia appear much less successful than their United States counterparts in recovering taxpayers funds lost to suspected large-scale corporate fraud.

For instance, there are petrol companies in Australia that seem to raise and lower their prices in sync with each other, especially prior to weekends – negatively impacting government departments that fund fuel costs.

The Australian Competition and Consumer Commission (ACCC) waits for whistleblowers to come to it to provide documentary evidence of illegal collusion, but no one does.

Then there are defence contracts for rusty warships, dud helicopters, submarines and aircraft where the possibility of kickbacks to people in high places seems worth investigating – if only we had a better mechanism to encourage insider information.

With all the fuss about a resource rent tax there are inevitable queries about whether the giant corporations mining our iron ore, coal and gold are actually declaring all they pull out of the ground and have to pay royalties upon.

Then, there’s the possibility of systematic corporate fraud in relation to the billions of dollars of annual government expenditure – at both State and Federal levels – on medicines and health care.

There is suspicion, for example, that corporations running private hospitals may be systematically billing Medicare improperly.

Recent litigation around the drug Vioxx showed the extent to which the pharmaceutical industry can encourage drug representatives to make misleading statements to improperly encourage prescriptions. This extended to creating “fake” medical journals to promote their products.

So, what, if anything, can be done about this and what lessons can the United States give us in dealing with large scale corporate fraud on taxpayers?

US Anti-Fraud laws: Letting informants sue via no-win no-fee lawyers

The so-called “Qui Tam” provisions in the US False Claims Act 1986 (FCA) create a private-public enforcement partnership that drives the highly sucessful American anti-fraud regime.

The name Qui Tam is an abbreviation of a Latin legal maxim roughly meaning “he who sues on behalf of himself also sues on behalf of the state”.

The laws allow private citizens (called “relators” under the legislation) the right to provide documents establishing fraud to a no-win-no-fee lawyer.

This may lead to the initiation of a lawsuit under seal, that is, a lawsuit that is not initially disclosed to the defendant.

This is very different from the situation in Australia where governments expect informants to come to regulators without the promise of reward despite the emotional distress and job insecurity they will inevitably experience.

In the U.S., a provider of information critical to a successful anti-fraud case is compensated for efforts in the public interest with a small percentage of whatever proceeds (including triple damages) the government recovers from the civil suit.

The U.S. model has private practice law firms work synergistically with federal or state justice department officials.

The relator and his/her counsel contribute valuable manpower and financial resources to the government action.

This is a highly successful model that has not been applied in Australia.

Instead, in Australia regulators sometimes take details of fraud from private firms who have been contacted by informants and leave both the firm and informant without financial compensation for their efforts.

For the informant, this can result in intimidation, loss of livelihood, friends, family and stress.

The U.S. False Claims enforcement partnership has proven extremely cost-effective, recouping $15 for every dollar spent on Qui Tam investigations and litigation.

Qui Tam laws act as potent deterrents for fraudulent activities as they amplify the threat of detection and prosecution.

They also create incentives for compliance with government requirements and conditions.

Frivolous or “parasitic” Qui Tam claims are prevented by statutory bars on individuals who have made no material contribution to uncovering the fraud or providing the factual basis of the case.

A relator cannot base a Qui Tam action on publicly disclosed allegations, unless the relator is the original source of that information.

Compensating anti-fraud informants in Australia

The time is right to get Qui Tam, False Claims Act-type legislation into Australia.

Over the past 20 years, anti-competitive behaviour has increasingly been regarded as a serious crime by Australian regulators.

No-win-no fee advertising from law firms is common and litigation funding companies are permitted to back public interest class actions.

What’s more, the Australian High Court now supports the right of any person to bring an action, not to vindicate a private right, but to prevent the violation of a public right or to enforce the performance of a public duty.

Litigation funding companies in Australia already accept the risk of paying the other side’s costs if a case fails, in return for a set share of the proceeds if it succeeds.

These arrangements have withstood challenges in Australian courts, in part due to the fact that they fulfill public policy imperatives such as access to justice, particularly in public health-related class actions.

Treble damages have been considered previously as a deterrent for insider trading and regulators, in general, are in favour of them.

The key strengths of allowing informants of corporate fraud in Australia to sue via private legal firms operating in conjunction with government regulators include:

  • the large amounts of public monies recovered;

    • the encouragement it provides for good corporate practice;
    • the incentives it provides to informants from within the private sector;
    • the compensations it fairly affords such informants; and
    • various mechanisms that ensure only presumptively meritorious claims are processed.

If designed carefully, Australian Qui Tam anti-fraud laws could provide a mechanism for sustained and diligent oversight of claims by the pharmaceutical, medical device and health care industries on the public purse without significantly impeding their growth.

Australian Qui Tam or False Claims legislation could also play a significant role in reducing fraud and false claims in relation to other large investments or redistributions of public monies in public health-related fields, such as a carbon tax or carbon credit trading scheme.

The debate about whistleblowers in Australia has to move on from laws protecting them against unfair repraisals, towards laws allowing fair financial compensation for the personal loss and distress caused by their public service.

This piece is based on an article published in the Medical Journal of Australia in May 2011

_Do you think informants on corporate fraud in Australia should be able to sue and receive compensation using private practise lawyers working in conjunction with government regulators? _

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