By Vince McKnight, Shaun Rosenthal, Erica Roberts, and Savannah Shepherd
This series has highlighted two important points: that the total amount of fraud is staggering, and that the government’s efforts to fight it have fallen well short.
Thus far, we have analyzed fraud enforcement by agency: the DOJ, SEC, CFTC, IRS, and FinCEN. In each, we concluded that greater investing in fraud enforcement budgets would lead to even bigger returns.
This month provided yet another example, when he CFTC announced that it recovered $17.4 billion in fiscal year 2024 (its year-end is September 30). The CFTC’s fraud enforcement budget was approximately $70 million. In other words, the Government received a return of over 245 times its investment.
Think about that for a second. The U.S. Government received a better return than if it invested in Bitcoin in 2016 and sold the stock today. And the Government received the return in one year. The inescapable conclusion: Investing in fraud is the best investment, period.
And yet, the Government’s funding efforts fall well short. Why? To conclude this series, we are examining the fight against fraud holistically, starting by comparing the total estimate of fraud to the U.S. deficit.
Fraud Recovery Can Reduce the U.S. Deficit
Imagine there’s no deficit. It’s easy if you try.
United Nations Office on Drugs and Crime says that between $800 billion and $2 trillion is laundered annually.
Even leaving the total estimate of money laundering aside, the collective estimate of tax fraud, government procurement fraud, and corporate fraud, exceeds $1.8 trillion—a figure that is larger than the U.S. deficit in 2024.
Sources: GAO 2024 Report, “Fraud Against the Government”; U.S. Senate Budget Committee Remarks April 2024; Chicago Booth: Stigler Ctr. Study; Treasury Tracking of National Deficit
Betting on Fraud is a Smart Investment
Frequently, an investor is presented with three-year returns to analyze a stock. Companies use the weighted average cost of capital to evaluate investment opportunities and decide if they are worthwhile.
Similarly, we compiled the budgets versus the recoveries for the enforcement branches of the SEC, DOJ,[1] IRS, and FinCEN for the previous three years (2021-2023).[2] In each year, the U.S. Government received a return on investment of approximately 200%.
Sources: SEC FY Reports; IRS-CI Annual Reports to Congress; CFTC Annual Reports to Congress; FinCEN 2021-2023 budgets and recoveries under the BSA; DOJ Recoveries Under the FCA; United States Attorneys Budget
There is a Long Way to Go in Fraud Enforcement
Despite these returns, the Government continues to allow individuals and companies to steal hundreds of billions of dollars, as shown in the table below.
Improving fraud enforcement will inevitably increase the return the government already receives. While there are many ways to enhance policy, here are a few high-level examples.
First, Government agencies should set annual target recovery numbers, evaluate the progress, and analyze how to improve. Second, Congress must strategically increase resources to make it un-profitable for corporations to engage in fraud. As it stands, corporations have the resources to out-muscle government investigations.
Whistleblowers Play a Crucial Role
“Fraud is indeed like an iceberg, with significant undetected fraud beneath the surface” – Alexander Dyck
In order to recover fraud, the government must first identify where it lurks. Companies are adept at misrepresenting financial statements, laundering money, and inflating projected costs to the government, among other types of fraud. With the advent of artificial intelligence, corporations have new tools to defraud and conceal their actions. Often, a courageous whistleblower must come forward to point out the wrongdoing and provide the Government with an opportunity to fight back.
The Government whistleblower programs have created real value for the respective enforcement agencies. The SEC recovers on average more than $1 billion per year from tips from whistleblowers, and the DOJ recovers almost $2 billion. Whistleblowers have contributed to the discoveries of massive fraudulent schemes, including a more than $1 billion settlement against Ericsson for charges of foreign bribery, and an almost $500 million recovery from Booz Allen for improperly billing the government. Whistleblowers have received billions for their contributions, including $2.2 billion through the SEC whistleblower program alone.
To continue the efficacy of these programs, the Government must continue to invest in them. Congress must allocate sufficient funds to the CFTC’s whistleblower program. FinCEN must create regulations for its whistleblower program. Resources must be allocated to these programs so they can be efficiently administered, paying awards on time.
Corporate Fraud as Societal Harm
Corporate fraud is a substantial issue that harms society in ways that go beyond just stealing taxpayer money or shareholder investments. Its effects spread throughout the economy, damaging the trust and stability that a healthy market needs. When businesses engage in fraud, they weaken public confidence in financial institutions and markets, which can lead to a series of negative outcomes—reduced investment, market instability, and overall economic decline.
The harm is not just financial. Companies that engage in fraud often focus on short-term profits instead of long-term stability, leading to poor business decisions that can put employees’ jobs at risk. Job losses from fraud can hurt families and communities, causing economic hardship and social unrest. When public companies commit fraud, the impact can extend to essential public services. Funds meant for crucial programs like education, healthcare, and infrastructure may be misused, leading to cuts in services and widening inequalities, further slowing down economic progress. With this large impact in mind, it is even more crucial to ramp up the fight against fraud.
Conclusion
These whistleblower programs are a crucial mechanism for addressing and remedying fraud. Though each program is different, their need for resources and for brave whistleblowers is apparent. In lieu of, or in combination with, allocating more resources to these programs, private enforcement mechanisms should be bolstered to fill the gap and support fraud recovery efforts.
If you have information about fraud against the government and believe you have a whistleblower claim, please feel free to fill out our online intake form to contact a whistleblower attorney at our firm today.
[1] Because the DOJ’s budget does not have a line item for FCA actions, we used the United States Attorney civil division budget as a proxy. This estimate likely overinclusive as it includes costs associated to non-FCA civil litigation as well.
[2] For the IRS and FinCEN, we included only the IRS’s identification of tax fraud and FinCEN’s recoveries from violations of the Bank Secrecy Act. Both agencies also assist other agencies’ fraud efforts, but we excluded these additional recoveries from our analysis to avoid potential double counting.