Lest you think that "stop snitching" is confined to inner-city neighborhoods plagued by drug violence, check out this San Diego Union Tribune story, "Whistle Blower or Snitch?", in which the sports world reacts to Floyd Landis's doping allegations against other cyclists. The New York Times a few days ago reported that Landis "has agreed to cooperate with authorities in the United States." The debate is raging over whether Landis did a good thing (exposed illegal doping) or a shabby thing (sold out his colleagues to evade responsibility for his own wrongdoing).

Although criminal charges have not been filed against Landis, he may still benefit in that regard. Offenders routinely cooperate in order to stave off criminal charges. Indeed, according to renowned white collar defense attorney Kenneth Mann, one of the biggest benefits of cooperation is the ability to shape the pre-indictment process. Landis's new status as potential witness rather than target may be one of his biggest gains.

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The Los Angeles Times reports that the SEC wants to emulate the IRS's bounty program for rewarding criminal informants: SEC chief wants to catch investment scammers in the act. I posted about the IRS program here: IRS expands use of informants. This trend towards courting criminal informants in white collar investigations, as opposed to innocent whistleblowers, is part of a larger systemic culture in which guilt has become completely negotiable. The IRS, for example, used to balk at rewarding offending informants who actually participated in the wrongdoing, but its new rules make it easier to do. To be sure, there are immense informational benefits to using offenders as snitches--they tend to have more information than innocent bystanders. But it squarely raises one of the central compromises that has dogged criminal snitching in drug and mafia investigations, which is that the process can forgive and even reward serious wrongdoers. The IRS and SEC should think carefully about the extent to which they are willing to emulate the world of drug enforcement, in which guilt and punishment have become percevied as commodities, in which cooperation can become a kind of get-out-of-jail-free card, and in which law enforcement is too often seen as tolerating crime and even violence from its informants in order to secure information.

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Two fascinating stories from Forbes on the IRS's expanded Whistleblower Office: Tax Informants are on the Loose, and IRS Ordered to Surrender Informant Documents. In 2006, Congress told the IRS to start paying informants as much as 30% of delinquent taxes collected in big cases, and the scale of snitching has skyrocketed. As Forbes puts it:

The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants "often provide extensive documentation to support their claims,"' the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged.

Perhaps the most famous case to date involves Bradley Birkenfeld, an employee of the Swiss bank UBS who gave the IRS information on how wealthy Americans were hiding money with his employer. Although Birkenfeld himself faces a 40-month prison sentence, he may be able to keep millions in reward money--another new rule. Again from Forbes:

Before the new law, [IRS Whistleblower Officer Director Stephen] Whitlock notes, "if you participated in the tax noncompliance--you could have been the accountant doing the ministerial activity--you could be flat-out barred" from a reward. Now such a functionary is eligible for a full reward, even if he is convicted of, say, stealing from the company he squeals on. An informant who "planned and initiated" a tax scheme is still eligible for a reduced award--unless he's convicted for that planning role.

In other words, the IRS is moving closer to the snitching norm, in which admitted criminals reap benefits from their cooperation. At the same time, the IRS informant program may be running into resistance. In the second story, a federal judge has ordered the IRS to return documents provided by an informant who stole the documents from the company Monex. Apparently the court was not content to let the government decide which stolen Monex documents were privileged, although the government is likely to get many of the documents back in the end. As Forbes frames the problem, "How far can the government go in using information from an insider and what should be the procedures for handling that information?" As I explain in the book, this concern for the privacy and rights of criminal targets--and the concomitant restrictions on informant use--is more characteristic of white collar investigations in which defendants tend to be well-resourced and well-defended, and is notably lacking in the street- and drug-enforcement arena.

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A vice president of a multimillion dollar company turns informant to avoid liability, surreptitiously taping his high-level colleagues who are eventually charged with corporate fraud. If this sounds like the plot of the movie "The Informant" (reviewed here), it is. But it is also the plot of this news story about the theft of $2 million worth of fuel from the Mexican oil company Petroleos Mexicanos: "Ex-Bush aide tied to stolen oil case." Here's an excerpt:

Josh Crescenzi of Houston, former vice president for Continental Fuels of San Antonio, has been cooperating with agents of U.S. Immigration and Customs Enforcement for several months, helping them secretly record conversations that have resulted in the conviction of a Houston oil industry executive, another one from San Antonio and the president of a small oil and gas company in Edinburg.

Stories like this (and this) suggest that the use of active informants in white collar investigations, i.e. using cooperating suspects to actively snare high-level corporate offenders in ongoing wrongdoing, is on the rise, although since the whole arena is shrouded in secrecy it's hard to say if the practice is now more prevalent or we are just hearing more about it. In any event, because white collar informants and defendants are better resourced and represented than your typical street or drug snitch, we should expect such cases to improve the overall visibility and accountability of informant practices. As sociology professor Gary Marx wrote 20 years ago in his landmark book "Undercover: Police Surveillance in America":

When lower-status drug dealers and users or prostitutes were the main targets [of covert operations,] the tactic tended to be ignored, but when congressmen and business executives who can afford the best legal counsel became targets, congressional inquiries and editorials urging caution appeared.

Filed in News Stories, White Collar

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