For the incoming Mamdani administration to boost its affordability agenda, it must renew enforcement efforts to expose frauds against the city and recover millions of stolen taxpayer dollars. One key and neglected ingredient: whistleblowers.
The city’s underutilized tool is the New York False Claims Act, a law that uniquely can generate actionable information about corrupt tax and contractor frauds that deplete city resources and sap confidence in government spending.
Successful False Claims Act cases can recover for the city three times its damages plus penalties, while whistleblowers are rewarded with 15% to 30% of the government recovery and are protected from retaliation. The city can expand its fraud-fighting resources by relying on whistleblowers and their counsel to assist in the prosecution of these cases without adding to the city’s budget.
Some part of the city’s annual budget ($112.4 billion) and its tax revenues ($81.37 billion) is lost to fraud. New York City can harness the False Claims Act to recover city dollars for nearly any knowing deprivation of money, including:
- Wealthy city residents who evaded income taxes by pretending to live in lower tax or no-tax jurisdictions (i.e., FINOs, or “Floridians in name only”).
- City contractors who charged for work that was not performed or that was worse than promised.
- City contractors who rigged bids to increase prices.
- Luxury businesses that helped customers evade sales and use taxes by shipping empty boxes out of the city, while delivering the art, jewels, or other expensive items to million-dollar homes and offices.
- Out-of-state businesses that evaded city taxes by hiding city business income.
- Owners of large buildings who improperly avoid millions in city property taxes and fines. (Fortune reported last year that a 16-unit rental building in Cobble Hill owed $52.2 million).
- Financial services companies that defrauded NYCERS and city pension funds.
To enlist the help of knowledgeable whistleblowers, the city must convince them that it is serious about whistleblower cases. This is why the city needs to take a couple of cost-free steps to encourage high-quality whistleblower cases in these and other areas.
First, the city must spread the word that combating these frauds and teaming up with whistleblowers is a priority, thus counteracting the perception that the city and its victim agencies are often uninterested in these claims.
Second, the city must demonstrate through action, particularly by the corporation counsel and the Law Department, that whistleblowers are welcome. That means:
- Appointing a dedicated whistleblower unit in the corporation counsel’s office and an advocate for tax whistleblower cases in the Department of Finance;
- Being receptive to whistleblowers who come forward with concrete, non-speculative evidence of multimillion dollar frauds against city dollars, and quickly turning down ones who don’t.
- Handling whistleblower claims promptly and aggressively, and, where permissible, sharing investigative results with whistleblowers.
- Putting whistleblowers and their counsel to work (without cost to the city) by including them in the investigative process.
- Fairly rewarding whistleblowers based on their contributions and risks.
- Reporting to the City Council and the public on such data as the number of whistleblower cases filed, the types of cases investigated, and successes and failures.
Experienced whistleblower lawyers can be expected to respond to these steps by redoubling their efforts to seek out and carefully vet whistleblower cases about city dollars, and to pursue their common interests with the city.
Embracing the power of whistleblowers also has a collateral deterrent effect. Would-be fraudsters will get the message that schemes will be uncovered and are not worth pursuing, and fewer city dollars will be lost on a going-forward basis. For example, one academic study concluded that the deterrent effect of including tax violations under the New York State False Claims Act resulted in the payment of $283 million more in corporate taxes each year.
New Yorkers, fed up with corruption and contractor frauds, deserve better. With the help of whistleblowers, the new administration has a chance to make a real impact by demonstrating its commitment to good governance and the integrity of the city’s tax dollars.
Fox is a partner of Kirby McInerney LLP in New York. He represents whistleblowers under federal, state, and local whistleblower award programs, including under the False Claims Act and before the IRS, SEC, CFTC, DOJ, and FinCEN whistleblower programs. Earlier, Fox was the founding bureau chief of the New York Attorney General’s Taxpayer Protection Bureau.
