In order to advance its affordability goals, the incoming Mamdani administration should focus on strengthening enforcement measures to uncover fraudulent activities targeting the city, thereby reclaiming millions of dollars in misappropriated taxpayer funds. A vital yet often overlooked component in this effort is the role of whistleblowers.
The New York False Claims Act is an underexploited resource that can provide crucial insights into corrupt tax practices and contractor fraud, which not only drain city resources but also undermine public trust in governmental fiscal management.
Through successful cases under the False Claims Act, the city can reclaim three times the damages incurred plus additional penalties. Whistleblowers, in turn, receive a reward ranging from 15% to 30% of the recovered funds and are protected from any retaliatory actions. By leveraging whistleblowers and their legal representatives, the city can enhance its anti-fraud capabilities without increasing the budget.
A portion of New York City’s substantial annual budget of $112.4 billion and its tax revenue of $81.37 billion is lost to fraudulent activities. Utilizing the False Claims Act allows the city to recoup funds lost through any deliberate misappropriation.
- 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 attract informed whistleblowers, the city must demonstrate a genuine commitment to addressing whistleblower cases. A couple of no-cost measures can be taken to stimulate the submission of high-quality whistleblower claims across various areas.
Firstly, the city should actively communicate that tackling these frauds and partnering with whistleblowers is a top priority. This would help dispel the notion that the city and its affected agencies are often indifferent to such 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.
