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Jun 17, 2014 by |

Whistleblowing in America – What are the origins?

The three key American Wars that created the 21st century whistleblower

Introduction. On December 20, 2006, the 109th Congress enacted Public Law 109-432, also known as the Tax Relief and Health Care Act of 2006. This is but one of many federal whistleblower laws in this country, whereby Congress statutorily deputizes private citizens to blow the whistle on fraud. In this generation, millennials might assume that due to legislation like the 2006 Tax Relief and Health Care Act, whistleblowers in America are a 21st century creation. Nothing could be further from the truth. In fact, the modern American whistleblower of 2014 traces its legislative roots back to the founding of the nation; hence, the whistleblower of 2014 is as old as the nation itself. While whistleblowers as a cognizable entity, predate the founding of the United States, having connections to the Old World around the Middle Ages, the scope of this essay will be the American whistleblower. The focus of this paper is that the American whistleblower of 2014 is not a 21st century creation, but rather a centuries-long product of Congress, that originated and evolved from three key American Wars: the Revolutionary War; the Civil War, and the Cold War.

American Revolution. On February 19, 1777, roughly seven months after the thirteen formerly English colonies declared independence from King George III on July 4, 1776, the upstart United States of America found itself embroiled in a heated maritime battle with the world’s most powerful navy. Meanwhile, the U.S.S. Warren sat anchored outside Providence Rhode Island, where ten sailors on board quietly met to discuss the moral failings of the Navy’s highest ranking officer: Commodore Esek Hopkins. (Kohn, The Whistleblower’s Handbook, page 195). Despite being in a state of war with Mother England, these ten sailors nonetheless unanimously agreed that Commodore Hopkins’ treatment of captured British prisoners of war was: “in the most inhuman and barbarous manner.” (Kohn, The Whistle-blowers of 1777, para five). A petition circulated amongst the ten sailors, which they all signed, along with affidavits as eye witnesses. A Marine captain by the name of John Grannis was handpicked by the ten sailors to deliver the testimony to the Continental Congress. After sneaking off the U.S.S. Warren—without leave, Captain Grannis testified before a Congressional subcommittee called the Marine Committee. After hearing the testimony of Capt. Grannis, the Continental Congress voted on March 23, 1777 to suspend Commodore Esek Hopkins. Ten sailors had effectively brought down the career of the most powerful man in the Navy; this did not bode well for the ten sailors.

Commodore Hopkins rallied every personal and political connection he could on his behalf, including his brother—a signatory to the Declaration of Independence, who was then the governor of Rhode Island. Commodore Hopkins convened a military court of his own design, placing himself at the helm. Commodore Hopkins then singled out a third lieutenant named Richard Marven, as the sole instigator of the whistleblowing to Congress, and indicted Lieutenant Marven. At the conclusion of the court martial, Lieutenant Marven was terminated from the Navy; however, on January 2, 1778, Congress responded in kind by summarily terminating Commodore Hopkins from the Navy. The embittered commodore retaliated against all ten sailors by filing a criminal libel suit, demanding “ten thousand pounds” in damages. (Kohn, The Whistleblower’s Handbook, page198).

Due to the libel suit, the ten sailors faced not only civil fines but also jail if found guilty. Of the ten sailors, only two—Midshipman Samuel Shaw and Lieutenant Marven, were subject to the jurisdiction of the court. (The other sailors lived outside Rhode Island and were not within the in personam jurisdiction of the court.) Shaw and Marven had been placed under arrest, and were required to post a large bail; however, being men of modest means, neither Shaw nor Marven had the money to post a large bail. Shaw and Marven petitioned the Continental Congress to intervene on their behalf.

On July 23, 1778, the Continental Congress read the petition of Shaw and Marven, who argued that they had been “arrested for doing what they then believed and still believe was nothing but their duty.” (Kohn, The Whistle-blowers of 1777, para 7). One week later, the Continental Congress passed the first whistleblower law for the nation, and by so doing, declared that: “it is the duty of all persons in the service of the United States, as well as all other inhabitants thereof, to give the earliest information to Congress or any other proper authority of any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge.” (Kohn, The Whistle-blowers of 1777, para 8).

On May 22, 1779, the Continental Congress appropriated $1,418 from the federal treasury to cover the legal bills for Samuel Adams and William Channing—both congressionally appointed counsel assigned to defend the jailed sailors Marven and Shaw. With respect to the damning testimony against Commodore Hopkins rendered by the ten sailors, the Continental Congress did not raise any “national security” ruse by which to suppress this embarrassing evidence, and spare themselves the shame of having appointed Commodore Hopkins to the highest ranking position in the Navy.

Due to Congress’ intervention on behalf of both jailed sailors, Marven and Shaw were acquitted of criminal libel charges. In terms of whistleblower history, July 30, 1778 is significant in that it represents the de jure birthdate of the modern whistleblower in America. Midshipman Shaw and Lieutenant Marven emerge as key figures who will forever be etched into American whistleblower history. Despite its humble beginnings during the Revolutionary War, the whistleblower law would be exposed over time, as lacking any real incentive for a whistleblower to step forward, and no means of prosecuting violators. This would become painfully apparent during the American Civil War.

Civil War. According to civilwar.org, the American Civil War that was waged between 1861 and 1865, distinguished itself as the costliest American war in terms of casualties. The civil war website provides statistics to show for example that in terms of lives lost, there were 620,000. By comparison, World War II, which was waged in every corner of the globe, amassed only 406,000 American dead. It is against this sanguinary backdrop, where the nation—in a fight for the preservation of its existence, saw domestic enemies in the form of military contractors, who seized upon the war as a chance to practice self-aggrandizement. When word of such widespread fraud reached President Abraham Lincoln, he famously answered: “Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South and their countrymen mouldering the dust.” (Smithcurrie.com). It is important to note that at the time of the Civil War, there was no such department as the Department of Justice to protect the federal treasury from military contractor fraud. As a result, fraud on the Union government went unchecked. Widespread reports abounded of contractors selling the Union government cheaply made boots for Union soldiers that came unglued in the rain, other reports of contractors selling gunpowder mixed with sawdust, and selling the Union government defective rifles. There were even reports of contractors selling the Union government blind mules, and diseased horses. (Greenbaum, The Civil War’s War on Fraud, para two). As was the case during the Revolutionary War, upon hearing of such accounts, Congress responded with legislation.

On July 8, 1861, New York Representative Charles Van Wyck, called for the creation of the Select Committee on Government Contracts. The Select Committee was charged with investigating the procurement system and given broad latitude to act. The seven member Select Committee was chaired by Representative Wyck. The Select Committee worked diligently to combat fraud through the 37th Congress, which involved hearings, as well as recording the sworn testimony from eye witnesses. The Select Committee would ultimately issue over 3,000 pages of findings. (Greenbaum, The Civil War’s War on Fraud, para five and six)

The three reports issued by the Select Committee identified numerous cases of fraud on the federal government, in the supply of horses, clothing, ammunition and other vitals, not to mention widespread malfeasance out West. The Department of War under Simon Cameron, and the Department of the Navy under Gideon Welles, were found to have improperly awarded contracts—not to the lowest bidder through proper advertisements, but to friends and associates. In another instance, the Select Committee rebuked the Navy Department for using private commission agents to procure un-seaworthy vessels; one agent, Mr. Alexander Cummings, was found to have secured a ship (the Cataline) at an exorbitant price. In another case, a Mr. George Morgan, was found to have self-aggrandized with a generous commission for his purchases on behalf of the Navy Department. The findings in the War Department were just as deplorable, where the Select Committee discovered evidence of bloated contracts with links to personal friends. (Greenbaum, The Civil War’s War on Fraud, para eight). As deplorable as are these examples, especially during a time of war, the Select Committee’s findings proved to be not much better out West.

In October of 1861, the Select Committee convened hearings in Cairo, Illinois, only to learn of fraud by agents employed by General John C. Fremont at the Union’s Western Department headquarters. The Select Committee’s new chair Elihu Washburne said: “The robberies, the frauds, the peculiarities in the government which have already come to our knowledge are absolutely frightful.” (Greenbaum, The Civil War’s War on Fraud, para nine). Perhaps the most disturbing report involved Major Justus McKinstry, the Western Department quartermaster. With his prophetic first name as perhaps a premonition, justice was ultimately served, where Major Justus McKinstry faced a court martial on sixty-three counts of fraud—based on evidence obtained through the Select Committee. As a direct result of the Select Committee hearings, Major McKinstry was accused of bribery and outright fraud and subsequently dishonorably discharged from the Army. Another result of the Select Committee’s investigation’s involved Simon Stevens, who was implicated in the “Hall Carbine” affair, or knowingly charging the federal government for the repurchase of arms it had previously discarded as obsolete. (Greenbaum, The Civil War’s War on Fraud, para ten)

On March 2, 1863, the 37th Congress passed the False Claims Act (FCA). The principal sponsor of the FCA was Michigan’s Jacob Howard: “In short, I have based the…sections upon the old-fashioned idea of hold out a temptation,” and “setting a rogue to catch a rogue…a reward for the informer who comes into court and betrays his co-conspirator…widely used to combat instance of fraud by companies supplying the Union Army.” (Greenbaum, The Civil War’s War on Fraud, para 19). The Civil War era incarnation of the FCA expressly proscribed making intentionally false claims to the government, including forgery, embezzlement and conspiracy to defraud the government in contracts. Unlike the Revolutionary War era whistleblower law, the FCA added jail time for violators, in addition to civil fines of $5,000 in penalties. The FCA also was a substantial improvement over the original whistleblower law of 1778, in that it included a $2,000 fine every false-claim knowingly submitted to the government for approval and payment. President Abraham championed the FCA, and in return for his sponsorship and signature, the FCA is often referred to as the “Lincoln Law.” Sadly, the widespread military contractor fraud unearthed by the Select Committee during the Civil War, that prompted Congress to create the FCA, did little to dissuade military contractor fraud on the government, as we discover more than a century later during the Cold War.

Cold War. The years of 1986-1991 represent what many historians deem to be the height of the Cold War between the United States of America, and the Soviet Union. This very tense time in international relations serves as the historic backdrop, out of which sprang the third incarnation of the American whistleblower. As with the two prior wars—Revolutionary War and the Civil War, the United States was at a pivotal place in history, but whereas the previous wars involved active engagement of the enemy, the Cold War was marked by the two world superpowers playing a game of cat and mouse, where each knew the other had stockpiled enough nuclear weapons to annihilate the entire world. While Mutually Assured Destruction, effectively prevented either nation from launching a first strike, it did not deter some of the nation’s largest defense contractors from lining their pockets at the expense of government.
In 1981, the General Accounting Office issued a report stating that military contractor fraud was ubiquitous. For example, at a Senate hearing convened in 1986, the Inspector General for the Department of Defense reported to Congress that “45 of the largest 100 defense contractors including nine out of the top ten were under investigation for defrauding the government.” (Senator Leahy, The False Claims Act Correction Act of 2008, page 3). According to the website of Bernstein & Leibhard, LLP, a New York based firm that litigates whistleblower cases, such widespread fraud was highlighted by reports in the media that the Navy was being billed $435 for such items as a claw hammer, or $640 for a toilet seat. As had been the case centuries prior, Congress sprang into action with new legislation.

In 1986, Congress amended the FCA as an incentive for citizens to step forward with evidence of false-billing. The Cold War era amendments to the FCA included higher payout percentages and stiffer civil penalties for violators. Despite these latest amendments to the FCA, statistics show that in the three decades that have passed since President Regan signed the amended FCA on November 23, 1986, it has been business as usual among the nation’s largest defense contractors.

In 2005, Northrop Grumman paid $62 million to settle charges it was involved in a scheme to submit false contract proposals. Despite the charges, Northrop Grumman was awarded $12.9 billion in contracts the very next year—a sixteen percent increase over the previous year’s contracts. Another egregious example occurred in 2008, when Lockheed Martin agreed to pay $10.5 million to settle charges it submitted phony invoices on a multi-billion dollar contract connected to the Titan IV space launch vehicle program. As with Northrop Grumman three years prior, the Defense Department granted Lockheed $30.2 billion in contracts in fiscal year ending 2009. Despite, such pessimistic reports, there is evidence that the Cold War era FCA is having an impact.

According to Stuart F. Delery, Assistant Attorney General for the Department of Justice, the Justice Department secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government for fiscal year ending Sept. 30, 2013. This recovery by the federal government is the second largest annual recovery in American history, bringing the total tax revenue recovered under the FCA to $ 17 billion as of January 2009—nearly half the total recovered since Congress amended the FCA at the height of the Cold War in 1986.

Conclusion. The American whistleblower of 2014 is not a 21st century creation, but instead, is the brainchild of the American Congress—three centuries in the making. In this short essay, we retraced the history of the American whistleblower, starting at the beginning: the Revolutionary War. Next, we moved forward in time to the most substantial legislative amendment to the whistleblower law, which sprang out of the bloodiest battle in American history: the Civil War. Finally, the essay culminated the history of whistleblowing in America, with the Cold War era amendment, that is largely responsible for the whistleblower that we see today. By retracing this unique history, spanning three centuries of American history, you the reader now have a far greater appreciation of the vital role American whistleblowers play in the government’s war on fraud.

References
http://www.bernlieb.com/whistleblowers/History-Of-The-False-Claims-Act/index.html Retrieved on 5/26/14
http://www.civilwar.org/education/civil-war-casualties.html Retrieved on 5/30/14
http://www.justice.gov/opa/pr/2013/December/13-civ-1352.html Retrieved on 5/27/14
http://www.nytimes.com/2011/06/13/opinion/13kohn.html Retrieved on 5/23/14
http://opinionator.blogs.nytimes.com/2013/03/07/the-civil-wars-war-on-fraud/?_php=true&_type=blogs&_r=0 Retrieved on 5/24/14
http://origin.www.gpo.gov/fdsys/pkg/CRPT-110srpt507/pdf/CRPT-110srpt507.pdf Retrieved on 5/31/14
http://www.smithcurrie.com/commonsensecontractlaw,topic,government-contracts?page=2 Retrieved on 6/1/14
http://www.whistleblowers.org/storage/whistleblowers/docs/BlogDocs/chapterwhistlblower%20handbook.pdf Retrieved on 5/24/14
Kohn, Stephen M. (2011), The Whistleblowers Handbook. Globe Pequot Press

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