While President Trump wastes public attention with tweets denying the death toll from Hurricane Maria and whining about his “unappreciated great job” in the aftermath, Puerto Rico cannot afford to waste any of the billions in public funds that its inhabitants need to continue rebuilding their homes and their lives a year after the storm. Past storm recovery efforts teach a valuable lesson on how to avoid the squandering of those public funds through what has proven to be an all-too-likely drain on public disaster relief funds: fraud. By adopting a new law incentivizing whistleblowers to help root out fraud, Puerto Rico has taken matters into its own hands to ensure the proper use of disaster relief funds.
Puerto Rico relies largely on federal aid for repairing the estimated $100 billion in damage inflicted by Maria. After past disasters, including Hurricane Katrina in 2005 and Hurricane Sandy in 2012, fraud and corruption siphoned off public resources meant for recovery efforts. The Hurricane Katrina Task Force reported bringing federal charges against at least 907 individuals for trying to take advantage of victim assistance and rebuilding efforts in the three years after that catastrophic event. Fraudsters co-opted an estimated $1 billion in relief.
After storms, insurance claims are a common source of fraud. For example, property insurer State Farm improperly shifted costs to the Federal Emergency Management Agency (FEMA) after Katrina by misclassifying wind damage, which was covered under State Farm’s general homeowner’s insurance policies, as flood damage. Such damage was covered by flood insurance policies administered by State Farm but underwritten by FEMA. Thanks to sisters Cori and Kerri Rigsby, a pair of claims adjusters at State Farm who came forward, the federal government obtained damages from State Farm under the False Claims Act (FCA), a law that helps the federal government pursue contractors who defraud government programs. Under the FCA, the Rigsby sisters received 30 percent of the recovered government funds as a reward for blowing the whistle.
Like insurers, contractors hired to assist with emergency management and rebuilding can also be susceptible to fraud. In one FCA case brought after Katrina, a contractor lied to FEMA personnel to obtain premature payment for a first-responder base camp that it never built. In another case, false statements in bid paperwork were used to obtain an illegal contract with FEMA worth up to $100 billion for servicing and deactivating trailers used in the aftermath of Katrina.
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Already, the Puerto Rico Electric Power Authority (PREPA) is under scrutiny for contracts to repair the power grid, which took nearly a year despite $4 billion in funding. Uncertainty surrounds the pricing of its later-canceled $300 million contract with Montana-based Whitefish Energy, which reportedly contained a clause forbidding government audits of the company’s use of public funds.
Fraud is difficult to identify even without the chaos and resource strain inherent to humanitarian disasters. If there is fraud, whether in the power grid repair contracts or otherwise, experience shows that whistleblowers like the Rigsby sisters perform a vital role in uncovering and preventing it, ensuring that public money is spent effectively.
In July, Puerto Rico passed an important new law modeled on the FCA that strengthens the role of whistleblowers and the protection offered to them. Like the FCA, the Fraudulent Claims to Programs, Contracts, and Services of the Government of Puerto Rico Act (FCPA) allows individual whistleblowers to bring lawsuits against fraudulent contractors to help recover public funds. Whistleblowers can receive as much as 15 percent to 30 percent of the funds recovered. Significantly, the FCPA applies whether the source of the defrauded funds is federal or Commonwealth, and individuals can file suit in a local court in San Juan. The FCPA therefore offers an expanded, local and perhaps more easily accessible resource to expose fraud, with a monetary reward available to help protect whistleblowers against the challenges of coming forward.
Although the hurricane recovery highlights an immediate role for whistleblowers using the FCPA, their importance extends beyond disaster relief. Going forward, the FCPA provides an avenue for whistleblowers to be rewarded for choosing to do the right thing across all sectors, including vulnerable industries such as healthcare and education. The FCPA should be a key asset for Puerto Rico’s economic future, both during storm recovery efforts and beyond.
Mary Inman is a partner in Constantine Cannon’s London Office. After more than 20 years representing whistleblowers in the United States, she moved to London in 2017 to launch the firm’s international whistleblower practice.