SEC and CFTC Gain, IRS Loses in FY 2015 Budget Bill

The Senate passed the $1.1 trillion budget bill on Saturday evening and President Obama has signalled that he will sign the budget for Fiscal Year 2015 later this week.  As Congress allocated resources in the Consolidated and Further Continuing Appropriations Act for 2015, both the CFTC and SEC got significant increases.  The IRS, on the other hand, lost 3 percent of its budget.

The bill is important because it provides funding for the agencies charged with enforcing the nation’s whistleblower laws. As only the False Claims Act allows qui tam lawsuits, whistleblowers to the Internal Revenue Service, Securities & Exchange Commission, and Commodity Futures Trading Commission are dependent upon enforcement actions brought by the government agencies. Their ability to have the resources to take on some cases may be dependent on their budget and personnel.

The  also repealed the swaps push out rule from the Dodd-Frank Act and prohibits federal payments to corporations which prohibit whistleblowers from reporting fraud, waste and abuse to the U.S. Government.

Here’s a more extensive discussion of each aspect mentioned above:

CFTC

The CFTC budget for Fiscal Year 2015 was increased to $250 million. It will receive $35 million more than the $215 million it got in FY 2014. The nation’s derivatives regulator sought an additional $30 million for a total budget request of $280 million. The request primarily called for more personnel at the Commission.

The CFTC has faced problems with declining employee morale due to its inadequate budget over the past few years. The percentage of people who would recommend the CFTC as a good place to work fell from 64 percent last year to 45 percent this year. Overall job satisfication at the agency has declined substantially from 2010, when Dodd-Frank was passed.

The CFTC budget has been constrained by certain legislators as they attempted to prevent implementation of parts of the Dodd-Frank Act. CFTC Chairman Timothy Massad essentially stated that the low budget put the agency in regulatory triage. Even at the higher levels for 2015, Senator Debbie Stabenow, Chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry, called the budget inadequate to allow the CFTC to do its job. Derivatives trading has grown from a $500 billion business to a $700 trillion industry without a corresponding increase in CFTC funding.

SEC

The SEC received an increase of $250 million in its budget for FY 2015 from FY 2014 levels. Its total FY 2015 budget will be $1.5 billion, $200 million short of the agency request of $1.7 billion. The budget request for a total increase of $450 million sought to hire additional employees, invest in technology solutions and complete rulemaking required by the Dodd-Frank Act and the JOBS Act.

IRS

The budget deal cut IRS funding by three percent to $10.9 billion for 2015. The reduction in funding by $345.6 million will need to come from an agency that has already reduced spending by more than $1 billion because of budget cuts since 2010. The FY 2014 level was $11.29 billion.

President Obama asked for Congress to provide the agency with $12.477 billion. The IRS Oversight Board estimated that the President’s budget would allow the U.S. Government to collect an additional $2.1 billion in revenue and avoid the loss of $360 million a year due to identity theft. Every dollar decrease in IRS funding allows roughly $7 in taxes to go uncollected.  With implementation of FATCA proceeding, the budget decrease does not come at an opportune time.

One aspect of the President’s budget proposal not in the final bill: The Treasury Department’s request for IRS whistleblower protections against retaliation. This section has been removed by Congress annually for the past few years.

Dodd-Frank Swaps Push Out

The SEC and CFTC budget increases can be attributed to a deal made to repeal section 716 of the Dodd-Frank Act. The section was commonly referred to as the swaps push out rule. It required banks to move derivatives trading out of their federally insured subsidiaries. The financial health of subsidiaries protected by federally insured deposits allows them significant advantages while trading and could put federal funds at risk. The measure was largely written by Citigroup in advance of the 2015 deadline for implementing the section of the law.

The reversal of the swaps push out rule was one of the most controversial aspects of the entire budget. Its addition to the law used the impending deadline for government shutdown. Senator Elizabeth Warren (D-Mass), who was involved in the creation of the U.S. Consumer Financial Protection Bureau, nevertheless marshalled a tremendous amount of opposition to it. A White House statement opposed the section but did not indicate that President Obama would veto the bill because of it.

Confidentiality Agreements

Employment agreements have proven to be a common tool used by employers to attempt to restrict whistleblowers. Congress took a step in the right direction with the bill by restricting payments to corporations which prohibit reporting waste, fraud or abuse to the Federal Government. Money from the FY 2015 budget can not be paid to corporations requiring employees to sign confidentiality agreements that prevent them from blowing the whistle.

The provision reads:

SEC. 743. (a) None of the funds appropriated or otherwise made available by this or any other Act may be available for a contract, grant, or cooperative agreement with an entity that requires employees or contractors of such entity seeking to report fraud, waste, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or contractors from lawfully reporting such waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information.

It is great to see Congress take a step in the right direction with the insertion of this section into the budget. The section may create additional litigation under the False Claims Act as it operates as a condition for payment to federal contractors. Companies which violate the law by imposing one of these agreements on its employees could be subject to treble damages under the False Claims Act if they misrepresent the compliance of their employment contract with this rule in order to receive payment on their government contract. In addition to businesses fulfilling government contracts, it also implicates the health care industry because hospitals or other health organizations with these contracts would not be able to receive funds from Medicare.

The SEC has also already taken aim at this practice in the securities industry. According to the Washington Post in March, the SEC opened an investigation into confidentiality agreements created by KBR that potentially violate Rule 21F-17(a). The rule prohibits any action to impede an individual from communicating with the SEC about a possible securities law violation including enforcing, or threatening to enforce, a confidentiality agreement.

There has been several calls for changes to this employer practice. In October, eight U.S. Representatives on the House Committees on Financial Services and Oversight and Government Reform (OGR) urged the SEC to take additional enforcement actions against corporations using workplace secrecy agreements to chill whistleblowing.

Other Items of Interest to Employees

There were also small increases (less than $1 million) to the EEOC and OSHA budgets. The OSHA budget had sought an appx. $3 million increase in the amount of money for enforcement of whistleblower protections from retaliation and an appx. $30 million increase in the funding for the Wage and Hour Division to protect workers from FLSA violations related to worker misclassification, overtime and other pay rules. I haven’t independently verified it in the bill, but according to one report I have seen, wage and hour enforcement got an extra $3.2 million dollar increase and whistleblower protections had a small, less than $1 million increase.