In August of this year of this year I wrote a major article for the Journal of Accountancy on the revamped IRS whistleblower program. See www.mahanylaw.com/news.html. Since that article, the IRS has been swamped with whistleblower claims. According to a recent Treasury Inspector General report, the office received 1,890 claims alleging $65 billion in unreported tax last year. That is up from a mere 83 claims in 2007. If that isn’t enough reason to worry, enter the Securities and Exchange Commission.

In its just released 2010 - 2015 draft strategic plan, the SEC proposes enforced enforcement through “paying whistleblowers for information that leads to enforcement action…” It’s seems all the regulators are turning to their own version of legalized bribery. (For the complete draft report, see http://www.sec.gov/about/secstratplan1015.pdf)

The government may frown on “pay - to - play” by the private sector but there appears to be no resistance for paying disgruntled employees and competitors for information.

After the SEC’s abject failure in discovering the Madoff scandal, everyone expected the SEC to dramatically increase it’s enforcement efforts through additional staffing and new regulations. The announcement to seek authority to pay informants for productive tips has caught many by surprise, however.

What does this mean for the average business? Expect increased reporting from disgruntled employees, former employees, competitors, activists and even disgruntled spouses. Paying tipsters for their information encourages people to become informants. Whether one views the program as “rewards for rats” (the term apparently coined by Nevada Sen. Harry Reid) or good public policy, the chance of getting ensnared in an SEC compliance or enforcement action will increase dramatically.