Drawing the line at bailouts

Even those folks who recognize that the $700 billion bailout and its progeny are probably necessary evils are unlikely to sit still if the federal government also provides “tacit bailouts” by cooling prosecution of fraud.

For example, a lot of people understand that government agencies shift their priorities and agendas as particular problems catch the public’s attention. Should taxpayers be concerned that federal agencies, in the midst of the bailout headlines, could take it upon themselves to opt against vigorous prosecution of banks for unrelated tax fraud schemes?

In other words, if a bank is engaging in tax fraud, and the bank is also a bailout beneficiary, is it likely that the Service will aggressively prosecute the bank for the tax fraud?

Will investigators be reluctant to be perceived as “piling on” the bank’s other troubles?

Will this reluctance mean that tax fraud will go unpunished?

If yes, banks and other financial entities will enjoy a "tacit bailout" in addition to the $700 billion dollar "official" bailout campaign. Their ill gotten tax fraud gains may go unpunished. The money they got from their fraud will stay in their pockets.

Senator Chuck Grassley echoes similar worries with regard to False Claims Act enforcement. He wrote a letter to the treasury secretary and the Attorney General last week urging them to issue messages that allegations of fraud against bailout beneficiaries would be treated seriously.

Grassley expressed concern that the bailout programs have been in place for seven weeks and still lack effective oversight. Ineffective oversight means that bailout participants could defraud taxpayers by improperly qualifying for federal funds that they should not receive.

Grassley advocated for whistleblowers and the FCA in particular. Hopefully, the Service will heed this viewpoint and adhere to rigorous tax fraud investigation without regard for whether or not the bank is part of the bailout program. Taxpayers are already investing billions into bailing out financial entities. The feds should be clear that taxpayers will draw the line when asked to invest any more money in financial entities that steal from the government. Enough is enough.