Qui Tam legal concept and practice: evolution of the legislation in the United Kingdom and the United States of America

Qui tam is the process whereby an individual sues or prosecutes in the name of the government and shares in the proceeds of any successful litigation or settlement. The Latin name points to the long history of the legislation, which was created in the ancient times. The qui tam authorises private citizens with non-public information relating to the fraud to bring suit on behalf of the government even without prosecutorial endorsement. Qui tam is generally a civil procedure, and the individual need not have been a victim of the misconduct.

The aim of this research is to contribute to the original knowledge by providing an analysis of the qui tam legal concept in its historical evolution in a space of time through two millennia, with main focus on two primary common law jurisdictions – the United Kingdom and USA.

The hypothesis underlying the research is that under certain conditions pursuing goal to better and more efficiently exercise some of its functions the state following qualitative changes in a socio-economic environment may delegate part of its authority to the citizens, and provide them with selectively adopted set of pecuniary and non-pecuniary incentives to accept this authority. The hypothesis is tried with analysis from the following perspectives: macro level - state regulatory practice, and socio-economic development; corporate level -- cost of compliance, and corporate response; basic level -- personal motives, and risks for actual and potential whistleblowers.

The conceptual framework applied is based on the economic analysis of law, which focuses on the economic efficiency of legal rules. The starting point of the research is the assumptions that legal rules ought to be efficient, and that individuals respond to legal rules economically. However the analysis goes beyond the fundamentalist strong-form rationality assumption,
which implies that economic agents always make choices that maximise their own welfare. For the purposes of this research, the people are viewed as weakly rational – rational, but subject to some consistent deviations. Methodologically the research borrows from the behavioural economic theory its attention to such factors as frame dependence and inefficient markets.

The analysis shows that qui tam regulations have decentralised the problem of enforcement, which apart from tackling the inevitable bureaucratic inaptitude, significantly reduces its costs. With respect to more traditional forms of monitoring and regulatory control such a system has proven to offer solid advantages. First of all, it does not require setting up a costly structure. The financial sophistication, and organisational complexity, combined with technical ingenuity and elaboration of the contemporary big business present a cognitive challenge for the investigative and prosecutorial agencies. To investigate white-collar crime they have to spend increasingly huge resources, both financial and intellectual. The relative scarcity of these resources in the post-crisis developed economies has paved way for the qui tam legislation to give governments chance to catch up.

From the narrow regulatory point of view, the bounty system imposes a downward shift in costs of compliance – from the regulator to a corporate level, – because it does not require significant increase in regulators’ staff and budgets. The macroeconomic approach, which focuses on the costs and benefits on a much wider scale, brings in a more complicated picture, when potential short-term increase in costs on a corporate level are offset on a longer-term time scale by rising economic efficiency as a result of reduced losses through corporate fraud and government imposed fines, increased public trust, and improved corporate governance.

From the point of view of the lawmakers, by creating competition for enforcement, qui tam laws reduce the chances that the potential enforcer is bought off, thus providing some additional efficiency through the dual enforcement model. This leads the research to conclude on the motives and logic that stand behind the state, which in such way delegates part of its authority: the qui tam have always been popular with ruling classes for the same reason in the past as well as at present times – under public pressure to prosecute more effectively misdeeds and fraud the society decries as inacceptable, legislative bodies enhance qui tam, when they consider the enforcement of some law beyond the unaided capacity, or interest of law enforcement officials.