 California’s sandy beaches |
Most of us are familiar with fable of Rumpelstiltskin. Trying to impress the king, a father bragged that his daughter could spin straw into gold. His bluff backfired when the king demanded that she perform or be executed. In the final hour, a mysterious dwarf came to her rescue and agreed to perform the feat in exchange for a consideration. The first time, he asked for her necklace. The next time, he asked for her ring. The final time, he asked for her first-born child. Years later, when her first child was born, the dwarf agreed to let her out of the bargain if she could guess his name. She ended up cheating by having someone spy on the dwarf to learn his name.
Our modern day Rumpelstiltskin has a slightly different twist: spinning sand into gold. To be exact, a mining company is spinning sand into $42.2 million – at the expense of the government.
Hanson Building Materials, a multinational mining company, needs lots of sand to make concrete for its many building projects in California. Therefore, it agreed to pay the state of California a percentage of the value of the sand it would dredge from two bays. It was designed to be a win-win situation for California and the mining company. But then, the company got greedy.
When large volumes of sand are dredged up, it is very difficult for the government to know where or how much sand is being removed. Since it is also hard for the government to know the real value of the sand, it decided to accept royalties from Hanson’s sale of the sand, rather than setting a fixed price per cubic yard.
Hanson Building Materials had a recipe ripe for fraud. They concocted a scheme so devious that it might never have been discovered if someone on the inside had not become a whistleblower.
First, Hanson siphoned off 2 million cubic yards of sand from a location where it did not have permission to dredge and would not be detected. Next, it sold the sand to an affiliated company for $3.30 per cubic yard. That company then sold the same sand for $12.50 per cubic yard, and the two companies shared the illegal profits. Because the company reported the low price to the government, it underpaid tens of millions of dollars in royalties.
Fortunately, one of the tug boat captains delivering the sand was disgusted by the fraud and reported it to the government. Because he filed a reward application, the captain became eligible for a significant reward after the case was prosecuted.
The State of California just announced that it reached a settlement with the company for $42.2 million. The tug boat captain was given more than $10 million as his reward, netting the government $32 million that it would never have received without the help of the whistleblower.
Because the tug boat captain got involved, new protections have been put in place to ensure that the people of California will not be cheated in this way again. As part of the settlement, the government will begin monitoring Hanson’s dredging activities through the use of Global Positioning Systems, to ensure that they dredge for sand only in areas where it is allowed. Since the government now has a better idea of how much sand is worth, it will be less likely taken to the cleaners.
Today, many states, such as California, have reward programs modeled after the federal Whistleblower Reward Program. That means you can receive a large reward for reporting fraud against one of these states, just as you can for reporting fraud under any federal program, grant or contract. The program has even been extended to federal income tax evasion.
It is time to stop greedy corporations from spinning sand into gold at our expense.
