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Egon Zehnder Dodges Whistleblower Tax Fraud Claim

Nightmare scenario ends for global search firm as Federal Court approves nominal settlement payment to State of New York. Settlement unsuccessfully opposed by the whistleblower.

In 2017 global executive search firm Egon Zehnder was sued in the state of New York by a former employee on its US accounting team. Egon Zehnder is one of the largest executive recruiting firms in the world, with 68 offices in 40 countries. The lawsuit was brought under New York's whistleblower statute and alleged that the firm shifted up to $86 million in New York revenue to offshore entities with lower corporate tax rates. The case involved complex "transfer pricing" accounting issues commonly faced by international firms.

The suit sought to recover taxes on behalf of the state, as well as triple damages. Of course, the plaintiff also sought a handsome whistleblower reward. The state of New York had an opportunity to take over prosecution of the lawsuit at the beginning, but chose not to, suggesting that the state did not see much merit in the claims. Egon Zehnder strongly denied any wrongdoing and vigorously contested the matter for over four years. Then, In July 2020, the state successfully moved to intervene in the lawsuit for the purpose of implementing a settlement in the total amount of $100,000, a nominal amount in a case of this nature. Over the objections of the whistleblower, the court approved the settlement, finding it to fair and reasonable from the state's perspective. And so ended Egon Zender's multi-year ordeal.

All 50 states have some form of whistleblower statute. These laws sometimes offer substantial rewards to the successful whistleblower for disclosing wrongdoing by a business, usually wrongdoing that causes financial harm to the government. Most commonly, whistleblower statutes protect employees from retaliation for disclosing legal violations internally or externally (to authorities). The federal government alone offers employee whistleblower protection in 25 statutes.

Interestingly, in 2021 the New York legislature greatly expanded the state's whistleblower law, enhancing protections for whistleblowers and risks for employers. You can read more about it here: New York’s Whistleblower Protection Law Is Dramatically Expanded | Proskauer Whistleblower Defense (whistleblower-defense.com)