The False Claims Act: Protecting the American Taxpayer from Fraud
The False Claims Act is the premier federal litigation tool aimed at protecting the American taxpayer. It imposes substantial liabilities on parties that defraud U.S. Government programs by knowingly submitting false claims for payment. Called “Lincoln’s Law,” the False Claims Act was originally enacted during the Civil War in response to widespread fraud by contractors supplying the Union Army. The Justice Department has recovered more than $62 billion under the False Claims Act since 1986.
Whistleblowers – The Eyes and Ears of the Government
The success of the False Claims Act is due primarily to its qui tam provisions. Those provisions empower private parties with information about fraud against the Government to become whistleblowers – referred to as qui tam “relators” – by filing lawsuits against alleged violators ex rel or on the Government’s behalf. The lawsuit is initially kept “sealed” or secret to allow the Government an opportunity to investigate the whistleblower’s claims. The Justice Department then has the right to “intervene” in and assume the prosecution of the case.
Presenting a well-constructed case and persuading the Government to intervene is critical to the success of whistleblower matters. It is essential to engage an experienced whistleblower attorney with a track record of intervened cases like Mark A. Strauss to represent you.
Whistleblowers in successful cases may receive a bounty called a “relator’s share” or whistleblower award consisting of a share of whatever the government recovers from the violators in the lawsuit. In cases in which the Government has intervened, the relator’s share is from 15-25%. If the Government declines to intervene and the whistleblower and their counsel successfully prosecute the case on their own, the whistleblower is entitled to a more significant bounty – 25-30% of the amount recovered. In general, the percentage awarded depends on the whistleblower’s contribution to the results obtained.
Notably, in 2019, the Justice Department recovered about $3 billion in settlements and judgments under the False Claims Act. Of that amount, approximately $2.2 billion or almost three quarters came from cases started by whistleblowers.
Who Can Become a Whistleblower?
Under the False Claims Act, nearly anyone – including business entities and local governments – with knowledge of fraud against the government can become a whistleblower. While many whistleblowers are employees with insider access to critical information, the law also allows contractors, data analysts, customers, and even competitors and other companies to report fraudulent activity. This includes both Americans and individuals or companies from foreign countries with knowledge of fraud against the US government. To qualify for whistleblower status and potentially receive compensation, a relator must meet several key requirements.
First, the whistleblower must provide voluntary, original information. This means the information should not already be known to the government and must be offered without coercion, such as a subpoena. The information must also be specific, timely, and substantial enough to assist in the government’s investigation or enforcement action.
Second, the information provided must relate to a violation of a law that offers whistleblower protections, such as the False Claims Act. The whistleblower must have credible evidence of fraud, such as internal documents, emails, or other forms of proof. Even non-employees who can establish clear evidence of misconduct may be eligible to file a claim, provided the information is not based on publicly available knowledge without additional analysis.
Lastly, to be eligible for compensation, the whistleblower’s information must lead to a successful enforcement action resulting in the government recovering funds. Under the False Claims Act, whistleblowers may be entitled to a portion of the recovery, ranging from 15% to 30%, depending on the government’s involvement and the success of the case.
Liability and Damages Under the False Claims Act
Liability is established under the False Claims Act by showing that the defendant “knowingly” presented or caused to be presented false or fraudulent claims for payment to the Government, or used, or caused to be made or used, false records or statements “material to” a false or fraudulent claim for payment to the Government.
Significantly, the requirement that the violator acted “knowingly” under the False Claims Act does not mean that they had a specific intent to defraud or deceive the Government, to receive funds to which they were not entitled, or to violate the False Claims Act. Rather, reckless disregard or deliberate ignorance as to the truth or falsity of representations made to the Government in order to obtain the payments in question is sufficient to hold a person liable. As courts have noted, reckless disregard and deliberate ignorance covers “the ostrich type situation where an individual has buried his head in the sand and failed to make simple inquiries which would alert him that false claims are being submitted.” Put simply, the False Claims Act reflects the concept that parties receiving public funds have a duty to make reasonably certain they are entitled to the Government payments they claim.
The False Claims Act also applies to what are referred to as “reverse false claims.” Liability for “reverse” false claims is established by showing that the defendant knowingly concealed or improperly avoided or decreased an obligation to pay money to the Government. Import duty evasion is an example of a “reverse” false claim.
The liabilities imposed under the False Claims Act are substantial. Specifically, violators are subject to liability for three times the amount of the Government’s actual damages, plus penalties which are assessed for each false claim that was submitted. The 1986 False Claims Act established a penalty range of $5,000 to $10,000 per violation. That range, however, is subject to inflation adjustment, and as of January 2020, has been increased to $11,463 to $23,331.
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