False Claims Act
Originally enacted during the Civil War to fight profiteering by suppliers to the Union Army, the False Claims Act has evolved into a sweeping statute covering nearly every company doing business with the federal government. The law imposes liability on persons who knowingly submit false claims seeking government funds or who knowingly seek to avoid paying amounts owed to the government. Although well-intentioned, the law has been transformed into a lucrative money machine for plaintiffs’ lawyers and their clients – while hurting American businesses and taxpayers. read more...
While the need for an antifraud statute is clear, the False Claims Act’s broad language and overzealous enforcement have encouraged significant abuse—turning what should be simple contractual disagreements and paperwork mistakes into claims for fraud.
The law allows the government to pursue any government contractor suspected of making “false claims” about their goods or services to the government. And it allows third-party whistleblowers (called qui tam relators) to sue in the name of the government and to keep a large part of any award or settlement. The statute allows for treble damages (damages three times the amount of the alleged fraud) as well as other potentially excessive penalties, including a prohibition on companies or individuals receiving federal contracts. Total monetary damages under the False Claims Act have risen from $272 million in 1992 to a record $4.9 billion in 2012 and $3.8 billion in 2013.
Since the law was expanded in 1986, plaintiffs’ lawyers have built a cottage industry around qui tam lawsuits – netting tens of millions for whistleblowers and their lawyers instead of for taxpayers. In fact, the current application of the law is so unbalanced that some whistleblowers are receiving monetary awards for information on violations that they committed.
A number of reforms to the False Claims Act are needed to restore fairness and predictability and to prevent inappropriate payments. These include:
- Providing a safe harbor for companies with robust compliance programs
- Creating reasonable whistleblower incentives to ensure that legitimate fraud is reported, while preventing outrageous awards to whistleblowers and their attorneys
- Clarifying the use and meaning of “implied certifications”—the doctrine that says a simple, non-monetary error (such as incorrect paperwork by a government contractor) can be used as the basis for a False Claims Act lawsuit
- Limiting the government’s power to bar companies and individuals from federal contracts as a method to coerce massive settlements