The False Claims Act - Definition
Qui Tam and Whistleblowing Actions
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What is the False Claims Act?
The False Claims Act (FCA) is a federal law that provides criminal and civil sanctions for those who commit fraud against the US Government.
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What are Actions under the False Claims Act?
The False Claims Act (FCA) is well known for authorizing a special type of civil action, Qui Tam or Whistleblowing.
A Qui Tam action allows a civil plaintiff to bring an action against a company on behalf of the Federal Government.
The criminal and civil provisions of the FCA prohibit the following conduct:
- Knowingly presenting, or causing to be presented a false claim for payment or approval;
- Knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim;
- Conspiring to commit any violation of the False Claims Act;
- Falsely certifying the type or amount of property to be used by the Government;
- Certifying receipt of property on a document without completely knowing that the information is true;
- Knowingly buying Government property from an unauthorized officer of the Government, and;
- Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government; and
- Retaliation based upon reporting any of the above infractions.
The unique aspect of the FCA is that it allows individuals reporting criminal fraud against the government and those bringing Qui Tam actions to receive a portion of the proceeds recovered by the government.
Discussion: What do you think is the justification for allowing civilians to bring an action on behalf of the government? What do you think about awarding a whistleblowing civilian a portion of the civil damages recovered against a company? What is the reasoning behind allowing these types of actions?
- The current approach is to provide an incentive for individuals negatively affected by illegal conduct to bring a civil action to curb the illegal conduct. Some would argue that this facilitates carrying out justice and the orderly rule of law. Others might argue that creating this incentive is misplaced and should rest solely with the government. Some may even be resentful of civilians who benefit personally by bringing an action to enforce the law against individuals.
Practice Question: Ron works in the manufacturing services unit for ABC, Inc. ABC has a large contract with the Federal Government to manufacture steel storage containers. The contract allows ABC to charge the government for all materials used in manufacturing and for the labor costs. Ron noticed that ABC was routinely ordering shipments of steel fittings at $25,000 each as part of the materials order for the government contract. In reality, ABC was only using a small portion of the fittings on the contract, and was selling the remaining units to third parties. Ron decides to inform the government that it is being routinely over charged by ABC. Has ABC committed a crime? What rights and protections does Ron have in reporting ABCs conduct?
- ABC could be charged for a crime under the False Claim Act. This act is a federal law that makes it a crime for any person or organization to knowingly make a false record or file a false claim regarding any federal health care program, which includes any plan or program that provides health benefits, whether directly, through insurance or otherwise, which is funded directly, in whole or in part, by the US government or any state healthcare system. Knowingly includes having actual knowledge that a claim is false or acting with reckless disregard as to whether a claim is false. An individual (called a qui tam plaintiff or relator) who is an original source of information can sue for violations of the False Claims Act. Under both the federal False Claims Act and the MMFCA, a qui tam plaintiff can receive between 15%-25% of the total amount recovered if the government prosecutes and 25-30% if litigated by the qui tam plaintiff. The federal False Claims Act protects employees who report a violation under the Act from discrimination, harassment, suspension or termination or employment as a result of reporting possible fraud. In the example from the practice question, ABC is guilty of committing the crime of giving false claims to the government with the aim of overcharging to make profits. Ron's rights are also protected under the False Claims Act. This is particularly true if the government brings a civil action, a qui tam action against ABC. His job and employment are protected, as his employer is prohibited from discriminating against him or terminating his employment as retaliation for his reporting the illegal conduct. Ron is also entitled to a percentage of the money recovered in the qui tam action against ABC Inc. https://thcmi.com/false-claims-act/
Academic Research on the False Claims Act
- Harkins, Malcolm J., The Ubiquitous False Claims Act: The Incongruous Relationship between a Civil War Era Fraud Statute and the Modern Administrative State (March 1, 2007). 1 St Louis University Journal of Health Law & Policy 131 (2007). Available at SSRN: https://ssrn.com/abstract=2394778
- Snyder, Jesse and Gann, Andrew, Staying True to the False Claims Act: Why the Government is an Unexplored Prime Vehicle to Dismiss Cases (January 23, 2018). University of Memphis Law Review, Vol. 48, No. 257, 2017. Available at SSRN: https://ssrn.com/abstract=3108101
- Halabi, Sam, Collective Corporate Knowledge and the Federal False Claims Act (September 2, 2016). Baylor Law Review, Vol. 68, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=2834030
- Farringer, Deborah, The Computer Made Me Do It: Is There a Future for False Claims Act Liability Against Electronic Health Record Vendors? (2018). Nevada Law Journal, Vol. 18, p. 735 (2018); Belmont University College of Law Research Paper No. 2018-2. Available at SSRN: https://ssrn.com/abstract=3179654
- Schooner, Steven L., False Claims Act: Greater DOJ Scrutiny of Frivolous Qui Tam Actions? (April 1, 2018). Steven L. Schooner, False Claims Act: Greater DOJ Scrutiny of Frivolous Qui Tam Actions?, 32 NASH & CIBINIC REP. 20 (2018). ; GWU Law School Public Law Research Paper No. 2018-12; GWU Legal Studies Research Paper No. 2018-12. Available at SSRN: https://ssrn.com/abstract=3152097 or http://dx.doi.org/10.2139/ssrn.3152097
- Boese, John T. and McClain, Beth, Why Thompson is Wrong: Misuse of the False Claims Act to Enforce the Anti-Kickback Act. Alabama Law Review, Vol. 51, Pp. 1-55, Fall 1999. Available at SSRN: https://ssrn.com/abstract=224247 or http://dx.doi.org/10.2139/ssrn.224247
- Krause, Joan H., Reflections on Certification, Interpretation, and the Quest for Fraud That 'Counts' under the False Claims Act (October 5, 2017). University of Illinois Law Review 1811 (2017).; UNC Legal Studies Research Paper No. 2836645. Available at SSRN: https://ssrn.com/abstract=2836645
- Ayres, Ian and McGuire, Robert, Using the False Claims Act to Remedy Tax Expenditure Fraud (August 10, 2016). Yale Law & Economics Research Paper No. 564. Available at SSRN: https://ssrn.com/abstract=2821606 or http://dx.doi.org/10.2139/ssrn.2821606
- Murray, Michael F., Seeking More Scienter: The Effect of False Claims Act Interpretations (March 1, 2008). Yale Law Journal, Vol. 117, No. 981, 2008. Available at SSRN: https://ssrn.com/abstract=1338602