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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. It is well known for authorizing a special type of civil action, “Qui Tam” or “Whistleblowing”, which 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 ABC’s 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/
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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