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CVF Stabilization Act Poses Risk to False Claims Act

The United States Congress has introduced the Crime Victims Fund Stabilization Act (H.R.8061), which poses significant risk to fraud recoveries from civil False Claims Act cases. Below, learn about the root causes of the budgetary problems with the Crime Victims Fund, the problems with the current bill, and recommendations for amendments that NWC proposes.

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What has caused the current problems with the Crime Victims Fund (CVF)?

The Department of Justice is tasked with maintaining the CVF, using recoveries from white collar crime prosecution. The fund suffers due to the lack of prosecution of significant cases by the DOJ and due to the DOJ’s frequent entrance into plea agreements and non-prosecution agreements which prevent them from collecting large fines and penalties, which would otherwise go into the fund.

Specifically, criminal False Claims Act (FCA) whistleblowers, are the best source of white collar crime, and they save the Department investigative resources. However, criminal FCA whistleblowers have been deterred for two reasons, cutting off a major source of funding for the Crime Victims Fund. This Crime Victims Fund Stabilization Act not only does not fix these problems, but it duplicates one of them with respect to civil FCA whistleblowers, which threatens to destroy the most effective anti-corruption program in American history.

Why have criminal FCA Whistleblowers Stopped Reporting — and how has that impacted the CVF?

#1: Flaws in the order of restitution (18 US Code 3663). The order of restitution requires that “victims” of a criminal FCA case are paid prior to whistleblowers or a government. These “victims” are not conventional crime victims, like the kind who would be compensated under the CVF. They tend to be large companies who file claims that they were impacted by the fraudulent activity of another corporate actor. It takes years for the government to go through each claim and determine which companies are owed compensation and how much they are owed. Some whistleblowers die before seeing their reward. Therefore, many whistleblower attorneys now recommend against using the FCA to file criminal claims.

#2: Perverse incentive structure created by the current Crime Victims Fund budget structure. The DOJ believes it has an incentive to give criminal FCA whistleblowers less money because the money leftover will go into the Crime Victims Fund. Whereas other whistleblower agencies, such as the IRS, SEC, and CFTC, have recognized that large whistleblower rewards further inventivizes whistleblowers to come forward and creates a larger fraud deterrent effect, the DOJ has a reputation for giving whistleblowers as low of a reward as possible.

What would the Bill do about these problems?

The CVF Stabilization Act does not fix the flaws in the order of restitution, which currently in part deters criminal FCA whistleblowers from reporting.

Even more alarming, by allocating the remaining recoveries of civil FCA cases to the Crime Victims Fund as well, this Bill would duplicate the same problem that already exists with criminal FCA cases: it creates a conflict of interest which will cause the DOJ to low-ball civil FCA whistleblowers, deterring these whistleblowers – who are currently a critical source of anti-corruption tips for the U.S. government and taxpayers – from reporting. The Fund might see an increase in the short run, but in the long run, it would likely decrease because this source of funding would decrease as civil FCA whistleblowers are deterred. Crippling the efficacy of civil FCA cases would also be detrimental for the anti-fraud efforts by the U.S. government.

Proposed Amendments to the Bill Can Fix the Root Causes of CVF Budgetary Issues and Prevent Duplication of the Problem with Civil FCA Cases

In order to fix the CVF budget, the DOJ needs more not less sources for prosecution since this is where money for the fund comes from. This means incentivizing FCA whistleblowers by fixing the order of restitution and ensuring they are not lowballed by the DOJ. It also means reserving a special budget for the DOJ’s white collar crime prosecution efforts.

#1: Fix the order of restitution: whistleblowers must be able to be compensated before the government determines the payment to FCA victims, which takes years to determine and which companies have a long timeline for filing eligibility. If whistleblowers receive their reward on time, they would not be disincentivized from reporting, and the DOJ would have critical sources of white collar crime enforcement, of which the remaining moneys would be invested in the Crime Victims Fund.

#2: Set aside the maximum 30% for the relators share for all FCA whistleblowers, regardless of whether they receive the full award. If the DOJ provides a whistleblower less than this for a reward, the remaining money must go to the unappropriated budget, rather than to the DOJ. This will prevent the conflict of interest that currently motivates the low-balling of criminal FCA whistleblowers within the DOJ.

#3: Designate an additional 10% of the recoveries from all FCA cases to be reinvested into the DOJ’s white collar crime enforcement. As mentioned earlier, the DOJ’s neglect in pursuing enforcement of lucrative white collar crime cases is the most salient cause of the budgetary issues with the Crime Victims Fund. If money is set aside for enforcement activities, it will pay off long term for the fund.

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