The False Claims Act is America’s First Whistleblower Law
President Abraham Lincoln signed the False Claims Act (“FCA”), now codified as 31 U.S.C. §§3729-2733, on March 2, 1862, to target fraud in government contracting and against the government. The FCA creates liability for individuals who make false claims, and enacts substantial liability and powerful disincentives for these crimes, making the criminal,
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104–410 ), plus 3 times the amount of damages which the Government sustains because of the act of that person.
One of the most important aspects of the False Claims Act are the qui tam, or whistleblower, provision. It allows any individual or non-governmental organization to file a False Claims Act lawsuit, in U.S. District Courts, on behalf of the United States Government. Whistleblowers are rewarded for disclosing fraud that result in a financial loss to the federal government. It applies to customs violations on imports coming into the U.S. The government investigates all whistleblower claims and can either “intervene” and proceed with the case or decline, in which case the whistleblower may proceed with the action. As the FCA incentivizes reporting and is the first whistleblower law, it is the model for all current whistleblower reward laws.
The FCA can be used to impose liabilities on individuals or companies who commit customs violations at the U.S.’ borders, using paperwork to catch other illegal activities. Whistleblowers have filed successful FCA cases exposing violations of customs laws and import laws. Customs violations have include undervaluation and misclassification of goods entering the U.S. The FCA requires that damages be trebled, and that wrongdoers pay a large penalty for each false claim.
False customs declarations are known as “reverse false claims” because the wrongdoer has prevented the government from collecting what it is owed rather causing the government to pay for fraudulent requests.
The framework for the law is simple.
- Initial disclosures are confidentially filed with the U.S. government. Note that cases dealing with whistleblower retaliation are followed up using the Sarbanes-Oxley Act (“SOX”).
- The emphasis is on the truthfulness of the information, not on a whistleblower’s employment discrimination case.
- Compensation is based on whether the information provided by the whistleblower can support a successful prosecution.
- Whistleblowers are awarded a mandatory reward of between 15% to 30% of the collected proceeds.
It is important to note that the FCA was written to be expansive.
- Applies to conduct outside the U.S. – so long as there is federal spending, procurement or contracting.
- Suitable for building criminal cases as well as civil.
- Treble damages provision sends powerful message to wrongdoers.
- Whistleblowers (“relators”) receive 15 to 30 percent of amount recovered by government, plus attorney fees and costs.
- Anyone can serve as a whistleblower, including NGOs.
The False Claims Act is Enormously Successful
Since the FCA was signed into law it has become the most successful anti-fraud act in the United States. According to a DOJ press release, in Fiscal Year 2017, $3.7 billion in FCA settlements and judgements were recovered. $3.4 billion of the recovered monies can be attributed to whistleblower-initiated cases, and $392 million (11.5%) were given as rewards to whistleblowers, who are known as relators. This means that whistleblowers were the source of the detection of 91.8% of all civil fraud recovered that year.
In the FCA’s first three decades, from FY 1986 – 2017, whistleblowers received awards worth 11.72% of total funds recovered by the U.S. government. There are now around 600 new whistleblower cases annually.
In 1986, major changes were made to the FCA, which increased damages significantly for these cases. Since the Act was amended, the U.S. government has recovered over $56 billion. The U.S. Assistant Attorney General has said that this whistleblower reward law is “the most powerful tool the American people have to protect the government from fraud”. While a large portion of this taxpayer recovery is returned to the government, whistleblowers are awarded significant amounts of the settlement for their bravery and in recognition that many of them have risked their livelihoods. Not only do these whistleblower cases play an instrumental role in outing fraudulent behavior within the U.S., they also aid in the fight against international corruption.
Crucially, the U.S. government intervenes in approx. 20% of whistleblower tips, litigating the cases itself.
“Going after waste, fraud, and abuse without whistleblowers is about as useful as harvesting acres of corn with a pair of rusty old scissors.”
In-depth information about the False Claims Act, including how it is being used and updates through relevant court cases, can be found in annual reports published by WilmerHale, the most recent of which can be accessed here (2018) and here (2017).
Whistleblowers are the Crucial Component
The total fraud recovered in the United States increased from $88.4 million in FY 1987 to $3.7 billion in FY 2017 based on whistleblower disclosures under the FCA.
Since FY 1987, whistleblowers were responsible for 72% of the funds recovered in contracting or procurement fraud cases.
From 1987 through 2018, whistleblower cases under the FCA have brought in $42.5B to the U.S. Treasury. Of that amount, $6.4B was paid in rewards to whistleblowers.
The FCA as a Model for Other Whistleblower Programs
Whistleblowers are a vital resource of the U.S. civil recovery program. Oftentimes, they are the sole access point for information regarding cases of fraud. Whistleblowers are a necessary tool in the protection of the U.S economy and the prevention of government defrauding. Without their help, a successful law enforcement program would be only a fraction of its current effectiveness. The FCA framework should be a model for the implementation of other whistleblower programs: we can use best practices learned here to apply elsewhere.
“The taxpayers owe a debt of gratitude to those who often put much on the line to expose such [fraudulent] schemes.”
—Assistant Attorney General Jody Hunt – Remarks on the False Claims Act, DOJ Press Release (2018)
“Those who defraud the government often hide their misconduct from public view, whistleblowers are often essential to uncovering the truth.”
— Acting Assistant Attorney General Chad A. Readler, Department of Justice, Civil Division, Press Release: Justice Department Recovers Over $3.7 Billion From False Claims Act Cases in Fiscal Year 2017 (2017)
National Whistleblower Center Advocates for FCA Whistleblowers
In 2016, British Petroleum (BP) settled a case with a record $20 billion that included False Claims Act penalties for falsifying offshore lease applications. According to NWC’s letter to DOJ, BP made misrepresentations about its safety and emergency response procedures in order to operate under leases from the United States and profit from offshore drilling. For example, the Associated Press reported a series of material misrepresentations made by BP in both its Deepwater Horizon Plan and its Regional Spill Plan. These misrepresentations and false statements include vast overstatements of BP’s preparedness to deal with a major leak and vast understatements of the dangers posed to the environment and the public by an uncontrolled leak. The claims also included false statements such as listing a national wildlife expert whom the company would rely upon for its compliance obligations even though this expert had died 4 years prior to the submission of the plan. See Justin Pritchard, et al “BP Spill response plans severely flawed,” Associated Press (June 9, 2010).
These statements, along with others reported in the national media, constitute compelling evidence that BP violated the FCA to obtain authorization to commence its drilling operations under the lease for the Deepwater Horizon oil rig. Under the recently amended FCA, all BP contractors and subcontractors who participated in any manner in a violation of the Act would be jointly and severally liable. The investigation into BP must include an investigation into all its contractors and subcontractors.
NWC Action Alert Network Members Start 2019 with a Win! Attorney General Nominee Agrees to Protect the False Claims Act!
In December 2018, President Trump nominated a radical anti-whistleblower advocate to be the new U.S. Attorney General of the United States. The National Whistleblower Center learned that in 1998 and again in 2002, William Barr made statements in which he strongly opposed the highly successful qui tam whistleblower provisions in the False Claims Act.
Under pressure from whistleblower advocates throughout the country and with the advocacy of the National Whistleblower Center, Attorney General Nominee agrees to protect the False Claims Act.
The National Whistleblower Center immediately issued a press release and an action alert to call attention to Barr’s history of hostility toward the False Claims Act. Continue Reading…
Ongoing Threats Against the False Claims Act
The U.S. Chamber of Commerce (“the Chamber”) has made its opposition to the False Claims Act very clear over the years. The law has been extremely effective returning billions of dollars to taxpayers from fraudulent government contractors.
We need to do everything we can to ensure that major corporate interests don’t hijack the best tool we must protect the fiscal responsibility of the government, and ensure the False Claims Act remains just as effective as ever.
Sign up to the NWC Action Alert Network to be notified of our next FCA call to action, or make a recurring monthly donation to the National Whistleblower Center to ensure that we can continue to fight the good fight!
Additional Resources: Quotes
“The False Claims Act and its [whistleblower] provisions remain the government’s most effective civil tool in protecting vital government programs from fraud schemes.”
— Acting Associate Attorney General Bill Baer Remarks at American Bar Association’s 11th National Institute on the Civil False Claims Act and Qui Tam Enforcement (2016)
“[T]he False Claims Act has provided ordinary Americans with essential tools to combat fraud, to help recover damages, and to bring accountability to those who would take advantage of the United States government – and of American taxpayers.
— Former Attorney General Eric Holder, U.S. Department of Justice. Remarks at the 25th anniversary of the False Claims Act (2012).
“The most powerful tool the American people have to protect the government from fraud.”
— Former Assistant Attorney General Stuart Delery. Remarks at American Bar Association’s 10th National Institute on the Civil False Claims Act and Qui Tam Enforcement (2014)
Additional Resources: Graphs
The chart represents the exponential growth of law enforcement reach thru sanctions obtained by the U.S. government following the introduction of whistleblower monetary incentives in the 1986 amendments to the False Claims Act. Source: Civil Division, U.S. Department of Justice.
The chart represents the outsized effect of whistleblower tips as a detection method of corruption for law enforcement around the world, as compared to other enforcement tools. Source: Association of Certified Fraud Examiners, 2016.