The Federal False Claims Act is one of the federal government’s most powerful tools in combating government fraud. The law originated during the Civil War, where suppliers regularly sold the Union Army faulty products, including sick mules and horses, faulty rifles and ammunition, and spoiled provisions. Swindles included suppliers shipping boxes of sawdust instead of guns and selling the same horses to the Union Army multiple times. Enacted in 1863, the stated purpose of the law is to “aid in the effort to root out fraud against the government” and “to encourage private individuals who are aware of fraud penetrated against the Government to bring such information forward.” Since 1863, the law has undergone several enhancements, and is now one of the United States’ key weapons in fighting fraud against the government.
The False Claims Act is codified at 31 U.S.C. § 3729-3733 and has several key features:
Broadly, § 3729(a) of the False Claims Act imposes liability on anyone who knowingly submits or causes another to submit a false claim to the government, or who knowingly makes a false record or statement to get a false claim paid by the government. That section further imposes liability on those who commit what is known as a “reverse false claim”– that is, anyone who knowingly avoids paying money owed to the government.
A false claim can come in several forms. The clearest example is where a person falsely certifies to the government as a precondition of payment that he or she has complied with specified contractual provisions, laws, or regulations. But even absent an express certification, a person can be liable under what is known as the “implied certification theory.” Under this theory, when a person makes a claim for payment to the government (such as submitting an invoice), that person implicitly represents that he or she has complied with all material contractual provisions and related laws and regulations. Thus, under this theory, a person’s failure to comply with such provisions, laws, or regulations constitutes a false claim even though the person never expressly certified that he or she was in compliance.
The knowledge requirement under the False Claims Act is broad. Liability is imposed not only on those with actual knowledge of a false claim, but on those who deliberately ignore or recklessly disregard the truth or falsity of the information. Importantly, it is not necessary to prove a specific intent to defraud, which is a typical hurdle in many criminal fraud statutes, like the mail and wire fraud statutes.
Materiality is another element, and is often the most hotly contested issue in the case. For a false claim to be actionable, it must be material to the government’s decision to pay the claim. That is, it has to matter to the government. The act defines materiality as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” While this is a broad standard, the United States Supreme Court has recently emphasized that it is a “demanding” one.
Damages and Penalties
To discourage fraudulent actors, the false claims act imposes devastating damages and penalties on wrongdoers. First, those in violation are liable for triple the government’s actual damages. Second, violators are also liable for a per-claim penalty. The current penalty ranges between a minimum of $11,000 (rounded) and a maximum of $22,000 (rounded) per false claim. For those who make repetitive false claims as part of a broader scheme, the penalties alone can quickly reach the hundreds of millions of dollars.
The Qui Tam Provisions
One of the unique features of the False Claims Act is what is known as the “qui tam” provisions of the act. Qui tam is Latin and is short for “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means “[he] who sues in this matter for the king as well as for himself.” As the name implies, the qui tam provisions give whistleblowers the right to sue on behalf of the United States and receive a share of the government’s recovery as a reward for the whistleblower’s risk and efforts.
The qui tam provisions work as follows. The whistleblower, known under the act as a “relator,” files a complaint under seal in federal court and serves a copy of the complaint and material information supporting the complaint to the U.S. Attorney General. The DOJ then investigates the claim, often in collaboration with the whistleblower and his or her counsel. The DOJ then makes a formal decision on whether it will intervene in the case. If the DOJ intervenes, the DOJ actively prosecutes the case against the defendant or defendants. If the DOJ declines to intervene, the whistleblower has the right to litigate the case on behalf of the United States. In either case, if the United States recovers, the whistleblower is entitled to a share of the government’s recovery, ranging between 15 percent to 30 percent of the recovery, as a reward for bringing the suit.
There are, however, many technical requirements a whistleblower must comply with to be eligible for a reward under the qui tam provisions. If, for example, the whistleblower does not present the information to the government in the right way or discloses the information publicly before disclosing it to the government, the whistleblower may lose his or her right to the award. Therefore, it is essential that a potential whistleblower talk to a qualified and proven whistleblower attorney prior to taking any action.
Read the full text of the False Claims Act