It’s That Time Again—The False Claims Act is Under Attack

Today, the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice is holding a hearing on the False Claims Act (FCA). The FCA has deterred and punished fraud and war profiteering since 1863. The Project On Government Oversight hopes Congress will strengthen the FCA and create a zero tolerance policy with regard to fraud by contractors and other federal fund recipients. Unfortunately, it looks like the hearing will be used by those who have been held accountable under the law to push for gutting it (previous attempts were made in 1994 and 1997).

The total amount recovered under the FCA since 1986—when the law was substantially strengthened by amendments sponsored by Senator Chuck Grassley (R-IA) and then-Representative Howard Berman (D-CA)—now stands at $38.9 billion. About 11 percent of that was awarded to the whistleblowers who exposed the fraud and false claims by filing lawsuits under the qui tam provisions of the FCA, which entitles them to a share of the recovery.

Senator Grassley will speak in support of the FCA at today’s hearing, as will John E. Clark, a qui tam attorney and member of the board at Taxpayers Against Fraud. Some of the other witnesses, however, are mouthpieces for the U.S. Chamber of Commerce and its members.

Patricia J. Harned, Ph.D., president of the Ethics Resource Center, will testify that “companies that implement effective ethics and compliance programs, and also focus on establishing ethical cultures where standards are taken seriously, do prevent and detect fraudulent activity.” While we don’t agree with the concept of corporate self-policing, we can’t disagree with her testimony that an “effective,” “well-implemented,” and “strong” compliance program can deter fraud. That was the major reason the Defense Industry Initiative (DII) was formed: to promote a “culture and practice of ethics and integrity in all business dealings with the United States Department of Defense.” It was also the reason the Department of Justice (DOJ) created a “Contractor Code of Business Ethics and Conduct” (see FAR Subpart 3.10). Yet, companies still defraud the government of billions of dollars every year.

According to the U.S. Chamber of Commerce Institute for Legal Reform, which is supported by numerous defense contractors and health care companies that have settled fraud cases that account for a large percentage of FCA recoveries, Congress should gut the law. The Chamber’s reasoning:

The government estimates that it loses approximately $72 billion to fraud, abuse, and improper payments each year, yet the FCA has recovered only $35 billion since 1987—a tiny fraction of the money lost over that period.

You read that right—the Chamber advocates weakening the FCA because there is so much fraud that only a “tiny fraction” gets recovered. So the Chamber blames the law for “not getting the job done.”

As the solution, the Chamber proposes incentivizing companies to “maintain effective compliance programs” because companies are in the best position “to detect and prevent wrongdoing as the first line of defense against fraud.” The focus of this proposal is to allow companies to have certified compliance programs that will result in damages that will be based on the level of culpability rather than the FCA’s triple damages standard. Companies should already be incentivized to not defraud the government—whether to avoid a lawsuit and financial penalties, avoid bad press, or to protect their owners and shareholders—and compliance programs will help in achieving all of those outcomes without gutting the law. Corporate compliance and a strong FCA seem like a great one-two combination to deter and punish fraud against taxpayers; they are not mutually exclusive. That said, compliance programs alone do not work, and the law and its punishment is necessary to keep fraud in check.

Testifying about the reasons to change the law is David W. Ogden, a former DOJ Deputy Attorney General now working at WilmerHale, which represents several major health care, defense, and government services firms. Ogden, an outspoken critic of the FCA, is a co-author of the U.S. Chamber Institute for Legal Reform’s October 2013 report calling for the law to be weakened. He criticizes the whistleblowers who file qui tam lawsuits, the law’s damage and burden of proof provisions, and the fact that violations might result in suspension or debarment from federal contracting. The report urges the government to cut key provisions of the law, promote internal compliance programs, and force whistleblowers to report inside the company before reporting to the government.

As we see all too often, corporate whistleblowers are often vilified, silenced, and retaliated against. Removing the government’s ability to hear from whistleblowers is against the public’s interest, and placing the power to investigate—and possibly cover-up—the fraud in the hands of the parties that were involved is wrong-headed. It will have a chilling effect on the uncovering of fraud against the government. (Coincidentally, this is Whistleblower Appreciation Day.) DOJ doesn’t allow defendants to investigate the crime scene before law enforcement officials, or allow tax cheats to go through their own receipts and tax records; why should it do the same for companies alleged to have defrauded the government?

Once upon a time, DOJ allowed contractors to handle missteps internally and to voluntarily report that misconduct to the government. However, it eventually became clear that this program wasn’t working, so the government in 2008 instituted a mandatory disclosure program.

We are particularly interested in the testimony of Dr. R.D. Prabhu, M.D., a doctor from Las Vegas who has been sued twice—unsuccessfully—under the FCA. He will talk about the claimed abuses of the law, which might necessitate better oversight of the FBI and DOJ and tweaks to the law to discourage frivolous lawsuits, but certainly not completely gutting the FCA.

POGO has compiled hundreds of cases of fraud committed by the government’s largest contractors since 1995. Many of those cases involved the FCA and resulted in taxpayers recovering billions upon billions of dollars from those companies. We hope Congress will not be misled by those same companies and their lobbying arm into weakening the FCA.

(Disclosure: POGO participated in a qui tam recovery that stemmed from the oil industry’s undervaluation of oil royalties owed to the federal government. In total, oil companies settled under the False Claim Act for approximately $450 million.)