On the Friday before Christmas, the Department of Justice reported its annual False Claims Act recovery numbers. The Department announced that it had recouped for taxpayers over $2.8 billion during fiscal year 2018 in cases involving fraud against the government. Comparatively speaking, the announcement was a disappointing Christmas gift to taxpayers. The recovery total was 17 percent lower than the previous fiscal year and the lowest since 2009.
The running grand total of recoveries under the False Claims Act since the law was strengthened in 1986 now stands at $59 billion.
As in past years, the largest share of the recoveries—about 87 percent ($2.5 billion)—involved the health care industry, including drug and device manufacturers, managed-care providers, hospitals, pharmacies, and physicians. But a substantial sum also came from settlements with several well-known federal contractors:
- 3M Company: $9.1 million for allegedly knowingly selling the military defective hearing protection devices.
- Inchcape Shipping Services: $20 million to resolve charges of overbilling the U.S. Navy for ship husbanding services. (In 2016, the San Diego Union-Tribune reported that a government audit had uncovered improper and potentially illegal business practices by the Navy’s port service contractors, including Inchcape.)
- Lockheed Martin: $4.4 million to settle allegations that it provided defective communications systems to the U.S. Coast Guard.
- United Technologies: $1 million to settle claims that a company it indirectly owned sold the U.S. Army counterfeit microprocessors used in aircraft engines.
According to the Justice Department, of the $2.8 billion in fraud recoveries in FY 2018, $2.1 billion came from lawsuits filed by whistleblowers under the qui tam provisions of the False Claims Act, which entitles whistleblowers to a share of the recovery. Since 1986, the government has awarded over $7 billion of the recovered funds to whistleblowers, who often take great risks to their professional and personal lives by stepping forward to report fraud.
“Whistleblowers have played a vital role in unmasking fraudulent schemes that might otherwise evade detection,” Assistant Attorney General Jody Hunt said in the announcement. “The taxpayers owe a debt of gratitude to those who often put much on the line to expose such schemes.”
While it is difficult to attribute the decline in recoveries to a single cause, it coincides with two significant policy changes under the Trump Administration. First, the Justice Department is more actively seeking to throw out False Claims Act cases it deems meritless or otherwise contrary to the government’s interests. According to this Crowell & Moring client alert, between 1986 and 2011, the government petitioned the courts to dismiss approximately 30 false-claims cases. By contrast, last year the Department moved to dismiss 10 cases in just one day.
Second, the Department imposed new limits on the use of “guidance documents,” legal interpretation memos agencies often use to hold individuals and companies accountable for misconduct. This new policy, which proclaims that the government will not “use its enforcement authority to effectively convert agency guidance documents into binding rules,” will weaken federal enforcement of a wide range of public-welfare, anti-waste, and anti-corruption laws. On the same day the Department posted its FY 2018 fraud recovery statistics, it also announced that it had repealed 69 guidance documents—on top of the dozens of others it had already repealed up to that point.
Annual fraud recovery totals could remain low or continue to drop if William Barr is confirmed as the next attorney general. In 1989, when he was assistant attorney general for the Office of Legal Counsel in the George H. W. Bush Administration, Barr wrote a memo in which he argued that the qui tam provisions of the False Claims Act are unconstitutional. In an interview 12 years later, Barr condemned the law as a “bounty hunter statute” and an “abomination.” Reportedly, Barr has since had a change of heart regarding the law, but whistleblower lawyers and government watchdogs are skeptical. The legal and watchdog communities are also anxiously awaiting the U.S. Supreme Court’s ruling in a case that will set a national standard for how much time whistleblowers have to file a lawsuit.
In the meantime, federal fraud fighters do continue notching up major victories. There have already been several multi-million dollar False Claims Act recoveries in the current fiscal year, including from SK Energy and defense contracting giant Northrop Grumman.
Help us hold the government accountable.
POGO will continue to devote itself to rooting out waste, fraud, and abuse of power at even the highest levels of government. Give now to support our investigations.