Government Fraud Recovery Improves, Thanks to Private Citizens

|||Government Fraud Recovery Improves, Thanks to Private Citizens

Government Fraud Recovery Improves, Thanks to Private Citizens

January 2013

The False Claims Act, 31 U.S.C. § 3729 et seq., allows penalties of $5,500 to $11,000 per claim and triple damages against those who knowingly submit or causes the submission of a false or fraudulent claim to the United States government.  In December, the Department of Justice (DOJ) released a statement bragging about the money it has recovered through prosecuting such fraud:

“The Justice Department secured $4.9 billion in settlements and judgments in civil cases involving fraud against the government in the fiscal year ending Sept. 30, 2012 … This figure constitutes a record recovery for a single year, eclipsing the previous record by more than $1.7 billion, and brings total recoveries under the False Claims Act since January 2009 to $13.3 billion – which is the largest four-year total in the Justice Department’s history and more than a third of total recoveries since the act was amended 26 years ago in 1986.

The False Claims Act is the government’s primary civil remedy to redress false claims for federal money or property, such as Medicare benefits, federal subsidies and loans and payments under contracts for goods and services, including military contracts. The 1986 amendments strengthened the act and increased incentives for whistleblowers to file lawsuits on behalf of the government, leading to more investigations and greater recoveries….

Of the $4.9 billion in fiscal year 2012 recoveries, a record $3.3 billion was recovered in whistleblower suits. In fiscal year 2012 alone, relators filed 647 qui tam suits.”

So what is a qui tam suit?  Qui tam is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur”, which roughly translates into “he who brings a case on behalf of the King, as well as for himself”.  The False Claims Act contains a qui tam provision, an interesting mechanism which allows a private person, called a “relator”, to bring suit on the government’s behalf, despite having suffered no direct harm personally.  In a successful suit, the relator receives up to 30% of the litigation recovery.  It is the qui tam provision that has been the impetus for the recent impressive recovery levels under the False Claims Act.

Prosecution under the qui tam provision must adhere to the following process:

  1. The relator must be represented by an attorney.
  2. The qui tam complaint must be filed under seal and remain there for at least 60 days (and often significantly longer).
  3. The relator must prepare a disclosure statement for the Department of Justice which reflects all the evidence known to or in the possession of the relator regarding the allegations (notably, this is not filed or otherwise made available to the defendant).

Once a qui tam suit is filed, the government undertakes an investigation of the claims, led by the Attorney General or a Department of Justice attorney and often involving various law enforcement agencies. Typical investigative processes follow, such as the issuances of subpoenas, interviews of witnesses and the employment of experts. The Department of Justice must then choose whether to:

  1. Intervene.  This means the government will participate as a plaintiff going forward. This occurs in less than 25% of qui tam actions.  If the government choses to intervene, it will usually file its own complaint reflecting the facts and claims it is adopting or has uncovered.  It may also add additional claims under other statutes that do not have qui tam provisions, such as the Public Contracts Anti-Kickback Act.
  2. Decline intervention.  This means the relator may continue to pursue the action and the government’s ongoing participation is generally limited to its rights to the proceeds of the suit.
  3. Move to dismiss.  The government may choose this option if they believe the case is without merit or if it otherwise conflicts with government interests.

The amounts the government is bragging about represent tremendous windfalls for the private citizens who initiated the suits and suffered no actual damage.  Awards obtained by private individuals under the qui tam provision of the False Claims Act are taxed as ordinary income, as we discussed in an earlier article about whistleblower recovery.

Fulcrum Inquiry performs forensic accounting investigations and provides whistleblower reporting solutions for corporations and non-profit organizations.

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