The False Claims Act is a federal law that imposes liability on any person or company who defrauds governmental programs. It includes a “qui tam” provision which allows private citizens to file lawsuits on behalf of the government. This is informally known as “whistleblowing”.
The False Claims Act is the single most important tool available to United States taxpayers for combating government fraud. Under the Act, citizens can assist in the recovery of billions of stolen dollars by suing those that commit fraud against government programs. The False Claims Act also provides for up to treble damages and awards of 15 to 30 percent of monetary recoveries for those citizens who bring successful cases.
What the False Claims Act Does
The False Claims Act allows and actively encourages, via monetary reward incentives, every day Americans to come forward and report any knowledge of illegal fraud or wrongdoings. The False Claims Act also encourages citizens to report any action that may be construed as fraudulent in relation to state funded programs, such as Medicaid.
When federal funds are obtained fraudulently, the bill is generally passed on to taxpayers. Services that thousands of Americans currently use or will use in the future are jeopardized as a result of fraud. By reporting acts of fraud under the False Claims Act, citizens safeguard government programs and prevent further tax increases.
What Constitutes a False Claims Act Violation?
Virtually every instance in which the federal government is providing money, or collecting money, can give rise to a qui tam action, constituting a False Claims Act violation. Those activities which establish a violation under the False Claims Act are:
- Knowingly presenting, or causing to be presented, to the federal government a false or fraudulent claim for payment or reimbursement
- Knowingly using, or causing to be used, a false record or statement in order to receive payment on a claim from the federal government
- Conspiring with others to get a false or fraudulent claim paid by the federal government
- Knowingly using, or causing to be used, a false record or statement to conceal, avoid or decrease an obligation to pay money or transmit money to the federal government
The False Claims Act covers a multitude of industries and different areas. Those commonly subjected to fraud allegations and qui tam lawsuits are:
- Medicare and Medicaid
- Social Security and Welfare
- Pharmaceutical Corporations
- Military Contractors
- Mortgage Lenders
What the False Claims Act Does Not Do
Although the False Claims Act is an extremely powerful tool for combating fraud, it is also a tool that is sharply constrained by both the law and economics of litigation. Understanding what the False Claims Act cannot not do is vital when considering a qui tam lawsuit. The False Claims Act does not:
Cover Tax Fraud
The False Claims Act specifically exempts tax fraud from the types of fraud that it seeks to address. The IRS has its own program for whistleblowers, so long as the tax fraud exceeds $2 million.
Guarantee the Government will Intervene
A qui tam complaint must be filed under seal and copies of the complaint are provided only to the Department of Justice (DOJ) and the court. While under seal, the DOJ may investigate the claim. After the investigation, the government will notify the court that it is either intervening in the case or declining to take action. If the government declines, the whistleblower can choose to proceed with the claim on his or her own.
Guarantee the Whistleblower a Reward
In order to receive the monetary incentives provided under the False Claims Act, a whistleblower must be successful in proving his or her qui tam lawsuit in court. Only the whistleblower who initiates a successful qui tam lawsuit will be eligible to receive a percentage of the penalties and damages recovered.
Allow a Second Qui Tam Suit to be Filed in Relation to the Same Instance of Fraud
The False Claims Act provides whistleblowers with an incentive to file a case quickly. The first whistleblower to file a qui tam lawsuit is generally the only plaintiff allowed to pursue a monetary recovery in relation that specific fraudulent scheme. This is best described as a “first-come, first-served” basis.
Allow a Qui Tam Action to be Filed if it is Based on Publicly Disclosed Information
Whistleblowers must have first-hand knowledge of government fraud in order to file a False Claims Act suit. Claims cannot be filed based solely on information gathered from: criminal, civil, or administrative hearings in which the government is a party; public government hearings, reports and investigations; or through information provided by the news media. This is known as the “public disclosure bar”.