Samsung Settles False Claims Act Allegations for $2.3 Million

In a recent announcement from the Department of Justice, New Jersey-based Samsung Electronics America Inc. has agreed to pay $2.3 million to settle claims it unlawfully submitted invoices for payment under a government contract for the provision of technology and products. Allegedly, Samsung billed the government for work that did not comply with the terms of the agreement as it pertains to overseas manufacturing — thereby triggering False Claims Act liability.

The case was originally commenced by a courageous whistleblower, who served as a Samsung employee at the time of the report. Under the terms of the False Claims Act, a successful whistleblower can receive up to 30 percent of the ultimate judgment or settlement. The reward offered to the relator in this case has not been publicly disclosed at this time.

Multiple Award Schedule Contracts and the Possibility for Fraud

In order to understand the allegations against Samsung, it is helpful to review the general flow of government contracts, particularly with regard to the assignment of contractual duties to sub-contractors. The type of contract at issue in this case is known as a Multiple Award Schedule (MAS) contract, which is awarded by the General Service Administration. MAS contracts are actually awarded to several different companies who provide comparable services or products. The General Service Administration is responsible for negotiating and awarding the contract, thereby allowing any federal agency in need of the service or product to purchase under the terms of the agreement.

MAS contracts are governed by a federal statute known as the Trade Agreements Act of 1979. This Act imparts a number of requirements upon obligees of a federal MAS contract, including one pivotal term requiring the vendor to certify that all products it sells are in compliance with the Act. In general, the Act mandates that the United States must purchase products manufactured in either the United States or an alternative country with which the United States maintains a trade agreement.

A violation of federal law, the compliance with which was certified in a government contract, can trigger False Claims Act liability upon the submission of invoices for payment under the agreement.

Details of the Allegations Against Samsung America

The Samsung Corporation includes several authorized resellers of electronics and technology who hold MAS contracts through the General Service Administration. Pursuant to the requirements of the Trade Agreements Act, Samsung has certified that its products comply with the Act, thereby allowing the resellers to list these products as available under the MAS agreement.

Allegedly, for a period spanning from January 2005 through August 2013, Samsung caused several of its resellers to list products that were not compliant with the Trade Services Act by intentionally providing inaccurate information about the nation of origin of the goods. The Act generally allows for the provision of goods manufactured in compliant nations like Korea or Mexico. However, the allegations reveal that certain Samsung products were, in fact, manufactured in China, which is not a designated country under federal law.

Government Response to Fraud

Following the announcement of the settlement with Samsung America, the General Services Administration remarked, “It is unacceptable to sell unauthorized foreign electronics to the United States….We expect all companies doing business with the federal government to comply with contracting laws.”

If you are aware of possible misconduct under a government contract, do not hesitate to come forward and speak to a confidential and experienced whistleblower attorney. For more information, contact Berger Montague today.