Defending Against The False Claims Act
The False Claims Act (FCA) and the Foreign Corrupt Practices Act (FCPA) are both federal laws that have been in place for several decades. However, in recent years, the FCA has become increasingly important in the fight against corporate fraud and corruption, and some have even dubbed it the "new FCPA."
The FCPA was enacted in 1977 and prohibits companies and individuals from bribing foreign officials to obtain or retain business. The law has been used by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to prosecute a wide range of companies for FCPA violations.
The False Claims Act (FCA), also known as the Lincoln Law, is a federal law that allows private citizens to file lawsuits on behalf of the government against individuals and companies who have defrauded the government. The law was originally enacted in 1863 during the Civil War to combat fraud against the Union Army, and it has been amended several times since then. In 1986, Congress strengthened the act by increasing financial incentives for whistleblowers to file lawsuits.
Under the FCA, a private citizen, known as a relator, can file a qui tam lawsuit against a person or entity that has knowingly submitted false or fraudulent claims to the government for payment. Qui tam is a Latin term that means "in the name of the king," and it refers to a lawsuit brought by a private citizen on behalf of the government.
If the lawsuit is successful, the defendant must pay the government three times the amount of damages suffered, plus a civil penalty of up to $23,331 per false claim. The relator who brought the lawsuit is entitled to a share of the recovered damages, which can range from 15% to 30% of the total amount recovered.
One of the unique features of the FCA is the provision that allows whistleblowers to file qui tam lawsuits anonymously on behalf of the government. This is known as a sealed lawsuit, and it allows the relator to remain anonymous while the government investigates the allegations of fraud. If the government decides to intervene in the lawsuit, the relator's identity is typically revealed, but if the government declines to intervene, the lawsuit can still proceed under seal.
Healthcare fraud, such as submitting false claims for reimbursement to Medicare or Medicaid, billing for services that were not provided, and providing unnecessary medical services remain the leading source of FCA settlements and judgments but the act also encompasses government contracts and tax fraud.
Overall, the FCA is a powerful tool in the fight against fraud and corruption, and it has become increasingly important in recent years as the government has stepped up its efforts to crack down on corporate wrongdoing. With the potential for large damages and the ability to remain anonymous, the FCA has become a popular choice for whistleblowers and their attorneys looking to expose fraud and protect the government from financial harm. In 2022, whistleblowers filed 652 qui tam suits and the government reported settlements and judgments exceeding $1.9 billion in these and earlier-filed suits.
So how can companies protect themselves from potential FCA violations? Here are a few key strategies:
Establish a culture of compliance: Companies should prioritize compliance with all relevant laws and regulations, including the FCA. Create a culture of compliance that starts at the top and is integrated into all aspects of the organization.
Train employees and vendors: Provide regular training to employees and vendors on how to identify and report potential FCA violations. Include examples of common FCA violations and best practices for avoiding them.
Conduct regular reviews: Have an independent third party conduct regular reviews covering all aspects of the business to identify any potential FCA violations.
Have a robust compliance program: Include written policies and procedures, internal controls, and regular monitoring and reporting. An independent third party should review and update the program annually to ensure its effectiveness.
Encourage internal reporting: Encourage employees to report any potential FCA violations internally before they become public allowing the company to address any issues before they escalate.
Engage outside counsel: Companies should engage outside counsel and forensic accountants with expertise in FCA matters if an issue arises to assist in managing the issue and limiting company exposure.
By taking these steps, companies can help protect themselves from significant financial penalties and reputational harm. There are however no guarantees of complete protection. If a company is facing FCA allegations, it should look to experienced legal counsel and forensic accountants to navigate the process and defend against the allegations.