False claims.

• Author: Kochman, Tedd J.
• Position: Ninth Survey of White Collar Crime

In 1863, as a result of increasingly widespread procurement fraud in Civil War defense contracts,(1) Congress enacted the first False Claims Act.(2) In so doing, Congress sought to protect both government funds and property from fraudulent claims.(3) Today, most False Claims litigation involves alleged violations of either section 287 of Title 18 of the United States Code,(4) imposing criminal liability on individuals making false claims, or sections 3729 through 3733 of Title 31 of the United States Code,(5) which impose civil liability on such individuals. The 1986 amendments to the False Claims Act have blurred the dividing line meant to separate criminal false claims, as governed by Title 18, and civil false claims, as governed by Title 31.(6) Accordingly, this article, while principally focusing on 18 U.S.C. 287, also discusses relevant developments and applications of sections 3729 through 3733 of Title 31, specifically, qui tam litigation and double jeopardy implications.

Under section 287 it is illegal to present a false, fictitious or fraudulent claim to the federal government.(7) The courts have construed section 287 broadly, enabling the government to use it in prosecuting a wide array of false claims,(8) including fraudulent federal tax refunds,(9) Medicare and Medicaid fraud,(10) Social Security fraud,(11) government contract impropriety,(12) fraudulent claims concerning unperformed services under government programs,(13) and numerous other fraudulent claims submitted to the federal government. (14) Prosecutors may simultaneously bring both section 287 charges and section 1001 false statement charges(15) under the civil false claims statutes.(16)

1. Elements of the Offense

   To establish a section 287 violation, the prosecution must show that: (1) a defendant presented a claim against the United States or any agency or department of the United States; (2) the claim was false, fictitious, or fraudulent; and (3) the defendant knew his claim was false, fictitious, or fraudulent.(17)

   1. Presentation of a Claim

      Both the legislature and courts have defined the terms "presentation", "claim" and "department or agency" broadly. Although section 287 does not explicitly define the term "claim"(18) the language in its civil liability companion, section 3729 of Title 31, states that any request or demand for money or property, from the United States can constitute a claim.(19) However, a direct demand for federal funds is not required to constitute a claim,(20) indirect demands are also sufficient to establish a section 287 violation.(21) Judicial treatment of specific actions is largely dependent on the circuit court involved. For example, the circuits disagree as to whether the submission of a false loan application constitutes a false claim,(22) and they are split as to whether fraudulent bids on government contracts adequately establish a section 287 violation.(23) However, the legislative history surrounding the 1986 False Claims Act amendments(24) clearly indicates that collusive bidding falls within the scope of section 287.(25)

      The presentation element requires the prosecution to show that the defendant made an actual physical presentation of the claim. A mere intent to submit a claim is not sufficient.(26) However, a claim need not be honored, nor succeed in defrauding the government, for a defendant to be found guilty of violating section 287.(27) The Tenth Circuit sustained a conviction where the defendant argued his "claims were so ludicrous that no I.R.S. agent would believe them."(28) Furthermore, a person who causes someone else to present a false claim to the government may be equally liable.(29) Finally, claims submitted for credit are treated as equivalent to those presented for reimbursement.(30)

      Courts have defined "[d]epartment or agency thereof" to include not only specific government entities like the Department of Health and Human Services,(31) Internal Revenue Service,(32) or the U.S. Army,(33) but also the judiciary,(34) legislature(35) and fully-owned federal corporations.(36) Moreover, the language in Title 18 suggests that the terms "department" and agency" may include any institution associated with the United States.(37)

   2. False, Fictitious or Fraudulent Claim

      Section 287 requires that a claim be "false, fictitious, or fraudulent."(38) The courts have consistently treated "false, fictitious or fraudulent" as three alternative bases for liability(39) and rather than requiring a claim be false, fictitious and fraudulent to violate section 287.(40)

      Courts have applied the falsity element to a wide variety of facts. Individuals have been convicted for submitting false claims for supervising chemotherapy therapy while out of the country,(41) submitting over inflated labor and equip charges,(42) and falsely representing themselves as licensed nurses. 43

      Defendants regularly assert that their claim was not false. In the area of government contracts, defendants have unsuccessfully argued that falsity does not exist where the contract led the defendant contractor to believe that he was entitled to payment.(44) Contractors have been equally unsuccessful in arguments that their invoices failed to represent the goods as being of any particular quality and, therefore, they could not be held liable for supplying lower than contract quality products.(45) contractors have also failed in claims that their construction bids were merely estimates presented to the government for negotiation purposes and did not constitute overinflated labor and equipment charges.(46) The failure of defenses like these indicates that courts will, more often than not, look to the circumstances surrounding the presentation of the claim when determining its falsity.(47)

   3. Knowledge

      In addition to the section 287 requirement that a presented claim be false, fictitious, or fraudulent, it is necessary for a defendant to have tendered such a claim while "knowing" that it was illegitimate.(48) Courts are divided on the degree of intent necessary to constitute a "knowing" presentation of a false claim. Some courts define the requisite state of mind as "knowledge of falsity."(49). Others require a specific intent to deceive(50) or allow a jury to infer an intent to defraud when the defendant knew his claim was false.(51) Finally, several courts have held that knowledge can be inferred from the defendant's reckless disregard for the truth, as well as a conscious avoidance of the truth.(52)

      Both the Eighth and Tenth Circuits have held that ignorance of federal involvement in a program or project is not a defense to a section 287 violation, when the defendant's intent was to present a false claim.(53) The Fifth Circuit, while following the rule that a mistake of law is not an adequate defense, recognizes good faith reliance on a third party's actions as an appropriate defense to a section 287 charge.(54) The Ninth Circuit has held that the knowledge necessary to sustain a section 287 conviction could be imputed to a tax protestor who counseled taxpayers on how to file false tax returns.(55) In this case, the defense argued that the government failed to allege and prove that the taxpayers actually submitting the false returns knew that they were false.(56) Nevertheless, the court held that the taxpayers' knowledge was irrelevant because the defendant tax protestor knew that his advice violated the tax laws.(57)

2. Legislative Amendments

   In response to increasing fraud against the federal government in the early 1980's(58) and inadequate enforcement procedures,(59) Congress passed the False Claims Amendments Act of 1986,(60) which instituted major reforms with respect to both the civil and criminal law. With the amended legislation, Congress attempted to enhance the government's ability to recover losses sustained as a result of fraud by modernizing enforcement mechanisms, increasing recoverable damages, and encouraging private individuals to come forward with information of government fraud.(61)

   One change brought about by the 1986 amendments was the elimination of the option of imposing either a fine or a prison sentence in the event of a criminal false claim conviction. The statute now mandates both a fine and imprisonment for all convictions.(62) While the maximum prison sentence remains five years, the maximum fine has been linked to the general penalty provisions of Title 18.(63) Thus, a criminal defendant may face fines of up to one million dollars for each false claim charge.(64)

   Another change effected by the 1986 amendments governs the admissibility of criminal pleas in subsequent civil actions. Rule 11(e)(6) of the Federal Rules of Criminal Procedure(65) provides that a nolo contendere plea shall have no collateral estoppel effect in related civil proceedings.(66) The amended Act, however, prevents a criminal defendant who had entered a nolo contendere plea from denying liability in a later civil false claims action.(67)

   A third modification in the 1986 amendments was specific incorporation of "reverse false claims" into the definition of false claims.(68) A claim filed to avoid or decrease a payment to the government is now actionable under the amended statute.(69)

   Finally, the 1986 amendments expanded prosecutorial discovery powers. The amendments authorize the Justice Department to issue civil investigative demands ("CIDs") for information relating to a False Claims Act investigation prior to the initiation of litigation.(70) A CID may require the production of documents, written answers to interrogatories and/or oral testimony.(71) While the statute specifically applies to civil actions, it also allows disclosure of evidence gathered under a CID to other authorized officers of the Department of Justice.(72) In effect, this facilitates information gathering prior to indictment.(73)

   The 103rd Congress is currently considering a set of housekeeping amendments which would clarify certain provisions of the...