False claims.

• Author: Tredemeyer, Leila
• Position: Eleventh Survey of White Collar Crime

1. INTRODUCTION

   1. 31 U.S.C. Sections 3729-3733

   2. 18 U.S.C. Section 287 II. ELEMENTS OF THE OFFENSE

   1. Presentation of a Claim

   2. False, Fictitious or Fraudulent Claims

   3. Knowledge.

   4. Materiality III. DEFENSES

   1. Intent-based Defenses

   2. Double Jeopardy IV. ENFORCEMENT

   1. Penalties

   2. Sentencing

1. INTRODUCTION

   In response to increasingly widespread procurement fraud in Civil War defense contracts, (1) Congress enacted the first False Claims Act in 1863.(2) In acting, Congress sought to protect both government funds and property from fraudulent claims.(3) Today, False Claims litigation involves alleged violations either of 18 U.S.C. [sections] 287,(4) which imposes criminal liability on violators, or of 31 U.S.C. [subsections] 3729-3733,(5) which impose civil liability.

   1. 31 U.S.C. Sections 3729-3733

      The most novel characte-ristic of False Claims law is the broad ability of private citizens to bring civil actions on behalf of the United States(6) for violations of [sections] 3729.(7) Such qui tam litigation was designed to enhance enforcement of the False Claims Act.(8) A qui tam plaintiff may recover a maximum of 25% of the government recovery in cases where the government intervenes(9) and a maximum of 30% in cases where the government does not intervene.(10) Qui tam plaintiffs may formally object to any motions to dismiss or any proposed settlements between the Government and the defendant.(11) Since defendants may be liable for treble damages(12) under the civil false claims statute, the potential recovery for a qui tam plaintiff can be considerable.(13)

   2. 18 U.S.C. Section 287

      Under [sections] 287 it is illegal to present a false, fictitious or fraudulent claim to the federal government.(14) The courts have construed [sections] 287 broadly, enabling the government to use it in prosecuting a wide array of false claims,(15) including fraudulent federal tax refunds,(16) Medicare and Medicaid fraud,(17) Social Security fraud,(18) government contract impropriety,(19) fraudulent claims concerning unperformed services under government programs,(20) and numerous other fraudulent claims submitted tO the federal government.(21) Also, the government may simultaneously bring both [sections] 287 charges and [sections] 1001 false statement charges.(22)

2. ELEMENTS OF THE OFFENSE

   To establish a [sections] 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 the claim was false, fictitious, or fraudulent.(23) In addition, the Fourth and Eighth circuits have held that materiality should be considered an essential element of a [sections] 287 violation.(24)

   1. Presentation of a Claim

      The legislature and courts have defined the terms "presentation", "claim" and "department or agency" broadly. Although [sections] 287 does not explicitly define the term "claim,"(25) the language in its civil liability companion states that any request or demand for money or property from the-United States can constitute a claim.(26) To constitute a claim, a direct demand for federal funds is not required;(27) indirect demands are also sufficient to establish a [sections] 287 violation.(28) Before 1985, courts were divided as to whether fraudulent bids on government contracts adequately established a [sections] 287 violation.(29) However, the legislative history surrounding the 1986 False Claims Act amendments clearly indicates that collusive bidding falls within the scope of [sections] 287.(30)

      The presentation element requires the government to show that the defendant made an actual physical presentation of the claim. Mere intent to submit a claim is not sufficient.(31) However, there is no requirement that a claim must be honored or succeed in defrauding the government, for a defendant to be found guilty of violating [sections] 287.(32) In addition, "reverse false claims," claims filed to avoid or decrease payments to the government, are incorporated into the definition-of false claims.(33) Furthermore, a person who causes another to present a false claim to the government may also be liable.(34) Finally, claims submitted for credit are treated as equivalent to those presented for reimbursement.(35)

      Courts have defined "[d]epartment or agency thereof" to include not only specific government entities like the Department of Health and Human Services,(36) the Internal Revenue Service,(37) and the U.S. Army,(38) but also the judiciary,(39) legislature(40) and fully-owned federal corporations.(41) Moreover, the language in Title 18 suggests that the terms "department" and "agency" may include any institution associated with the United States.(42)

   2. False, Fictitious or Fraudulent Claims

      To find a violation of [sections] 287, a claim must be "false, fictitious, or fraudulent."(43) The courts have consistently treated "false, fictitious or fraudulent" as three alternative bases for liability rather than requiring a claim be false, fictitious and fraudulent.(44)

      Courts have applied the falsity element to a wide variety of facts. Individuals have been convicted for submitting false claims for claiming to have "supervised" chemotherapy while out of the country,(45) submitting overinflated labor and equipment charges,(46) and falsely representing oneself as a licensed nurse.(47) More often than not, courts look to the circumstances surrounding the presentation of a claim in determining falsity.(48)

   3. Knowledge

      In addition to the [sections] 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.(49) Courts are divided on the degree of intent necessary to constitute a "knowing" presentation of a false claim. The Second, Fourth and Ninth circuits define the requisite state of mind as "knowledge of falsity."(50) The Seventh and Eighth circuits require a specific intent to deceive(51) but allow a jury to infer an intent to defraud when the defendant knew the claim was false.(52) In addition, several courts have held that knowledge can be inferred from the defendant's reckless disregard for the truth, as well as conscious avoidance of the truth.(53) A defendant's failure to learn proper claim procedures that leads to the submission of false claims can satisfy the requirements of conscious avoidance.(54) The Ninth Circuit has held that inducing others to file false tax returns, regardless of whether the taxpayers knew they were false, satisfies the knowledge requirement of the statute.(55)

      Knowledge of the federal nature of the claim is not required. Both the Eighth and Tenth Circuits have held that ignorance of federal involvement in a program or project is not a defense to a [sections] 287 violation, when the defendant's intent was to present a false claim.(56)

   4. Materiality

      The Fourth and Eighth circuits have held that materiality is an essential element of a [sections] 287 violation.(57) The Eighth Circuit has held that the proper test for materiality of a false claim is whether the falsification would have a tendency to influence the decision of the government regarding the claim.(58)

3. DEFENSES

   1. Intent-based Defenses.

      Defendants regularly assert that their claims were not false. In the area of government contracts, defendants have unsuccessfully argued that their claim was not "false" where the contract led the defendant contractor to believe that payment was deserved.(59) Courts have also rejected arguments by contractors 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,(60) and arguments that construction bids were merely estimates presented to the government for negotiation purposes and did not constitute overinflated labor and equipment charges.(61)

      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 [sections] 287 charge.(62)

   2. Double Jeopardy

      The Double Jeopardy Clause protects criminal defendants from being punished twice for the same crime.(63) In 1989, the Supreme Court ruled that civil and criminal penalties for false claims violations could amount to a double jeopardy violation.(64) The Court narrowly limited its holding, setting forth the following rule:

      Where a defendant previously has sustained a criminal penalty and the civil penalty

      sought in the subsequent proceeding bears no rational relation to the goal of

      compensating the Government for its loss, but rather appears to qualify as

      "punishment" in the plain meaning of the word, then the defendant is entitled to an

      accounting of the Government's damages and costs to determine if the penalty sought

      in fact constitutes a second punishment.(65)

      The Eleventh Circuit has interpreted Halper to dictate a two-part test to determine whether there has been a double jeopardy violation. "The first question is whether the civil penalties concern the same conduct as the criminal proceedings.... The second question is whether the civil penalties rise to the level of criminal punishment `because of the lack of rational relation to the Government's loss.'"(66) If the civil penalty is not punitive, the Double Jeopardy Clause is not implicated. In determining whether there is a rational relation between the civil penalty and the government's loss, the Eleventh Circuit has looked to the numerical ratio between the penalty and the loss.(67) When the government can show that the civil penalty is reasonable compensation for its loss, district courts have been reluctant to hold that the penalties are punitive.(68)

4. ENFORCEMENT

   1. Penalties

      Current criminal and civil enforcement mechanisms reflect Congress's intent to expand greatly the...