False claims.

• Author: Anzidei, Christopher M.
• Position: Thirteenth Survey of White Collar Crime

1. INTRODUCTION

   Congress enacted the first False Claims Act ("the Act") in 1863(1) in response to widespread procurement fraud in Civil War defense contracts.(2) In so acting, Congress sought to protect government funds and property from fraudulent claims.(3) Today, False Claims litigation involves alleged violations of 31 U.S.C. [subsections] 3729-3731,(4) which establishes civil liability, or 18 U.S.C. [sections] 287, which imposes criminal liability for violations. While the Introduction briefly outlines both the civil and criminal False Claims statutes, this Article focuses on criminal violations under 18 U.S.C. [sections] 287. Section I introduces the civil and criminal false claims statutes. Section II discusses the elements of a [sections] 287 offense, while Section III outlines the defenses available to a false claims allegation. Finally, Section IV addresses the enforcement mechanism of the criminal statute.

   A. 31 U.S.C [subsections] 3729-3733

   The most novel characteristic of False Claims litigation is the broad ability of private citizens to bring civil actions on behalf of the United States for violations of [sections] 3729.(6) Congress designed such qui tam litigation to enhance enforcement of the False Claims Act.(7) A qui tam plaintiff, also known as a "relator," may recover a maximum of 25% of the proceeds in a case in which the government intervenes(8) and 25-30% in a case in which the government does not intervene.(9) Because a defendant may be liable for treble damages under the statute,(10) the potential recovery for a relator can be considerable.(11) Aside from rewarding qui tam plaintiffs with a portion of the recovery, the Act provides relief for those qui tam relators (employees) who are "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against" as a result of their reporting a false claim.(12)

   B. 18 U.S. C Section 287

   Under [sections] 287, it is illegal to present a false, fictitious or fraudulent claim to the federal government.(13) The government has used [sections] 287 to prosecute a wide array of false claims,(14) including fraudulent federal tax refunds,(15) Medicare and Medicaid fraud,(16) Social Security fraud,(17) government contract impropriety,(18) fraudulent claims for unperformed services under government programs.(19) and numerous other fraudulent claims submitted to the federal government.(20) If the defendant persists in his false claim, the government may simultaneously bring both [sections] 287 charges and false statement charges under [sections] 1001.(21)

2. ELEMENTS OF THE OFFENSE

   The prosecution must prove three elements to establish a [sections] 287 violation: (1) the 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.(22) Additionally, the Fourth and Eighth Circuits consider materiality to be an essential element.(23)

   A. Presentation of a Claim

   The legislature and courts have broadly defined "presentation" "claim" and "department or agency." To satisfy the presentation element the government must show that the defendant physically presented the claim to the government.(24) The claim need not be honored or successfully defraud the government.(25)

   Although [sections] 287 does not explicitly define "claim,"(26) the civil False Claims Act defines it as any request or demand for money or property from the United States.(27) Furthermore, courts have construed the Act's coverage broadly.(28) In addition to requests for direct payment or reimbursement, a "reverse claim"(29)--a claim filed to avoid or decrease payments to the government--and a claim for credit(30) constitute "claims" under the Act.

   A United States "department or agency" includes not only specific government entities like the Department of Health and Human Services, the Internal Revenue Service,(32) and the U.S. Army,(33) but also the legislature(34) and wholly-owned federal corporations.(35) It is uncertain whether the judiciary falls within the scope of [sections] 287's "department or agency" requirement.(36) The language in Tide 18 suggests that the terms "department" and "agency" may include any institution in which the United States has a proprietary interest.(37) In addition, a claim against the federal government made through a third party constitutes a claim "upon or against the United States" for the purposes of the Act.(38) The claim may reach the federal government through a State or local government,(39) an insurance company,(40) a government contractor,(41) or an individual.(42)

   B. False, Fictitious, or Fraudulent Claims

   A claim that violates [sections] 287 must be "false, fictitious, or fraudulent."(43) Courts consistently have treated "false, fictitious, or fraudulent" as three alternative bases for liability rather than requiring that a claim be false, fictitious and fraudulent.(44)

   Courts have applied the falsity requirement to a wide variety of factual situations. Individuals have been convicted for submitting false claims such as having "supervised" medical procedures while out of the country,(45) submitting overinflated labor and equipment charges,(46) and falsely representing oneself as a licensed professional.(47) Thus, courts examine the circumstances surrounding the presentation of a claim when determining falsity.(48)

   C. Knowledge

   In addition to the [sections] 287 requirement that a presented claim be false, fictitious, or fraudulent, a defendant must have tendered such a claim while "knowing" 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, Ninth, Tenth, and District of Columbia Circuits define the requisite state of mind as "knowledge of falsity.(50) The Eighth Circuit, on the other hand, requires a specific intent to deceive(51) but allows a jury to infer such intent when the defendant knew the claim was false.(52) Indeed, the Seventh Circuit illustrates this division, handing down a pair of recent decisions that strayed from that circuit's precedent and held that a specific intent to deceive is not an element of [sections] 287.(53) In United States v. Catton, Judge Posner noted that. [sections] 287 "does not explicitly require proof of willfulness," and he opined that a "knowingly false claim might seem inherently willful."(54)

   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.(55) A defendant's failure to learn proper claim procedures, leading to the submission of false claims, can satisfy the requirements of conscious avoidance.(56) The Ninth Circuit 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.(57)

   Knowledge of the federal nature of the claim is not required. 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.(58)

   D. Materiality

   Unlike the Fourth and Eighth Circuits, most of the circuit courts have held that the materiality of the falsehood is not an essential element of a false claim offense.(59) Nevertheless, 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 settling of the claim.(60)

   M. DEFENSES

   Defenses to a false claim charge fall into two categories: (1) intent-based defenses where a defendant denies the intent to make a claim or to do so falsely; and (2) double jeopardy.

   A. Intent-Based Defenses

   Defendants regularly assert that their claims were not false.(61) In the area of government contracts, defendants have unsuccessfully argued that their claim was not "false" because the contract led the defendant contractor to believe that payment was deserved.(62) Similarly, courts have rejected arguments that contract invoices failed to represent the goods as being of any particular quality,(63) and that construction bids were merely estimates presented to the government for negotiation purposes and did not constitute overinflated labor and equipment charges.(64)

   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.(65)

   B. Double Jeopardy

   The Double Jeopardy Clause(66) protects criminal defendants from being punished twice for the same crime. Prior to December 1997, defendants could have argued that under United States v. Halper(67) civil and criminal penalties for false claims violations would amount to a double jeopardy violation.(68) However, the Supreme Court, in its December 1997 Hudson opinion, abandoned the "Halper" test as "ill considered" and "unworkable."(69) Under Hudson, the test is whether Congress expressly stated, or implicitly intended, that the punishment would be criminal in nature.(70) Even prior to Hudson, when the government can show that the civil penalty is reasonable compensation for its loss, district courts have been reluctant to hold the penalties punitive, despite the Halper decision.(71)

   Whether a qui tam civil suit implicates the Double Jeopardy clause is currently undecided. The Supreme Court held that a civil suit between private parties does not implicate the Double Jeopardy Clause, but left open the question of suits brought by private citizens on behalf of the government.(72)

4. ENFORCEMENT

   Traditionally Congress has become more and more aggressive about the prosecution of false claims. Part A addresses three new burdens or penalties...