Corporate teaming needed to reduce false claims exposure.

• Author: Hickey, David
• Position: Ethics Corner

* Recent Civil False Claims Act activity in Washington is causing companies to reexamine their internal compliance controls, particularly their reporting mechanisms.

Congress and the Department of Justice have tag-teamed to expand the scope of the FCA. Recently introduced legislation would expand the breadth of FCA claims and increase the number of plaintiffs eligible to file FCA actions. Justice is seeking to add mandatory FCA reporting to the proposed Federal Acquisition Regulations amendments requiring self-disclosure of criminal violations. These developments, and others, reflect the fact that the government will continue to look to the FCA as a primary enforcement weapon. Consequently, would-be whistleblowers are more encouraged to report fraud externally.

Enacted during the Civil War era and amended in 1986 to provide financial incentives to whistleblowers, the FCA has proved to be a valuable government enforcement tool. "Whistleblower" provisions permit private parties relators to file a complaint against a contractor on behalf of the federal government. Relators, often company employees, may obtain eye-popping recoveries. The FCA imposes civil liability on any person who knowingly uses a "false record or statement to get a false or fraudulent claim paid or approved by the government," and any person who "conspires to defraud the government by getting a false or fraudulent claim allowed or paid." Civil penalties include $5,000 to $10,000 per claim, plus treble damages.

One common FCA allegation involves the submission of a false or fraudulent claim. Proof of such a claim previously required submission of a claim for payment to the federal government; and such claim being knowingly supported (either directly or indirectly) by a materially false or fraudulent statement.

In a recent Navy shipbuilding contract case (Allison Engine Co., Inc. v. U.S., 533 U.S. (2008)) the Supreme Court made it harder for plaintiffs under the FCA, now requiring proof that the defendant intended that his false statement be material to the government's decision to pay or approve the allegedly false claim. Plaintiffs therefore can no longer prove a claim by showing that a false statement's use resulted in claim payment or approval or that government money was used to pay the false or fraudulent claim.

Congress has reacted swiftly to this and other recent Supreme Court decisions by exploring ways to make it easier to prove an FCA violation. The House and Senate...