Violations of the False Claims Act: The Importance of a Timely and
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Transcript Violations of the False Claims Act: The Importance of a Timely and
Violations of the False Claims Act and
The Importance of a Timely and Proper
Response to Whistleblower Allegations
Daniel J. Kelly
Thomas J. Finn
Paula Cruz Cedillo
Overview
Trends In Claims Asserted Under the
False
Claims Act and Rise in Qui Tam Actions
Responding to Potential Violations
Potential Criminal Implications
False Claims Act
Oldest But Most Powerful Tool Used to
Combat Fraud Against the Federal
Government
FCA Prohibits Anyone from Knowingly
Presenting a False Claim to the Government
False Claims Act
What is a False Claim?
What Does “Knowingly” Mean?
– Actual Knowledge
– Deliberate Ignorance
– Reckless Disregard for the Truth
– No Specific Intent to Defraud is Required
False Claims Act
Penalties Range from $5,000 to $10,000 per
False Claim
Government can Recover Treble Damages
$3 Billion in Settlements & Judgments in 2010
Contractors Face Suspension & Debarment
The Qui Tam Action
Allows Relator (i.e., whistleblower) to Stand
in the Government’s Shoes and Commence
Litigation Against a Government Contractor
Relator Receives a Percentage of the Recovery
– 15% to 25% if Government Intervenes
– 25% to 30% if Government Does Not Intervene, as
well as Attorneys Fees and Costs
The Qui Tam Action
Unique Procedure of Qui Tam Actions Creates
Unique Issues for Government Contractors
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Complaint is Filed Under Seal
Allegations Are Investigated by Government
Government Then Determines Whether to Intervene
Relator May Pursue Lawsuit Even if Government
Does Not Intervene
– Relator Entitled to Receive Portion of Recovery
The Qui Tam Action
Competing Interests & Complex Dynamic All
Working Against Government Contractor
– Department of Justice (DOJ) or U.S. Attorney’s Office
• The Fight Against Fraud & Restoring Public Faith
• Recouping Funds for the Government
– The Defrauded Government Agency
• Maintain Long-Standing & On-going Relationship with
Government Contractor
– The Relator
• Personal Financial Interest
Recent Trends in FCA Claims
and Qui Tam Actions
Congress Looking to Increase Efforts to Combat
Fraud by those Receiving Government Funds
– Fraud Enforcement and Recovery Act of 2009
– Patient Protection and Affordable Care Act
Amendments Expected To Have Serious Impact
on Government Contractors
Recent Trends in FCA Claims
and Qui Tam Actions
Significant Rise in Litigation Given the Recent
Amendments to the FCA
– 709 New FCA Actions in 2010
• 144 Increase Over 2009
– 573 New Qui Tam Actions in 2010
• 140 Increase Over 2009
– 1,246 Matters Under Investigation
Source: Andy Liu & W. Stanfield Johnson of Crowell & Moring LLP, West's Government Contracts
Year in Review Conference (November 2011).
Fraud Enforcement and Recovery Act of 2009
(FERA)
“Claim” Means Any Request for Money – Whether
Presented Directly to Government or Anyone Else –
that is Ultimately Spent or Used by the Government or to
Advance a Government Program
Effect?
– FCA Applies to Anyone Who Touches Federal Funds
– May Subject Any Person or Entity to an FCA Claim
• Regardless of Whether Actually Intended to Submit a False Claim
to the Government
• Regardless of Whether Contractor Knew Government was the
Ultimate Purchaser of Goods
Fraud Enforcement and Recovery Act of 2009
(FERA)
Increased Government’s Investigative Ability to Use
Civil Investigative Demands (CIDs)
– Attorney General Can Delegate Authority to Issue CIDs
– U.S. Attorneys Have Authority to Issue CIDs
Effect?
– Increased Use and Impact of CIDs
– Contractors Can be Compelled to Turn Over Requested
Documents, Respond to Interrogatories, and Depositions Can be
Taken of Company Personnel Very Early On
• Even Before Government Intervenes
– Information Can Now be Shared with Whistleblowers
Patient Protection and Affordable Care Act
(PPACA)
Weakened the Public Disclosure Bar
Before: Whistleblower Could Not Maintain a Lawsuit
if the Underlying Facts were Publicly Disclosed
Now?
– Relator Can Bring Qui Tam Action Even if Underlying
Facts Were Already Public, if Government Approves
– “Public Disclosure” Means Disclosure by the News
Media or a Federal Source – Not Disclosure by
a State Source
Responding to Suspected or Potential
Violations of the FCA
How Do Contractors Receive Notice of
Purported Misconduct?
– Internally
• Employee Hotlines or Reporting Procedures
• Internal Company Audits
– Traditional Government Investigative Tools
• Grand Jury Subpoena
• Search Warrant
Responding to Suspected or Potential
Violations of the FCA
– Government Investigative Tools Unique to
Government Contractors
• Inspector General Subpoena
• Civil Investigative Demand
– The Qui Tam Call
Responding to Suspected or Potential
Violations of the FCA
Unique Considerations for Contractors
– Significant Investigation Already Completed by
Government and Whistleblower Prior to
Contractor’s Awareness of Claim
– Contractor May Want to Settle Before Qui Tam
Action is Unsealed in Order to Minimize Bad
Publicity
Responding to Suspected or Potential
Violations of the FCA
– Maintain or Salvage Business Relationship with
“Defrauded” Government Agency
– Convince Government Not to Intervene Because
Claims are Meritless
Responding to Suspected or Potential
Violations of the FCA
In this Climate, Government Contractors Must:
– Have Heightened Sensitivity to Allegations of
Wrongdoing
– Be Quick to Conduct Internal Investigation and
Thoroughly Investigate Purported Wrongdoing
– Determine Whether Violation Exists in Order to
Minimize Consequences
– Take Great Care When Responding to Government
Inquiries
Internal Investigation
Internal Investigations are Critical
– To Determine Credibility of Allegations
– To Assess Scope of Alleged Wrongdoing
– To Help Mitigate Resulting FCA Liability
– To Convince the Government Not to Intervene
in Qui Tam Action
Internal Investigation
Importance of No Government Intervention
– The Government
• Has Significant Resources
• Has Significant Institutional Knowledge & Expertise
– Government’s Decision Not to Intervene
• Strengthens Contractor’s Position
• Relator’s Resources are Likely Limited
Self Reporting Obligations
Contractor Must Decide Whether to Report
Results of Internal Investigation
– Voluntary Disclosure
• Formal Voluntary Disclosure Program
• Cooperation May Result in Reduction of FCA Damages
– Mandatory Disclosure
• Nondisclosure Itself Would Constitute a Crime
Business Ethics
New Requirement Since December 24, 2008
– Written Code of Business Ethics and Conduct
– Internal Controls System
– Employee Compliance Training Program
Mandatory for Contracts and Subcontracts
Valued over $5 Million with a Performance
Period of 120+ Days
– But Best Practice for All Contractors and
Subcontractors to Follow
Business Ethics
Written Code of Business Ethics and Conduct
– Written Standards of Conduct Stating Company’s Values
and Commitment to Compliance with All Relevant Laws,
Regulations, and Contract Provisions
– Must Include Periodic Review and Self-Audit
– Must Provide a Written Copy to Each Employee
DCAA Empowered to Review Ethics Compliance
– Merely Having a Plan on the Shelf is not Enough
– Review of Written Code, Employees’ Acknowledgement of
Receipt of Code, List of Any Violations, and Open
Internal Investigations, etc.
Business Ethics
Internal Control System
– Facilitate the Timely Discovery and Disclosure of Improper
Conduct
– Must Include an Internal Reporting Mechanism (Hotline)
– Ensure that Corrective Measures are Promptly Instituted
and Followed
– Must Include Disciplinary Actions for Violations
– Must Include Periodic Reviews and Self-Audit
Does Not Apply to Commercial Item Contractors or
Small Businesses (But Again, Good Practice
for All Companies)
Business Ethics
Employee Compliance Training Program
– Awareness Program
– Should Include Written Materials and Interactive Training
Topics to be Covered:
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Conflicts of Interest
- Export Controls
Gifts and Gratuities
- Defective Pricing
Kickbacks
- Record-Keeping
Lobbying Restrictions
- Contract Compliance
Collusive Bidding
- Revolving Door Restrictions
Labor Charging
- Price Reductions
Protection of Proprietary Information
Mandatory Disclosures
New Requirement Since December 12, 2008
What Must be Disclosed?
– Certain Crimes: Fraud, Conflict of Interest Violations, Bribery,
Improper Gratuities
• By a Principal, Employee, Agent, or Subcontractor
– False Claims Act Violations
– Significant Overpayments
When Must a Disclosure be Made?
– “Credible Evidence” / Actual Knowledge Standard
Must Make Disclosure to OIG & Contracting Officer
– Until 3 Years After Final Payment
Mandatory Disclosures
Two Separate Sources of Obligation to Disclose:
– 1. Disclosure Required to Avoid Suspension or Debarment
(FAR 3.1001)
• Applies to All Contractors
• Disclosure Must Only be Made to CO
– 2. Disclosure Required by Contract (FAR 52.203-13 and
Payment Clauses 52.212-4(i)(5); 52.232-25(d), 52.23226(c) and 52.232-27(l))
• Mandatory for Contracts Over $5 Million with a Performance Period of
120+ Days (52.203-13); Payment Clauses Require Remittance of
Overpayments for All Contracts
• Disclosure Must be Made to OIG and CO
Guidance by Government on Disclosures
DoD’s Disclosure Form: Date, Full
Description, Names, Report on Internal
Investigation, Records, Remedial Actions,
Financial Impact, Certification on Truth and
Accuracy
Disclosure to be in Writing Through Online
Submissions
Privileges and Exemptions to FOIA to Apply
Credible Evidence and Timing
Credible Evidence is Not a Defined Term
– Work in Progress
Disclosure Must be Timely
– Government Talks in Terms of 6 to 8 Weeks
Question as to Whether Partial Disclosures
Inoculate Contractor
No Suspensions and Debarments Due to Failure
to Disclose or Incomplete/Misleading Disclosure
Operation of MDR Program
Most Made to DoD; 320 by November 2010;
10% to GSA
Abundance of Caution Disclosures
Aggregation Common
Source: Stuart (Stu) B. Nibley & David Nadler of Dickstein Shapiro LLP, West's Government Contracts
Year in Review Conference (November 2011).
What Happens to Disclosures
DoD Gives to DOJ, DCAA, CO and
Suspension and Debarment Authority
If Disclosure is a “Top 100” DoD Contractor,
Referred to DCIS and Agency Investigative
Service
CO has Authority to Negotiate Settlement
IG sends Closure Notice
DCAA Role
DCAA Empowered to Review Compliance
– Review of Any Disclosures Made
• Confirmation that All Disclosures Were “Timely” Made
– Review of Any Corrective Action Taken by
Contractor
– Examination of Internal Control System
• Auditors will Review to Make Sure Policy Includes a
Reasonable Definition of “Credible Evidence” and
Reasonable Timeframes for Disclosure
Potential Criminal Implications
High Probability that Allegations Against
Government Contractor Will Also be
Reviewed for Possible Criminal Prosecution
If Government Pursues a Civil Fraud
Investigation, Will Likely Also Conduct a
Parallel Criminal Investigation
Effect of Parallel Criminal Investigation
Information from Internal Investigation or
Civil Proceedings Used in Criminal Matter
Contractor’s Choice to Voluntarily Self Report
– Demonstrate Good Faith and Cooperation
– Disclosure of Internal Investigation to Escape
Indictment
– Beneficial in Prosecutor’s Charging Decisions and
Sentencing
Violations of the False Claims Act and
The Importance of a Timely and Proper
Response to Whistleblower Allegations
Daniel J. Kelly
Thomas J. Finn
Paula Cruz Cedillo