Transcript Slide 1

National Contract
Management Association
SANDY COATS
United States Attorney
Western District of
Oklahoma
Western District of Oklahoma
"There is no kind of
dishonesty into which
otherwise good people more
easily and frequently fall
than that of defrauding the
government."
Benjamin Franklin
GOAL II: PREVENT CRIME, ENFORCE FEDERAL
LAWS AND REPRESENT THE RIGHTS AND
INTERESTS OF THE AMERICAN PEOPLE
Strategic Objective: Recover monies owed
to the United States and victims as a result
of fraud, loan default, and bankruptcy
Ensure that citizens can rely on the honesty
and integrity of government officials charged
with the public trust
Defending the public fisc against
unwarranted claims
Strategic Objective: Combat public and
corporate corruption, fraud, and
economic crime
“The true cost of white collar crime is not
always measured in dollars. The
corruption of public officials undermines
trust in government.”
I WANT MY MONEY BACK!
The Problem
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Fraud cost U.S. organizations an estimated $994
billion in 2008!
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The average organization loses more than $9
per day per employee to fraud and abuse
Approximately 7% of the total annual
revenue of business is lost due to the fraud of
it’s employees
$100 billion a year lost to health care
fraud.*
2004 & 2008 Reports to the Nation on Occupational Fraud
and Abuse” by Association of Certified Fraud Examiners
2008
*CNNMoney.com 01/13/10
7%
The Problem
More than $100 Billion in Lost
Each Year to Fraud in Federal
Programs.*
 Nearly half of employees do
not report company or
employee misconduct.**
 Limited Federal Resources
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*Fraud and Abuse in Federal Programs,
CATO Institute (Aug 2009)
**Fraud Magazine, Nov/Dec 2006
CRIMINAL DIVISION
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Oklahoma man sentenced to 12 months
in prison for kickback scheme involving
government contract in Afghanistan
Defendant conspired to solicit kickbacks
from private security vendors in
exchange for their favorable treatment
in the contract bidding process
CIVIL DIVISION
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Technology Development Group, Inc.
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Falsified testing of fighter ejection seat
circuits
$400,000 Settlement
CIVIL DIVISION
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L-3 Communications
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Arranged for the shipment of various
components for DOD weapon systems
which resulted in U.S. paying a higher price
to freight carriers for shipping that was
appropriate
$325,000 Settlement
CIVIL DIVISION
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Thunderbird Propellers, Inc.
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Used unapproved aircraft parts in
overhauls
$100,000 Judgment
CIVIL DIVISION
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Standard Testing
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Failed to properly test building materials for
military construction projects and submitted
false testing documents
$100,000 Settlement, built new testing facility,
terminated bad actor
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Affirmative Civil Enforcement
United States Attorney’s Office
Western District of Oklahoma
Judy Copeland
ACE Coordinator
Western District of Oklahoma
Affirmative Civil Enforcement
ACE is the use of civil remedies
to recover monies or advance
significant federal program objectives.
FCA: where there has been a false or
fraudulent claim or false statement
made to the United States.
CIVIL PENALTIES: recover civil penalties
pursuant to statutes
Why ACE?
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Targets economic incentive
Recovers taxpayer funds lost by fraud
Penalizes offender by imposing damages
Applies when portion of funds are federal
Protects program integrity
Serves as a strong deterrent
Requires a lower burden of proof
ACE ‘Moves The Ball’
FCA claims and most alternative fraud
claims need only be proved by a ‘preponderance of the evidence (50% + a
‘smidgen’)
ACE POLICIES
• No monetary threshold amount
– Program goals may be just as or more
important
• Entire Civil Division is available and
committed to ACE
• “One Team Approach”
– Coordinate with Criminal Division
– ACE is not just an alternative to criminal
prosecution.
Affirmative Civil Enforcement
ACE Coordinator:
Civil Chief:
AUSA Judy Copeland
[email protected]
405.553.8829
AUSA Steve Mullins
[email protected]
405.553.8804
HCF Coordinator:
Deputy Civil Chief
AUSA Lee Schmidt
[email protected]
405.553.8745
AUSA Kay Sewell
[email protected]
405.553.8807
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31 U.S.C. §§ 3729-3733
"Worse than traitors in
arms are the men who
pretend loyalty to the
flag, feast and fatten on
the misfortunes of the
nation while patriotic
blood is crimsoning the
plains of the south and
their countrymen are
moldering in the dust."
A. Lincoln
How Did We Get Here
1300s: English Law allows qui tams.
Revolutionary War: Continental Officers are
convicted of defrauding troops of pay and fraud
stealing gov’t property.
Civil War: Adulteration of supplies made “shoddy”
a dirty word, Congress passes Frauds Act of
1863.
1874-1943: The 1863 Act was emasculated by a
series of amendments between 1874 &1943.
World War I: The deliberate inflation of prices
(“profiteering”) during war is a crime.
Time Flies . . .
1980s: Series of K scandals - $435 hammer,
$640 toilet seat & $7,600 coffee maker.
1986: Lincoln legislation resurrected after K
abuses,
1990-2000: Health care emphasis.
2009: Fraud Enforcement and Recovery Act
of 2009, PL 111-21, 123 Stat 1617,
strengthens FCA after what it is weakened
through judicial decisions.
FCA OVERVIEW
The U.S. Attorney can institute a civil
action in federal court against anyone
presenting or causing to be presented
a false or fraudulent claim.
31 U.S.C. § 3730 & Executive Order 6166, June 10, 1933.
The False Claims Act Is
The “Primary Litigative
Tool For Combating
Fraud” Against The
Federal Government.
Senate Judiciary Committee, False Claims Amendments
Act of 1986, S.Rep. No. 345, 99th Cong., 2d Sess. 2
(1986), reprinted in 1986 U.S.C.C.A.N. 5266.
FCA Liability
The FCA lists 7 types of fraud (§3729(a)(1)(A-G)
Liability exists for a person who knowingly
presents, makes or causes to be presented a
false or fraudulent statement/claim:
1. To receive money from the United States
2. To avoid or decrease an obligation to the US
(a/k/a “reverse false claim”)
3. Or conspires to do so.
Prohibited Acts
False Claims: Person knowingly presents, or causes to
be presented, a false or fraudulent claim for payment
or approval
(31 USC § 3729(a)(1)(A);
False Records: Person knowingly makes, uses, or causes
to be made or used, a false record or statement
material to a false or fraudulent claim
(31 USC § 3729(a)(1)(B));
Conspiracy: Person conspires to defraud under the seven
prohibited Acts of the FCA
(31 USC § 3729(a)(1)(C)).
Reverse False Claims: Person knowingly conceals or
knowing and improperly avoids or decreases an
obligation to pay or transmit money or property to the
Gov’t.
(31 U.S.C. § 3729(a)(1)(G)).
The FCA Claim
ELEMENTS:
1) A “claim” (A request or demand)
2) “presented” (Gov’t, its agent or person with Gov’t
money) for payment or approval
3) that is “false or fraudulent” and that the
person submitting or causing to be
submitted “knows”* to be false.
31 USC §3729(b)(1)
* Requires no specific intent, and can be with reckless disregard of the truth.
Knowledge
Actual Knowledge of the False
Information
Act in Deliberate Ignorance of Truth or
Falsity of Information; or
Act in Reckless Disregard of Truth or
Falsity of Information
Materiality
Two of the seven types of FCA fraud have a
materiality provision.
Liability for making or using a false record
or statement (§3729(a)(1)(B)) and
Liability for ‘reverse false claim’ (§3729(a)(1)(G))
Defined as ‘having a natural tendency to
influence, or be capable or influencing the
payment or receipt of money or property.
31 USC §3729(b)(4)
Penalties
Actual damages* X 3
+
$5-11K penalty per claim
($5,500- $11,000)
+
Agency debarment/exclusion
INCENTIVE TO NOT DEFRAUD
*Not a requirement – can, in right circumstances,
include ‘costs’ of investigation
Statute Of Limitations
Lawsuit must be filed within:
1. W/N 6 yrs of date of the event giving
rise to the FCA claim, or
2. W/N 3 yrs of date material facts are
known by law enforcement (agent or
AUSA)
3. But in no event more than 10 yrs after
the date on which the violation(s) was
committed.
31 USC § 3731(b)
Qui Tam
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Private Attorney General
Brought by private citizen in name of US
US is the real party-in-interest and remains a
‘party in interest.’
§3730(b)
The Seal
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Qui tam filed “under seal” (without
knowledge or notice to Ds so Gov’t may
investigate & elect to intervene.
Sealed for 60 days
Court may extend for good cause.
Time begins when both complaint &
written disclosure served on Gov’t.
31 U.S.C. section 3730(b).
Rights Of Parties
US can intervene - In whole or in part.
If intervene, Gov’t prosecutes
31 U.S.C. Section 3730(b)(4)(A).
US declines to intervene
Relator prosecutes the action
31 U.S.C. section 3730(b)(4)(A)
US must consent to settlement or dismissal
US still a party-in-interest.
31 U.S.C. section 3730(b).
Relator Share
If US intervenes
15-25% of Gov’t FCA recovery
Attorneys’ fees and costs from D
31 U.S.C. section 3730(d)(1)
If US declines
25-30% of FCA recovery
Attys’ fees and costs from D
31 U.S.C. section 3730(d)(2)
If relator “planner or initiator” of fraud,
Court can reduce relator’s share
31 U.S.C. section 3730(d)(1)
Kerry Kelly
Deputy Criminal Chief
Western District of Oklahoma
Federal Procurement Fraud
• Criminal prosecution is the flip side of ACE.
• Similarities with ACE
Improve the integrity of the procurement process;
Deter and investigate fraud occurring within the
system;
Recover misused tax dollars;
Improve public confidence in the government by
demonstrating that individuals who engage in corrupt
practices are brought to justice.
Criminal Prosecution
• Differences from ACE prosecution
– Tools available to criminal prosecutor
• Grand jury subpoena
– Compelled attendance
– Compelled production of documents
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Title III federal wiretap
Search Warrants
Court approved access to federal tax returns
International venue
False Claims Act
• Dual Enforcement Under False Claims Act
– An ACE civil prosecution can be brought against a
person and/or corporation for a false claim
AND
– A criminal indictment for presentation of the same
false claim
• United States Supreme Court ruled that the Double
Jeopardy Clause of the 5th Amendment only protects
against multiple criminal prosecutions for the same
offense.
False Claims, 18 USC § 287
• Proof for 287 Violation
– Making or presenting a false claim for payment
against the United States
– Claim was false, fictitious, or fraudulent
– Knowledge of the falsity
• Punishment
– 5 years in prison
– $250,000 fine
False Claims Act, 18 USC § 287
• Claim can be made through a 3rd party
– State or local government
– Through another contractor
– Through an insurance company
– Through an individual (income tax preparer)
• Claim does not have to be paid for a violation
to have occurred.
False Claims Act, 18 USC § 287
• Examples of false claim criminal convictions
– Falsely submitting that medical procedures were
supervised;
– Submitting over-inflated labor and equipment
charges
– Falsely representing oneself as a licensed
professional
– Fabricating additional costs under equitable
contract price adjustment order
– Falsely certifying hiring of minority contractor
Bribery, 18 USC § 201
• Prohibits giving or accepting
• Anything of value to a public official
• With the intent
– To influence an official act OR
– If it is received by the official, then in return for
being influenced to either do an act or fail to do
an act.
Bribery, 18 USC § 201
• Bribery requires an express corrupt
understanding between the private donor and
the public officer
– That a specific act will be performed or omitted in
exchange for the payment.
– A “quid pro quo”
Bribery, 18 USC 201
• Crime of bribery is complete when an
understanding is reached. It does not matter if
– Payment actually was made.
– The official bribed had authority to commit the act for
which he was paid.
– The official intended to do the act, for which he was
paid.
• Punishment
– 15 years in prison
Anti-Kickback Act,
41 USC §§ 51-58
• This statute is the “commercial” equivalent to
bribery.
• A contractor who is willing to pay a bribe to a
government official to obtain a government
contract may also be willing to demand or accept
a kickback from a subcontractor.
• The purpose of the statute is to protect the
integrity of government contracts and
subcontracts for supplies, materials, equipment,
or services of any kind.
Anti-Kickback Act
• What is a kickback?
– Any money, fee, commission, credit, gift, gratuity,
thing of value, or compensation of any kind.
– Provided, directly or indirectly, to any prime
contractor, prime contractor employee,
subcontractor, or subcontractor employee
– For the purpose of improperly obtaining or
rewarding favorable treatment in connection with
a prime contract or subcontract.
Major Fraud Act, 18 USC § 1031
• In relationship to a procurement contract,
Congress essentially sought to assure:
– Government’s right to receive full value on
contracts awarded
– Government’s right to procure goods and services
free from fraud, deceit, trickery, and dishonesty
• Includes half truths,
• knowing concealment of facts
• 10 year prison term and fine up to $10 million
Major Fraud Act, 18 USC § 1031
• This criminal statute prohibits procurement fraud
involving contracts or subcontracts awarded by
the United States and valued at $1 million or
more.
• Liability is found when contractor or
subcontractor executes or attempts to execute a
scheme to defraud the United States or obtain
money or property by means of false or
fraudulent pretenses, representations, or
promises.
Federal Program Fraud
18 USC § 666
• Huge sums of money for federally supported
programs are distributed routinely through
private organizations as well as state, local,
and Indian tribal government agencies.
• Congress enacted § 666 to strengthen the
ability of the United States to vindicate
significant acts of theft, fraud, and bribery
involving federal money.
Federal Program Fraud,
18 USC 666
• Statute prohibits
– The corrupt solicitation, demand, acceptance, or
agreement to accept
– Anything of value from a person
– With the intent to influence or reward
– In connection with any business, transaction, or
series of transactions of a value of $5,000
– Of an organization, government, or agency that
over 12 months receives $10,000 in federal funds
Federal Program Fraud
18 USC § 666
• Unlike the federal bribery statute, there is no
need for a “quid pro quo” to violate the
statute.
• It is sufficient if the person offering the bribe
or accepting the bribe understands that the
payment is for the purpose of exercising
influence when an opportunity occurs.
• 10 year prison sentence.