The History and Success of Federal False Claims Act and Qui Tam Provisions
As England emerged from the Dark Ages with a weakened monarchy, a set of laws were enacted to allow others to litigate on the king’s behalf. This practice was known in Latin as “qui tam pro domino rege quam pro se ipso in hac parte sequitur” or “who pursues this action on our Lord the King’s behalf as well as on his own.” These laws, which came to be known as “qui tam” laws were considered to be such a vital element of good governance that they were among the earliest laws enacted by the first U.S. Congress. But these laws were gradually weakened, and by the time of the Civil War, fraud against the federal government was rampant. Inferior goods caused serious problems for Union troops. Without sufficient federal lawyers to pursue the fraudsters, at President Lincoln’s urging, Congress passed the False Claims Act (FCA) in 1863. The FCA allowed, but did not require, the government to provide financial incentives to private citizens who took action against those who defrauded the government. The FCA became known as “Lincoln’s Law.”
While the FCA was effective for a time, it did not stop fraud. In large part this was because blowing the whistle often resulted in substantial hardship for the whistleblower and the FCA’s financial incentives for whistleblowers were not mandatory, so few whistleblowers came forward. During the Spanish-American War, meat that had been preserved with formaldehyde poisoned hundreds of American soldiers. Similar offenses occurred during World War II. By the 1980s, fraud against the Defense Department, particularly in the form of seriously overpriced goods, was rampant. That fraud led to an unusual coalition: in 1986, Sen. Charles Grassley, a conservative Iowa Republican, teamed up with Rep. Howard Berman, a liberal California Democrat, to pass legislation that strengthened the FCA.
A key provision in the 1986 amendment was that the payment of incentives to whistleblowers who filed qui tam litigation (also known as “relators”) was mandated. The amendment provided that if the government intervenes in the qui tam litigation, relators will receive 15% to 25% of any recovery by the government, and if the government does not intervene and the relator goes forward on behalf of the government, the relator is entitled to 25% to 30% of the funds recovered on behalf of the government. In addition, the FCA has been amended to include an anti-retaliation provision that prohibits retaliation for actions by a whistleblower “in furtherance of an action under this section or other efforts to stop 1 or more violations of [the FCA]”, and provides compensation for whistleblowers who experience such retaliation.
Within a decade after the 1986 amendments, hundreds of claims under the federal FCA were being filed each year. As of the end of 2011, it is estimated that over 8,000 qui tam cases had been filed under the federal FCA, bringing in more than $30 billion, and the law had been strengthened by additional amendments in 2009 and 2010.
Pat O’Connell was an invited guest at the U.S. Department of Justice on January 31, 2012, when United States Attorney General Eric Holder gave a speech at an event commemorating the 25th Anniversary of the False Claims Act Amendments of 1986. In that speech, Attorney General Holder said,
Since the day that President Reagan signed these bipartisan amendments into law in 1986, their impact has been nothing short of profound. Over the last quarter century, the Department of Justice has recovered more than $30 billion under the False Claims Act. Whistleblowers have filed nearly 8,000 actions – including a record high of 638 in the past year alone. And we can all be proud to that, in 2009, a series of additional updates made this law even stronger – and more responsive to evolving challenges.
With the passage of the Fraud Enforcement and Recovery Act of 2009 – which was championed by Senator Leahy and Congressman Berman – and signed into law by President Obama – the Justice Department’s ability to utilize the False Claims Act to root out fraud was substantially improved. The Affordable Care Act included further advancements. And, since the beginning of this Administration, these provisions have been put to good use – and provided important protections for American taxpayers.
I’m proud to report that, over the past three years, the Department has recovered $8.8 billion under the amended False Claims Act – which is more than a quarter of all recoveries since 1986, and the largest three-year total on record. In the last fiscal year alone, we secured more than $3 billion in settlements and judgments in civil cases involving fraud against the government – the vast majority of which concerned health-care fraud, and nearly all of which were recovered under FCA’s whistleblower provisions. This marked the second year in a row that we’ve reached such a high total. And it proves, not only the effectiveness of the tools that today’s honored guests helped to design and enact – but also this Department’s commitment to aggressively utilizing them.
Due to the success of the 1986 amendment to the federal False Claims Act states began passing their own versions of the FCA [link to page on state FCAs], and Congress enacted whistleblower provisions for tax fraud in the Internal Revenue Code, as well as whistleblower provisions for fraud in the securities and commodities markets. In addition, Congress created a specific whistleblower protection program for those working in the financial services industry, to encourage insiders to come forward with information related to fraudulent conduct in the sale or marketing of consumer financial products or services. While this program does not include incentives or awards for reporting fraud, to the extent the fraud involves government funds, the award provisions of the FCA apply.
The numbers quoted by Attorney General Holder do not include recoveries by the states for fraud against state Medicaid programs or other state programs, which total in the hundreds of millions – if not billions – of dollars at this point (Texas, alone, has recovered nearly a billion dollars under its FCA). While the IRS, SEC, and CFTC whistleblower provisions are relatively new, they have attracted substantial numbers of significant claims and are expected to return billions of dollars to the U.S. Treasury.