STATEMENT: Bipartisan Bill Seeks to Strengthen the Government’s Primary Fraud-Fighting Law
Contact: Jeb White, [email protected]
WASHINGTON, DC (July 26, 2021) – Today, Senators Charles Grassley (R-Iowa), Richard Durbin (D-Ill.), Roger Wicker (R-Miss.), Patrick Leahy (D-Vt.), and John Kennedy (R-La.) introduced key amendments to the federal False Claims Act, the government’s primary weapon against fraud. These amendments address legal developments that have left government dollars vulnerable to fraud and have discouraged whistleblowers from stepping forward.
In response, Taxpayers Against Fraud President & CEO Jeb White released the following statement:
“Congress should make certain that government dollars are protected from fraud. This legislation brings much-needed clarity to this key anti-fraud law. It allows the federal government and whistleblowers to effectively stand guard against those who seek to steal from the United States Treasury.”
Jeb WHite, TAF PRESIDENT & CEO
While government programs have grown exponentially, the False Claims Act (FCA) has not been amended in nearly a decade. Today’s bipartisan effort updates the law to reach modern-day fraud schemes. In particular, the amendments address three issues that have undermined anti-fraud efforts.
The first issue involves the FCA’s “materiality” standard. This standard is easy to understand—liability only results from “material” violations. The FCA explicitly defines “material” to mean “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” by the United States. Congress added this statutory definition in 2009 to clarify that liability attaches when the government could have rejected the fraudsters’ claims for payment.
Nonetheless, this clear-cut standard was arguably undermined in a 2016 Supreme Court decision, Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In this case, the Supreme Court provided numerous factors that a court could consider for when determining whether fraud was “material” to the government’s decision to pay a claim. On one such factor, the Court wrote: “[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”
Although the government’s prior knowledge was described as being “strong evidence” that a false claim was not material, some courts and many companies have made the government knowledge factor dispositive, stating that there must be proof that the government actually refused to pay the claim. This logic leaves no room for the government to pay a claim in an emergency situation and later bring an FCA case.
For instance, the government might make the decision to continue paying Medicare payments to a dishonest hospital that is the only available healthcare facility for a rural population. Under the wayward reading of the Supreme Court’s Escobar decision, such corrupt entities could use the government’s payment decision to shield itself from FCA enforcement and drain government funds with impunity.
The proposed FCA amendments restore the Act by, in effect, granting a heightened presumption of materiality when the government could have demanded repayment or payment from the defendant. The defendant can only overcome this highly deferential presumption by meeting a strict “clear and convincing evidence” standard. “If a company accused of defrauding the government actually admits to submitting false claims, but then argues that the false information is not material, it is only fair for that company to be required to prove that the false information has no tendency to influence the government’s payment decision,” said TAF President Jeb White. “Going forward, courts would assess False Claims Act materiality through a lens that highly scrutinizes arguments raised by the alleged fraudster.”
The second issue involves clarification about when the government may dismiss whistleblower-initiated FCA cases. The FCA permits the government to dismiss whistleblower, or so-called “qui tam,” actions if the whistleblower “has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 USC 3730(c)(2)(A).
Recognizing that whistleblower-initiated actions have recovered the bulk of FCA recoveries over the last 100 years, the government has been reluctant to dismiss these actions. In fact, prior to 2018, the government had dismissed less than 50 cases in the 155-year history of the Act.
Then, in January 2018, the Justice Department released the so-called “Granston Memo,” which outlined the Department’s focus on dismissing whistleblower-initiated FCA actions. Since then, over 50 whistleblower actions have been silenced through arbitrary dismissals, in less than four years. When challenged, the Justice Department has argued that it has “unfettered discretion” to dismiss these cases, notwithstanding the statutory requirement that the court provide the whistleblower with a “hearing.”
By dismissing whistleblowers and their fraud concerns without any oversight, the Justice Department is discouraging individuals from even stepping forward. The Amendments provide a level of assurances for would-be whistleblowers, clarifying when a whistleblower-initiated action may be dismissed by the court.
“With our country spending trillions of dollars in pandemic spending and infrastructure improvements, now is not the time to silence whistleblowers with backroom dismissals,” said TAF President Jeb White. “We applaud these leading anti-fraud Senators for providing a level of certainty and protection to America’s courageous whistleblowers.”
The third issue involves FCA anti-retaliation protection for former employees. The current law is arguably silent on whether individuals receive protection from employers who blackball or otherwise retaliate post-employment. Today’s amendment removes any uncertainty by explicitly extending the protections found in 31 USC 3730(h).
“For too long, whistleblowers have faced retaliation from former employers,” said TAF President Jeb White. “Today’s amendments put the world on notice that blackballing whistleblowers will no longer be tolerated.”
About Taxpayers Against Fraud
Taxpayers Against Fraud is a Washington, D.C.-based nonprofit organization dedicated to protecting the federal False Claims Act and other whistleblower statutes. For more information, visit taf.org.
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