It is no secret that the False Claims Act (“FCA”) is the government’s primary anti-fraud tool and that recoveries under the statute have hit record highs in recent years. For example, since 1987, FCA recoveries have totaled $56 billion with no single year since 2010 falling below $3 billion. Moreover, most of these cases have been brought by qui tam relators and where the Department of Justice (“DOJ”) did not intervene. Accordingly, DOJ’s remarks during the American Bar Association’s June 14, 2018, 12th National Institute on the Civil False Claims Act and Qui Tam Enforcement, were certainly welcome for industry.
During this session, top DOJ leadership addressed a number of “reform” projects of significant interest. First, DOJ emphasized that the greater the degree of cooperation that DOJ receives from a defendant or potential defendant the more leniency the company may receive when it comes time for settlement. In this regard, the FCA allows for penalties ranging between $11,181 and $22,363 per false claim and treble damages, which allows damages to rack up quickly. DOJ confirmed that companies which fully cooperate with the Department can expect to receive “tremendous enforcement discretion with respect to structuring settlements while also providing a discount.” DOJ stated that cooperation can come in many forms, but that the government is usually looking for voluntary disclosures (which DOJ considers to be most valuable), sharing information during an internal investigation, making individuals available for interviews, and identifying culpable individuals (in accordance with the Department’s focus in the Yates Memorandum on individual, and not just on corporate, responsibility).
DOJ also acknowledged that even the best compliance systems fail from time-to-time and assured that “when fraud occurs, the DOJ will give the greatest consideration” to companies that live by a robust compliance culture that is deeply engrained in the organization. These comments reinforce the fact that having a compliance program is only the first step because it is even more critical that companies continuously update, monitor and stress those principles to its stakeholders, while still making compliance both practical and effective to apply from a business standpoint.
DOJ did not specify the types of leniency that companies can expect, but if lessons can be taken from parallel criminal fraud cases, the incentives for cooperation may result in a below double damages multiplier (or perhaps even no multiplier), a reduction of penalties from even the low end of the range, and no requirement for a corporate integrity agreement and monitor.
Finally, DOJ spoke about two other pressing issues—DOJ’s authority to dismiss frivolous qui tam cases and cases which rely on informal agency guidance, as opposed to an actual regulation or statute, to allege a legal violation in support of a false claim. As for its dismissal authority, DOJ acknowledged that its policy of dismissing frivolous cases, as set forth in the Granston Memorandum, remains an important objective for DOJ but acknowledged that such dismissals by DOJ, to date, have been rare. That said, DOJ is “now instruct[ing] [its] attorneys” to give a hard look at cases where DOJ has declined to intervene to determine whether dismissal is warranted. While results remain to be seen, this and similar recent statements by senior DOJ leadership signal that the Department is trending down this appropriate path.
And, with regard to reliance (often by qui tam relators) on internal and informal agency policies or practices to fashion the basis for a legal violation, DOJ’s remarks, which are consistent with statements in the Brand Memorandum, are especially welcomed because those informal policies lack the force and effect of law and should not serve as the basis for alleging an actual legal violation that could cost a company millions of dollars, especially when such policies and practices are both subjective and inconsistent in their application.
In sum, DOJ continues to send a positive message that companies which act as good corporate citizens by conducting their businesses ethically and in good faith, pursuant to established compliance systems, and which promptly disclose any potential issues to the government will enjoy the benefits of those practices, and that meritless cases should not be used to extract millions of dollars from responsible contractors.