Federal False Claims Act History

Today the False Claims Act (FCA) is among the federal government’s most powerful tools for combating fraud against government contracts and programs.  One of the most significant aspects of the FCA is its qui tam provision, which allows individuals with inside knowledge of fraud to bring suit on behalf of the government.  As compensation for their efforts, these citizen-whistleblowers or “relators” are entitled to receive 15-30% of the amount the government recovers.  With the help of qui tam relators, the federal government has recovered more than $21 billion in the past 22 years.

The Lincoln Law

The False Claims Act dates back to the Civil War and is sometimes called the Lincoln Law.  It was passed in response to rampant fraud by private contractors who were billing the government for goods that were not actually delivered. The Lincoln Law version of the False Claims Act went through a number of changes between the Civil War and World War II.  Unfortunately, each set of amendments weakened the effectiveness of the law, resulting in its diminished use as a weapon to combat fraud against government program monies.  Because the amendments drastically reduced the potential rewards for whistleblowers, many people were no longer willing to risk their jobs by accusing their employers of illegal behavior.

The False Claims Reform Act of 1985

When increased federal expenditures throughout the 1970s and 1980s led to an increase in fraud against the government, the need to amend the False Claims Act became clear.  In response to growing concerns about the FCA’s ability to stem fraud, Senator Charles Grassley and Representative Howard Berman sponsored the False Claims Reform Act of 1985.  This law, passed in 1986, made sweeping changes to the FCA.  These amendments made it easier for the government to investigate FCA cases, lowered the required burden of proof, increased the potential whistleblower’s share to 15-30%, imposed treble (triple) damages for fraud, lengthened the statute of limitations for filing qui tam suits, and required defendants to pay reasonable fees to the whistleblower’s attorneys in successful prosecutions.

Most importantly, the amendments underscored Congress’ intent to forge a powerful partnership between government enforcement authorities and the citizen-whistleblower.  Congress expanded the role of whistleblowers and their counsel and allowed them to supplement the government’s resources in the investigation and prosecution of FCA cases.  The amendments also included provisions to protect whistleblowers from employer retaliation.

With the exception of minor changes in 1988 and 1990, the 1986 version of the FCA was in effect through early 2009.  This version substantially increased the government’s power to combat fraud, as shown by the increase in the number of cases filed and tax dollars recovered.  The number of qui tam cases filed each year increased more than tenfold, from 31 cases in 1987 to 356 cases in 2007.  The 1986 amendments also allowed the federal government to collect more than $13.6 billion in qui tam cases.  This number would be even higher if states’ portions of the recoveries in cases such as those involving Medicaid fraud were also included in the calculations.

The Fraud Enforcement and Recovery Act of 2009

The economic crisis of the past several years, combined with some judicial decisions that circumscribed the effectiveness of the FCA, again prompted Congress to reevaluate the law.  Recognizing the key role the FCA plays in both deterring and uncovering fraud, Congress strengthened the law in early 2009 through the Fraud Enforcement and Recovery Act (FERA). Read the full text of the federal False Claims Act with amendments on the Taxpayers Against Fraud website, http://www.taf.org/federalfca.htm. 

The FERA amendments encompass significant improvements to the FCA.  These improvements include, among other things, broadening the scope of fraud covered by the FCA, enhancing the government’s ability to investigate fraud, allowing the government to recover its costs expended in investigating and prosecuting FCA cases, and reducing defendants’ ability to escape liability through technicalities.

Moreover, the FERA amendments include changes underscoring the importance of whistleblowers in combating fraud.  In addition to the changes outlined above, the FERA amendments provide for freer exchange of information between federal, state, and local government attorneys and whistleblowers’ attorneys, and also expand whistleblowers’ protection from employer retaliation.

Finally, the FERA amendments reflect the ever-growing importance the government places on the FCA’s role in combating fraud.  With dramatically increased federal spending under the stimulus package, the FCA promises to play a vital role in ensuring the integrity of government programs and contracts in the coming years.