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The False Claims Act penalizes those who deceive the US government through fraudulent billing practices or supplying inferior products. It includes provisions for whistleblowers to sue on behalf of the government and receive a portion of recovered money. Originally signed by President Lincoln during the Civil War, it was revamped in 1986 to provide incentives for whistleblowers. The law defines false claims and fines can be charged, plus three times the amount of damages incurred by the government. The award amount under the Act was increased to between 15% and 30% of the amount recovered from the government to enlist help in pursuing cases.
The False Claims Act is a United States federal law that provides penalties for those who knowingly deceive the government through fraudulent billing practices, overstate the amount of goods shipped and invoiced, or knowingly supply inferior products. The law includes provisions on the qui tam, or whistleblower, which allow individuals and lawyers to sue on behalf of the government if they have knowledge that fraud is being perpetrated. The law provides specific punitive damages and financial penalties for guilty convictions and allows the individual who is suing to receive a portion of the recovered money.
The False Claims Act was first signed into law by President Lincoln during the American Civil War as a means to combat war profiteering. The Union Army’s efforts were hampered by massive fraud perpetrated by unscrupulous merchants who shipped spoiled food, old blankets, defective weapons, and other inferior products in lieu of the goods for which they had been bargained and paid for. The government lacked the resources to prosecute and punish profiteers, so they passed this act as a way to enlist the public in the fight against fraud.
Under the original law, private citizens could bring a lawsuit against the perpetrator on behalf of the government. If found guilty, the defendant was charged US Dollars 2,000 (USD) per claim and double the amount of damages sustained. The person who filed the complaint, known as the rapporteur, was allowed to keep 50% of the recovered money.
In 1943, the False Claims Act was significantly changed, making it much less attractive. The prize amount has been significantly reduced and, in most cases, eliminated. A provision was added that if a government official knew of the fraud, even if he made no effort to investigate or rectify the situation, a whistleblower could not receive any compensation. Since the initial whistleblower report to a government employee was defined as knowledge, the incentive for a private party to risk the financial consequences of pursuing litigation was removed and the law fell into disuse.
During the military buildup of the 1980s, stories began to emerge of overpricing, improper billing, and other fraudulent activities conducted by companies working under Department of Defense contracts. Once again the government has decided to enlist the private sector by revamping the False Claims Act to provide incentives for whistleblowers. Backed by a bipartisan coalition, Senators Grassley and Berman drafted significant revisions to the law which were signed into law in 1986 by President Reagan.
As currently written, the False Claims Act defines false claims as knowingly submitting a fraudulent invoice, using false documents to enable payment of an inaccurate invoice, knowingly shipping less property than stated, receiving a shipment without verifying its validity and the purchase of government property from an individual who does not have the right to sell that property. Fines ranging from $5,500 USD to $11,000 USD can be charged, plus three times the amount of damages incurred by the government. Under this review, the prosecution is only required to prove that knowledge of the false claim was present and not that there was an intent to defraud. The provision prohibiting lawsuits if a government official knew about the problem was dropped, as long as the government did not launch an investigation.
To enlist the help of individuals or lawyers in pursuing cases under the False Claims Act, the award amount under the Act was increased to between 15% and 30% of the amount recovered from the government. If the defendant is found guilty, he is also required to pay the attorney’s fees for the person suing. If the defendant is found innocent, however, the plaintiff who brought the suit may be forced to pay the attorney’s fees for the defense. This provision was added to prevent an individual or business from being financially devastated by frivolous causes.
