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The GOOD, the BAD, and the UGLY The Federal [Civil] False Claims Act (FCA)

• The FCA fills a gap in the federal law for the pursuit of “fraudsters” – those who cheat the government.

• How? Why? • Because:• The FCA does not require proof of a defendant’s

criminal intent.• The FCA does not impose the criminal burden

of proof on the government.

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The GOOD

• The FCA permits the government to recover THREE TIMES the amount of government funds stolen by the fraud, waste, and abuse (damages) when either:

• (1) criminal prosecution was successfully accomplished, yet has not resulted in complete recovery of the government’s damages; or,

• (2) criminal prosecution is not feasible.

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The “Lincoln Law” - Passed in 1863 - Signed into law by President Lincoln

• The FCA is found in Title 31 U.S.C. § 3729, et

seq. (et seq. is a contraction for the Latin phrase

“et sequentia” which means “and the following

ones,”) the sections following section 3729 of

Title 31, sections 3730, 3731, 3732, and 3733,

provide details of the various aspects of the FCA.

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THE BAD . . . (Acts, that is.)

• Section 3729 provides the definition of the PROHIBITED ACTIVITIES.

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The “Et Seq.” Qui Tams

• The “Whistleblower” Section• Section 3730, is the qui tam or “whistleblower”

actions section which allows a PRIVATE PERSON to file an FCA action “for the person and for the United States government.”

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Et Seq. – Time, Burden, and Estoppel

• Section 3731 provides for Nationwide Subpoena Power,

• the Statute Of Limitations, • the Burden of Proof, and • Criminal Conviction Estoppel;

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Et Seq. - Venue & Jurisdiction

• Section 3732 provides the VENUE (where the acts occurred),

• PERSONAL JURISDICTION (where a person can be subjected to a court’s authority) and

• the court’s SUBJECT MATTER JURISDICTION (whether the court can assert its authority)

• of an FCA action;

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Et Seq. - Civil Investigative Demands

• Section 3733 provides for Civil Investigative Demands (CIDs) - a government investigation tool).

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The BAD – Presenting False or Fraudulent Claims

• (a) Liability for Certain Acts.- • (1) In general. Subject to paragraph (2), any person

who ---• (a)(1) (A) knowingly presents, or causes to be

presented a false or fraudulent claim for payment or approval;

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The BAD –Making and Using False Information

• (a)(1)(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

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The BAD – Conspiracy

• (a)(1) (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or )G);

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The BAD – “Reverse” False Claims

• (a)(1)(D) has possession, custody, or control of property or money used, or to be used, by the Government and, knowingly delivers, or causes to be delivered, LESS THAN all of that money or property;

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The BAD – Fraudulent Receipts

• (a)(1)(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

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The BAD – Receiving Stolen Government Property

• (a)(1)(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

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The BAD – Deceptive Information

• (a)(1)(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

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“Materiality”

• (4) the term “material” means having a natural tendency to Influence, or be capable of influencing, the Payment or Receipt of money or property;

• materiality depends on “whether the false statement

has a natural tendency to influence agency action or is

capable of influencing agency action.” U.S. ex rel.

Bennett v. Genetics & IVF Institute, Inc., 199 F. 3d

1328 (4th cir 1999) (unreported)

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The UGLY -3 times Damages PLUS Penalties

• is liable to the United States Government for a civil penalty of not less than $5,000 [$5,500 since 2009] and not more than $10,000 [$11,000 since 2009] , as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note: Public Law 104-410), plus 3 times the amount of damages which the Government sustains because of the act of that person.

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Reduced Damages Amounts If Confessed Within 30 Days of Knowledge

• (a)(2) Reduced Damages – If the court finds that –

• (A) the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;

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Full Cooperation

• (a)(2)(B) such person fully cooperated with any Government investigation of such violation; and

• (a)(2)(C) at the time such person furnished the United States with the information about the violation, no criminal prosecution, civil action, or administrative action had commenced under this title with respect to such violation, and the person did not have actual knowledge of the existence of an investigation into such violation;

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Two, Not Three, Times Damages

• the court may assess not less than 2 times the amount of damages which the Government sustains because of the act of that person.

• (a)(3) Costs of Civil Actions -- A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages.

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Definitions- Knowing/ly No “Specific Intent” to Defraud Need be Shown

• 3729(b) Definitions. – For purposes of this section,• (1) the term “knowing” and “knowingly--” • (A) mean that a person, with respect to information

—• (i) has actual knowledge of the information;• (ii) acts in deliberate ignorance of the truth or

falsity of the information; or• iii) acts in reckless disregard of the truth or

falsity of the information; and • (B) require no proof of specific intent to defraud.

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Deliberate Ignorance

• The government may prove that the defendant acted "knowingly" by proving,

• that this defendant deliberately closed his eyes to what would otherwise have been obvious to him.

• No one can avoid responsibility for a violation by deliberately ignoring what is obvious.

• a person's knowledge of a particular fact may be shown from a deliberate or intentional ignorance or deliberate or intentional blindness to the existence of that fact.

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Claim Defined

• 3729(b)(2) the term “claim” • (A) means any Request Or Demand, whether under • a Contract Or Otherwise, for • Money Or Property and • Whether Or Not the United States has Title to the money or

property, that –• (i) is Presented to an officer, employee, or agent of the

United States; or is made to a contractor, grantee, or other Recipient , if the money or property is to be Spent Or Used On The Government’s Behalf Or To Advance A Government program or interest, and

• (ii) IF the United States Government

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Past, Present or Future U.S. Money

• 3729(b)(2)(ii)(I) PROVIDES Or HAS PROVIDED,

• ANY PORTION of the money or property requested or demanded , OR

• (II) WILL REIMBURSE such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded; and

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HOWEVER -“Claim” is Not a Federal Employee’s Pay

• 3729(b)(2)(B) does NOT include requests or demands for money or property that the Government has paid to an individual as Compensation For Federal Employment or as an Income Subsidy with No Restrictions on that individual's Use of the money or property;

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“Obligation” Defined

• (3) the term “OBLIGATION” means an established Duty, Whether Or Not Fixed, arising from an Express Or Implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from Retention Of Any Overpayment; and

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Contrast -Elements of CRIMINAL Conspiracy

• (1) agreeing to make or use a false record or false statement;

• (2) with the intent to defraud the Government;• (3) intending that the false record or false

statement would cause the Government to pay the false or fraudulent claim;

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Elements of Conspiracy under the FCA

• (1) “knowingly” agreeing to make or use a false record or false statement;

• (2) with actual knowledge, or in deliberate ignorance of, the truth or falsity of, or in reckless disregard of, the truth or falsity of, the false record or false statement;

• (3) with actual knowledge, or in deliberate ignorance of the truth or falsity of, or in reckless disregard of the truth or falsity of, the false record or false statement;

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Violations of Statutes and Regulations

• . . . a violation of a statute or regulation does not, by itself, trigger FCA liability

• “it is the False Certification of compliance which creates liability when Certification is a Prerequisite to obtaining a government benefit.”United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir.1996) (“Violations of laws, rules, or regulations alone do not create a cause of action under the FCA.”);

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False Certification Of Compliance with Regulations Alone is Not A Violation

• “A false certification of compliance with a statute or

regulation cannot serve as the basis for a[n] . . . action

under the FCA unless payment is conditioned on that

certification.” Harrison v. Westinghouse Savannah

River Co ., 176 F.3d 776, 786 (4th Cir.1999).

• Same, X Corp. v. Doe, 816 F. Supp. 1086, (ED Va.

1993)

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Objective Falsehood

• There must be the use of a “lie” to support a false claim -

• the False Claims Act cannot be construed to include a run-of-the-mill breach of contract action that is devoid of any OBJECTIVE FALSEHOOD.

• “fraud may only be found in EXPRESSIONS OF FACT which (1) admit of being adjudged true or false in a way that (2) admit of empirical verification.”

• U.S. ex rel. Wilson v Kellogg Brown & Root, Inc., 525 F. 3d 370 (4th Cir 2008)

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What is FRAUD?

• "Fraud" is an intentional or deliberate misrepresentation of the truth

• for the purpose of inducing another, in reliance on it, to part with a thing of value or to surrender a legal right.

• Fraud, then, is a deceit which, whether perpetrated by words, conduct, or silence, is designed to cause another to act upon it to his or her legal injury.

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Compare With Criminal IntentKnowingly False As To A Material Fact

• A claim is false if it was untrue when made, • and was then known to be untrue

when made, • by the person making it or causing it

to be made.

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Fraudulent As To A Material Fact

• A claim is fraudulent if it was falsely made or caused to be made

• with the intent to defraud.

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Fictitious As To A Material Fact

• A claim is fictitious if it is not real or if it does not correspond to what actually happened,

• and the person making it or causing it to be made knew that it was not real at the time it was made.

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Knowingly

• An act is done knowingly if it is done voluntarily and purposefully, and NOT done by mistake, carelessness or other innocent reason.

• However, the government does not have to prove that the defendant knew of the relevant legal provisions governing his conduct, as long as it proves that the defendant knew that the claim was false or fictitious.

• There is also no need for the prosecution to prove that the government relied on the false claim.

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Intent To Defraud

• To act with criminal intent to defraud means to act knowingly

• AND with the specific intent to deceive, • for the purpose of causing some financial or

property loss to the United States.• (1 Sand, Siffert, Loughlin, and Reiss, Modern

Federal Jury Instructions, Section 18-7).

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Intent

• To act with an "intent to defraud" means to act knowingly and with the intention or the purpose to deceive or to cheat.

• An intent to defraud is accompanied, ordinarily, by a desire or a purpose to bring about some gain or benefit to oneself or some other person or by a desire or a purpose to cause some loss to some person.

• (2 Devitt, Blackmar and O'Malley, Federal Jury Practice and Instructions, § 40.14 (4th ed. 1990)).

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What Is "Fraudulent?"

• A statement, claim or document is "fraudulent" if it was falsely made,

• or made with reckless indifference as to its truth or falsity,

• and made or caused to be made with an intent to deceive.

• (1A O’Malley, Grenig and Lee, Federal Jury Practice and Instructions, §16.08 (5th ed. 2000)).

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But Not Mistake, Negligence, Or Carelessness

• You may not conclude that the defendant had knowledge, however, from proof of a mistake, negligence, carelessness, or a belief in an inaccurate proposition.

• (1A O’Malley, Grenig and Lee, Federal Jury Practice and Instructions §17.09 (5th Ed. 2000 ); United States v. Mancuso, 42 F.3d 836, 846-47 (4th Cir. 1994); United States v. Whittington, 26 F.3d 456, 461 (4th Cir. 1994); United States v. Schnabel, 939 F.2d 197 (4th Cir. 1991)).