Types of Fraud

The False Claims Act was enacted in 1863 amidst the furnace of the Civil War after Union soldiers reported receiving munitions filled with sawdust rather than explosives and boots made of cardboard rather than leather. In one extreme case, soldiers opened crates expecting to find muskets and instead found piles of sawdust. President Lincoln remarked, “[W]orse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South and their countrymen are moldering in the dust.” Since there was no government agency in place to protect the integrity of the government contracting process, Congress passed the False Claims Act to combat fraudulent sales of low quality military goods to the Union during the war. The False Claims Act has prohibited a wide variety of activity involving false claims for government funds and has led to the recovery of billions of dollars in government funds.

Recent legislative amendments to the False Claims Act and the expansive growth of the federal government have both contributed to the increased applicability of the False Claims Act in recent years. The act was first modified in 1943 during the Second World War after defense contractors again attempted to defraud the government over desperately needed supplies. The legislature gave total control to the government to pursue False Claims Act lawsuits. Subsequent amendments came in 1980, when the United States pursued its largest peacetime military buildup. Congressional and media reports uncovered outrageous fraud in the form of $400 hammers and $7,000 coffee pots. After substantive factual analysis and subcommittee hearings in both chambers, Congress substantially strengthened the qui tam provisions by removing the “prior government knowledge” bar, strengthening the relator’s role, providing new remedies for whistleblower retaliation, and guaranteed the relator a share of the proceeds of the lawsuit. The next substantial amendments to the False Claims Act came in 2009, when President Obama signed into law the Fraud Enforcement and Recovery Act (FERA). This legislation addressed congressional concern with judicial decisions that many perceived had undercut the spirit of the False Claims Act. Most notably, the 2009 amendments changed the seven liability provisions, changed the definition of key terms in the act, expanded retaliation protection, and eased the requirements for issuing civil investigative demands.

Enforcement of the False Claims Act is only expected to grow in light of recent increases in government programs and spending, particularly in the health care market and mortgage and financial services industry. These changes are reflected in the most recent (2010) amendments to the False Claims Act. The Patient Protection and Affordable Care Act made significant changes to the False Claims Act’s public disclosure bar and original source exception, while the Dodd-Frank Wall Street Reform and Consumer Protection Act expanded protection to whistleblowers.

The False Claims Act, codified at 31 U.S.C. § 3729, defines a false claim as “any request or demand, whether under a contract or otherwise, for money or property.” Submission of a false claim in violation of the statute may occur either directly or indirectly and may occur through actions other than explicit submission of a false claim. For example, a pharmaceutical company may be liable for causing a doctor to seek Medicare reimbursement for a drug marketed to the doctor for off-label medical purposes. Thus, by statutory design, the False Claims Act encapsulates a broad range of activity engaged in by private individuals or organizations involving government funds.

Indeed, enforcement of the False Claims Act has touched nearly every area of business and industry in the United States from health care providers and pharmaceutical companies to mortgage companies and home loan servicers. The following types of fraud are common examples of situations in which a False Claims Act violation may arise, though by no means represents all types of fraud covered by the broad provisions of the False Claims Act:

• Off-Label Promotion
• Pharmaceutical Fraud
• Kickbacks
• Healthcare Fraud
• Stark Law/Referrals
• Defense Contracting
• Government Contracting Fraud
• Construction Fraud
• Financial Fraud
• Customs Duty Fraud
• Research Grant Fraud
• Multiple Award Schedule Contracts with the General Services Administration
• Underpayments