Environmental Fraud

While the FCA has traditionally been used to combat healthcare and defense industry fraud, the act is extremely flexible and allows for claims involving any government funded program. It covers a range of activities from inaccurate price quotes and invoices, breaches of contractual specifications and certifications, and violation of federal environmental laws. In the last decade, environmental fraud has increasingly been a target of FCA enforcement. Few cases have applied the FCA against contractors that commit environmental fraud, yet there are many environmental contexts in which the FCA applies. Most commonly, environmental fraud concerns the cleanup of hazardous waste material at both federal and state facilities. The government estimates that it will spend in excess of $500 billion for environmental cleanups over the next fifty years. To manage these cleanups, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), more commonly referred to as the “Superfund” law. This law creates Superfund sites, areas affected by toxic and other types of waste, which require complex cleanup measures. The government often outsources cleanup efforts to private contractors who execute site cleanup as directed by government agencies and bill the government for the work. These companies may violate the FCA by either:

• Falsely certifying compliance with the contracts
• Performing substandard work
• Violating contractual, environmental stipulations that financially harm the government
• Defrauding the government in the bidding process
• Fraudulently attempting to bill the government for environmental fines or penalties

It is often difficult to sue defense contractors under existing environmental laws, and thus the FCA provides alternative liability in cases of hazardous waste spills. The FCA can be used to prosecute federal contractors associated with the Department of Defense (“DOD”), Department of Energy (“DOE”), the Environmental Protection Agency (“EPA”), the Department of Homeland Security (“DHS”), the Federal Emergency Management Agency (“FEMA”), and others. In theory, FCA liability can be established by a contractor’s failure to comply with the Clean Air Act, the Clean Water Act, or other environmental laws that lead to financial harm on the government. In addition, the Federal Acquisition Regulation (FAR) requires that contracts over $100,000 must contain a “Clean Water and Clean Air Certification.” Similarly, FCA claims may arise from violations of other environmental laws where contractors had contractually agreed to obey them.

Just as environmental fraud can be perpetrated in the wake of accidental or intentional acts, it can also be perpetrated after a natural disaster. The federal government, through FEMA, contracts with private companies to provide the affected communities with food, water, shelter, clothing, cleanup, etc. In addition, FEMA administers national insurance policies for those that live in flood prone areas. The need to act quickly combined with a lack of government oversight often results in the submission of fraudulent payment claims to the federal government, especially in large disasters. Examples of potential natural disaster fraud include:

• Receiving federal funding for services not rendered or goods not provided
• Receiving or providing kick-backs or other benefits in awarding government funding
• Receiving federal funds for expenses paid for by another source
• Inflating the cost of goods and services paid for by federal funding
• Misclassifying expenses or falsifying records to justify federal aid
• Collusion or price fixing schemes in connection with bidding on federal contracts; or
• Using federal funds for personal or other non-qualifying uses

Natural disaster fraud is not just limited to hurricanes and flooding. Tornados, earthquakes, fires, blizzards, and even terrorist attacks can be targets for individuals and companies seeking fraudulent financial gain. For example, after the 2007 wildfires in San Diego, the city hired private contractors to clear home sites in Rancho Bernardo as part of a $9.4 million program administered by FEMA. A media investigation found that the companies overbilled the city by millions and failed to provide receipts to back up its invoices. In 2007, the town of Georgetown, Colorado was forced to repay FEMA tens of thousands of dollars when it inflated the cost of snow removal.

More recently, allegations of fraud have surfaced in the aftermath of the Deepwater Horizon (BP) Oil Spill and Superstorm Sandy. Any company that has used the improper procedures listed above in those or other natural disasters can be the subject of a whistleblower lawsuit under the False Claims Act.

Example

At a Superfund cleanup site in New Jersey, International Technology Inc. allegedly double charged the government for costs related to the clean-up. Although the company denied any wrongdoing under the FCA as part of the settlement, it settled the FCA claim by agreeing to pay U.S. government over $4 million.