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A Brief History of the False Claims Act

The False Claims Act is well known by whistleblowers as the chief tool used to report fraud against the government. Every year, billions of dollars are recovered by government agencies because private citizens file whistleblower claims using the False Claims Act.

South Carolina Whistleblower LawyerBut the system we have in place today was not born with the founding of our country. Though the idea behind the False Claims Act goes back several centuries, the use of citizens’ claims to uncover fraud against the government has been fraught with a struggle that dates back to the Civil War, when the False Claims Act was enacted. Since then, the struggle has continued, and there have been long stretches of our country’s history in which the voices of whistleblowers were not given the support they deserved. These stretches were, not surprisingly, accompanied by rampant fraud against taxpayers.

Qui tam suits – lawsuits filed by citizens on behalf of the government against those committing fraud – were used as a tool to curb wrongdoing as far back as 1335, when they became an increasingly popular action in England, according to James B. Helmer Jr. in an essay hosted by the University of Cincinnati Law Review.

In the United States, the first Continental Congress implemented several provisions that dealt specifically with qui tam suits, all of which were eventually repealed over the next few decades. However, in the midst of the Civil War, fraud against the government was such a problem that Congress passed the False Claims Act in 1863, which rewarded any person with information about fraud against the government with 50 percent of the recoveries.

By 1943, in the middle of World War II, Congress reevaluated the False Claims Act, in large part due to concerns over parasitic lawsuits. Congress enacted legislation that essentially did away with qui tam suits and reduced the 50 percent reward of whistleblowers to only 10 percent in cases that resulted in government intervention (25 percent if the government did not intervene).

In the following decades, while defense spending soared due to Cold War with the Soviet Union, fraud became an incredible problem between government contractors and the military. The fraud and waste included dramatic overbilling for services and goods provided to our armed services. While fraud was rampant and perpetrated by the largest defense contractors of the day, recoveries and prosecutions rarely held the contractors accountable.

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The Burden of Proof: Pleading a Case under the Federal False Claims Act

Any court case demands a certain burden of proof, and suits brought under the federal False Claims Act (FCA) are no different in that regard. However, with the FCA, it’s not enough to suggest the possibility of fraud; when you bring an FCA case, the claims must be pled with reasonable particularity under the Federal Rules of Civil Procedure’s Rule 9(b).

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In 1986, Congress amended the False Claims Act to strengthen the right of citizens to take action through qui tam suits, increasing the rewards from 10 percent to 15 to 25 percent of the recovery in cases of a government intervention. While the legislation of 1986 shaped the False Claims Act into something resembling what we have today, the next two decades were host to a series of lawsuits in which companies sought relief from prosecution through our courts.

The efforts to derail the effectiveness of the False Claims Act also included lobbying of lawmakers by defense contractors, the healthcare industry and the U.S. Chamber of Commerce. Though these attempts weren’t successful in the legislative branch, arguments made in the courts defanged many claims of fraud and abuse against the government.

In 2009, Congress again revisited the issue to clarify the intent of the False Claims Act, making several amendments to the law. The passage of the Fraud Enforcement and Recovery Act, the Patient Protection and Affordable Care Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act also strengthened the ability of private citizens to take whistleblower actions and receive protection from retaliation by those they filed claims against.

The Effectiveness of the False Claims Act Today

Though the system is not a perfect one, we have made great strides in helping whistleblowers come forward with information about fraud against the government. Principal Deputy Assistant Attorney General Benjamin C. Mizer has called the False Claims Act “the government’s most effective civil tool” in identifying and stopping fraud.

In the fiscal year of 2015, the False Claims Act assisted in the recovery of more than $3.5 billion dollars, marking the fourth consecutive year in which recoveries totaling $3.5 billion or more have been reported. Since 2009, cases using the False Claims Act have led to $26.4 billion in recoveries. Taxpayer fraud, defense contract fraud and healthcare fraud have been pursued due to the claims of whistleblowers.

What Can We Learn from the History of the False Claims Act?

There are several lessons we can learn from the history of the False Claims Act. First is the fact that so much of the action taken by our government in relation to qui tam suits and whistleblower recoveries stems from fraud against our military. It was fraud against the military that sparked the initial law during the Civil War, Congressional action during World War II and legislation passed during the Cold War. This tells us that defense contractor fraud has deeply shaped our approach, our thoughts and our laws concerning whistleblowers’ rights in the United States.

Another lesson we can learn is that in the absence of whistleblowers, fraud becomes a plague upon our taxpayers. It’s a lesson we have had to relearn many times over the course of our history. The fight for greater whistleblower rewards and protections has been fueled by our great need for private citizens to play a central role in pointing out fraud, abuse and waste.

Finally, we can see from the history of the False Claims Act that the fight to protect whistleblower rights will likely be an ongoing one. The large and powerful companies that sign contracts with the government and provide services to citizens and service members have a vested interest in limiting the ability of a whistleblower in order to minimize their payments and decrease the likelihood of being involved in a lawsuit. The higher the number of lawsuits and recoveries made by the government, the more we can expect a pushback from those who benefit from whistleblower suppression and retaliation.

If you have questions about how the False Claims Act can be used to report fraud against the government, contact our whistleblower attorneys to learn more.

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