Do You Know the Story of the False Claims Act?
We’re serious—the history of the False Claims Act (FCA) and whistleblower laws in general is rather thought-provoking. Did you realize that whistleblower laws are not a modern invention? It’s true. The roots of the laws extend as far back as medieval England—nearly 700 years ago. Qui tam laws and suits (meaning a case in which a person sues an alleged lawbreaker on behalf of the king or government) began in the Western world under King Edward II in the year 1318. At that time, a whistleblower (also known as a relator) sued government workers who had a side business as wine merchants, and won. King Edward awarded the relator one-third of the financial penalty that was collected.
If we skip ahead a few hundred years, we can also find whistleblower statutes on the books of several American colonies. In fact, famous all-around Renaissance man and signer of the Declaration of Independence Benjamin Franklin engaged in whistleblowing á la WikiLeaks back in 1772. Franklin came into possession (we still don’t know how) of letters written by Thomas Hutchinson, Britain’s governor to the Massachusetts colony, which suggested restriction of the colonists’ liberties. Franklin leaked the letters to certain leaders in Boston, who in turn leaked the information to others. By mid-1773, the colonists had petitioned to have Hutchinson relieved of his position and tempers were raging. Until then, the identity of the original leaker had been protected; but when a duel was fought between two colonists who accused each other of being the leaker, Franklin outed himself. Ultimately, in 1774 Hutchinson was replaced as governor and Benjamin Franklin lost his job as American postmaster-general. To the best of our knowledge, this is the first whistleblowing case in our country.
However, it was the U.S. Civil War that brought into being the laws that turned into what we today know as the False Claims Act.
The Lincoln Law
During the U.S. Civil War, much like today, the military relied heavily on private contractors to provide necessary gear for the troops — items ranging from uniforms and shoes to gunpowder and grub. But, as is sometimes the case today, the contractors often cut corners and provided shoddy goods in their aim to profit from the war. Fraud was rampant, involving scams that ran the gamut from sickly war horses to faulty rifles and ammunition to vermin-ridden food rations. For that reason, President Lincoln enacted the original False Claims Act in 1863, along with its qui tam aspects, which were likely the reason for the law’s great success. In this early version of the FCA, relators were assigned 50 percent of any recovery, and the Act allowed for double damages.
This version of the FCA remained virtually unchanged until 1943. At that time, Congress did away with the qui tam provisions as a response to alleged abuses of the law. But the 1980s saw revived interest in qui tam suits.
FCA Changes in the Eighties
In 1986, certain FCA amendments resuscitated qui tam provisions; they came about partly because of public outrage over defense fraud. People were justifiably angry over $640 toilet seats and $37 screws, not to mention the $7,622 coffee makers.
The 1986 FCA amendments, co-sponsored by Republican Senator Charles Grassley from Iowa and Democratic Representative Howard Berman from California, established the following changes:
- Allowed qui tam suits to be brought even if the government had the information in its possession.
- Lowered the bar when it came to proof standards. However, defendants who showed “reckless disregard” for the truth would bring liability upon themselves for their actions.
- Boosted the amounts of penalties and damages that could be recouped. Those committing fraud would pay between $5,000 and $10,000 for each violation. (In August 2016, a new rule nearly doubled these amounts.) Also, damage amounts could be tripled.
- Increased the award whistleblowers could receive to between 15 and 30 percent of the amount recovered. Payment of the regular hourly fees of the defendant’s attorneys was also guaranteed.
- Stipulated protections for whistleblowers who experienced retaliation.
- Increased the statute of limitations to up to ten years.
Because of these modifications, the number of qui tam suits brought under the FCA surged.
More Recent FCA Alterations
The Act was changed again as a result of the 2008 financial crisis. The Fraud Enforcement and Recovery Act (FERA) of 2009 included the following alterations:
- Remedied parts of the 1986 amendments that led to misinterpretations by the courts with regard to the intended reach of the amendments, thus enlarging liability provisions to cover certain situations.
- Enabled the government to expand the usage of civil discovery devices and civil investigative demands so as to reveal relevant facts. Doing these things is preliminary to the government’s determining whether to intervene in a qui tam suit, or whether to bring their own suit under the FCA.
- Brought the FCA up to date regarding changes that had happened since 1986 concerning how the government conducted its business.
Most new provisions went into effect as of FERA’s enactment date, and were also retroactive, meaning they were applied to all pending cases.
More amendments were added in 2010 because of the Patient Protection and Affordable Care Act (PPACA), making it easier for whistleblowers to bring cases by broadening the concept of “original source,” and by restricting the definition of “public disclosure.” The 2010 changes are applicable across all FCA suits, not just those related to health insurance or health care. But these amendments, unlike 2009’s FERA, were not made retroactive and did not apply to any cases that were pending when the amendments became law.
As of the end of fiscal year 2015, for the fourth year in a row, the Department of Justice (DOJ) gained more than $3.5 billion in judgments and settlements involving false claims and fraud. Whistleblowers were awarded $597 million of that amount during FY 2015. Total false claims and fraud recoveries since January, 2009, by the DOJ have amounted to $26.4 billion, with $3 billion going to whistleblowers. Fighting fraud perpetrated against the government helps all of us.