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Hail to the Presidents Who Embraced Whistleblowers and the False Claims Act

From its inception in 1863 under President Abraham Lincoln through its amendments in 1943 under President Franklin Roosevelt, in 1986 under President Ronald Reagan, and most recently in 2009 and 2010 under President Barack Obama, the False Claims Act is a true bipartisan success story that has surpassed the wildest expectations of its proponents.  The Act, with its whistleblower or qui tam provision, has led to the recovery of close to $60 billion for the government and prevented untold other amounts of fraud, waste and abuse.  In these divisive times, we should all be inspired by the public good that can come when our elected officials are reasonable and open to cooperation and compromise.

The False Claims Act was originally passed by Congress during the administration of President Abraham Lincoln in 1863 to combat rampant fraud by contractors to the Union Army and help the federal government recover federal funds stolen through that fraud. The legislative record recounts examples of crooked contractors who defrauded the Union Army by selling it sick mules, lame horses, sawdust instead of gunpowder, sand instead of sugar, rye instead of coffee, defective muskets and pistols, and rotted ships hidden under fresh paint. Such fraud not only cost the government money, it endangered troops.  The False Claims Act, sometimes known as “the Lincoln Law” thus became the government’s primary weapon against government fraud. At the heart of the law were the qui tam provisions which enabled a private citizen with knowledge of fraud to come forward as a whistleblower or relator to file suit in the name of the government, and if successful, to collect a reward.

By World War II, the courts and the Department of Justice, the executive agency charged with enforcing the Act, were contending with unexpected problems in the administration of the law. For example, there were many instances of “parasitic” or “cut and paste” relators who were filing qui tam lawsuits based on information that was already publicly known, through the media or worse yet, from government fraud indictments filed in court. This thwarted the purpose of the FCA, which was to encourage whistleblowers with non-public original information to come forward and alert the government and, in return for taking this risk, to receive a reward. To reward a parasitic relator, on the other hand, drained the Treasury, diverted DOJ and court resources, and undermined the purposes of the law. The 1943 amendments, primarily aimed at curbing such abuses, were passed by Congress and signed by President Roosevelt.

Over the years, however, the 1943 amendments proved to have gone too far the other way, hamstringing whistleblowers who had useful information and discouraging them from coming forward, to the detriment of the public fisc. During the 1980’s, at the height of the Cold War and with record levels of spending on national defense, outrageous stories of abuse and fraud by military contractors emerged, including the famous (or infamous) tales of $400 hammers, $600 toilet seats, and $7,600 coffee makers. Congress turned to amending the law once again. After bipartisan sponsorship of competing bills, hearings, and compromise, amendments were passed in 1986 and signed into law by President Reagan. Thus was born what became known as the “modern False Claims Act.” Revamped to encourage true whistleblowers by overturning some restrictive court decisions, guaranteeing and increasing the potential reward, and outlawing retaliation against whistleblowers, the law also aimed to deter would-be fraudsters with higher damages and penalties. The amendments have led to thousands of qui tam lawsuits and billions of dollars in recoveries.

By the early 2000s, there had been further huge increases in federal spending, particularly in health care programs such as Medicare and Medicaid, as well as much activity in the courts interpreting the 1986 amendments, sometimes too restrictively and not in keeping with Congressional intent. Then came the Great Recession of 2008, and the time was ripe to amend the Act again, to overturn restrictive decisions, remove certain barriers to whistleblowers, and to address a new area of concern: the financial services industry and the government guarantees, subsidies, and spending in that arena. The mortgage fraud, banking fraud and other ills of the market became the impetus for another bipartisan effort to mold the False Claims Act to the changing times.  The 2009 amendments, known as The Fraud Enforcement and Recovery Act of 2009, were signed into law by President Obama, and gave additional resources to law enforcement for fighting fraud and abuse and strengthened the FCA.  The enactment of the Patient Protection and Affordable Care Act in 2010 (“Obamacare”) brought further much needed amendments to the FCA, including a uniform statute of limitations for retaliation claims, codifying that kickbacks were per se violations of the Act, and the circumstances in which overpayments not timely returned to the government constitute a violation of the FCA.

Recently, the Department of Justice published its annual report on FCA enforcement and recoveries. Remarkably, since the 1986 amendments, the government has recovered close to $60 billion under the FCA with whistleblower cases accounting for over 70% of those recoveries. Through the bipartisan efforts of our elected officials, hard work by many in and out of government, and the courage of whistleblowers, the False Claims Act is the poster child for how effective the government can be. It has proven resilient and elastic, able to ebb and flow with the changing times. We hail all the Presidents who have cooperated with Congress and thereby enabled the FCA to succeed for all of us.

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