July 31, 2014

“Modest” Changes, or All-Out Assault on the False Claims Act?

By Jason Enzler

The House Judiciary Committee held a hearing yesterday with the innocuous title “Oversight of the False Claims Act.” At issue was a set of proposed changes to the law offered by the U.S. Chamber Institute for Legal Reform (“ILR”). According to an ILR representative’s testimony, the amendments would be “modest” and focused on correcting “flaws” and improving the “effectiveness” of the False Claims Act. But testimony from others, including that of False Claims Act champion Senator Chuck Grassley (R-IA), warned that these proposals are nothing more than a wolf cloaked in a sheep’s skin.

As Senator Grassley succinctly stated, ILR’s campaign arises from its contention that the False Claims Act “plainly is not getting the job done” and is “ineffective at preventing fraud.” To remedy this, ILR proposes that a company with a “gold standard, certified, compliance program” should not be (1) liable for the full amount of damages currently mandated by the Act if the company self-reports, (2) forced to litigate a whistleblower lawsuit at all if the whistleblower fails to report internally to the company first, and (3) subjected to the threat of exclusion or debarment from participation in government programs.

Putting aside what a “gold standard, certified compliance program” would consist of (and there was jousting over this point, with Senator Grassley calling it a “pipe dream,” “castle in the air,” and “pie-in-the-sky idea with no specifics”), it is worth asking whether the ILR is starting from the correct premise. Is the False Claims Act failing? On one hand, it is helping the government, largely through the work of whistleblowers, reclaim billions of dollars each year. On the other, according to the ILR, the Act is overly focused on cleaning up after fraud and not enough on preventing it from occurring in the first place.

Assuming there is such a need to improve the False Claims Act, the ILR’s solution is to weaken it in order to incentivize companies to beef-up their compliance efforts. Regardless of whether this is a realistic goal or would achieve any real benefit, one might ask, however, whether a better way to get there would be to strengthen the Act’s deterrence provisions. And that is just what opponents of the ILR’s proposals suggested. Senator Grassley led the way, proposing a tougher, not a more lenient, standard for suspension or debarment. Another witness suggested that the False Claims Act should, among other things, (1) hold individuals personally accountable more frequently, (2) allow the government to recover attorney’s fees when it prevails, and (3) include tax fraud as actionable under the Act.

It is unclear what changes, if any, may result from yesterday’s hearing. But one thing that did shine through in testimony from both sides of the debate: a clear recognition that the False Claims Act is a valuable tool in the government’s fight against fraud.

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