What is the False Claims Act?

False Claims Act is a federal law that is designed to stop fraud against the federal government by giving average U.S. citizens a right to sue federal contractors on the federal government's behalf. As a reward for their effort, the citizens receive a portion of the recovered damages. The law was introduced during the American Civil War, when government contractor corruption was rampant and the U.S. government was ill-equipped to stop it. The act has been amended several times, most notably in 1986 and 2009. The False Claims Act is the best weapon the average citizens have against fraud committed on the federal government's behalf.

Understanding False Claims Act

For the purposes of False Claims Act, a federal contractor is any company that submit bills to the federal government for reimbursements, as well as any company that receives government grants. This includes everything from hospitals that admit patients covered by Medicare to a federally funded anti-poverty program. When a contractor makes false claims on it's bills (or any of the bills' supporting documentation), it is committing fraud. It is also committing fraud if it fails to follow federal guidelines and procedures and attempts to conceal that fact. It should be noted that it didn't need to have actually committed fraud in order to be sued under the False Claims Act; conspiring to commit fraud is enough.

Under the False Claims Act, any employee of the federal contractor, as well as any citizen who used the federal contractor's services, can sue the contractor on the federal government's behalf. The person who sues under the False Claims Act is known as the qui tam plaintiff or a relator. To protect the contractor's employees from retribution, the False Claims Act allows reinstatement and double back pay (with interest). They are also eligible for special damages that include their litigation costs and attorney fees (so long as those fees are reasonable).

How False Claims Act Works

Under the False Claims Act, the qui tam plaintiffs must first report fraud to the U.S. Department of Justice. They should include copies of documents that can reasonably support their allegations. Department of Justice will look over the plaintiffs' evidence and conduct it's own investigation to see if the allegations have any merit. The Department of Justice has 60 days to decide how to proceed (though this period may be extended if needed). If the Department of Justice concludes that the case has merit, it will begin legal proceedings against the federal contractor. If the Department of Justice decides not to proceed, the qui tam plainiffs can still pursue the case, but they will have to pay for the legal costs out of their own pocket. Either way, the plantiffs are entitled to no less than 15 and no more then 30 percent of the damages recovered as the result of the lawsuit. The rest goes to the federal government.

What the False Claims Act Does Not Cover

Since the False Claims Act is the federal law, it does not cover state contractors. Some states have their own versions of the False Claims Act, but it may not apply to all state contractors. For example, Michigan's False Claims Act only allows plaintiffs to sue if the Medicare fraud was committed.

The False Claims Act does not cover tax fraud. If a government contractor is committing tax fraud, that falls within the purview of the IRS, which has it's own investigative procedures. The False Claims Act also doesn't cover any fraud that has been publicly reported. Finally, the fraud must be knowingly perpetuated. If the government contractor can prove that the fraud was the result of ignorance or an honest mistake, the lawsuit will be dismissed.

Does the False Claims Act cover tax fraud?

The False Claims Act allowing non-government employees to report fraud that costs the government money explicitly excludes tax fraud. If you suspect an individual of costing the government money by committing tax fraud, you will have to file a claim under the separate IRS whistleblower law. However, the sum of taxes you are disputing must exceed $2,000,000 in order for the IRS to accept the claim. If you do succeed in blowing the whistle on a tax fraud of this size, though, you will be rewarded up to 30 percent of the amount the government recovers from the unpaid taxes. 

Who can file a qui tam action?

A qui tam action allows a private individual to participate in the prosecution of a crime. Under qui tam provisions, the participating individual may be eligible to receive all or part of the sum the plaintiff recovers as the result of a law suit. Nearly anyone can participate in a qui tam lawsuit, but eligibility depends on the type of lawsuit. For example, if you believe you have discovered any individual committing fraud against the US government, you can file a qui tam action only if you are not employed by or otherwise a member of the US government.

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