History of the False Claims Act – The Whistleblower Act
The False Claims Act was enacted on March 2, 1863, at President Lincoln’s request. The purpose of the False Claims Act was to “aid in the effort to root out fraud against the government . . . (and) to encourage private individuals who are aware of fraud being perpetrated against the Government to bring such information forward.”
The 1863 version of the False Claims Act contained “qui tam” or whistleblower provisions that allowed private citizens to bring a lawsuit, on behalf of the government, against companies and individuals that were defrauding the government. “Qui tam” is short for the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which roughly means “he who brings an action for the king as well as for himself.”
The original False Claims Act assessed wrongdoers double damages and a $2,000 civil fine for each false claim submitted. Those who filed the qui tam/whistleblower lawsuits, known as “relators,” were entitled to receive 50% of the amount the government recovered as a result of their cases.
The False Claims Act remained virtually unchanged until 1943, when Congress amended the qui tam/whistleblower provisions of the statute. The changes included a significant cut in the relator’s reward, thereby reducing the incentive for people to report fraud against the government, and a prohibition on the filing of qui tam/whistleblower lawsuits based on evidence or information already in the possession of the government. This second revision effectively prevented whistleblowers from filing qui tam lawsuits if any government employee had received a tip about the fraud or if any information about the fraud was contained in any government file, even if the government was not investigating the matter or trying to stop the fraud, and even if the whistleblower was the source of the government’s knowledge.
As a result of the 1943 amendments, the False Claims Act fell into almost complete disuse.
In the mid-1980s, spurred by reports of widespread fraud against the government, Congress took another look at the False Claims Act. Defense contractor practices were receiving the greatest media attention at that time. In part, this was due to the increased defense spending spurred by the Reagan administration’s response to the Cold War.
The public was made aware of numerous stories describing outrageous billing practices, such as the Navy paying $435 for an ordinary claw hammer and $640 for a toilet seat. In 1985, the Department of Defense reported that 45 of the largest 100 defense contractors – including nine of the top ten – were under investigation for multiple fraud offenses. Government enforcement agencies, meanwhile, complained that their efforts to investigate and stop fraud were hamstrung by insufficient resources, a lack of adequate legal tools and the difficulty of getting individuals with knowledge of fraud to speak up, as they were afraid they would lose their jobs. Frustrated with the government’s inability to respond effectively to outrageous charges and other improper billing behavior by government contractors, Congress revised the False Claims Act to encourage whistleblowers to come forward and to create incentives for private attorneys to use their own resources to investigate fraud. On October 26, 1986, Congress amended the False Claims Act to increase the damages and penalties that can be recovered, to add protection against retaliation for whistleblowers, and to make other changes that encouraged greater use of the False Claims Act to combat fraud against the government.
The 1986 amendments created more incentives for private citizens to “blow the whistle” against fraudulent conduct. Congress increased the statutory penalties that may be imposed against those committing fraud against the government to a minimum of $5,000.00 and a maximum of $10,000.00 for each violation, plus three times the government’s actual damages (“treble damages”). In addition, the amended False Claims Act provided that whistleblowers who brought successful cases were entitled to 15-30% of the government’s recovery, and their attorneys were guaranteed payment of their regular hourly fees by the defendant.
The 1986 amendments to the False Claims Act also lowered the standard of proof required and made defendants liable for acting with “deliberate ignorance” or “reckless disregard” of the truth; Congress also lengthened the statute of limitations from six years to as much as ten years.
Amendments to the False Claims Act were again passed in 2009, and were included in the Fraud Enforcement and Recovery Act. The 2009 amendments clarified terms used in the original law that were not defined in the statute and addressed judicial opinions in which the courts construed the False Claims Act’s terms in ways that did not accord with congressional intent. In pertinent part, the amendments expanded the substantive liability provisions of the False Claims Act to cover situations that were not covered under the previous version. The amendments also expanded the government’s ability to use civil discovery devices and make civil investigative demands before deciding whether to initiate a lawsuit under the False Claims Act or to intervene in a qui tam or whistleblower lawsuit filed by a person acting on behalf of the government. Additional amendments were made in 2010 as part of the Patient Protection and Affordable Care Act.