What Is The False Claims Act?

• The False Claims Act was signed by Abraham Lincoln in 1863 to prevent contracting fraud during the civil war. It allows ordinary citizens, with the help of a False Claims Act attorney, to file lawsuits on behalf of the US government.
• Under the False Claims Act, whistleblowers with information leading to sanctions against a fraudster are entitled to a reward between 15 and 30 percent collected by the government.
• Some states also have enacted State False Claims Act laws, which have additional whistleblower rewards and protections.

On March 2, 1863, President Abraham Lincoln signed the original False Claims Act (FCA) into law. The purpose of the FCA is to incentivize citizens to help the federal government police rampant military contracting fraud during the U.S. Civil War. The original law went mostly unused until 1986 when the U.S. Congress modernized its procedures and approved significant amendments. The original “Lincoln law” and its 1986 amendments are now the model for all highly successful modern whistleblower laws.

In 1863, Senator Jacob Howard explained why he was introducing a reward provision in the original False Claims Act, “the bill offers… a reward to the informant who comes into court and betrays his co-conspirator, if he be such, but it is not confined to that class…I have based the (False Claims Act) upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch a rogue,’ which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.”

Although the False Claims Act is the oldest mandatory reward law, based on its success, Congress has passed other reward laws. These laws are often used jointly with the False Claims Act to hold fraudsters accountable. Other whistleblower reward laws modeled on the qui tam reward provisions of the False Claims Act are: the Foreign Corrupt Practices Act, the Securities Exchange Act, the Commodity Exchange Act, and the Internal Revenue Code (which can also cover money laundering).

Under the False Claim Act’s reward provision, if your original information results in a sanction against a fraudster, you are entitled to a minimum payment of 15% and a maximum payment of 30% of the proceeds collected by the government. The government is required to make these payments. If the government refuses to pay the required reward, you can challenge that denial in court.

There are no “caps” on awards; the value of the information the whistleblower provides serves as the basis for the amount of the award. The better the information, the larger the sanction. The larger the sanction, the larger the award. The False Claims Act qui tam provision incentivizes whistleblowers to provide the government with the best evidence, related to the biggest frauds.

The United States is serious about enforcing the qui tam reward provisions in cases in which a whistleblower meets all of the requirements to obtain a reward. Between 1987-2019, the United States has paid whistleblowers $7.3 billion in qui tam rewards.

By the end of FY 2019, whistleblowers had triggered the recovery of $44.7 billion in from fraudsters, while the government was able to recover only $17.3 billion in cases for which there were no whistleblowers.

Once the complaint is filed in court and served on the U.S. Attorney’s Office and the Attorney General, the United States is required to investigate the information provided by the whistleblower. After completing the investigation, the United States and the Department of Justice decides whether or not to “intervene” in the case.

Once the United States communicates its decision as to whether it will intervene to the presiding judge, the case is usually taken out of “seal” and filed on the public docket.

Although the whistleblower is confidential when filing the lawsuit, once a case is out of seal, the whistleblower’s identity is on the public record. However, for a good cause, a whistleblower can ask a Court to keep his or her identity confidential.

If the United States government “intervenes” in the case, the United States takes over the litigation and proceeds to prosecute the fraudster. The whistleblower remains a party in the case and can fully participate, but the United States conducts the litigation.

When the United States intervenes, it generally means that a case will have a favorable resolution, as the government has validated the allegations raised by the whistleblower and is willing to spend resources fighting the defendant.

If intervention is “declined,” the whistleblower has a right to proceed with the lawsuit. Litigating a case after a declination is usually very difficult, as defendants will often aggressively fight the case. Also, a whistleblower may have to pay court costs if they lose the case. There is also the possibility of sanctions for misconduct or for filing a frivolous claim.

However, the qui tam provision that permits the whistleblower to pursue a case even if the United States declines prosecution is among the most critical provisions in the False Claims Act. It helps to keep the government honest.

Because of the False Claims Act’s historic success, several states have enacted local versions of the law. These states are listed below. States with an “*” have a limited False Claims Act law that only covers fraud in Medicaid programs.

States with False Claims Acts:

• California
• Colorado*
• Connecticut
• Delaware
• District of Columbia
• Florida
• Georgia
• Hawaii
• Illinois
• Indiana
• Iowa
• Louisiana*
• Maryland
• Massachusetts
• Michigan*
• Minnesota
• Montana
• Nevada
• New Hampshire*
• New Jersey
• New Mexico
• New York
• North Carolina
• Oklahoma
• Rhode Island
• Tennessee
• Texas*
• Vermont
• Virginia
• Washington*

The following local jurisdictions have enacted False Claims Act laws:

• Allegany County, Pennsylvania
• Chicago, Illinois
• New York City, New York
• Philadelphia, Pennsylvania

Yes. Under Section 3730(h) of the False Claims Act, any employee who is discharged, demoted, harassed, or otherwise retaliated against for taking actions to promote the purposes behind the False Claims Act can file an employment discrimination claim in federal court.

This action can be filed as part of a qui tam reward case or filed as a stand-alone cause of action. The law provides for a jury trial and full “make whole” relief, including reinstatement, double back pay, and compensation for any special damages, including litigation costs and reasonable attorneys’ fees.

A False Claims Act case must be confidentially filed under seal in federal district court in accordance with the Federal Rules of Civil Procedure. A copy of the complaint, with a written disclosure statement of substantially all material evidence and information in the plaintiff’s possession, must be confidentially served on the US Attorney General and the US Attorney for the district in which the complaint is filed.

The complaint initially remains under seal for 60 days while the government investigates the allegations. Many times, the seal is extended for months or years.

An action under the False Claims Act must be filed, in camera and under seal. The complaint and its contents must be kept confidential until the seal is lifted. The complaint is not served on the defendant. If the plaintiff violates the provisions of the seal, his or her complaint could be dismissed.

When filing the initial FCA complaint, the whistleblower must submit to the government all of the relevant facts and documents that the whistleblower lawfully possesses. The information in the disclosure statement gives the factual basis of the qui tam complaint filed under seal with the district court.

It is not unusual for False Claims Act cases to remain under seal for extended periods, even for multiple years. The government is typically required to file periodic reports with the district court explaining the reasons for extending the seal.

The case is taken out of seal once the government makes its decision whether or not to intervene and take over the whistleblower’s qui tam case. Then the case may proceed out of the seal, like any other civil case.

Some cases resolve relatively quickly while other cases proceed to full litigation and may continue for several years before there is a final decision or settlement.

Qui tam is the whistleblower provision of the federal False Claims Act, which allows for citizens to file lawsuits, or qui tam actions, and earn financial rewards for reporting corruption and fraud.

The False Claims Act is codified as 31 U.S.C. §§ 3729-33. Section 3729 sets forth anti-fraud requirements of the Act, and 31 U.S.C. 3731 includes the provisions related to filing a qui tam lawsuit.

To learn how to file a qui tam lawsuit, use this guide: Filing a Qui Tam Lawsuit: Updated 2021