The Rise of the Anti-Fraud Whistleblower
Journalists have called 2014 the year of the whistleblower. The recent award of a Pulitzer to the Guardian and the Washington Post for stories based on Edward Snowden’s NSA leaks have again sparked debates about what should be covered as whistleblowing activity and how far those protections should extend. However, one form of whistleblowing continues to enjoy popular support, with the number of legal cases surging in recent years: the reporting of fraud committed by companies against U.S. and state governments through the False Claims Act (FCA) and its state equivalents.
The FCA is remarkable at least in part because of its longevity. It was first enacted in 1863 in response to contractor fraud perpetrated on the Union Army during the Civil War. Fraud was so problematic that it was commonplace for the Army to be double-charged for horses, to be sold maimed horses, or to receive gunpowder packages stuffed with sawdust. The original act, like the modern FCA, had a qui tam provision, allowing a private citizen-whistleblower to sue on behalf of the government for contracting fraud and share in the financial award if successful.
The FCA, now in its second century of existence, has been strengthened in more recent years. In 1986, lawmakers added to the Act a cause of action for retaliation against whistleblowers. Even more recently, the Fraud Enforcement and Recovery Act (FERA) Amendments of 2009 expanded FCA liability to subcontractors who submitted false claims to general U.S. government contractors or other intermediaries, and the Patient Protection and Affordable Care Act (PPACA) loosened the standards that required that the whistleblower be the “original source” of the information leading to recovery under the Act. The Dodd-Frank Act also amended the FCA by extending anti-retaliation provisions to those associated with the employee, contractor, or agent who was originally trying to investigate or report fraud.
Members of Congress have recognized the power and significance of the qui tam provision under the FCA. In a 2008 statement before the Senate Judiciary Committee, Senator Patrick Leahy (Vermont) noted that “whistleblowers have become the greatest source for uncovering complex frauds against the government, and their cases now account for about 70 percent of all the money recovered under the False Claims Act.”
Recovery can be quite high for both the government and the individual whistleblowers in successful cases. The U.S. Department of Justice announced that during the 2013 fiscal year, it recovered $3.8 billion for fraud against the U.S. government. Of this amount, $2.9 billion came from qui tam cases—cases where individual whistleblowers first brought the case in their private capacity. During that same time period, more than $345 million was paid out to whistleblowers—also referred to as “relators” under the Act—for cases brought under the FCA. Whistleblowers can be awarded between 15-25% of the total recovery if the U.S. government decides to intervene in the case and 25-30% of the recovery if the U.S. government does not intervene.
Whistleblowers in a few major industries led the way in FCA recovery. In the 2013 fiscal year, the U.S. government recovered $2.6 billion for health care fraud, where settlements for false claims for drugs and medical devices under federally insured health programs like Medicaid and Medicare made up the largest share of the recovery. The U.S. government recovered another $887 million for false claims and corruption in government contracts, such as defense contracts.
The federal False Claims Act is limited to false claims against the U.S. government, which is why many states have passed their own version of the FCA to recover fraud against state and local governments. California is one such state; it passed its version of the FCA in 1987. Successful private whistleblowers can enjoy a large share of the settlement award under California’s False Claims Act (CFCA). Under the CFCA, a private whistleblower can be awarded between 15-33% of the government’s total recovery if the government decides to intervene in the case, and between 25-50% of the total recovery if the government does not intervene.
California’s CFCA has undergone its own transformation in recent years. In September of 2012, Governor Jerry Brown signed Assembly Bill 2492, which amended and strengthened the CFCA, making it more like the federal False Claims Act. A California Appellate Court’s recent interpretation of the amended version of the CFCA cast a broad net for potential liability. In San Francisco Unified School District v. Contreras, the Court reaffirmed an earlier holding that stated that when a vendor bills a public agency for goods and services, it is impliedly verifying compliance with its express contractual requirements with the city. As a result, a court could find that these implied certifications—if false—violated the CFCA. In its decision, the Court noted that “the Legislature designed the CFCA to prevent fraud on the public treasury, and it should be given the broadest possible construction consistent with that purpose.”
The debate over the scope of whistleblowing laws will continue. However, for those wishing to report fraud against the federal or state governments, whistleblowing protections have expanded to encourage those with information to come forward.