Ideas for Reforming the False Claims Act

Every company that receives federal funds in any form—whether by contract, as a subcontractor, through a federal subsidy program or as a grantee—or that has obligations to the federal government, has reason to focus on the False Claims Act (FCA). A statute originally designed to punish fraud in government contracting, the FCA has been amended in recent years to reach every form of federal assistance, including grants and loans, and indirect as well as direct recipients. And the FCA incentivizes whistleblowers by allowing them to sue in the name of the federal government. As a result, litigation and liability under the FCA are skyrocketing. Nearly a thousand new suits were filed last year, most by self-proclaimed “whistleblowers” seeking a share of the government’s recoveries—which over the past five years have totaled nearly $15 billion.

The FCA’s after-the-fact punishment-through-litigation approach to reducing fraud in government programs is both inefficient and frequently unfair, too often pressuring companies to settle for vast amounts to resolve what are at most minor regulatory defaults and incentivizing the filing of meritless suits. The authors helped design amendments to the FCA, recently proposed by the U.S. Chamber of Commerce Institute for Legal Reform (ILR), that would change the paradigm by aligning corporate interests in conforming to the law with the government’s interest in fraud-free federal programs. Compliance, not after-the-fact jackpot recoveries, should be the first line of defense against fraud in government programs.