The Department of Justice has trumpeted its increased reliance on whistleblowers and civil fraud enforcement actions under the False Claims Act, 31 U.S.C. §§3729 et seq, and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. §1833a(c). The statistics back up the claims. On just the False Claims Act alone, Attorney General Eric Holder reported in January 2012 that the prior three years had seen recoveries of over $8 billion—more than 25 percent of all monies recovered under the statute since it was amended in 1986.1 Fiscal years 2012 and 2013 saw a combined, record-breaking recovery of nearly $9 billion.2
In recent civil prosecutions of companies that provide services to the government, the Justice Department has focused on breakdowns in quality control procedures to support fraud claims. Many companies rely on quality control procedures to monitor known areas where errors occur and ensure that these errors do not stray too far from accepted levels or industry norms. But in the context of a federal civil fraud investigation, the results of even a well-functioning quality-control process can become problematic. Quality-control results revealing a percentage of error, even if viewed by the company as within acceptable bounds, can be viewed by the government as evidence of fraud because they show both the existence of error and the company’s knowledge. And if quality control procedures break down, that can be viewed as further evidence of fraudulent intent. Ironically, such fraud suits can transform those who oversee quality control procedures—often some of the company’s most cautious and risk-averse employees—into the public faces of wrongdoing.
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