What Every Multinational Company Should Know About … The False Claims Act
A Publication in Foley’s International Trade, Enforcement & Compliance series.
Multinational companies should be alert to legal exposure under the False Claims Act (FCA). The FCA is a civil statute that can be quite damaging to a multinational company for several reasons:
- The FCA has extremely broad applicability, holding liable individuals and companies that make false claims to the government for payment or that conceal an obligation to pay money to the government. As discussed below, this is even broader than it seems.
- The FCA punishes not only “knowing” false statements but also those made with reckless disregard or deliberate ignorance as to their truth or falsity. Companies that should have known better or that took advantage of ambiguous requirements do not get a free pass.
- Each year, the Department of Justice opens investigations into several hundred FCA cases nationwide and recovers billions of dollars collectively in FCA case resolutions.
- The FCA imposes treble damages under which violators are penalized three times the amount of damages and, on top of that, violators owe an additional penalty of up to $27,018, per false claim. (The amount is adjusted annually for inflation.)
- Despite carrying treble damages and extensive penalties, the FCA is a civil statute that only requires proof by a preponderance of evidence (i.e., the more-likely-than-not standard). It does not require a higher burden such as the criminal beyond-a-reasonable-doubt standard.
- The FCA allows private individuals, in addition to the government, to file lawsuits. The individual whistleblower is called a “relator” who, if successful, can receive 10%–30% of the settlement or judgment amount. This bounty incentivizes individuals (often disgruntled employees or former employees) to report conduct they believe could constitute an FCA violation.
- FCA cases often take years for the government to investigate and resolve, diverting company resources and attention. More complex cases begin with years-long, confidential government investigations.
The FCA has a very broad reach. It can apply to anything involving federal funds. The following, non-exhaustive list provides some risk areas and some associated types of conduct that carry risk of FCA scrutiny:
- Submission of an invoice or receipt that falsely represents a good’s value
- An incorrect designation of a good’s country of origin
- A good being called a “sample,” allowing for duty-free entry but not treated as one after being imported
- A good misclassified pursuant to the United States Harmonized Tariff Schedule (USHTS) categories
- Government contracting:
- Failure to provide current, accurate, or complete certified cost or pricing data
- The submission of inflated invoices to the government
- Delivery of deficient goods or services
- Failure to maintain goods or equipment in accordance with contract requirements
- Kickbacks by subcontractors in exchange for favorable treatment by contractors
- Breaches of contract that may be perceived as fraud
- Government contracting related to cybersecurity:
- Provision of deficient cybersecurity products or services
- Utilization of cybersecurity software that does not meet requirements
- Misrepresentation of cybersecurity practices or protocols
- Breach of obligations to monitor and report cybersecurity incidents and breaches
- Government grants and loans:
- False certification of eligibility
- Misspending of funds
- Research misconduct
- “Double-dipping” — receiving multiple funding sources for same expenses
- Health care industry:
- Arrangements that implicate anti-kickback laws or self-referral prohibitions
- Billing for medically unnecessary goods or services, defective goods or services, or goods and services not actually furnished to patients
- Failure to follow proper coding, billing, or documentation procedures
That is not to suggest that the above types of conduct will always be perceived as FCA violations. The difference between a case pursued as an FCA matter rather than a regulatory matter may be due to:
- A perception of a systemic conspiracy, or egregious or pervasive conduct
- The extent to which company management was, or should have been, aware of the conduct
- The clear presence of false statements or certifications
- Conduct undertaken with actual knowledge, reckless disregard, or deliberate ignorance as to truth or falsity
- Materiality of the conduct to the government
- Nature and extent of harm
- Whether and how the conduct was reported to the government, including whether a relator filed an FCA case
Of course, certain types of conduct may be pursued criminally, in conjunction with or rather than as an FCA or regulatory matter.
It is important to know the FCA protects whistleblowers. The FCA imposes additional liability on defendants who retaliate (demote, terminate, etc.) against someone due to their conduct in furtherance of bringing an FCA lawsuit or their efforts to stop an FCA violation. Relief includes reinstatement to the same seniority level, two times back pay, interest on the back pay, and compensation for any special damages, including litigation costs and reasonable attorneys’ fees.
If your company is under FCA investigation or you suspect a possible FCA issue at your company, consult a knowledgeable attorney. Cooperation with the government during an FCA investigation can be key to reducing damages and penalties, as can a consideration of early self-disclosure. Experienced counsel will know how to cooperate with the government while protecting the company, such as by negotiating scope and engaging in early advocacy. Moreover, FCA case law abounds, is constantly developing, and varies by jurisdiction, and knowledgeable FCA counsel is best equipped to help you navigate FCA issues and investigations.
To help reduce exposure under the FCA, make sure you have compliance policies and programs that are effective and enforced. We have written about implementing an international compliance program in previous articles: Part I (steps 1–5 of our 12-step program), Part II (steps 6–12), and Part III (core compliance policies).
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