Trump Administration’s DOJ Prepares to Ramp Up FCA Enforcement

The Trump administration’s Department of Justice is stepping up False Claims Act enforcement and is warning it is focusing on far more than health-care fraud, which is the leading source of recoveries under the FCA.

The FCA punishes those who submit false claims to the government. FCA claims are brought by the government or whistleblowers who file lawsuits on behalf of the government and share in the recovery. FCA penalties include triple damages.

DOJ Deputy Assistant Attorney General for the Commercial Branch of the Civil Division Michael Granston said at a recent Federal Bar Association FCA conference that it would be a “mistake to view the FCA as just a health care fraud statute.” While procurement and pandemic-relief program fraud are continuing areas of enforcement, recent developments provide insight into newer areas in which the Trump administration will pursue FCA claims.

DEI

Regardless of the viability of any DEI FCA claim, defending them will be costly and painful. One executive order requires federal contractors to certify they don’t “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Agencies are ordered to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities” but aren’t told what conduct warrants FCA enforcement.

The order requires each federal agency to include in every contract or grant award “a term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions.” Because the FCA imposes liability only when the false claim is material to the government’s payment, this materiality condition suggests the administration will use the FCA to enforce the order.

Criminal FCA liability is also possible. Depending on the US Supreme Court’s decision in Kousisis vs. United States, a government contractor that falsely certifies it doesn’t promote DEI activities could face a criminal FCA charge and charges of mail or wire fraud for deceiving the government into entering the contract despite no government economic loss. Each criminal charge carries its own penalties—significantly more than for civil FCA claims. Individuals face up to five years imprisonment under the FCA.

E-Rate Program

The Federal Communications Commission’s Education Rate Program helps schools and libraries obtain affordable internet and telecommunications. Congress requires telecommunications carriers to pay into a fund administered by a private nonprofit. This nonprofit then distributes the fund to beneficiaries. Carriers can’t charge the school or library more than they would charge a similar nonresidential customer in a similar region.

In February, the Supreme Court broadened the FCA’s reach, holding that false claims for reimbursement from the fund qualify as claimsbecause the government contributed to the fund during the time reimbursements were requested. As a result, telecommunications carriers are now subject to FCA liability for any false reimbursement requests. The court has opened the door to increased litigation against carriers by the DOJ and by whistleblowing relators.

Customs and Duties

While customs and tariffs have traditionally been enforced under US Customs and Border Protection regulations, the DOJ is “dedicating increased resources” to customs and tariff evasion FCA cases.

The agency has levied reverse FCA violations when importers evade customs duties by falsifying invoices or mis-describing imports on customs declarations. Undervaluation improperly decreases the duty owed, and misrepresenting the origin country can also reduce the duty.

Today, importers must pay higher duties on goods from China, Mexico, and Canada, due to increased tariffs. Even if only part of a product is manufactured in China, the increased rate may apply if the Chinese part isn’t substantially transformed into the product of a country of origin with the lower rate. Chinese products imported through a lower duty rate country are subject to China’s higher rate.

Given the administration’s focus on trade, customs enforcement using the FCA is likely to increase, and companies must take seriously their duty to take reasonable care to ensure their declarations are accurate.

Private Equity

The DOJ has pursued private equity firms aware of misconduct at a portfolio company and failing to take action to stop it. The FCA permits actions against accountable third parties. For example, the DOJ settled with a private equity firm and compounding pharmacy when the pharmacy engaged in a kickback scheme that resulted in unnecessary prescriptions and the private equity firm was aware of the scheme.

FCA claims also have been pursued against private equity firms where a portfolio company paid kickbacks to marketers as part of a scheme to generate unnecessary prescriptions for pain creams, and where a portfolio company promoted non-FDA approved cancer treatments to patients.

In July 2021, private equity firm Ancor Holdings LP agreed to pay more than $1.8 million to resolve FCA allegations that its portfolio company, the Alliance Family of Cos., used inaccurate billing codes to generate higher reimbursements. The government alleged that Ancor had learned of the practice prior to investing but allowed the conduct to continue after it agreed to manage Alliance.

While Ancor allegedly knew of Alliance’s alleged misconduct, knowledge of the falsity isn’t required under the FCA. Acting with reckless disregard or deliberate ignorance of the truth is enough. Firms must understand the portfolio company’s billing processes and compliance program to avoid FCA liability.

Protecting Your Organization

Failure to act quickly when facing potential FCA violations can be costly. Companies and individuals should follow several steps to insulate themselves from liability.

Carefully review your government contracts to identify areas of potential FCA exposure.

Ensure compliance with any material conditions and analyze the effectiveness of compliance processes.

Maintain records of compliance with material conditions. Check to make sure your efforts have been documented and your comprehensive records are retained.

Encourage effective internal reporting of potential FCA violations. Ensure your company has an internal reporting system and a culture that promotes reporting violations.

Engage counsel early to investigate and advise on any potential violations. FCA law is complicated and ever evolving. Contact experienced counsel early to assist.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Tanisha Palvia is a member with Moore & Van Allen who works with clients facing white-collar criminal prosecution and government enforcement actions, as well as conducting internal investigations.

Darby Festa is an associate at Moore & Van Allen, representing clients in connection with complex litigation matters and internal and government investigations.

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