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INSIGHT: Research Institutions Under DOJ’s False Claims Microscope After Chinese Influence Settlement

Feb. 12, 2020, 9:00 AM

A recent settlement with a Michigan nonprofit research institution clearly shows the Justice Department is using the False Claims Act to advance the department’s China Initiative.

Policing alleged foreign influence at U.S. research organizations and government contractors has been an enforcement priority since the 2018 announcement of the China Initiative.

Officials at the DOJ and the FBI have expressed concern with China’s Thousand Talents Program (TTP) and other research support programs that recruit foreign researchers who will bring their expertise and experience to China to add to its scientific and technical prowess. The TTP offers attractive salaries, research support, and state-of-the-art lab space for scholars to pursue research careers with Chinese universities or research centers.

The DOJ and the FBI have heightened their scrutiny of recipients of federal funds and have opened numerous national-security and economic-espionage investigations and trade-secret prosecutions in the past several years, but the DOJ had not used the FCA to implement its China Initiative until now.

Organizations that have not faced FCA-based scrutiny before must adjust, and proactive organizations may avoid compliance problems altogether. If allegations of inadequate or misleading foreign disclosures come, organizations should be prepared to quickly deploy a focused audit or internal investigation, consider policy revisions and remedial measures, or make an affirmative disclosure to maximize credit under DOJ’s new FCA cooperation guidelines.

VARI Settlement

In an enforcement turning point, the DOJ announced that the Van Andel Research Institute (VARI) agreed to pay $5.5 million to resolve allegations that it had violated the FCA by submitting grant applications to the National Institutes of Health (NIH) that “failed to disclose Chinese government grants that funded two VARI researchers.”

According to the DOJ, VARI failed to disclose outside funding sources for multiple researchers in violation of NIH grant rules. The DOJ further stated that VARI had knowledge of the Chinese support and failed to correct its grant progress reports made to NIH.

VARI explained that the settlement included no finding or admission of liability and that the alleged reporting irregularities with the NIH had not affected the scientific validity of VARI’s research. VARI also noted that the two researchers who had benefited from undisclosed Chinese support had resigned from their positions.

Key Takeaways

For recipients of federal funds, particularly research institutions and federal grantees, there are several takeaways.

Take This Enforcement Development Seriously

Federal research funding—particularly from the NIH and its sister agencies such as the National Science Foundation and the Departments of Defense and Energy—is under an enforcement microscope in ways that it has not been before. Grants and grant compliance sometimes receive less attention than government contracts and government-contracting compliance. Grant recipients frequently are non-profit organizations that assess FCA risk to be low because the organization is a non-profit entity.

But ignoring FCA risk in the current environment is a mistake. Now is a good time for organizations to assess systematically the foreign affiliations of their personnel and to review applicable disclosure requirements and existing and past employee questionnaires.

Organizations should review their procedures for vetting of researchers and their existing internal controls. The organization should have accurate, complete, and current understanding of each principal investigator’s (PI) foreign institutional affiliations, support, and roles, such as visiting professorships or lectureships, joint academic appointments, advisory or editorial boards, corporate research sponsors, “shadow” laboratories, and the like.

Understand the FCA, Its Broad Reach, and Qui Tam ‘Bounty’ System

The FCA is broad and applies to defense contractors and research laboratories alike. The FCA prohibits the submission of false claims for payment and the creation of false or misleading documents used to obtain such payments.

The FCA also applies to direct grantees and contractors and lower tier subcontractors and sub-recipients. The FCA’s qui tam provision permits individuals known as “relators” to bring a legal claim against the organization on the behalf of the U.S. government, incentivizing anyone, including current or former employees, to report alleged violations through the promise of a significant share—up to 30%―of the U.S. government’s ultimate FCA recovery.

Ensure Relevant Personnel Understand Affiliation and Disclosure Issues

Most organizations have conflicts review officers or grants managers, but these individuals should have the field of vision to understand not only the nuances of the Department of Health and Human Services financial conflict of interest regulations (42 C.F.R. Part 50) but also their interplay with the FCA. Organizations should also coordinate closely with their office of general counsel.

Responding to the China Initiative requires an interdisciplinary approach. Effective responses require familiarity with federal grant rules; intellectual property law and organizational policies on IP ownership; government enforcement techniques; internal investigations that may straddle academic misconduct and tenure rules that might often involve multi-lingual reviews of documents; and federal criminal law (particularly those statutes in Title 18 of the U.S.C. concerning trade-secret misappropriation and false statements).

Assess Representations Made to Federal Agencies

Organizations should review a PI’s initial application for federal grant support to ensure the PI’s proper disclosures of foreign support or other research or teaching positions. That same review and management should be applied to progress reports, pay applications, and correspondence by a PI or organization with the government. All of these communications create FCA risk.

The DOJ’s invocation of the FCA—originally passed during the Civil War—to pressure organizations to tighten their compliance systems and to obtain significant civil financial recoveries is not “new news.” However, what is new is the DOJ’s use of the FCA in service of its China Initiative.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Alex Hontos, a partner at Dorsey & Whitney LLP, chairs the firm’s government contracting practice group. He is a former DOJ trial attorney.

Nelson Dong, a partner at Dorsey & Whitney LLP, chairs the firm’s national security practice group. He is a former AUSA and deputy associate attorney general.

RJ Zayed, a partner at Dorsey & Whitney LLP, is a member of the firm’s government enforcement and intellectual property practice groups. He is a former AUSA and a registered patent attorney with the USPTO.

John Marti, a partner at Dorsey & Whitney LLP, co-chairs the firm’s government enforcement practice group. He is a former AUSA and Marine judge advocate.

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