• Incentivizing Integrity: False Claims Act (FCA) Enforcement On The Rise
  • December 10, 2013 | Author: Latour "LT" Lafferty
  • Law Firm: Fowler White Boggs P.A. - Tampa Office
  • Strategic Insight for Reducing the Risk of Legal Liability

    If your company does business with the State or Federal government it has potential FCA exposure. While historical FCA enforcement actions were limited to healthcare and defense procurement industries, organizations in other industries are routinely finding themselves to be subjects of FCA investigations. Although routine mistakes and errors are not actionable under the FCA, systemic errors and mistakes, as well as ethical misconduct, can easily escalate, if left unchecked, to a level of actionable fraud under the FCA resulting in large damage claims. Recent FCA settlements include:

    GlaxoSmithKline - pled guilty to misdemeanor charges and agreed to pay $3 Billion for Illegal Kickbacks, Fraudulent Marketing, and Poisoning for Profit.

    Abbott - agreed to pay $1.5 Billion for Kickbacks and Illegal Marketing of Depakote involving promoting the off-label use of anti-seizure medication, Depakote.

    BP Amoco - agreed to pay $20.5 Million for Stealing Oil from Public Lands.

    Deutsche Bank - agreed to pay $202 Million for repeatedly making false certifications to HUD and FHA in connection with mortgages made under the Direct Endorsement Lender Program.

    Oracle - agreed to pay $200 Million to settle price-gouging charges and for failing to meet their contractual obligations to the General Services Administration (GSA).

    These FCA settlements represent the diverse nature of FCA enforcement in today’s regulatory environment and the magnitude of FCA liability. However, most FCA cases involve smaller organizations and result in much lower financial settlements.

    Accordingly, if you do business with the government, you should understand the breadth and scope of the FCA. The FCA is the state and federal government’s chief civil enforcement tool to combat fraud and abuse involving the government. Some FCA fundamentals you should know are that the FCA proscribes the “knowing” submission of false claims for payment, using a false record or statement in seeking government payment, as well as avoiding an obligation to pay the government; includes a broad intent (“knowing”) standard including not only actual knowledge of the false claim but deliberate ignorance as well as reckless disregard for the false claim; allows private citizens or “relators” (private whistleblowers) to file suit against the organization on behalf of the government and share a percentage of any recovery (i.e., a bounty). Potential penalties include up to treble damages (3x the actual loss), penalties between $5,500 and $11,000, potential suspension or debarment, and a mandated audit and compliance program (corporate integrity agreement or CIA).

    Even if the government declines to “intervene” and take over from the whistleblower the enforcement proceeding, well-funded plaintiff’s lawyers can continue the prosecution of the case on behalf of the government while the regulatory authorities stand-by to receive any recovery. Further, aggrieved whistleblowers may also possess, and most often assert, personal claims for retaliation in response to their efforts to report and prevent the alleged fraud. Finally, the whistleblower is entitled by law to the recovery of his reasonable expenses, attorneys’ fees and costs in any FCA settlement, even when there is no admission of liability.

    More importantly, the cost to the organization to defend an FCA investigation or enforcement proceeding can cause the organization substantial revenue loss, reputational harm, loss of morale and productivity in addition to substantial attorney’s fees even if the government ultimately finds no basis to support the fraud. Organizational defendants often deride the perceived loss of due process under the FCA’s liberal, and “unforgiving,” intent standard as well as the draconian penalties. From a business perspective, organizations often simply can’t risk litigating liability under the FCA and refer to the process as “legal extortion.”

    The Greek philosopher Epictetus said that “prevention is the best cure” and there is no better approach when assessing the potential risk for FCA liability. The best organizational approach, in any industry doing business with the government, is to implement an effective anti-fraud compliance and ethics program designed to detect and prevent fraud as well as promote an overall culture of compliance and ethics. Organizations should encourage and incentivize internal reporting of potential misconduct and regulatory violations, promptly investigate and evaluate the risk of liability to the organization, and take appropriate corrective and remedial action to address any substantiated problems. When appropriate, organizations should consult experienced legal counsel regarding the investigation, and the potential risk of liability, and consider voluntary disclosure, and potential repayment, to appropriate regulatory authorities. Most importantly, organizations should understand that compliance and ethics is a continuous improvement process. It’s a journey, not a destination, and a joint venture that your employees and regulatory authorities are more often willing to share.