1. Daniel J. Kelly Thomas J. Finn Paula Cruz Cedillo
Violations of the False Claims Act and The Importance of a Timely and Proper Response to Whistleblower Allegations
Daniel J. Kelly
Thomas J. Finn
Paula Cruz Cedillo

2. Overview
Trends In Claims Asserted Under the False Claims Act and Rise in Qui Tam Actions
Responding to Potential Violations
Potential Criminal Implications

3. False Claims Act
Oldest But Most Powerful Tool Used to Combat Fraud Against the Federal Government
FCA Prohibits Anyone from Knowingly Presenting a False Claim to the Government

4. False Claims Act What is a False Claim? What Does “Knowingly” Mean?
Actual Knowledge
Deliberate Ignorance
Reckless Disregard for the Truth
No Specific Intent to Defraud is Required

5. False Claims Act
Penalties Range from $5,000 to $10,000 per False Claim
Government can Recover Treble Damages
$3 Billion in Settlements & Judgments in 2010
Contractors Face Suspension & Debarment

6. The Qui Tam Action
Allows Relator (i.e., whistleblower) to Stand in the Government’s Shoes and Commence Litigation Against a Government Contractor
Relator Receives a Percentage of the Recovery
15% to 25% if Government Intervenes
25% to 30% if Government Does Not Intervene, as well as Attorneys Fees and Costs

7. The Qui Tam Action
Unique Procedure of Qui Tam Actions Creates Unique Issues for Government Contractors
Complaint is Filed Under Seal
Allegations Are Investigated by Government
Government Then Determines Whether to Intervene
Relator May Pursue Lawsuit Even if Government Does Not Intervene
Relator Entitled to Receive Portion of Recovery

8. The Qui Tam Action
Competing Interests & Complex Dynamic All Working Against Government Contractor
Department of Justice (DOJ) or U.S. Attorney’s Office
The Fight Against Fraud & Restoring Public Faith
Recouping Funds for the Government
The Defrauded Government Agency
Maintain Long-Standing & On-going Relationship with Government Contractor
The Relator
Personal Financial Interest

9. Recent Trends in FCA Claims and Qui Tam Actions
Congress Looking to Increase Efforts to Combat Fraud by those Receiving Government Funds
Fraud Enforcement and Recovery Act of 2009
Patient Protection and Affordable Care Act
Amendments Expected To Have Serious Impact on Government Contractors

10. Recent Trends in FCA Claims and Qui Tam Actions
Significant Rise in Litigation Given the Recent Amendments to the FCA
709 New FCA Actions in 2010
144 Increase Over 2009
573 New Qui Tam Actions in 2010
140 Increase Over 2009
1,246 Matters Under Investigation
Source: Andy Liu & W. Stanfield Johnson of Crowell & Moring LLP, West's Government Contracts
Year in Review Conference (November 2011). 

11. Fraud Enforcement and Recovery Act of 2009 (FERA)
“Claim” Means Any Request for Money – Whether Presented Directly to Government or Anyone Else –
that is Ultimately Spent or Used by the Government or to Advance a Government Program
Effect?
FCA Applies to Anyone Who Touches Federal Funds
May Subject Any Person or Entity to an FCA Claim
Regardless of Whether Actually Intended to Submit a False Claim to the Government
Regardless of Whether Contractor Knew Government was the Ultimate Purchaser of Goods

12. Fraud Enforcement and Recovery Act of 2009 (FERA)
Increased Government’s Investigative Ability to Use Civil Investigative Demands (CIDs)
Attorney General Can Delegate Authority to Issue CIDs
U.S. Attorneys Have Authority to Issue CIDs
Effect?
Increased Use and Impact of CIDs
Contractors Can be Compelled to Turn Over Requested Documents, Respond to Interrogatories, and Depositions Can be Taken of Company Personnel Very Early On
Even Before Government Intervenes
Information Can Now be Shared with Whistleblowers

13. Patient Protection and Affordable Care Act (PPACA)
Weakened the Public Disclosure Bar
Before: Whistleblower Could Not Maintain a Lawsuit if the Underlying Facts were Publicly Disclosed
Now?
Relator Can Bring Qui Tam Action Even if Underlying Facts Were Already Public, if Government Approves
“Public Disclosure” Means Disclosure by the News Media or a Federal Source – Not Disclosure by
a State Source

14. Responding to Suspected or Potential Violations of the FCA
How Do Contractors Receive Notice of Purported Misconduct?
Internally
Employee Hotlines or Reporting Procedures
Internal Company Audits
Traditional Government Investigative Tools
Grand Jury Subpoena
Search Warrant

15. Responding to Suspected or Potential Violations of the FCA
Government Investigative Tools Unique to Government Contractors
Inspector General Subpoena
Civil Investigative Demand
The Qui Tam Call

16. Responding to Suspected or Potential Violations of the FCA
Unique Considerations for Contractors
Significant Investigation Already Completed by Government and Whistleblower Prior to Contractor’s Awareness of Claim
Contractor May Want to Settle Before Qui Tam Action is Unsealed in Order to Minimize Bad Publicity

17. Responding to Suspected or Potential Violations of the FCA
Maintain or Salvage Business Relationship with “Defrauded” Government Agency
Convince Government Not to Intervene Because Claims are Meritless

18. Responding to Suspected or Potential Violations of the FCA
In this Climate, Government Contractors Must:
Have Heightened Sensitivity to Allegations of Wrongdoing
Be Quick to Conduct Internal Investigation and Thoroughly Investigate Purported Wrongdoing
Determine Whether Violation Exists in Order to Minimize Consequences
Take Great Care When Responding to Government Inquiries

19. Internal Investigation
Internal Investigations are Critical
To Determine Credibility of Allegations
To Assess Scope of Alleged Wrongdoing
To Help Mitigate Resulting FCA Liability
To Convince the Government Not to Intervene
in Qui Tam Action

20. Internal Investigation
Importance of No Government Intervention
The Government
Has Significant Resources
Has Significant Institutional Knowledge & Expertise
Government’s Decision Not to Intervene
Strengthens Contractor’s Position
Relator’s Resources are Likely Limited

21. Self Reporting Obligations
Contractor Must Decide Whether to Report Results of Internal Investigation
Voluntary Disclosure
Formal Voluntary Disclosure Program
Cooperation May Result in Reduction of FCA Damages
Mandatory Disclosure
Nondisclosure Itself Would Constitute a Crime

22. Business Ethics New Requirement Since December 24, 2008
Written Code of Business Ethics and Conduct
Internal Controls System
Employee Compliance Training Program
Mandatory for Contracts and Subcontracts Valued over $5 Million with a Performance Period of 120+ Days
But Best Practice for All Contractors and Subcontractors to Follow

23. Business Ethics Written Code of Business Ethics and Conduct
Written Standards of Conduct Stating Company’s Values and Commitment to Compliance with All Relevant Laws, Regulations, and Contract Provisions
Must Include Periodic Review and Self-Audit
Must Provide a Written Copy to Each Employee
DCAA Empowered to Review Ethics Compliance
Merely Having a Plan on the Shelf is not Enough
Review of Written Code, Employees’ Acknowledgement of Receipt of Code, List of Any Violations, and Open
Internal Investigations, etc.

24. Business Ethics Internal Control System
Facilitate the Timely Discovery and Disclosure of Improper Conduct
Must Include an Internal Reporting Mechanism (Hotline)
Ensure that Corrective Measures are Promptly Instituted and Followed
Must Include Disciplinary Actions for Violations
Must Include Periodic Reviews and Self-Audit
Does Not Apply to Commercial Item Contractors or Small Businesses (But Again, Good Practice
for All Companies)

25. Business Ethics Employee Compliance Training Program
Awareness Program
Should Include Written Materials and Interactive Training
Topics to be Covered:
Conflicts of Interest Export Controls
Gifts and Gratuities Defective Pricing
Kickbacks Record-Keeping
Lobbying Restrictions Contract Compliance
Collusive Bidding Revolving Door Restrictions
Labor Charging Price Reductions
Protection of Proprietary Information

26. Mandatory Disclosures
New Requirement Since December 12, 2008
What Must be Disclosed?
Certain Crimes: Fraud, Conflict of Interest Violations, Bribery, Improper Gratuities
By a Principal, Employee, Agent, or Subcontractor
False Claims Act Violations
Significant Overpayments
When Must a Disclosure be Made?
“Credible Evidence” / Actual Knowledge Standard
Must Make Disclosure to OIG & Contracting Officer
Until 3 Years After Final Payment

27. Mandatory Disclosures
Two Separate Sources of Obligation to Disclose:
1. Disclosure Required to Avoid Suspension or Debarment (FAR )
Applies to All Contractors
Disclosure Must Only be Made to CO
2. Disclosure Required by Contract (FAR and Payment Clauses (i)(5); (d), (c) and (l))
Mandatory for Contracts Over $5 Million with a Performance Period of 120+ Days ( ); Payment Clauses Require Remittance of Overpayments for All Contracts
Disclosure Must be Made to OIG and CO

28. Guidance by Government on Disclosures
DoD’s Disclosure Form: Date, Full Description, Names, Report on Internal Investigation, Records, Remedial Actions, Financial Impact, Certification on Truth and Accuracy
Disclosure to be in Writing Through Online Submissions
Privileges and Exemptions to FOIA to Apply

29. Credible Evidence and Timing
Credible Evidence is Not a Defined Term
Work in Progress
Disclosure Must be Timely
Government Talks in Terms of 6 to 8 Weeks
Question as to Whether Partial Disclosures Inoculate Contractor
No Suspensions and Debarments Due to Failure to Disclose or Incomplete/Misleading Disclosure

30. Operation of MDR Program
Most Made to DoD; 320 by November 2010; 10% to GSA
Abundance of Caution Disclosures
Aggregation Common
Source: Stuart (Stu) B. Nibley & David Nadler of Dickstein Shapiro LLP, West's Government Contracts
Year in Review Conference (November 2011). 

31. What Happens to Disclosures
DoD Gives to DOJ, DCAA, CO and Suspension and Debarment Authority
If Disclosure is a “Top 100” DoD Contractor, Referred to DCIS and Agency Investigative Service
CO has Authority to Negotiate Settlement
IG sends Closure Notice

32. DCAA Role DCAA Empowered to Review Compliance
Review of Any Disclosures Made
Confirmation that All Disclosures Were “Timely” Made
Review of Any Corrective Action Taken by Contractor
Examination of Internal Control System
Auditors will Review to Make Sure Policy Includes a Reasonable Definition of “Credible Evidence” and Reasonable Timeframes for Disclosure

33. Potential Criminal Implications
High Probability that Allegations Against Government Contractor Will Also be Reviewed for Possible Criminal Prosecution
If Government Pursues a Civil Fraud Investigation, Will Likely Also Conduct a Parallel Criminal Investigation

34. Effect of Parallel Criminal Investigation
Information from Internal Investigation or Civil Proceedings Used in Criminal Matter
Contractor’s Choice to Voluntarily Self Report
Demonstrate Good Faith and Cooperation
Disclosure of Internal Investigation to Escape Indictment
Beneficial in Prosecutor’s Charging Decisions and Sentencing

35. Daniel J. Kelly Thomas J. Finn Paula Cruz Cedillo
Violations of the False Claims Act and The Importance of a Timely and Proper Response to Whistleblower Allegations
Daniel J. Kelly
Thomas J. Finn
Paula Cruz Cedillo