The False Claims Act: An Example of U.S. Whistleblower Laws

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1 The False Claims Act: An Example of U.S. Whistleblower Laws Gerald S. Reamey, J.D., LL.M. Professor of Law Co-Director of International Legal Programs St. Mary s University School of Law San Antonio, Texas USA

2 The False Claims Act Originally enacted in 1863 Designed to prevent false claims made to the U.S. government Persons violating the act are liable for treble (3x) damages and a fine of $5,000-$10,000 per claim Private persons can initiate a claim [a Qui Tam action]

3 Private Party Complaints qui tam action (kwi tam or kee-tam). [Latin qui tam pro domino rege quam pro se ipso in hac parte sequitur who as well for the king as for himself sues in this matter ] An action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive. Often shortened to qui tam (Q.T.). Also termed popular action.

4 Qui Tam Procedure Complaint filed with court under seal U.S. Attorney and Attorney General of U.S. must be served with complaint Government investigates Government decides: To prosecute the action, or To decline to take over the action Relator may proceed without the government

5 Recovery If the government intervenes in qui tam action, relator receives 15-25% of recovery If the government declines, relator receives 25-30% Relator also receives legal fees and expenses of the action

6 Bars to Qui Tam Actions Relator was convicted of criminal conduct arising from FCA violation Another qui tam action has been filed The government already is a party to a proceeding for the same violation Qui tam action is based on public information

7 FCA in Theory Provides financial incentive for whistleblowers Since 1986, Justice Dept. has collected more than $24 Billion Compensation to whistleblower is paid by violator, not the government Provides some measure of financial protection to whistleblower

8 FCA in Practice Average recovery fee for U.S. Treasury is about $2 million, but about $150,000 for the whistleblower Probably better not to report a small fraud of a few million $$$ The whistleblower is typically humiliated, isolated, and then terminated The person who committed or approved the fraud often is not fired or disciplined, won t go to jail, and may even be promoted

9 Limitations on Whistleblower Laws Successful laws require both: A strong incentive to report and Strong protection against retaliation Strong incentives [like qui tam awards] can produce claims that have no real merit All claims of corruption demand investigation by the government and expensive defense by the accused

10 Success of Whistleblower Laws About 85% of recoveries by the government are initiated by whistleblowers Approximately $50 billion has been collected by the government in whistleblower cases 32 states in U.S. now have their own false claims acts [Texas alone has recovered more than $1 billion] Deterrence? A representative of Taxpayers Against Fraud claims, It s been the most effective tool by far in the arsenal of combating fraud against the government

11 Protection FCA whistleblower cases are filed under seal and may stay under seal for several years Confidentiality ends when case is resolved If whistleblower loses, loss of confidentiality is bad If whistleblower wins, loss of confidentiality is bad Retaliation is prohibited by law and remedies exist, but Retaliation is often hard or impossible to prove Whistleblower usually never works in industry again Redress for retaliation may take years

12 A Typical Story I was a whistleblower for a large hospital chain. My case was accepted under the False Claims Act. I was retaliated against by the company. This affected me for many years. The administrators that created the fraud were actually promoted, never suffered. I received substantial compensation through this case, but not enough to cover my lost wages over the years. Even though we did win, I had to pay for four attorneys and had really no protection from this retaliation.

13 Remedies for Retaliatory Actions Compensatory damages Back pay Reinstatement Travel and related expenses Attorney s fees Any other reasonable and foreseeable consequential damages

14 Some Comparative Notes The U.S. has many whistleblower protection laws Europe has few. Why? At will employment in US vs. for cause in Europe If disclosure of information is serious misconduct, does for cause employment protect the employee? The U.S. has a variety of federal laws and many state laws If possible, Europe is even less cohesive Bounties provide a strong incentive for reporting in the U.S., but depend on a private litigation culture Would this work in the more litigation-averse environment of Europe?

15 WHISTLEBLOWER LAWS CAN BE EFFECTIVE Build a culture of honesty Create strong incentives and opportunities for reporting Protect those who do report