History of the False Claims Act
The False Claims Act (“FCA”), also known as the “Lincoln Law,” was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army. War profiteers were shipping boxes of sawdust instead of guns, for instance, and swindling the Union Army into purchasing the same cavalry horses several times. Other examples of such fraudulent contractor practices included situations where “[f]or sugar it [the government] often got sand; for coffee, rye; for leather, something no better than brown paper; for sound horses and mules, spavined beasts and dying donkeys.” United States ex rel. Newsham v. Lockheed Missiles & Space Co., 722 F. Supp. 607, 609 (N.D. Cal. 1989) (quoting Robert Tomes, The Fortunes of War, Harper's Monthly Mag., June 1864, at 228 and 1 F. Shannon, The Organization & Administration of the Union Army, 1861-1865, at 55-56 (1965). “You can sell anything to the government at almost any price you’ve got the guts to ask,” boasted one profiteer who made millions unloading moth-eaten blankets to the military.
In angered response, President Abraham Lincoln strongly advocated passage of the FCA and stated, “Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortune of the Nation while patriotic blood is crimsoning the plains of the South and their countrymen are mouldering [sic] in the dust.” Raegan A. McClain, The Government, Legislature & Judiciary--Working Towards Remedying the Problems with the Civil False Claims Act: Where Do We Go From Here?, 10 Annals Health L. 191, 210 (2001) (citing 89 Cong. Rec. 10,847 (1943) (statement of Rep. Miller)). The FCA contained “qui tam” provisions that allowed private citizens to sue, on the government’s behalf, companies and individuals that were defrauding the government. “Qui tam” is short for a Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which roughly means “he who brings an action for the king as well as for himself.” Congress passed the statute on March 2, 1863.
In the mid-1980s, Congress took another look at the law, spurred by reports of widespread fraud against the government. Defense contractor practices were receiving the greatest media attention. In part, this was due to the vastly increased defense spending spurred by the Reagan administration’s response to the Cold War. The public was reading a steady stream of stories describing outrageous billing practices, such as the Navy paying $435 for an ordinary claw hammer and $640 for a toilet seat. In 1985, the Department of Defense reported that 45 of the largest 100 defense contractors -- including 9 of the top 10 -- were under investigation for multiple fraud offenses. Government enforcement agencies, meanwhile, complained that their efforts to investigate and stop fraud were hamstrung by insufficient resources, a lack of adequate legal tools and the difficulty of getting individuals with knowledge of fraud to speak up for fear they would lose their jobs.
Frustrated with the government’s inability to respond effectively to outrageous charges and other improper billing behavior by government contractors, Congress decided to revise the FCA to encourage more whistleblowers to come forward and to create incentives for private attorneys to use their own resources to investigate fraud. Congress’s intent was to reinstate a “coordinated effort” between private citizens and the government, fighting side by side to effectively and to efficiently protect the U.S. Treasury, so as to “enhance the Government's ability to recover losses sustained through fraud against the Government.”
Senator Charles Grassley, a Republican from Iowa, and Representative Howard Berman, a Democrat from California, sponsored the amendments to the FCA, which received wide bipartisan support. President Reagan signed the bill into law on Oct. 27, 1986. The amended FCA provided that whistleblowers who brought successful cases were entitled to 15 – 30% of the government’s recovery, and their attorneys were guaranteed payment of their regular hourly fees by the defendant. Companies and other entities that defraud the government are liable for treble damages and a $5,000 to $10,000 penalty for each false claim.
The FCA is the single most effective tool U.S. taxpayers have to recover the billions of dollars stolen through fraud every year. Since the 1986 amendments to the FCA, more than $30 billion has been recovered in settlements and judgments.