How does the False Claims Act apply to crop insurance fraud?

How the False Claims Act Applies to Crop Insurance Fraud

Crop insurance fraud is a big problem that costs taxpayers millions of dollars every year. The False Claims Act is an important tool used by the government to crack down on crop insurance scams and recover money lost to fraud.

The False Claims Act (FCA) makes it illegal to knowingly submit false claims to the government to get money you aren’t entitled to. Common examples of crop insurance fraud that violate the FCA include:

• Lying about the actual production numbers for your crops
• Failing to report crops that were actually harvested and sold
• Creating fake documentation about crop losses that didn’t really happen
• Claiming losses for crops grown in a different location than what’s listed on insurance paperwork

When farmers, insurance agents, adjusters, or other players in the crop insurance system commit fraud, they can be sued under the False Claims Act. Crop insurance policies are backed by the federal government, so lying to get insurance payouts is considered defrauding the government.

Penalties and Damages Under the False Claims Act

There are steep fines and penalties for violating the FCA:

• Treble damages – You have to pay back 3 times the amount of money lost due to the fraud
• Civil penalties – Fines of $11,803 to $23,331 per false claim

So if a farmer fraudulently got a $100,000 insurance payout, they could end up owing $300,000 in damages plus hundreds of thousands more in penalties. Needless to say, crop insurance fraud doesn’t pay!

Whistleblower Lawsuits

Most FCA crop insurance cases start with a whistleblower – someone who sees the fraud happening firsthand and reports it to the government. The FCA has a “qui tam” provision that allows whistleblowers to file lawsuits on behalf of the government and receive 15-30% of any money recovered.

Many crop insurance whistleblowers are former employees of insurance companies or adjusters who witness fraudulent activity. But farmers, crop brokers, USDA agents, and others could also blow the whistle after seeing something suspicious.

By law, whistleblowers are protected from retaliation when they report fraud. And they can often file FCA lawsuits anonymously using a lawyer, without ever revealing their name. So there is little risk in coming forward.

Recent Crop Insurance Fraud Cases

The government has recovered hundreds of millions of dollars from crop insurance scams thanks to FCA lawsuits and whistleblowers:

• An Oregon wheat farmer had to pay $607,284 in damages and penalties after hiding sales of over 35,000 bushels of wheat to claim fraudulent insurance losses [1].
• A Michigan farm operation paid $1.2 million to settle similar allegations they lied about crop losses to collect insurance payments [2].
• An insurance company paid $44 million after a whistleblower revealed it had improperly issued federally backed crop insurance policies [3].

These are just a few examples – crooks try all kinds of tricks, but the False Claims Act is an effective tool to catch them and recover losses.

Defenses and Challenges

Those accused of crop insurance fraud have a few defenses they can try to use:

• Lack of intent – Arguing the lies or omissions were accidental mistakes, not intentional fraud. But this rarely works given the detailed paperwork required.
• Statute of limitations – The FCA has a 6-10 year statute of limitations. But the clock doesn’t start until fraud is discovered.
• Blaming advice of counsel – Claiming a lawyer or accountant signed off on the questionable details. Courts have rejected this defense.

Proving intent and overcoming these defenses is where inside whistleblowers are so key. Their firsthand testimony about policies and procedures, or witnessing explicit directions to defraud the government, can demonstrate clear intent.

What Needs to Change

While the False Claims Act and whistleblower system has worked relatively well, improvements could help detect and prevent crop insurance fraud:

• Better verification of yields and production numbers submitted, such as audits of farm records
• Tighter regulations around reporting for agents and adjusters
• More advanced data mining to spot red flags like unusual loss patterns
• Incentives for insurers to invest in anti-fraud efforts

The USDA is working on some of these changes in coordination with insurance companies. But continued oversight and enforcement will also be key – where vigilant whistleblowers can make a big difference!

The Landscape Ahead

Crop insurance scams rob taxpayers and also hurt honest farmers that play by the rules. But the False Claims Act and whistleblower system has proven to be an effective tool for punishing fraudsters in the crop insurance industry and recovering some of the losses.

In the years ahead, crop insurance oversight will likely continue to increase, with advanced data analytics helping to proactively detect red flags. There will always be those who try to exploit the system through dishonest means – but legal consequences and financial penalties are growing severe enough to deter many from even attempting it.

For those who do try their luck committing crop insurance fraud, a whistleblower co-worker or competitor lurking around the corner poses a strong risk the scheme will eventually unravel. In the end, following ethical business practices proves to be the most prudent path for those operating in the crop insurance sector.