The False Claims Act and FIRREA: A Powerful Anti-Fraud Combination

The False Claims Act and FIRREA: A Powerful Anti-Fraud Combination

The False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) are two powerful tools in the fight against fraud against the government. When used together, they can form a potent one-two punch to root out and punish fraudsters. This article will provide an overview of how these laws work, some of the major cases brought under them, and why their combination makes them so effective.

What is the False Claims Act?

The FCA, also known as the “Lincoln Law”, was first passed back in 1863 during the Civil War. It was meant to combat fraud by suppliers of the Union Army. The law imposes liability on any person or company who knowingly submits false claims to the government. It allows both the federal government and private citizens, known as “qui tam relators”, to file lawsuits alleging fraud against government programs.

The FCA was significantly strengthened in 1986 through amendments that increased incentives for whistleblowers to file qui tam cases. Under the modern FCA, if a qui tam case results in a recovery, the whistleblower can receive between 15-30% of the amount recovered. The 1986 amendments also increased damages under the FCA. Now, defendants found liable under the FCA face treble damages and penalties between $5,500 and $11,000 per false claim.

Over the years, the FCA has become the government’s primary civil tool to redress fraud. Since 1986, it has recovered over $72 billion for taxpayers. The majority of FCA recoveries relate to healthcare fraud against Medicare and Medicaid. However, the law applies to any type of fraud involving federal money or property. This includes grant fraud, defense contractor fraud, and fraud in connection with federally insured loans or mortgages.

What is FIRREA?

FIRREA is a law passed in 1989 during the savings and loan crisis. It expanded the government’s ability to address fraud and other misconduct that affects federally insured financial institutions. The law gives the Attorney General power to bring civil penalties against those who commit mail or wire fraud affecting a federally insured bank.

Each FIRREA violation carries a civil penalty of up to $1.1 million per violation for entities and $220,000 per violation for individuals. This means that large corporate defendants can face massive penalties under FIRREA because each fraudulent act is counted as a separate violation.

Although originally aimed at misconduct during the savings and loan crisis, FIRREA’s broad language applies to any bank fraud. The government has used FIRREA to address many types of misconduct in the financial sector, including securities fraud, insider trading, accounting fraud, and mortgage fraud. Recently, the government has begun using FIRREA more aggressively in areas like healthcare fraud.

Why FCA and FIRREA Work Well Together

There are several reasons combining FCA and FIRREA claims can be so effective in fraud cases:

• Layered penalties – The FCA imposes treble damages plus sizeable per-claim penalties. FIRREA adds additional hefty penalties per violation on top of that. So defendants face multiplied penalties under both laws.
• Different burdens of proof – To win FCA damages, the government must show the defendant acted “knowingly” which includes deliberate ignorance or reckless disregard. But no intent to defraud is required. FIRREA claims only require proving a violation of the predicate criminal fraud statutes, which have lower burdens of proof.
• Expanded recoveries – FIRREA allows the government to recover penalties for misconduct affecting federally insured banks even when no false claim was made. So FIRREA expands the scope of recoverable penalties.
• Cooperation incentives – Facing huge potential penalties under both laws, defendants have strong incentives to settle. Settlements often require improved compliance measures.

Potential Defenses

Despite their power, FCA and FIRREA cases are not guaranteed wins for the government. Possible defenses include:

• No false claims – If defendants can show they did not actually submit false claims, an FCA case falls apart.
• No knowledge – Defendants may argue any false claims were submitted by rogue employees without management’s knowledge.
• Minor recordkeeping violations – Defendants can argue any false statements were unrelated minor mistakes not meant to defraud.
• Causation – In FIRREA cases, defendants may argue their conduct did not directly harm a federally insured bank as required.

But such defenses are an uphill battle given the power of these laws. Any company doing business with the government should implement strong compliance measures to avoid FCA and FIRREA liability.

The Future of FCA and FIRREA

The government’s reliance on the FCA and FIRREA will likely only grow in the future. The Department of Justice has announced plans to use the laws more aggressively in areas like cybersecurity and individual accountability. And with trillions in new government spending, we can expect anti-fraud efforts to ramp up. Companies in all industries need to ensure vigorous compliance to avoid the severe penalties of both laws.

The False Claims Act and FIRREA have already recovered many billions for taxpayers. Together, they will continue serving as a powerful one-two punch to knock out fraud against the government for years to come.