The False Claims Act and the Mining Industry: Areas of Concern

The False Claims Act and the Mining Industry: Areas of Concern

Use of Public Lands

Many mining operations take place on public lands leased from the federal government. As part of these leases, companies make certain promises and representations about intended land use, environmental impacts, site remediation, and royalty payments. If a mining company knowingly makes false statements or submit false records related to any of these areas, it could face FCA liability.

For example, a company that undertakes mining activities beyond the scope of its government lease could be liable under the FCA. Similarly, if a company submits inaccurate or misleading environmental impact statements to obtain lease approvals, this could form the basis for an FCA complaint. Montana law also makes it a crime to file false mining claims.

Royalties and Severance Taxes

Mining companies are often required to pay royalties and taxes on the natural resources they extract from public lands. Calculating these payments can be complex, involving consideration of factors like market prices, deductions and allowances, transportation costs, mineral compositions, and more.

If a mining company knowingly underpays royalties or severance taxes through intentional misreporting, manipulation of allowances, or other means, this could prompt an FCA complaint. For example, a qui tam lawsuit might allege that a company undervalued the coal it mined on federal lands in order to reduce its royalty payments to the government.

Environmental Violations

Mining companies are subject to extensive federal and state environmental regulations. These rules govern issues like hazardous waste handling, water discharges, air emissions, and site reclamation. If a mining company knowingly violates applicable environmental laws or regulations, fails to obtain required permits, or misleads agencies about its environmental performance, it could face FCA liability.

For instance, an FCA complaint might allege that a company obtained mining permits by submitting false statements about the environmental impacts of its proposed operations. Or a qui tam lawsuit could claim that a company violated environmental rules regarding disposal of mining waste on public lands but falsely certified its compliance with all legal requirements in submissions to the government.

Government Contracts

Some mining companies contract directly with federal agencies or state governments. These contracts might relate to resource extraction, site remediation, infrastructure development, environmental reclamation, or other mining-related work on public lands.

If a mining contractor falsifies records, bills for work that was not performed, charges for unnecessary or unapproved expenses, or engages in other fraudulent conduct, it could prompt an FCA complaint. The FCA prohibits making false statements or submitting false claims in connection with government contracts.

Medicare Advantage Plans

Some mining companies offer Medicare Advantage health insurance plans to their retirees. Medicare Advantage plans receive payments from the federal government based on the health status of plan members as documented through diagnosis codes.

If a Medicare Advantage insurer exaggerates enrollees’ medical conditions through unsupported diagnosis codes in order to increase payments from the government, this could violate the FCA. One recent case targeted a health plan’s use of “data mining” techniques to identify diagnosis codes that would maximize revenues.

Procurement and Grant Fraud

Mining companies may also defraud federal programs through fraudulent statements made to obtain government contracts, grants, loans, or other benefits. For example, a company might falsify its qualifications, capabilities, or resources in bidding for a federal mining services contract. Or it might make false statements about intended land use in applying for an economic development grant.

If such fraudulent statements or claims result in the company wrongfully obtaining federal funds or other government benefits, this could give rise to FCA liability. Under the FCA, recipients of federal funds have an obligation to expend those funds as intended and promised.

Customs Violations

Some mining companies engage in illegal extraction, trade, or transportation of precious minerals. Trafficking in “conflict minerals” or precious metals extracted through unauthorized mining supports criminal networks while depriving governments of legitimate tax revenues and royalties.

If a company makes false statements to customs officials or on import/export declarations related to trafficking in precious metals or minerals, this could violate customs laws. And if such false statements result in loss of import duties, evasion of export restrictions, or frustration of government oversight over trade in conflict minerals, it could prompt an FCA complaint.

In sum, mining companies face an array of potential FCA risks and exposures. These include making false statements related to public land use, underpayment of royalties and taxes, environmental violations, government contracting fraud, Medicare Advantage plan abuses, and customs violations associated with illegal mining or mineral trafficking.

The mining industry should ensure vigorous compliance programs to mitigate these FCA risks. But for relators and whistleblowers, the sector presents growing opportunities to combat fraud against the government under the False Claims Act’s qui tam provisions.

References

[1] Data Mining for qui tam False Claims Act Suits

[2] Illegal mining and trafficking in precious metals

[3] Justice Department Targets Data Mining in Medicare Advantage Fraud Case

[4] 82-2-115. Filing of false mining claims, MCA

[5] 43 CFR Part 3800 — Mining Claims Under the General Mining Laws