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How does the False Claims Act apply to the energy industry?

 

Introduction

The False Claims Act is an important tool for combating fraud against the government, including in the energy industry. This law allows whistleblowers to file lawsuits on behalf of the government against companies that engage in fraud. Let’s take a look at how it works and some examples of how it has been used in the energy sector.

What is the False Claims Act?

The False Claims Act (FCA) is a federal law that prohibits making false or fraudulent claims for payment to the government. For example, if a company lies about meeting certain requirements in order to get a government contract or grant, that can violate the FCA.
Qui tam lawsuits are a key part of the FCA. These allow whistleblowers to file fraud lawsuits on behalf of the government. If the lawsuit is successful, the whistleblower may receive 15-30% of the money recovered. So qui tam cases provide incentives for people to come forward if they know about wrongdoing.

How Does the FCA Apply to Energy Companies?

There are a few main ways energy companies can commit fraud against the government:

  • Overcharging on energy-related government contracts
  • Misusing federal grant money for energy research projects
  • Making false statements to avoid paying environmental fines

For example, an energy company might falsely claim that a wind farm meets certain renewable energy requirements in order to get tax credits or other benefits. Or a fossil fuel company could misrepresent its compliance with regulations around methane emissions.

Recent FCA Recoveries in the Energy Sector

The Department of Justice has had some major False Claims Act wins against energy companies in recent years. Here are a few examples:

Oklahoma Energy Companies Pay $6.3 Million

In 2021, two Oklahoma-based companies that specialize in selling and transporting renewable fuels paid $6.3 million to settle FCA allegations. Federal prosecutors accused the companies of violating rules around generating renewable fuel credits.

$1.77 Million Settlement by Department Grantee

In 2018, a Department of Energy grantee paid $1.77 million to resolve claims that they misused grant funds for an energy project in Puerto Rico. Auditors found that the grantee could not account for a significant portion of the money.

Major Utility Company Settles for $230 Million

Last year, Jacksonville Electric Authority (JEA) in Florida paid $230 million to settle a qui tam lawsuit alleging violations of the False Claims Act. The whistleblower lawsuit accused JEA of making false statements in order to receive bonus payments from a federal program that supports energy conservation and management.
So as you can see, the False Claims Act allows the government to recover significant sums from energy companies that commit fraud. The qui tam provision encouraging whistleblowers to come forward makes it more likely that misconduct will be revealed.

Implications and Defense Strategies

The threat of False Claims Act liability has a few key implications for energy companies:

  • They need rigorous compliance programs to prevent fraud
  • They should train employees on FCA risks
  • If sued, they need specialized legal counsel knowledgeable about the FCA

Common defenses in FCA cases include arguing that any false statements were accidental mistakes rather than intentional deception. Companies may also claim there was no actual harm to the government from the alleged fraud.
But such defenses often fail. So the best strategy is having robust systems in place to promote compliance from the start, rather than trying to fight allegations of wrongdoing after the fact.

How to Report Potential Fraud

If you suspect False Claims Act violations or other fraud related to energy companies or federal grants, here are a few options for reporting it:

  • File a qui tam lawsuit yourself with the help of an attorney
  • Report it to the DOJ at 800-HHS-TIPS or the DOE Inspector General
  • Contact a whistleblower law firm for a confidential consultation

Keep in mind that whistleblower laws like the FCA protect employees who report misconduct from retaliation. You can get legal help exploring your options.
The government relies on insiders to speak up when they know about corruption. So your information could lead to the next major FCA recovery!

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