The False Claims Act Rewards Whistleblowers for Informing the U.S. Government of Fraud

What is the False Claims Act [FCA]?

The False Claims Act [FCA] is a U.S. statute whereby whistleblowers can recover an award for suing companies for defrauding a government agency or program.

Indeed, suing on behalf of a government also comes from the latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur. Qui tam which was used in England simply meant “(S)He who sues in this matter for the king as well as for (her/) himself”

The FCA is one of the primary statutes in the U.S. that has a reward program for whistleblowers. Any private person from anywhere in the world who has non-public information can be a whistleblower under the FCA. A whistleblower (called a relator under the statutory scheme) can sue a company for knowingly submitting or causing the submission of fraudulent claims to the U.S. Government for money or property or for withholding money or property rightfully owed to the U.S. Government. The fraud or misconduct could also be the result of intentional ignorance or a reckless disregard for the truth.

What are the Rewards a Whistleblower Can Recover Under the FCA?

A whistleblower (also referred to as a relator under this Act) who helped bring the case can get a reward between 15 and 30 % of the recovered amount.

The reward percentage is not fixed until the conclusion of the proceedings and depends on many factors, including: whether the Government intervened, the usefulness of the information provided by the whistleblower, their cooperation, and whether they participated in the fraud (e.g., whistleblowers who have participated in a fraud and been criminally convicted for their role in said fraud cannot file under the FCA).

Apart from being the right thing to do, there is also an economic incentive for international whistleblowers to come forward.

What Kind of Claims Come Under the FCA?

Any significant non-compliance of American law which also causes the US government to be deprived of their revenue or causes them material loss in any other way can be prosecuted under this Act. An FCA claim should be an original piece of information (and not something that is publicly available).

A qui tam action under the FCA or a whistleblower/relator complaint under the FCA can be directly filed by a whistleblower in Federal Court which gives teeth to the idea of suing on the Government’s behalf. The Government can choose to interfere or not interfere in an FCA action filed by a whistleblower.

What Constitutes a Claim under the FCA?

A person or company is liable under the FCA for a variety of fraudulent offences including:

knowingly submitting or causing the submission of fraudulent claims to the U.S. Government for money or property, or

knowingly withholding money or property rightfully owed to the U.S. Government.

Under the FCA, “knowingly” includes instances of intentional ignorance or a reckless disregard for the truth.

Not every non-compliance may be actionable under the FCA but typically an incorrect claim made by a person that would have a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property is actionable.

What can the Government Collect under the FCA?

The Government can recover triple damages of any actual loss suffered as a result of the fraud. They can also receive civil penalties for each false claim submitted to the Government.

Can International Whistleblowers recover under the FCA?

Yes. There is no residency or citizenship requirement for bringing a FCA claim.

What are the Qualifications of an International Whistleblower and does the Whistleblower Need to Have a tie to the Company that is Perpetrating the Fraud?

Any person from anywhere in the world can be a whistleblower including employees of competing business, clients of the entity, third-parties, recipients of service or goods of the fraud committing company, former or present employees of the company etc.

How does a Whistleblower file a Claim?

A whistleblower (called a relator under the FCA) generally must hire an attorney licensed to practice in the United States who can file a complaint in a Federal Court.

How Does an FCA case proceed?

After the complaint is filed, the Government can choose whether to intervene in the action (i.e., the Government is the party primarily responsible for litigating the case). Even if the U.S. government chooses not to intervene, a relator can continue to litigate the case against the defendant.

Are there any other Requirements that are Involved in an FCA Claim?

Yes. For instance, if many folks with the same information approach the US Government or courts, then typically only the first person who filed gets the opportunity to proceed under the FCA. You should ideally consult with a lawyer if you intend to bring a claim.

What is the Typical Lifecycle of an FCA Case?

Pre-filing disclosure
Complaint
Disclosure statements
Relator Meeting
Intervention / Litigation

What are examplescases that are outside the bounds of the FCA?

The following are a few example fact patterns that do not constitute a claim under the FCA:

A company withholding information from its non-governmental investors [but this may give rise to an SEC claim]
A company bribing foreign government officials [this may give rise to an FCPA claim]
A company accidentally charging the government for a service, but immediately paying the government back upon discovering the overpayment.

What are some Examples of Cross-Border Whistleblower Cases that Indian Citizens may Discover?

Customs Fraud
Health, safety, and pharmaceutical fraud
Fraud against the department of defense

Customs Fraud in Foreign Trade

Foreign trade typically involves declaring among other things, the country of origin of the goods, the value of the goods, whether the goods are covered by antidumping or countervailing duties, and the of duty owed. Exporters to the US and importers in the US who try and manipulate their books of accounts, receipts, invoices, or any other operations to evade paying appropriate customs tariff, antidumping or other duties can face consequences under the False Claims Act.

Types of Successful Customs Fraud Claims under the FCA

Under Valuation or Incorrect Valuation/Incorrect Information of Country in Which value was added

In order to reduce the customs duties payable is the most common kind of customs fraud. Examples:

An American importer and two Chinese companies agreed to pay $2.5 million to resolve an FCA claim that they submitted falsified invoices for customs valuations brought by two whistleblower complaints. The whistleblowers received $500,000 as a reward.
For quoting a lesser value of goods and changing the country of origin in which primary value was added to the goods, an American importer of diamonds was brought to the American government’s attention through a whistleblower complaint under the False Claim Act.
A clothing company misrepresented the value of goods and maintained two sets of invoices, one of actual value and one with a lesser value on which customs duties were calculated. This system to avoid paying appropriate customs duty on the actual value of the goods was exposed by a whistleblower and eventually had to settle with the US Government for $6 Million.

Misclassification of the type of Good under the Harmonized Tariff Schedule to Obtain Lower Tariffs.

Examples:

An importer of dietary supplements that fraudulently reported incorrect tariff classifications and duty rates on the imports into the US from China had to settle a whistleblower complaint with the US Government recently in January 2023. The settlement included $4.5 million that was rewarded to the whistleblower.
A Germany based MNC settled claims that it avoided duties by distorting the nature, classification, and value of good imported to the US to evade anti-dumping duties and access lower tariff rates. The settlement was around $22 Million and the whistleblower in the case received $3.7 Million.

Claiming Incorrect Country of Origin/Country of Value Addition to obtain Lower Tariffs

Examples:

A set of Indian Diamond Supplier that sent goods to an American Jewellery importer through Hong Kong and Thailand was caught under an FCA proceeding brought by a whistleblower because of their scheme to underreport the value and country of classification of the goods and reduce the customs paid on it.
Some shipments have fallen foul of the FCA because a single sale of shipment is broken up into multiple shipments that qualify under the minimum dutiable value.
For a look at recent customs fraud cases from 2022, this post is relevant.

Health, Safety and Pharmaceutical Fraud

Fraud in the healthcare sector is a major chunk of the cases under the False Claims Act. India is a big participant in the global pharmaceutical and health industry and is also one of the biggest suppliers of active pharmaceutical ingredients. Indian entities could be subject to a host of international regulations and legal regimes and can be brought under the microscope of the False Claims Act for unethical practices.

This type of Health, Safety and Pharmaceutical Fraud Generally Falls under these Types of Fraudulent Actions:

Failure to comply with Current Good Manufacturing Practices(cGMP) which are the food and drug administration’s stringent manufacturing rules.

Falsifying data about clinical trials

Manipulating clinical trials

Kickbacks to induce generation of business involving any item or service payable by the U.S. Government Programs. [Providing Kickbacks to Indian Government Doctors to induce business would come under FCPA]

Examples of Healthcare and Pharmaceutical Global Fraud

Instances where Indian companies or ties with India that have flouted American regulations and have been exposed by whistleblowers include:

Fabricated Clinical Trials and failure to Comply with cGMP

A Ranbaxy executive who was the Director & Global Head of Research Information & Portfolio Management filed a qui tam complaint (U.S. ex rel. Thakur v. Ranbaxy Laboratories Limited, Case No. JFM-07-962 (D. Md.) regarding falsified records and improper manufacturing processes at the Indian generic pharmaceutical manufacturer, Ranbaxy Laboratories limited. Ranbaxy through its American subsidiary had to settle civil claims under various domestic American legislations including the False Claims Act for $350 Million. The concern in the case, among other things was of falsifying data about drug trials and distributing drugs in the U.S. whose manufacturing did not conform to approved formulations regarding strength, purity or quality under the cGMPs. The crux of the allegations against the drug manufacturer was that it knowingly made false claims for those drugs to be submitted to Medicaid, Medicare, TRICARE, the Federal Employees Health Benefits Program, the Department of Veterans Affairs, and the U.S. Agency for International Development (USAID). The whistleblower who was a Ranbaxy executive based in India at the time of the complaint, eventually received around Rs. 220 Crores ($48 Million) from the settlement between Ranbaxy and the US.

Illegal Outsourcing of Medical Services

An American company that provides cardiac monitoring and laboratory services settled a case to resolve False Claims Act liability for outsourcing the diagnostic and analysis services from an Indian company. US Federal healthcare programs like Medicate, TRICARE, Veterans Health Administration and the Federal Employee Health Benefits Program are prohibited to pay for services that are furnished outside the US. The whistleblowers who exposed that federal healthcare beneficiaries ECG data was directed to India for review received $8.3 Million of $44.8 Million settlement.