Executive Branch changes to the Enforcement Landscape
In response to reports of substantial fraud around the US government’s COVID-19 relief programs, on 17 May 2021, US Attorney General Merrick B. Garland announced the establishment of an interagency COVID-19 Fraud Enforcement Task Force designed “(1) to identify cross-governmental resources, investigative techniques, and information for uncovering fraud schemes and the actors who perpetrate them; (2) to harness what we have learned about COVID-19 related and other types of fraud from past efforts; and (3) deter, detect, and disrupt future fraud wherever it occurs.” Since the creation of the Task Force, federal prosecutors have charged at least fifty individuals with defrauding the federal COVID-19 relief program1 and have settled one allegation under the False Claims Act, in which an individual allegedly misappropriated Paycheck Protection Program (PPP) loan proceeds for personal enrichment.2
On 1 July 2021, Garland issued a memorandum rescinding two Trump-era memoranda issued by Attorney General Sessions and Associate Attorney General Brand that restricted the DOJ’s use of agency guidance documents to help build their cases in both criminal and civil enforcement actions. Garland’s memorandum provides that prosecutors may rely on guidance documents, defined as interpretive memoranda, agency manuals, policy statements and opinion letters. While Garland acknowledges that agency guidance documents “do not have the force and effect of law” (quoting Perez v. Mortgage Bankers Ass’n, 575 U.S. 92, 97 (2015) and “never form the basis for an enforcement action because such documents cannot impose any legally binding requirements on private parties” (quoting Kisor v. Wilkie, 139 S. Ct. 2400, 2420 (2019) (quotations omitted), he establishes that regulators may use such documents as evidence of elements of a fraud case.
As such, Garland called for the DOJ to update its Justice Manual, which had formalized the Sessions and Brand memoranda in Title 1-20.000, and formally revoked Executive Order 13891, which had imposed limitations on how agencies issued new guidance and how regulators could use that guidance, with Executive Order 13992. These moves will give DOJ prosecutors more leeway to build their FCA claims, among others, by relying on a company's non-compliance with agency guidance documents as the basis for False Claims Act allegations. Therefore, in addition to reviewing contractual obligations, the Code of Federal Regulations, the Federal Acquisition Regulations, among other government rules and regulations, government contractors must review agency guidance documents to ensure that they are complying with those, too.
Proposed Legislative Changes to the Enforcement Landscape
A bipartisan group of U.S. senators led by Senator Chuck Grassley (R-Iowa) introduced a bill to amend the False Claims Act on July 26, 2021. Key provisions of the False Claims Amendments Act of 2021 include:
- Specifies the burden of proof for materiality. The government must prove by a preponderance of the evidence that the alleged fraud was material. In turn, the defendant has a higher burden of proof to rebut by clear and convincing evidence that the alleged fraud was not material. This proposed amendment responds to the Supreme Court’s decision in United Health Services v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016), which held that the FCA’s materiality requirement is “rigorous.” Specifically, the Supreme Court found that if the government had actual knowledge that certain requirements were violated and continued to make payments, there was “strong evidence” that statutory, regulatory, or contractual violations were not, in fact, material. This amendment would make it harder for defendants to prove that their alleged fraud was not material.
- Increases the cost for defendants. The DOJ may request reimbursement for the cost of discovery where it did not intervene in qui tam litigation. Qui tam litigation is an action brought by a private party, known as a relator, on behalf of the government.
- Increases the rights of qui tam plaintiffs. A hearing must be held before the DOJ can dismiss a relator’s claim, giving the qui tam plaintiff an opportunity to object to the DOJ’s dismissal.
- Extends anti-retaliation provisions. False Claims Act anti-relation provisions extend to post employment retaliation.
As we previously reported in “INSIGHT: DOJ Ramps Up Crypto, FCA Enforcement Efforts During COVID-19,” Bloomberg, May 2020, companies need to be vigilant about their internal policies and controls to ensure compliance with applicable laws and regulations related to fraud as well as with the terms of any government contract or program which affects their business.
1. Coronavirus Fraud News, DOJ, available here.
2. “Owner of Jet Charter Company Settles False Claims Act Allegations Regarding Misappropriation of Paycheck Protection Program Loan”, DOJ Press Release (26 August 2021).