Member Article

Enforcement priorities frequently change with administrations, but the recent presidential election may produce a sea change for corporations.

Over the last four years, the Department of Justice (DOJ) has focused on corporate financial misconduct and created incentive programs to encourage whistleblowing. This strategy builds on the civil False Claims Act (FCA), which includes a qui tam provision allowing private citizens to sue on behalf of the government and share in any recovery. The FCA imposes liability for making a false statement to obtain money in connection with a government program. Given the scope of government spending, its reach is massive; over the past three years, FCA resolutions have exceeded $10 billion.

Although FCA enforcement historically has bipartisan support, that may soon change. Drawing from arguments in a 25-year-old memorandum by William Barr, the attorney general in President Donald Trump’s first administration, courts have begun questioning the constitutionality of the qui tam provision. Coupled with evidence suggesting that corporate criminal enforcement was not a high DOJ priority in Trump’s first term, it is possible we are on the cusp of a significant shift in the corporate enforcement landscape.

Recent decisions call qui tam provision into question

In 2023, in a largely unremarkable case, U.S. Supreme Court Justice Clarence Thomas argued that the FCA’s qui tam provision — which delegates enforcement authority to a private citizen who is not a government-appointed “officer” — violates the Constitution. Although lower courts rejected similar challenges, Chief Justices Brett Kavanaugh and Amy Coney Barrett concurred, writing that the court should consider the “substantial arguments” of unconstitutionality “in an appropriate case.”

One such case is making its way through the courts. In late September 2024, a Trump-appointed judge in the Middle District of Florida, ruled that the FCA’s qui tam provision violates the Appointments Clause. The DOJ has appealed, but the change in administrations raises an interesting question: will the DOJ continue defending the FCA’s constitutionality or will it align with the defendant to argue that the qui tam provision is unconstitutional? Either way, the Supreme Court will need to provide certainty, and it may take two years before that happens.

Companies should remain vigilant in FCA compliance

While this issue plays out, companies must remain focused on compliance efforts. Existing law and DOJ policy have required increasing corporate vigilance and some enforcement priorities may continue in the new administration:

1. Cybersecurity – Beyond the business and reputational concerns associated with hacking, the DOJ has begun suing government contractors for maintaining inadequate cybersecurity. In 2023, Verizon paid $4 million to resolve FCA allegations that it failed to satisfy cybersecurity controls in connection with a government contract. Penn State recently agreed to pay $1.25 million for alleged cybersecurity violations, and the DOJ is pursuing a similar case against Georgia Tech for failing to meet cybersecurity standards. The Securities and Exchange Commission has also signaled interest in public statements about cybersecurity, arguing that overly optimistic claims may mislead and harm investors.

2. Health care –Health care fraud will likely remain a high priority for the DOJ. Specifically, the Anti-Kickback Statute (AKS) has become an important tool to combat unlawful kickbacks by healthcare providers in exchange for referrals. Health care providers should expect the DOJ to continue to pursue AKS violations and should ensure they have appropriate protections in place.

3. Pandemic fraud – Another area of focus that will likely continue is COVID-19- related fraud, including improper payments under the Paycheck Protection Program (PPP). The DOJ’s COVID-19 Fraud Enforcement Task Force has charged more than 3,500 defendants with federal crimes, recovered more than $1.4 billion in government funds and filed more than 400 civil settlements and judgments. In support of those efforts, the statute of limitations for PPP and COVID-19 Economic Injury Disaster Loan fraud was extended from five to 10 years and the DOJ has asked Congress to do the same for all COVID-19 fraud-related offenses. This enforcement area appears to be a bipartisan concern.

Whistleblowers remain potent

Earlier this year, the DOJ launched a whistleblower incentive program granting financial rewards for whistleblowers who provide the agency with original information on corporate crime not covered by existing programs. While the new administration might scrap it, Congress could enact a similar whistleblower-friendly scheme even if the DOJ remains hostile. Companies should take stock of existing policies and procedures to ensure they can detect and address internal reports of misconduct, as the DOJ will continue to push for and reward voluntary self-disclosure.

 

Link to article