Prepared FloorRemarks by U.S. Senator Chuck Grassley of Iowa
Highlights the Importanceof the False Claims Act
Monday, March 22,2021
Iwant to talk today about the most recent limitations the courts have imposed onthe False Claims Act.
TheFalse Claims Act was signed into lawby President Abraham Lincoln in 1863, to fight fraud against the Union Armyduring the Civil War.
Today,it is the government’s most powerful anti-fraud statute.
That’sbecause amendments that I authored in 1986 empowered whistleblowers to suefraudsters on the government’s behalf.
Sincethen, we’ve recovered more than $64 billion in taxpayer money lost to fraud.
Now,when we talk about anti-fraud statutes like the False Claims Act, we use the term “materiality.”
TheFalse Claims Act defines materialityas “having a natural tendency to influence or be capable of influencing thepayment or receipt of money or property.”
Basically,if the government could have withheld payment, then it was likely material.
However,based on a 2016 Supreme Court opinion, the federal courts are trying to reshapethe Act’s materiality requirement.
In the Supreme Court’s opinion in the Escobar case: “[I]f the Government paysa particular claim in full despite its actual knowledge that certainrequirements were violated, that is very strong evidence that thoserequirements are not material.”
Citingthis language, courts have made the government’s payment decision in thesecases a deciding factor.
Now,the Justice Department shies away from prosecuting them.
Evenwhen the fraud is obvious, and obviously material.
Recently,the Office of the Special Inspector General for Afghanistan Reconstruction briefedme on a report about a botched Defense Department effort to quickly buy cargoplanes from an Italian manufacturer called Alenia.
In2009, the DoD bought 20 cargo planes from Alenia for $549 million.
Theseplanes were intended to move goods and train Afghan pilots.
Thecontract required the manufacturer to refurbish 20 retired aircraft and provideenough spare parts for ten years of maintenance.
Toseal the deal, the company even took DoD personnel on several warehouse toursto prove they had all these spare parts.
Whenthe planes arrived in Afghanistan, mechanics quickly noted the planes were verypoorly refurbished.
Worse,they couldn’t actually fly.
Thepoor state of the planes and the hazards of the Afghan elements made thatimpossible.
Aleniaalso lied about their maintenance commitments.
Thosewarehouses full of spare parts? They were for the wrong planes.
Despitethis blatant fraud, DoD inspectors kept certifying the planes and thegovernment kept making payments.
Buthere’s the catch.
Theinspectors later admitted that many of the documents and manuals they reviewed werein Italian.
Noneof them spoke Italian.
Thefinal count: Out of 20 aircrafts, 4 never even made it to Afghanistan.
It’sunclear why DoD continued making payments despite such flagrant violations.
Butby 2013 it became clear that continuing this program was unfeasible, and thegovernment tried to sell the remaining 16 planes.
So,the Obama/Biden administration sold them for scrap metal.
Torecap: The government bought 20 airplanes for $549 million and in less than fiveyears sold them for $40,257 worth of scrap metal.
Thephotos next to me show what we bought, compared to what it was actually worth –a literal pile of garbage.
It’sclear that the actual condition of planes and lack of parts were very material componentsof this contract.
Now,thanks to DoD’s poor judgment, and the courts’ new standard, the JusticeDepartment won’t bring False Claims Act chargesagainst the company.
Materialityis important to protect against parasitic lawsuits.
Butwe can’t allow defendants to get away with scalping the taxpayer because somegovernment bureaucrats failed to do their jobs.
Governmentbureaucrats are highly segmented and often unable to make key decisions fortheir organizations.
Thegovernment also typically stops payment only when it has fully investigated andcorroborated a claim of fraud.
And,my many years investigating the DoD has taught me that a Pentagon bureaucrat israrely motivated to stop fraud.
That’sbecause the money doesn’t come out of their pocket.
Thisexample highlights how the courts’ narrow interpretation of materiality failsto take into account how the government really works.
Whenthe False Claims Act was originallypassed, one fraudster boasted, “You can sell anything to the government atalmost any price if you’ve got the guts to ask.”
Unfortunatelythat was true in this case.
Ihave already made it public that I am working to patch this hole in thetaxpayer’s pocket.
Thisexample perfectly illustrates the need for changes.
Iplan to introduce legislation to address this issue. I’m in the final stages ofnegotiating and look forward to putting forward a bipartisan bill in the comingweeks.