Mr. Chairman, thank you for granting my request to hold this important hearing on S.2041, the False Claims Act Correction Act. As the Senate author of the 1986 Amendments to the False Claims Act, I’m especially pleased to have this opportunity to highlight the successes of the False Claims Act and to clarify the intent of the 1986 amendments. I’ve been a member of this Committee for many years and one of the benefits of that longevity is that you get to come back and hold hearings 20 years later to correct any court decisions that have incorrectly interpreted the laws you sponsored. That’s why we are here today, to discuss the False Claims Act and the many court interpretations that have gotten it wrong. Further, we are here to discuss the legislation I authored along with Senator Durbin and cosponsored by Chairman Leahy, Ranking Member Specter, and Senator Whitehouse.
When I was first elected to the Senate I discovered that legislating isn’t an easy thing to do for an individual member. However, I did learn that any member of Congress, through oversight, can make an impact by uncovering and eliminating fraud in government programs. I took this to heart in the 1980s and began uncovering countless problems with defense spending—including contracts for $700 toilet seats.
This example, along with countless others, showed a weakness in the government’s ability to recover money lost to large and complex frauds. Looking for an answer, I came across the False Claims Act (FCA) otherwise known as “Lincoln’s Law,” a Civil War era statute that was designed to reign in fraud against the government. However, the FCA had been gutted following World War II and was in drastic need of a face lift.
To rectify this, I introduced the Senate version of the False Claims Amendments Act of 1986. This bill provided sweeping amendments to the FCA to give real teeth to the False Claims Act. This included adding a key provision known as qui tam, which allows individual whistleblowers to pursue fraud on behalf of the government and collect a share of any monies recovered. The amendments also included important changes clarifying that the FCA permits the Government to sue for frauds “perpetrated on Federal grantees, including States and other recipients of Federal funds.” Additionally, this Committee included Section 3734 establishing whistleblower protections for qui tam relators who expose fraud.
Ultimately, the 1986 amendments garnered bipartisan support—including the cosponsorship of many members still present in the Senate today—such as Senators Levin and Rockefeller as well as members of this Committee including Senators Leahy, Specter, and Hatch. As a result, the 1986 amendments passed the Senate unanimously and were signed into law by President Reagan.
Since 1986, the FCA has become the premier tool for recovering money lost to fraud against the Government. This past November the Justice Department issued a press release stating that it recovered $2 billion in settlements and judgments under the FCA in FY 2007. Since then we’ve seen additional settlements under the FCA such as a $650 million paid by Merck & Company just two weeks ago. Taken together, this additional settlement has pushed the total recovery since 1986 to over $20 billion. That’s $20 billion that would have been lost and gone forever without the FCA and does not include the fraud that is deterred by having the FCA on the books.
These amendments have been highly successful in helping the Department of Justice prosecute individuals and corporations that have defrauded the Government. But, they haven’t done it alone. Courageous whistleblowers have been there almost every step of the way. In fact, qui tam relators have led to nearly $12.6 billion of the $20 billion recovered since 1986. Further, some of these qui tam relators take it another step and “go it alone” without the support of the Justice Department. This is exactly why the qui tam provisions were included in 1986, to maximize the number of eyes looking for government fraud. However, recent decisions by various Courts have limited the scope and applicability of the FCA contrary to the intent of the 1986 amendments.
Chief among the cases that have limited the FCA is U.S. ex rel. Totten v. Bombardier Corp. This D.C. Circuit Court of Appeals decision read into the law a requirement that claims to subcontractors and grantees be resubmitted to the government before the government can recover for false claims. This was not the intent of the 1986 amendments, and I recently filed an amicus brief in the Supreme Court detailing my objection to this reading. In that case, Allison Engine Co. v. U.S. ex rel. Sanders, the Sixth Circuit got it right and rejected an extension of Totten to claims filed under the FCA. I hope that the Supreme Court reads my brief and sees the true intent of the 1986 amendments. But, in the event they do not, S.2041 includes a fix to the Totten decision.
The second case, Rockwell International Corp. et al. v. United States, was decided by the Supreme Court last year. In Rockwell, the Court limited recovery for a qui tam whistleblower from the claims settled because he was not an “original source” of all the information that led to the settlement. This is a draconian expansion of the public disclosure bar and was not the intent of the provision we included in 1986 to prevent parasitic lawsuits. Instead, the public disclosure bar has evolved into a “jurisdictional defense”.
Finally, United States ex rel. DRC, Inc. v. Custer Battles, LLC, raises new concerns with the applicability of the FCA. This District Court case now on appeal, raised the issue of whether non-U.S. Government funds under U.S. Government control were subject to the FCA. A jury found that Custer Battles committed fraud and issued a $10 million verdict. However, the judge threw the verdict out finding that the even though the fraud was committed against the government, there was no recovery because the funds were Iraqi funds. When the U.S. Government is entrusted by another country to manage its money and is defrauded, the FCA should apply. We need to be stewards of our own dollars, as well as those entrusted to the care of the United States.
While representative of the negative interpretations of the FCA, these cases are not the only ones. Countless courts have interpreted these provisions and some are in conflict. In fact, one of the witnesses today notes that there are, “over 200 published and unpublished rulings in 103 separate cases” related to the public disclosure issue alone. This does not include the countless hours of litigation related to the dual statute of limitations provision[1], whether government employees can be qui tam relators[2], and whether a relator is entitled to relief for retaliation[3]. These problems are real and are costing American taxpayers money to litigate and, in some cases, denying the government recovery when they were defrauded. This is an unacceptable situation and needs to be clarified.
To address this, Senator Durbin and I authored S.2041. It is an important first step in fixing these problems. I say first step because I’m committed to the legislative process and hearing both sides of each provision contained in the bill. We have two panels here today to do that and help us flush out some of the issues surrounding S.2041 and the FCA.
Now, I know that the Department of Justice and other witnesses have some suggested changes with S.2041. However, after reviewing the testimony, I think many of us are on the same page with a majority of the provisions in S.2041. Further, the Department of Justice has filed briefs in various courts arguing for interpretations of the FCA that are consistent with the proposals contained in this bill.
The changes included in S.2041 are not sweeping, major amendments as some have alleged. Instead, they are targeted to clarify the original intent of the 1986 amendments. This includes amending larger issues such as presentment of a claim, the public disclosure/original source matter, as well as smaller issues such as standardizing the statute of limitations, ensuring the contractors are subject to retaliation protections, and clarifying that the Attorney General can delegate the signing of investigative subpoenas in FCA cases.
I welcome today’s witnesses and thank them for traveling here today to provide their testimony. Especially Ms. Gonter, a courageous whistleblower who put safety and security of Navy sailors before her own personal interests. I’ve always said that whistleblowers are patriotic for what they do and for it they are as welcome as a skunk at a picnic. I’m sure that Ms. Gonter can attest to that feeling and will give us some insights into what it is like to be a whistleblower. Thank you Mr. Chairman, I look forward to the testimony.