Washington, D.C. - On Wednesday, December 19, Congressman Berman introduced the False Claims Act Corrections Act of 2007.  Below are his introductory remarks on the measure.

Madam Speaker, I am pleased to introduce the False Claims Act Corrections Act of 2007, a bill designed to return the False Claims Act to its original intent.  This legislation is sorely needed today, with the Department of Defense budget raided by unscrupulous contractors willing to enrich themselves at the expense of our nation, and the Medicare program at risk of insolvency while organized crime and others pilfer funds meant for the care of our elderly and disabled.   The proposed amendments would correct the effect of unduly restrictive judicial opinions by  clarifying that Congress intends the law to reach all types of fraud on the federal fisc, regardless of the form of the transaction.  The amendments would also restore the intended incentives for whistle blowers, to act when they discover fraud against the United States Government.

The False Claims Act was signed into law by President Abraham Lincoln in order to combat rampant fraud in Civil War defense contracts.  The Supreme Court has called the law the  "Government's primary litigative tool for combating fraud," a law "intended to reach all types of fraud, without qualification, that might result in financial loss to the Government."  The statute, which embodies principles developed in centuries-old English common law, contains incentives for private individuals to report false claims and fraudulent activity.  It also allows private parties to sue on behalf of the United States and bring their private resources to support the government's investigation and litigation.   If the United States investigates and finds merit to the private party's allegations, it may intervene in and take control of the lawsuit.
 
During the first century after its enactment, however, the law fell into disuse as amendments and adverse case law chipped away at the incentives needed to bring whistle blowers forward.  Moreover, the courts had restricted the law by construing ambiguities in the act against the government.   It had also become apparent that, in order for the law to have its intended impact, the Department of Justice needed the power to compel testimony and production of documents to investigate allegations made by informants.

In 1986, I was joined by Sen. Charles Grassley in an effort to restore the requisite incentives for whistle blowers and to clarify that the law was intended to reach all frauds on the government, regardless of the form of the transaction.  The False Claims Amendments Act was passed by Congress and signed into law on October 27, 1986.  In addition to addressing incentives, the new law also provided for a subpoena-type authority for the Department of Justice so that the Department could fully investigate allegations raised by whistle blowers.  Congress intended that the Department of Justice would use this new "civil investigative demand" authority to obtain documents and testimony, and then question fact witnesses and experts about this information to fully comprehend its significance.

I am very happy to report that, in the years since 1986, the amended Act has returned over $20 billion to the United States government that otherwise would have been lost to fraud.   For the most part, the law has been a resounding success.  The government has received full compensation for many of its losses, and has also imposed financial penalties on many who have knowingly over-billed the government.   It has utilized information from False Claims Act informants to impose criminal sanctions, including imprisonment, on the worst offenders.  The Department of Defense and the Department of Health & Human Services, in turn, have debarred from government contracting, and excluded from participation in the Medicare program, some of those subject to judgments and convictions.  Other agencies have taken similar action.  As a result of this aggressive enforcement action by our executive branch, many companies have been motivated to initiate compliance efforts, and have been deterred from engaging in the types of fraudulent schemes subject to enforcement activity.

Nonetheless, the law has not been a success in one critical respect:  it could be doing far more.   If construed according to Congress' original intent,  it could be bringing in many billions of additional dollars in recoveries from those who have cheated at the expense of the  taxpayer.    Instead, some courts have misconstrued our intent, even in clear language in the law, in a manner that leaves entire categories of fraud outside the reach of the law.  For example, courts have thrown out cases in which the government has administered government programs, and expended its funds through contractors and other agents, as opposed to direct expenditure.  Many courts unreasonably have barred whistle blowers with potentially meritorious claims from pursuing cases.  For example, the courts have dismissed cases brought by  insiders who know key details of fraudulent schemes because they can't  plead specific details of the billing documentation, such as the dates and identification numbers of invoices -- information ordinarily sought and obtained in discovery.   Finally, due to procedural requirements and an oversight in our original drafting, the Department of Justice has not employed the civil investigative demand authority as hoped. 

The amendments proposed in this legislation will remove these debilitating qualifications and to clarify that the Act is intended to "reach all types of fraud, without qualification" leading to Government losses.  We intend for these amendments to apply to all future cases as well as all cases that are pending in the courts on the date the amendments become law.

The Amendments' most critical goals are the following:

• Clarifying that the Act covers fraud on Government programs even when the Government uses agents and other third parties to administer Government programs and contracts;

• Clarifying that the Government's new or amended complaint in a qui tam action relates back to the original qui tam complaint to the same extent it would relate back if the Government had filed the original complaint;

• Clarifying that plaintiffs do not need to have access to individual claims data or documents to bring a False Claims Act case;

• Amending the Act so that a qui tam case may be dismissed in light of prior public disclosures only upon motion of the Government, and only if the case is truly parasitic;

•  Amending and clarifying the Act to specify how  the Act's chief investigative tool - the civil investigative demand - may be used to investigate violations of the Act; and

• Clarifying how the Act applies to federal employees who discover fraud during the course of their employment, by providing the Government authority to move to dismiss the action of any federal employee who brings a qui tam action under the Act without first having provided the Government fair notice and opportunity to pursue such wrongdoing through its own False Claims Act action or other appropriate remedy.

Fighting fraud against U.S. taxpayers is not a partisan issue.  When we passed the False Claims Act amendments in 1986, we did so with a strong bipartisan coalition in both houses.  I'm pleased to continue that tradition by introducing this bill today with Rep. Jim Sensenbrenner as my partner.  I look forward to working with him to make these amendments to the False Claims Act law this Congress. 

Please click here for a copy of the bill.