cbareport-dec12 - page 8

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December 2012 CBA REPORT
feature article
P
P
rotecting the public treasury so
that tax dollars can be wisely spent
by our elected representatives is of
paramount importance to our nation’s
survival. The primary device for recover-
ing stolen tax dollars and for deterring
such theft is the federal False Claims Act.
By early 1863, after two years of
bloody civil war, Abraham Lincoln’s
Army of the North had suffered increas-
ingly catastrophic battlefield setbacks.
At the same time, unscrupulous govern-
ment contractors had pillaged the public
fiscally. Contractors had substituted saw-
dust for gun powder, had sold the same
horses over and over again to the calvary,
boots disintegrated after a mile of march-
ing, freshly painted rotted hulls were sold
as new boats, and recycled cloth which
melted when wet had been purchased for
uniforms. An overwhelmed war depart-
ment seemed helpless either properly to
supply its troops or to fight a civil war.
One of Congress’s responses was to
enact the False Claims Act (FCA), which
President Lincoln promptly signed on
March 2, 1863.
1
The FCA essentially es-
tablished a bounty hunter statute which
permitted anyone to bring suit on behalf
of the United States against a govern-
ment contractor who had submitted a
false claim. The person bringing the suit
is called a “relator” and the suit is known
as a “qui tam” action based on ancient
English law.
2
If the
qui tam
suit was
successful, the responsible contractor
had to repay the government double the
damages caused plus a $2,000 penalty for
every false claim. The government then
awarded a share or a bounty to the rela-
tor of 50 percent of the recovery.
During WWII the United States Gov-
ernment was again besieged by defense
contractor profiteers. Since the end of
the Civil War, numerous government
investigative agencies now aided the
Attorney General in pursuing criminal
prosecutions against those who would
cheat the taxpayers. But, the attorney
General often neglected to bring civil
actions under the FCA at the same time
that criminal indictments were returned.
Enterprising citizens waited in federal
courthouses for the criminal indictments
to be filed publicly and then immediately
filed copy-cat civil
qui tam
cases against
the same contractor defendants.
Such actions, known as “parasitic
lawsuits,” enraged the Attorney General
who then unsuccessfully challenged the
qui tam
provisions in court. The Supreme
Court upheld both Congress’s right
to enact such legislation as well as the
citizen’s right to recover a bounty for suc-
cessfully prosecuting a
qui tam
case.
3
The Attorney General then went to
Congress in an attempt to have
qui tam
dropped from the law. Again the At-
torney General failed, but he was able
to convince Congress that parasitical
suits were of little benefit to the nation.
Accordingly, in 1943 the False Claims
Act was amended in two significant
ways. First, the 50 percent bounty was
reduced to no more than 10 percent.
More importantly, Congress added an
“any government knowledge” defense
which required the dismissal of any
qui
tam
action in which it could be shown
that any government employee had any
knowledge of the false claim. As a result
of those two amendments,
qui tam
cases
virtually disappeared from the American
landscape for the next 40 years.
But greedy government contractors
did not disappear. Congress became
concerned about reports of fantastic
charges being paid by the Department of
Defense for supplies: $400 for a hammer,
$1,000 for a small refrigerator, $6,000
for a toilet seat. Congress also became
aware of a federal
qui tam
suit pend-
ing in Cincinnati involving widespread
time card cheating in the revitalized
B-1B “Lancer” bomber engine project at
the General Electric plant in Evendale,
Ohio.
4
Congress used those experiences
to enact wide ranging changes to the
FCA which President Reagan signed on
October 27, 1986.
The 1986 FCA Amendments in-
creased the bounty to a range of 15 to
30 percent of the recovery, changed
the damages provision from doubles to
trebles, increased the penalty per false
claim from $2,000 to between $5,000 and
$10,000, added whistleblower protection
and recovery of attorney fees and costs
for the successful relator, clarified that
the preponderance of evidence standard
should apply to all cases, and eliminated
the “any government knowledge” defense
in favor of a public disclosure bar with
those relators who were original sources
of the suit’s information allowed to pro-
ceed even if there was a public disclosure.
These changes have proven to be
transformational in the fight against
government contracting fraud. In 1985,
the last year before the 1986 FCA amend-
ments, the entire government apparatus
By James B. Helmer, Jr.
150-Year-Old Lincoln’s Law Recovers
$30 Billion Stolen Tax Dollars
1,2,3,4,5,6,7 9,10,11,12,13,14,15,16,17,18,...36
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