Reed Smith Client Alerts

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act) will provide significant financial assistance and support to American businesses and individuals in the form of direct cash payments and available loans. The CARES Act infused an unprecedented $2.2 trillion into the American economy to assist those impacted by the COVID-19 pandemic, but the threat of opportunities for fraud, theft, and mismanagement related to this money will require vigilance to ensure that the funds allocated by the Act actually make it into the bank accounts of those who need it and who are eligible to receive it. Additionally, even as of the date of this alert, we know that lawmakers are already working on the next stimulus bill that will undoubtedly flood our struggling economy with even more cash and loan assistance.

Auteurs: Rizwan A. Qureshi Andrew C. Bernasconi Daniel Z. Herbst Liza V. Craig

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When it is all said and done however, oversight bodies created pursuant to recent legislation and those already in place will be scrutinizing funds distribution under the CARES Act and other related COVID-19 legislation. For this reason, we can safely predict that the False Claims Act (FCA) will be used aggressively in the years to come. In fact, the CARES Act specifically created three oversight organizations that are charged with monitoring the distribution of the stimulus funds: the Office of the Special Inspector General for Pandemic Recovery, Department of the Treasury; the Pandemic Response Accountability Committee; and the Congressional Oversight Commission. These organizations will no doubt be partnering with the Department of Justice and other federal, state, and local law enforcement agencies to ensure that where fraud has been found to occur, the individuals involved will be held accountable and prosecuted fully for their crimes.

FCA background

As trillions of dollars in government funds are distributed under the CARES Act, we expect a significant increase in enforcement activity by the U.S. Department of Justice and whistleblowers under the FCA. The False Claims Act, a Civil War era statute enacted to protect the government from fraud by suppliers of goods to the Union Army, has become one of the Department of Justice’s primary tools for protecting the government fisc from anyone receiving payments or reimbursements, or anyone who incurs payment obligations, including funds under CARES programs, to the federal government. Thus, for anyone who receives payments under a CARES Act program, the False Claims Act is in play.

Generally, the FCA imposes liability for any person who knowingly or recklessly (1) submits a false claim to the government or (2) makes a false record or statement to obtain payment from the government.1 The falsity must be material to the government’s decision to make a payment. The FCA also imposes liability for “reverse false claim,” for a person who knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay money to the government.2 Liability under the civil False Claims Act generally requires that a defendant “knowingly” make false representations to the government, but this standard does not require specific intent to defraud the government; instead, this scienter standard is defined to include not only actual knowledge that claims are false but also a “deliberate ignorance” or “reckless disregard” for whether representations are true or false. Under the “false certification” theory of FCA liability, a false representation of compliance with eligibility or other standards – whether such representation is express, or is implied by virtue of seeking funds when a person knows they do not satisfy the necessary criteria – can represent the false claim or statement necessary to trigger potential FCA liability.

Enforcement under the FCA can be punitive. The statute allows the government to recover treble damages – triple the government’s actual damages – as well as penalties, which range from $11,181 to $22,363 per false claim.3 The Department of Justice obtained more than $3 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending September 30, 2019. Following that influx of significant government funds to the private sector, we expect those recoveries to increase in the coming years.