DOJ’s National Fraud Enforcement Division: Potential Impact on False Claims Act and Other Corporate Fraud Cases

Since the April creation of the Department of Justice (DOJ) National Fraud Enforcement Division, the DOJ has issued memos operationalizing that Division, including setting forth its priorities and providing guidance on criminal enforcement. 

An October 1 memo (entitled Directive 26-12) from Colin McDonald, the Assistant Attorney General in charge of the National Fraud Enforcement Division, which Reed Smith has previously briefed, outlines the Division's priorities to prosecute fraud related to health care, government contracts, tax evasion, and tariff evasion, and factors to weigh in determining outcomes for corporations involved in government investigations.  

But how do the DOJ’s reorganization and recent directives affect how civil False Claims Act (FCA) cases and other criminal corporate fraud cases are prosecuted and resolved, including for health care companies that are in the crosshairs of scrutiny? Although civil FCA cases have been and will continue to be handled by the Civil Division of the DOJ, we may see changes to parallel criminal and civil investigations related to health care fraud.

The Responsibility for Investigating Fraud Matters

Before the DOJ created the National Fraud Enforcement Division, the Criminal Division’s Fraud Section—now renamed the White Collar and Corporate Enforcement Section—prosecuted criminal fraud matters, while the Civil Division’s Commercial Litigation Branch, Fraud Section handled civil FCA matters. In forming the new Division, which DOJ now refers to as the “Fraud Division,” the DOJ consolidated and realigned certain units from the DOJ’s Criminal Division. 

The April memo from Attorney General Todd Blanche that created the Fraud Division also instructed the DOJ's Office of Legal Policy to recommend within 120 days whether any “non-criminal elements” should be transferred to the new Fraud Division. To date, the DOJ has not announced any changes impacting the Civil Division’s Fraud Section. For health care and life sciences companies, this is significant, considering the FCA remains DOJ’s primary civil enforcement mechanism for investigating health care fraud. 

Although the creation of the Fraud Division ostensibly moved the responsibility for prosecuting criminal fraud out of the Criminal Division, the White Collar and Corporate Enforcement Section remains housed under the Criminal Division. The Fraud Division also has its own Corporate Enforcement Section, whose role, according to Directive 26-12, is to “actively support other sections[,]” and instructs that Fraud Division prosecutors are to work closely with this Section at all phases of corporate investigation to “maximize efficiency and consistency.”

This combination of a shift in the handling of criminal fraud investigations, while the civil investigation process remains status quo, could affect the DOJ’s approach to parallel criminal and civil investigations related to health care fraud.

The Potential Effect on Civil FCA Cases 

Although the FCA is a civil statute and is enforced by the Commercial Litigation Branch, Fraud Section, the DOJ can bring parallel claims under criminal statutes for the same or related conduct (e.g., RICO, FDCA, AKS claims). There may soon be an uptick in parallel claims. An October 7 DOJ memo from McDonald, instructs Fraud Division attorneys to “attack[] fraud from all angles,” and to assess in every case whether charges for violating tax or securities laws may also be brought, specifically flagging health care as an area to target for these types of fraud. 

Before the creation of the Fraud Division, the former civil and criminal Fraud Sections often coordinated on these cases, requiring companies facing FCA cases with parallel criminal fraud claims to coordinate and negotiate with two different divisions to resolve matters.

Under the previous organizational structure, resolution of a civil matter did not necessarily result in resolution of the criminal matter. This remains the case. However, with the new Fraud Division, the Civil Division was instructed to designate a liaison “to ensure that the Department leverages the full range of enforcement tools,” both civil and criminal. 

Now, under the reorganization and directives in Directive 26-12, because the Fraud Division and the Criminal Division are separate but may have overlapping authority where corporate conduct is at issue, companies are now likely to find themselves coordinating and negotiating with three different divisions and three different chains of command to achieve resolution in FCA cases. 

Companies should not assume that resolution with the Fraud Division necessarily binds the Criminal Division, much less the Civil Division. This could lead to slower resolution timelines, especially when the DOJ has limited resources. It will be important to monitor developments related to all three divisions, as they have overlapping responsibilities related to health care fraud enforcement.

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Reed Smith will continue to follow developments related to fraud enforcement. If you have any questions about Directive 26-12 or defending against allegations of fraud, including FCA matters, please reach out to the authors or your contacts at Reed Smith.