National Contract Management Association

SANDY COATS United States Attorney

Western District of Oklahoma

Western District of Oklahoma

"There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government."

Benjamin Franklin      

Strategic Objective: Recover monies owed to the United States and victims as a result of fraud, loan default, and

bankruptcy

GOAL II: PREVENT CRIME, ENFORCE FEDERAL LAWS AND REPRESENT THE

RIGHTS AND INTERESTS OF THE AMERICAN PEOPLE

Ensure that citizens can rely on the honesty and integrity of government officials charged with the public trust

Defending the public fisc against unwarranted claims

Strategic Objective: Combat public and corporate corruption, fraud, and

economic crime

“The true cost of white collar crime is not always measured in dollars. The

corruption of public officials undermines trust in government.”

I WANT MY MONEY BACK!

The ProblemThe Problem Fraud cost U.S. organizations an estimated

$994 billion in 2008! The average organization loses more than

$9 per day per employee to fraud and abuse

Approximately 7% of the total annual revenue of business is lost due to the fraud of it’s employees

$100 billion a year lost to health care fraud.*

2004 & 2008 Reports to the Nation on Occupational Fraud and Abuse” by Association of Certified Fraud Examiners 2008*CNNMoney.com 01/13/10

7%

The ProblemThe Problem More than $100 Billion in Lost Each Year to Fraud in Federal Programs.*

Nearly half of employees do not report company or employee misconduct.**

Limited Federal Resources

*Fraud and Abuse in Federal Programs, CATO Institute (Aug 2009)**Fraud Magazine, Nov/Dec 2006

CRIMINAL DIVISION Oklahoma man sentenced to 12 months

in prison for kickback scheme involving government contract in Afghanistan

Defendant conspired to solicit kickbacks from private security vendors in exchange for their favorable treatment in the contract bidding process

CIVIL DIVISION

Technology Development Group, Inc.

Falsified testing of fighter ejection seat circuits

$400,000 Settlement

CIVIL DIVISION

L-3 Communications

Arranged for the shipment of various components for DOD weapon systems which resulted in U.S. paying a higher price to freight carriers for shipping that was appropriate

$325,000 Settlement

CIVIL DIVISION

Thunderbird Propellers, Inc.

Used unapproved aircraft parts in overhauls

$100,000 Judgment

CIVIL DIVISION

Standard Testing

Failed to properly test building materials for military construction projects and submitted false testing documents

$100,000 Settlement, built new testing facility, terminated bad actor

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Affirmative Civil Enforcement

Judy CopelandACE Coordinator

Western District of Oklahoma

Affirmative Civil Enforcement

ACE is the use of civil remedies

to recover monies or advance

significant federal program objectives.

FCA: where there has been a false or

fraudulent claim or false statement

made to the United States.

CIVIL PENALTIES: recover civil penalties pursuant to statutes

Why ACE?Why ACE?

• Targets economic incentive

• Recovers taxpayer funds lost by fraud

• Penalizes offender by imposing damages

• Applies when portion of funds are federal

• Protects program integrity

• Serves as a strong deterrent

• Requires a lower burden of proof

ACE ‘Moves The Ball’ ACE ‘Moves The Ball’

FCA claims and most alternative fraud claims need only be proved by a ‘pre-ponderance of the evidence (50% + a ‘smidgen’)

ACE POLICIES

• No monetary threshold amount– Program goals may be just as or more

important

• Entire Civil Division is available and committed to ACE

• “One Team Approach” – Coordinate with Criminal Division– ACE is not just an alternative to criminal

prosecution.

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ACE Coordinator:

AUSA Judy Copelandjudy.copeland@usdoj.gov

405.553.8829

HCF Coordinator:

AUSA Lee Schmidtlee.schmidt@usdoj.gov

405.553.8745

Affirmative Civil Enforcement

Civil Chief:

AUSA Steve Mullinssteve.mullins@usdoj.gov

405.553.8804

Deputy Civil Chief

AUSA Kay Sewellkay.sewell@usdoj.gov

405.553.8807

31 U.S.C. §§ 3729-3733

"Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the south and their countrymen are moldering in the dust."

A. Lincoln

How Did We Get HereHow Did We Get Here 1300s: English Law allows qui tams.

Revolutionary War: Continental Officers are convicted of defrauding troops of pay and fraud stealing gov’t property.

Civil War: Adulteration of supplies made “shoddy” a dirty word, Congress passes Frauds Act of 1863.

1874-1943: The 1863 Act was emasculated by a series of amendments between 1874 &1943.

World War I: The deliberate inflation of prices (“profiteering”) during war is a crime.

Time Flies . . . Time Flies . . .

1980s: Series of K scandals - $435 hammer, $640 toilet seat & $7,600 coffee maker.

1986: Lincoln legislation resurrected after K abuses,

1990-2000: Health care emphasis.

2009: Fraud Enforcement and Recovery Act of 2009, PL 111-21, 123 Stat 1617, strengthens FCA after what it is weakened through judicial decisions.

FCA OVERVIEWFCA OVERVIEW

The U.S. Attorney can institute a civil action in federal court against anyone presenting or causing to be presented

a false or fraudulent claim.

31 U.S.C. § 3730 & Executive Order 6166, June 10, 1933.

The False Claims Act Is The “Primary Litigative

Tool For Combating Fraud” Against The

Federal Government.

Senate Judiciary Committee, False Claims Amendments Act of 1986, S.Rep. No. 345, 99th Cong., 2d Sess. 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266.

FCA LiabilityFCA Liability

The FCA lists 7 types of fraud (§3729(a)(1)(A-G)

Liability exists for a person who knowingly presents, makes or causes to be presented a false or fraudulent statement/claim:

1. To receive money from the United States

2. To avoid or decrease an obligation to the US (a/k/a “reverse false claim”)

3. Or conspires to do so.

Prohibited ActsProhibited ActsFalse Claims: Person knowingly presents, or causes to

be presented, a false or fraudulent claim for payment or approval (31 USC § 3729(a)(1)(A);

False Records: Person knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim(31 USC § 3729(a)(1)(B));

Conspiracy: Person conspires to defraud under the seven prohibited Acts of the FCA (31 USC § 3729(a)(1)(C)).

Reverse False Claims: Person knowingly conceals or knowing and improperly avoids or decreases an obligation to pay or transmit money or property to the Gov’t. (31 U.S.C. § 3729(a)(1)(G)).

The FCA ClaimThe FCA ClaimELEMENTS:

1) A “claim” (A request or demand)

2) “presented” (Gov’t, its agent or person with Gov’t

money) for payment or approval3) that is “false or fraudulent” and that the

person submitting or causing to be submitted “knows”* to be false.

31 USC §3729(b)(1)* Requires no specific intent, and can be with reckless disregard of the truth.

KnowledgeKnowledge

Actual Knowledge of the False Information

Act in Deliberate Ignorance of Truth or Falsity of Information; or

Act in Reckless Disregard of Truth or Falsity of Information

MaterialityMateriality

Two of the seven types of FCA fraud have a materiality provision.

Liability for making or using a false record or statement (§3729(a)(1)(B)) and

Liability for ‘reverse false claim’ (§3729(a)(1)(G))

Defined as ‘having a natural tendency to influence, or be capable or influencing the payment or receipt of money or property.

31 USC §3729(b)(4)

PenaltiesPenalties

Actual damages* X 3 +

$5-11K penalty per claim($5,500- $11,000)

+Agency debarment/exclusion

INCENTIVE TO NOT DEFRAUDINCENTIVE TO NOT DEFRAUD

*Not a requirement – can, in right circumstances, include ‘costs’ of investigation

Statute Of LimitationsStatute Of Limitations

Lawsuit must be filed within:1. W/N 6 yrs of date of the event giving

rise to the FCA claim, or

2. W/N 3 yrs of date material facts are known by law enforcement (agent or AUSA)

3. But in no event more than 10 yrs after the date on which the violation(s) was committed.

31 USC § 3731(b)

Qui TamQui Tam

• Private Attorney General• Brought by private citizen in name of US• US is the real party-in-interest and remains a

‘party in interest.’

§3730(b)

The SealThe Seal

• Qui tam filed “under seal” (without knowledge or notice to Ds so Gov’t may investigate & elect to intervene.

• Sealed for 60 days• Court may extend for good cause.• Time begins when both complaint &

written disclosure served on Gov’t. 31 U.S.C. section 3730(b).

Rights Of PartiesRights Of Parties

US can intervene - In whole or in part.If intervene, Gov’t prosecutes

31 U.S.C. Section 3730(b)(4)(A).

US declines to interveneRelator prosecutes the action

31 U.S.C. section 3730(b)(4)(A)

US must consent to settlement or dismissalUS still a party-in-interest.

31 U.S.C. section 3730(b).

Relator ShareRelator Share

If US intervenes15-25% of Gov’t FCA recoveryAttorneys’ fees and costs from D

31 U.S.C. section 3730(d)(1)

If US declines25-30% of FCA recoveryAttys’ fees and costs from D

31 U.S.C. section 3730(d)(2)

If relator “planner or initiator” of fraud, Court can reduce relator’s share

31 U.S.C. section 3730(d)(1)

Kerry KellyDeputy Criminal Chief

Western District of Oklahoma

Federal Procurement Fraud• Criminal prosecution is the flip side of ACE. • Similarities with ACE

Improve the integrity of the procurement process; Deter and investigate fraud occurring within the system; Recover misused tax dollars; Improve public confidence in the government by demonstrating that individuals who engage in corrupt practices are brought to justice.

Criminal Prosecution

• Differences from ACE prosecution– Tools available to criminal prosecutor

• Grand jury subpoena– Compelled attendance– Compelled production of documents

• Title III federal wiretap• Search Warrants• Court approved access to federal tax returns• International venue

False Claims Act

• Dual Enforcement Under False Claims Act– An ACE civil prosecution can be brought against a

person and/or corporation for a false claim AND– A criminal indictment for presentation of the same

false claim• United States Supreme Court ruled that the Double

Jeopardy Clause of the 5th Amendment only protects against multiple criminal prosecutions for the same offense.

False Claims, 18 USC § 287• Proof for 287 Violation

– Making or presenting a false claim for payment against the United States

– Claim was false, fictitious, or fraudulent– Knowledge of the falsity

• Punishment– 5 years in prison– $250,000 fine

False Claims Act, 18 USC § 287

• Claim can be made through a 3rd party– State or local government– Through another contractor– Through an insurance company– Through an individual (income tax preparer)

• Claim does not have to be paid for a violation to have occurred.

False Claims Act, 18 USC § 287

• Examples of false claim criminal convictions– Falsely submitting that medical procedures were

supervised;– Submitting over-inflated labor and equipment

charges– Falsely representing oneself as a licensed

professional– Fabricating additional costs under equitable

contract price adjustment order– Falsely certifying hiring of minority contractor

Bribery, 18 USC § 201

• Prohibits giving or accepting• Anything of value to a public official• With the intent

– To influence an official act OR– If it is received by the official, then in return for

being influenced to either do an act or fail to do an act.

Bribery, 18 USC § 201

• Bribery requires an express corrupt understanding between the private donor and the public officer– That a specific act will be performed or omitted in

exchange for the payment.– A “quid pro quo”

Bribery, 18 USC 201

• Crime of bribery is complete when an understanding is reached. It does not matter if– Payment actually was made.– The official bribed had authority to commit the act for

which he was paid.– The official intended to do the act, for which he was

paid.

• Punishment– 15 years in prison

Anti-Kickback Act, 41 USC §§ 51-58

• This statute is the “commercial” equivalent to bribery.

• A contractor who is willing to pay a bribe to a government official to obtain a government contract may also be willing to demand or accept a kickback from a subcontractor.

• The purpose of the statute is to protect the integrity of government contracts and subcontracts for supplies, materials, equipment, or services of any kind.

Anti-Kickback Act

• What is a kickback?– Any money, fee, commission, credit, gift, gratuity,

thing of value, or compensation of any kind.– Provided, directly or indirectly, to any prime

contractor, prime contractor employee, subcontractor, or subcontractor employee

– For the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or subcontract.

Major Fraud Act, 18 USC § 1031

• In relationship to a procurement contract, Congress essentially sought to assure:– Government’s right to receive full value on

contracts awarded– Government’s right to procure goods and services

free from fraud, deceit, trickery, and dishonesty• Includes half truths, • knowing concealment of facts

• 10 year prison term and fine up to $10 million

Major Fraud Act, 18 USC § 1031• This criminal statute prohibits procurement fraud

involving contracts or subcontracts awarded by the United States and valued at $1 million or more.

• Liability is found when contractor or subcontractor executes or attempts to execute a scheme to defraud the United States or obtain money or property by means of false or fraudulent pretenses, representations, or promises.

Federal Program Fraud18 USC § 666

• Huge sums of money for federally supported programs are distributed routinely through private organizations as well as state, local, and Indian tribal government agencies.

• Congress enacted § 666 to strengthen the ability of the United States to vindicate significant acts of theft, fraud, and bribery involving federal money.

Federal Program Fraud, 18 USC 666

• Statute prohibits– The corrupt solicitation, demand, acceptance, or

agreement to accept– Anything of value from a person– With the intent to influence or reward– In connection with any business, transaction, or

series of transactions of a value of $5,000– Of an organization, government, or agency that

over 12 months receives $10,000 in federal funds

Federal Program Fraud18 USC § 666

• Unlike the federal bribery statute, there is no need for a “quid pro quo” to violate the statute.

• It is sufficient if the person offering the bribe or accepting the bribe understands that the payment is for the purpose of exercising influence when an opportunity occurs.

• 10 year prison sentence.