False Claims Act Celebrates 150th Anniversary

The False Claims Act, also known as "Lincoln's Law" just celebrated it's 150th anniversary on March 2, 2013. Though the occasion was likely not celebrated in homes across the country, the fact is, the False Claims Act is an incredibly important piece of legislation and has done enormous good for the country.

The legislation, which was signed into law by Lincoln so many years ago, remains important today, thanks to the strength of the idea it stands for. The purpose of the law was to incentivize whistleblowers to come forward by giving them a percentage of any amounts collected from those guilty of defrauding the government. By creating such a system, the government has seen more integrity in its financial transactions and suffered much less fraud than would otherwise be the case. This transparency made possible by the False Claims Act has helped not only taxpayers, but also businesses that have benefited from an open and fair process for awarding government contracts.

The False Claims Act got its start in the midst of the Civil War and was designed to help reduce incidents of price gouging. The Union Army repeatedly found itself being swindled out of money by inadvertently purchasing defective products. Lincoln signed the bill into law to create a financial incentive for members of the public to come forward and reveal instances of fraud.

Sadly, the law became less important after the war ended and was eventually made toothless after a push by defense contractors during World War II. Ironically, it turned out that defense spending was exactly what brought about the revitalization of the False Claims Act. In the mid-1980s legislators, specifically Senator Charles Grassley and Representative Howard Berman, grew concerned about the ballooning defense spending seen during the Cold War and the potential for fraud to occur, given the large amounts of money sloshing around the country. With their support, President Reagan strengthened the existing law in 1986, resurrecting a measure after decades of dormancy.

Since the rebirth of the False Claims Act, it has proven its value time and time again. It's estimated that since 1986, the False Claims Act is responsible for more than $35 billion in federal civil recoveries in addition to $15 billion in criminal fines and state recoveries.

As with many things, imitation is the sincerest form of flattery. Since the passage of the False Claims Act, 29 states and the District of Columbia have passed similar laws. Moreover, other whistleblower laws modeled after the False Claims Act have been passed, including those concerning securities trading, commodities trading and the IRS.

The False Claims Act and other whistleblower legislation is perhaps more important now than ever before. Given the recent economic malaise and stock market collapse, incidents of financial fraud and thievery have frequently grabbed headlines. No one should be able to profit at the expense of innocent taxpayers who have already been on the hook for bailouts that have reached into the billions of dollars. Incentivizing whistleblowers to come forward with information to stop the government from being bilked out of money is essential for the functioning of a stable democracy.

So far, every indication is that the legislation is working. Though the government has pursued plenty of cases on its own, data show that cases initiated by whistleblowers and their own private attorneys account for a whopping 80% of all False Claims Act recoveries. Whistleblower reports have continued to pour in and more than $9 billion was recovered due to state and federal False Claims Acts last year alone. The IRS whistleblower program has reported that it has more than 10,000 cases under investigation, each one worth an average of $2 million.

Though no law is perfect and improvements could always be made to encourage efficient resolution to cases, the success of the False Claims Act cannot be doubted. Unlike many laws which begin with good intentions and then lose their way, the False Claims Act is one measure of which its backers, namely President Lincoln, could still be proud.

Sources:
Born in Civil War Scandals, 'Lincoln Law' Reaches 150 Years as Potent US Fraud Weapon published at ACFCS.org.

The Lincoln Law Is 150 Years Old And Thriving published at TAF.org on March 5, 2013.

See Our Related Blog Posts:
The 2006 Reforms to False Claims Act
Whistleblowers and the IRS