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False Claims Act Statistics, News & Analysis

  • 05
  • January
  • 2017

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Early Tremors: Commerce Department Increases FCA Penalties, DOJ Likely to Follow

As we have written about previously, in November 2015, Congress instructed federal agencies to adjust civil penalties within the agencies’ respective “jurisdiction[s]” to account for inflation. 28 U.S.C. § 2461 note. As directed by Congress, in the middle of 2016, DOJ, the Railroad Retirement Board (RRB), and the Department of Commerce (DOC) issued “catch up adjustment[s].” The adjustments each doubled FCA penalties from between $5,500 and $11,000 per false claim to between $10,781 and $21,563 per false claim, but they varied as to retroactivity: DOJ’s increased penalties applied only to FCA violations occurring after November 2, 2015, RRB’s were not retroactive, and DOC’s were fully retroactive. 28 C.F.R. § 85.3 (DOJ); 20 C.F.R. § 356.3 (RRB); 15 C.F.R. § 6.4 (DOC).

Congress also required agencies to adjust penalties by January 15 of each year starting in 2017 to account for the previous year’s inflation. DOC is first out of the gate for this inaugural year of annual adjustments. On December 28, 2016, DOC issued regulations increasing FCA penalties to between $10,957 and $21,916 per false claim. 81 Fed. Reg. 95432. (Note that DOC’s adjustment is limited to reverse false claims, likely to reflect that DOC’s FCA activity is focused on failures to pay customs and tariffs.) We expect that RRB and, more importantly, DOJ will follow suit by January 15 with regulations implementing penalty adjustments in the same dollar amounts.

Besides the dollar and cents of the adjustment, FCA defendants should note that DOC’s adjustment retroactively applies to all FCA violations that predate the adjustment, just as its catch-up adjustment did. Assuming DOC continues to apply this retroactivity rule, each year an FCA investigation or litigation within DOC’s “jurisdiction” is pending, the penalty will ratchet upward.

What remains to be seen is how DOJ will implement retroactivity for annual adjustments. We do not expect DOJ to make its adjustments fully retroactive since its 2016 catch-up adjustment applied only to FCA violations after November 2, 2015. But will DOJ’s annual adjustments continue to be retroactive to FCA violations after November 2, 2015? If so, then FCA defendants will face ratcheting penalties, and both DOJ and relators will have perverse incentives to drag out investigations and litigation. We will continue to monitor developments in this area.

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