Companies

Big Business Launches a New Attack on Whistle-Blowers


Iowa Senator Charles Grassley

Photograph by Bill Clark/CQ Roll Call

Iowa Senator Charles Grassley

Corporations don’t like the False Claims Act (FCA). Defense contractors, drugmakers, health-care providers, and others say that whistle-blowers abuse the Civil War-era federal law meant to deter fraud against the government.

One Republican senator from the heartland, however, stoutly defends the statute as a shield against corporate rip-offs. A recent House hearing aired the debate in a helpful way.

The FCA allows individuals to sue companies doing business with the government as a deterrent to fraud. If an FCA suit succeeds, the individual may keep a portion of the recovery. In a minority of cases, the Justice Department intervenes on the whistle-blower’s side, making it more likely the suit will prevail in court or settle with a substantial payment by the defendant corporation.

Since 1987, when the law was strengthened, the government has recovered a total of $42 billion in FCA claims—not chump change, even by Washington’s inflated fiscal standards. Unsurprisingly, plaintiffs’ attorneys are getting more aggressive in searching out potential clients.

This trend troubles businesses. Through their lobbyists and lawyers at the U.S. Chamber of Commerce, corporations are pushing Congress to rein in the FCA. At a July 30 hearing of the House Subcommittee on the Constitution and Civil Justice, David Ogden, a former Justice Department official in the Clinton and Obama administrations who now defends companies against FCA suits, testified (PDF) that the statute encourages frivolous claims without deterring enough misconduct.

Speaking on behalf of the Chamber’s Institute for Legal Reform, Ogden urged amendments that would require whistle-blowers to complain via internal corporate compliance procedures before filing suit. Ogden, now a partner at the corporate law firm WilmerHale, also urged that Congress reduce potential FCA penalties for companies that implement strict in-house compliance programs.

The Chamber noted in an accompanying white paper that the Government Accountability Office, an investigative arm of Congress, estimates that the U.S. Treasury loses $72 billion a year to fraud and abuse. “The FCA’s emphasis on punishing fraud through after-the-fact litigation is not effective in preventing fraud before it starts, nor does it incentivize robust anti-fraud compliance programs,” the Chamber asserted.

Balderdash, countered Senator Charles Grassley. The Iowa Republican has long championed the FCA as a weapon to combat fraud against taxpayers. Grassley, the ranking Republican on the Senate Judiciary Committee, said in written testimony (PDF) before the House panel that, given obvious self-interest, corporate whining about the FCA didn’t deserve respect—and didn’t even make sense.

“I’m always wary when I hear the biggest violators of a law hire people to talk about ‘strengthening’ it,” Grassley said. “The fact is that no other law in existence has been more effective in battling fraud than the False Claims Act has in the past 25 years.” If FCA recoveries haven’t stopped fraud, that’s not the fault of the law, Grassley added; it’s the fault of dishonest companies and reckless government spending.

The Chamber’s proposals “contradict the assertion that the False Claims Act has failed by not recovering enough money,” Grassley continued. The Chamber “makes multiple proposals to limit government recoveries across the board. These limitations would apply regardless of whether the corporation involved participated in any compliance-certification program. That just makes no sense.”

Normally, congressional Republicans try to cast doubt on plaintiffs suing big corporations. Not Senator Grassley. “No matter what we do to deter waste and fraud,” he testified, “whistle-blowers are the key to the government finding out about it when it happens. We have to do all we can to protect them from those who resist the role they play.”

The Chamber’s biggest foe in this fight isn’t the plaintiffs’ bar. It’s a plainspoken conservative Republican from corn country.

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, tells the story of the Chevron oil pollution case in Ecuador.

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