Loyola University Chicago School of Law, JD 2017
On June 30, 2016, the Department of Justice joined other agencies in passing a new interim final rule, significantly increasing the penalties for the False Claims Act (FCA). Before, FCA penalties ranged from $5,500 up to $11,000 per false claim. The new amounts take a drastic leap, placing the penalties at a minimum of $10,781.40 and a maximum of $21,562.80 per claim, plus three times the amount of damages the federal government sustains because of the false claim.
Earlier this February, the White House issued a memo requiring ag encies to increase their civil monetary penalties (CMPs) by July 1, 2016, in accordance with the Bipartisan Budget Act of 2015, also known as the Federal Civil Penalties Inflation Adjustment Act. The Bipartisan Adjustment Act was created to adjust the CMPs for inflation, based on the difference between the Consumer Price Index (“CPI”) in October of the calendar year in which they were last adjusted and the CPI in October 2015. The last time CMPs were increased was in August 1999. The increase in fines does not come as much surprise, as they are the same as those passed by the Railroad Retirement Board back in May.
There has been some criticism and speculation surrounding the increase in fines. Some wonder if the increase will result in a bolstering of defendants’ arguments that the fines are excessive and unconstitutional. The 8th Amendment of the U.S. Constitution prohibits excessive fines. Only time will tell how the new fines stand up to Constitutional challenges.
Although one may wonder if this increase in penalties will result in higher settlement amounts in cases of noncompliance, the likelihood of this happening is low. FCA settlement amounts are based on the damages that resulted from the false claims, rather than the amount of penalties. Organizations can rest assured that if false claims are discovered, settlement numbers will likely stay within the same range as they always have been. However, these higher penalties do carry the effect of further incentivizing whistleblowers to report fraudulent activity to the government, as the payoff will be larger if the suit is successful. Because of the risk involved with whistleblower suits, it is even more important for robust and effective compliance programs to be in place. Compliance departments should make sure that their programs are effective in preventing, detecting, correcting, and self-reporting instances of fraudulent claims.
The new penalties will go into effect no later than August 1, 2016. See the new interim rule here.