Overview
The False Claims Act is the U.S. Government’s primary weapon to combat fraud. It empowers whistleblowers to sue individuals or entities who are defrauding the Government and to recover damages and penalties on the Government’s behalf. This law not only provides financial rewards to whistleblowers but also protects them against retaliation from their employers.
The Act was enacted by President Abraham Lincoln in 1863 during the Civil War to address widespread fraud by contractors who supplied the military with diseased horses, defective cannons, and uniforms made of “shoddy cloth” that rotted away in the rain. Since then, Congress has amended the statute several times to strengthen the Government’s ability to recover losses caused by fraudulent schemes.
A crucial aspect of the statute is its qui tam (whistleblower) provision, which allows individuals or entities (called “relators”) with knowledge of fraud to file lawsuits under seal on the Government’s behalf. If the case succeeds, the relator may receive a share of the money the Government recovers, along with attorney’s fees and costs from the defendant.
Congress added these financial incentives—and protections against retaliation—to encourage whistleblowers to come forward and motivate private lawyers to invest their resources representing them. The approach works: between 1986 (when major amendments were enacted) and 2023, Government recoveries surpassed $72 billion and whistleblowers received billions in rewards for exposing rampant fraud.
Liability Under the False Claims Act
Liability arises when an individual or entity knowingly presents, or causes to be presented, a false or fraudulent claim to the Government for payment or approval, or knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.
An individual or entity may also be liable for a “reverse” false claim if it knowingly fails to repay money or return property to the Government that it should not have received. The key element, “knowingly,” does not require proof of specific intent to defraud. Rather, a person or company acts “knowingly” if it:
- Had actual knowledge that a statement or claim was false;
- Acted in deliberate ignorance of whether the information was true or false; or
- Acted in reckless disregard of truth or falsity.
Damages & Penalties
Penalties under the Act are substantial: the defendant may be ordered to pay three times the amount of the Government’s loss (treble damages) plus a civil penalty for each false claim submitted—currently between $13,508 and $27,018, adjusted annually for inflation.
The Whistleblower’s Role
Whistleblowers play a crucial part in uncovering and remedying false claims. They are often insiders with firsthand knowledge of fraudulent activities within organizations that do business with the Government. By stepping forward, they help uphold transparency, integrity, and accountability in public contracts and programs.
The Whistleblower’s Reward
A successful relator is entitled to a percentage of any recovery from the fraudster. The exact share depends largely on whether the Government intervenes in the case:
- 15%–25% if the Government intervenes and takes over the prosecution;
- 25%–30% if the Government declines to intervene and the relator pursues the case alone.
In either scenario, a prevailing whistleblower may also recover reasonable attorneys’ fees and expenses. These rewards recognize the risks and efforts involved in exposing fraud and encourage individuals to act in the public interest.