False Claims Act of 1863

The False Claims Act of 1863 (FCA) is an American federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. It is the federal government's primary litigation tool in combating fraud against the federal government. The law includes a qui tam provision that allows people who are not affiliated with the government, called "relators" under the law, to file actions on behalf of the government. This is informally called "whistleblowing", especially when the relator is employed by the organization accused in the suit. Persons filing actions under the Act stand to receive a portion (15–30%, depending on certain factors) of any recovered damages.

As of 2024, over 83% of all FCA actions were initiated by whistleblowers. Claims under the law have typically involved government health care programs (Medicare, Medicaid and TriCare), military, or other government spending programs. FCA actions dominate the list of largest pharmaceutical settlements. Between 1987 and 2019, the government recovered more than $62 billion under the False Claims Act.

Qui tam laws have history dating back to the Middle Ages in England. In 1318, King Edward II offered one third of the penalty to the relator when the relator successfully sued government officials who moonlighted as wine merchants. The Maintenance and Embracery Act 1540 of Henry VIII provided that common informers could sue for certain forms of interference with the course of justice in legal proceedings that were concerned with the title to land. This act is still in force today in the Republic of Ireland, although in 1967 it was extinguished in England. The idea of a common informer bringing suit for damages to the Commonwealth was later brought to Massachusetts, where "penalties for fraud in the sale of bread [are] to be distributed one third to inspector who discovered the fraud and the remainder for the benefit of the town where the offense occurred." Other statutes can be found on the colonial law books of Connecticut, New York, Virginia and South Carolina.

The American Civil War (1861–1865) was marked by fraud on all levels, both in the Union north and the Confederate south. During the war, unscrupulous contractors sold the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions, among other unscrupulous actions. In response, Congress passed the False Claims Act. President Lincoln signed it into law on March 2, 1863, 12 Stat. 696, and it is therefore sometimes called the "Lincoln Law".

Importantly, a reward was offered in what is called the qui tam provision, which permits citizens to sue on behalf of the government and be paid a percentage of the recovery. Qui tam is an abbreviated form of the Latin legal phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur ("he who brings a case on behalf of our lord the King, as well as for himself") In a qui tam action, the citizen filing suit is called a "relator". As an exception to the general legal rule of standing, courts have held that qui tam relators are "partially assigned" a portion of the government's legal injury, thereby allowing relators to proceed with their suits.

U.S. Senator Jacob M. Howard, who sponsored the legislation, justified giving rewards to whistleblowers, many of whom had engaged in unethical activities themselves. He said, "I have based the [qui tam provision] upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch a rogue,’ which is the safest and most expeditious way I have ever discovered of bringing rogues to justice."

In the massive military spending leading up to and during World War II, the U.S. Attorney General relied on criminal provisions of the law to deal with fraud, rather than using the FCA. As a result, attorneys would wait for the Department of Justice to file criminal cases and then immediately file civil suits under the FCA, a practice decried at the time as "parasitic". Congress moved to abolish the FCA but at the last minute decided instead to reduce the relator's share of the recovered proceeds.

The law was again amended in 1986, again due to issues with military spending. Under President Ronald Reagan's military buildup, reports of massive fraud among military contractors had become major news, and Congress acted to strengthen the FCA.