National Contract
Management Association
SANDY COATS
United States Attorney
Western District of
Oklahoma

Western District of Oklahoma

Benjamin Franklin

GOAL II: PREVENT CRIME, ENFORCE FEDERAL
LAWS AND REPRESENT THE RIGHTS AND
INTERESTS OF THE AMERICAN PEOPLE
Strategic Objective: Recover monies owed to the United States and victims as a result of fraud, loan default, and bankruptcy

Ensure that citizens can rely on the honesty and integrity of government officials charged with the public trust
Defending the public fisc against unwarranted claims

Strategic Objective: Combat public and corporate corruption, fraud, and economic crime
“The true cost of white collar crime is not always measured in dollars. The corruption of public officials undermines trust in government.”

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Fraud cost U.S. organizations an estimated billion in 2008!
$994
The average organization loses more than $9 per day per employee to fraud and abuse
Approximately 7 % of the total annual revenue of business is lost due to the fraud of it ’ s employees
$100 billion a year lost to health care fraud.*
2004 & 2008 Reports to the Nation on Occupational Fraud and Abuse” by Association of Certified Fraud Examiners
2008
*CNNMoney.com 01/13/10
7%

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More than $100 Billion in Lost
Each Year to Fraud in Federal
Programs.*
Nearly half of employees do not report company or employee misconduct.**
Limited Federal Resources
*Fraud and Abuse in Federal Programs,
CATO Institute (Aug 2009)
** Fraud Magazine, Nov/Dec 2006

CRIMINAL DIVISION
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Oklahoma man sentenced to 12 months in prison for kickback scheme involving government contract in Afghanistan
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Defendant conspired to solicit kickbacks from private security vendors in exchange for their favorable treatment in the contract bidding process

CIVIL DIVISION
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Technology Development Group, Inc.
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Falsified testing of fighter ejection seat circuits
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$400,000 Settlement

CIVIL DIVISION
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L-3 Communications
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Arranged for the shipment of various components for DOD weapon systems which resulted in U.S. paying a higher price to freight carriers for shipping that was appropriate
$325,000 Settlement

CIVIL DIVISION
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Thunderbird Propellers, Inc.
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Used unapproved aircraft parts in overhauls
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$100,000 Judgment

CIVIL DIVISION
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Standard Testing
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Failed to properly test building materials for military construction projects and submitted false testing documents
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$100,000 Settlement, built new testing facility, terminated bad actor

1

Judy Copeland
ACE Coordinator
Western District of Oklahoma

ACE is the use of civil remedies to recover monies or advance significant federal program objectives.
FCA: where there has been a false or fraudulent claim or false statement made to the United States.
CIVIL PENALTIES: recover civil penalties pursuant to statutes

• Targets economic incentive
• Recovers taxpayer funds lost by fraud
• Penalizes offender by imposing damages
• Applies when portion of funds are federal
• Protects program integrity
• Serves as a strong deterrent
• Requires a lower burden of proof

FCA claims and most alternative fraud claims need only be proved by a ‘preponderance of the evidence (50% + a
‘smidgen’)

• No monetary threshold amount
– Program goals may be just as or more important
• Entire Civil Division is available and committed to ACE
• “One Team Approach”
– Coordinate with Criminal Division
– ACE is not just an alternative to criminal prosecution.

Affirmative Civil Enforcement
ACE Coordinator:
AUSA Judy Copeland judy.copeland@usdoj.gov
405.553.8829
HCF Coordinator:
AUSA Lee Schmidt lee.schmidt@usdoj.gov
405.553.8745
21
Civil Chief:
AUSA Steve Mullins steve.mullins@usdoj.gov
405.553.8804
Deputy Civil Chief
AUSA Kay Sewell kay.sewell@usdoj.gov
405.553.8807

31 U.S.C. §§ 3729-3733

"Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the south and their countrymen are moldering in the dust."
A. Lincoln

How Did We Get Here
1300s: English Law allows qui tams.
Revolutionary War: Continental Officers are convicted of defrauding troops of pay and fraud stealing gov’t property.
Civil War: Adulteration of supplies made “shoddy” a dirty word, Congress passes Frauds Act of
1863.
1874-1943: The 1863 Act was emasculated by a series of amendments between 1874 &1943.
World War I: The deliberate inflation of prices
(“profiteering”) during war is a crime.

Time Flies . . .
1980s: Series of K scandals - $435 hammer,
$640 toilet seat & $7,600 coffee maker.
1986: Lincoln legislation resurrected after K abuses,
1990-2000: Health care emphasis.
2009: Fraud Enforcement and Recovery Act of 2009, PL 111-21, 123 Stat 1617, strengthens FCA after what it is weakened through judicial decisions.

The U.S. Attorney can institute a civil action in federal court against anyone presenting or causing to be presented a false or fraudulent claim.
31 U.S.C. § 3730 & Executive Order 6166, June 10, 1933.

Senate Judiciary Committee, False Claims Amendments
Act of 1986, S.Rep. No. 345, 99th Cong., 2d Sess. 2
(1986), reprinted in 1986 U.S.C.C.A.N. 5266.

FCA Liability
The FCA lists 7 types of fraud ( §3729(a)(1)(A-G)
Liability exists for a person who knowingly presents, makes or causes to be presented a false or fraudulent statement/claim:
1. To receive money from the United States
2. To avoid or decrease an obligation to the US
(a/k/a “reverse false claim”)
3. Or conspires to do so.

False Claims: Person knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval
(31 USC
§ 3729(a)(1)(A);
False Records: Person knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim
(31 USC § 3729(a)(1)(B));
Conspiracy: Person conspires to defraud under the seven prohibited Acts of the FCA
(31 USC § 3729(a)(1)(C)).
Reverse False Claims: Person knowingly conceals or knowing and improperly avoids or decreases an obligation to pay or transmit money or property to the
Gov’t.
(31 U.S.C. § 3729(a)(1)(G)).

ELEMENTS:
1) A “claim”
(A request or demand)
2) “presented”
(Gov’t, its agent or person with Gov’t money) for payment or approval
3) that is “false or fraudulent” and that the person submitting or causing to be submitted “knows”* to be false.
31 USC §3729(b)(1)
* Requires no specific intent, and can be with reckless disregard of the truth.

Actual Knowledge of the False
Information
Act in Deliberate Ignorance of Truth or
Falsity of Information; or
Act in Reckless Disregard of Truth or
Falsity of Information

Two of the seven types of FCA fraud have a
materiality provision.
Liability for making or using a false record or statement
( §3729(a)(1)(B)) and
Liability for ‘reverse false claim’
( §3729(a)(1)(G))
Defined as ‘ having a natural tendency to influence, or be capable or influencing the payment or receipt of money or property .
31 USC §3729(b)(4)

Penalties
Actual damages* X 3
+
$5-11K penalty per claim
($5,500- $11,000)
+
Agency debarment/exclusion
INCENTIVE TO NOT DEFRAUD
*Not a requirement – can, in right circumstances, include ‘costs’ of investigation

Lawsuit must be filed within:
1. W/N 6 yrs of date of the event giving rise to the FCA claim, or
2. W/N 3 yrs of date material facts are known by law enforcement (agent or
AUSA)
3. But in no event more than 10 yrs after the date on which the violation(s) was committed.
31 USC § 3731(b)

• Private Attorney General
• Brought by private citizen in name of US
• US is the real party-in-interest and remains a
‘party in interest.’
§3730(b)

The Seal
• Qui tam filed “under seal” (without knowledge or notice to Ds so Gov’t may investigate & elect to intervene.
• Sealed for 60 days
• Court may extend for good cause.
• Time begins when both complaint & written disclosure served on Gov’t.
31 U.S.C. section 3730(b).

US can intervene - In whole or in part.
If intervene, Gov’t prosecutes
31 U.S.C. Section 3730(b)(4)(A).
US declines to intervene
Relator prosecutes the action
31 U.S.C. section 3730(b)(4)(A)
US must consent to settlement or dismissal
US still a party-in-interest.
31 U.S.C. section 3730(b).

If US intervenes
1525% of Gov’t FCA recovery
Attorneys’ fees and costs from D
31 U.S.C. section 3730(d)(1)
If US declines
25-30% of FCA recovery
Attys’ fees and costs from D
31 U.S.C. section 3730(d)(2)
If relator “planner or initiator” of fraud,
Court can reduce relator’s share
31 U.S.C. section 3730(d)(1)

Kerry Kelly
Deputy Criminal Chief
Western District of Oklahoma

• Criminal prosecution is the flip side of ACE.
• Similarities with ACE
Improve the integrity of the procurement process;
Deter and investigate fraud occurring within the system;
Recover misused tax dollars;
I mprove public confidence in the government by demonstrating that individuals who engage in corrupt practices are brought to justice.

• Differences from ACE prosecution
– Tools available to criminal prosecutor
• Grand jury subpoena
– Compelled attendance
– Compelled production of documents
• Title III federal wiretap
• Search Warrants
• Court approved access to federal tax returns
• International venue

• Dual Enforcement Under False Claims Act
– An ACE civil prosecution can be brought against a person and/or corporation for a false claim
AND
– A criminal indictment for presentation of the same false claim
• United States Supreme Court ruled that the Double
Jeopardy Clause of the 5 th Amendment only protects against multiple criminal prosecutions for the same offense.

• Proof for 287 Violation
– Making or presenting a false claim for payment against the United States
– Claim was false, fictitious, or fraudulent
– Knowledge of the falsity
• Punishment
– 5 years in prison
– $250,000 fine

• Claim can be made through a 3 rd party
– State or local government
– Through another contractor
– Through an insurance company
– Through an individual (income tax preparer)
• Claim does not have to be paid for a violation to have occurred.

• Examples of false claim criminal convictions
– Falsely submitting that medical procedures were supervised;
– Submitting over-inflated labor and equipment charges
– Falsely representing oneself as a licensed professional
– Fabricating additional costs under equitable contract price adjustment order
– Falsely certifying hiring of minority contractor

• Prohibits giving or accepting
• Anything of value to a public official
• With the intent
– To influence an official act OR
– If it is received by the official, then in return for being influenced to either do an act or fail to do an act.

• Bribery requires an express corrupt understanding between the private donor and the public officer
– That a specific act will be performed or omitted in exchange for the payment.
– A “quid pro quo”

• Crime of bribery is complete when an understanding is reached. It does not matter if
– Payment actually was made.
– The official bribed had authority to commit the act for which he was paid.
– The official intended to do the act, for which he was paid.
• Punishment
– 15 years in prison

Anti-Kickback Act,
41 USC §§ 51-58
• This statute is the “commercial” equivalent to bribery.
• A contractor who is willing to pay a bribe to a government official to obtain a government contract may also be willing to demand or accept a kickback from a subcontractor.
• The purpose of the statute is to protect the integrity of government contracts and subcontracts for supplies, materials, equipment, or services of any kind.

• What is a kickback?
– Any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind.
– Provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee
– For the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or subcontract.

• In relationship to a procurement contract,
Congress essentially sought to assure:
– Government’s right to receive full value on contracts awarded
– Government’s right to procure goods and services free from fraud, deceit, trickery, and dishonesty
• Includes half truths,
• knowing concealment of facts
• 10 year prison term and fine up to $10 million

• This criminal statute prohibits procurement fraud involving contracts or subcontracts awarded by the United States and valued at $1 million or more.
• Liability is found when contractor or subcontractor executes or attempts to execute a scheme to defraud the United States or obtain money or property by means of false or fraudulent pretenses, representations, or promises.

Federal Program Fraud
18 USC § 666
• Huge sums of money for federally supported programs are distributed routinely through private organizations as well as state, local, and Indian tribal government agencies.
• Congress enacted § 666 to strengthen the ability of the United States to vindicate significant acts of theft, fraud, and bribery involving federal money.

Federal Program Fraud,
18 USC 666
• Statute prohibits
– The corrupt solicitation, demand, acceptance, or agreement to accept
– Anything of value from a person
– With the intent to influence or reward
– In connection with any business, transaction, or series of transactions of a value of $5,000
– Of an organization, government, or agency that over 12 months receives $10,000 in federal funds

Federal Program Fraud
18 USC § 666
• Unlike the federal bribery statute, there is no need for a “quid pro quo” to violate the statute.
• It is sufficient if the person offering the bribe or accepting the bribe understands that the payment is for the purpose of exercising influence when an opportunity occurs.
• 10 year prison sentence.