Trade Exposure from False Claims Act Risk Likely to Increase, Sidley Says

With increased False Claims Act enforcement, an executive willing to get more aggressive on fraud enforcement, and legislative action expanding the FCA's reach expected, trade exposure to FCA risk has nowhere to go but up, lawyers from Sidley Austin said. In an April 20 analysis, Sidley discussed recent trends in the so-called "reverse false claim," which focuses on money owed to the government rather than by it.

Over the past decade, FCA recoveries have averaged $3 billion annually. While in some years recoveries reached as high as $5 or $6 billion, they dipped in 2020 to $2.2 billion, likely due to COVID-19-related trade disruptions. However, Sidley expects increased FCA enforcement, particularly on trade, due to President Joe Biden's prior work ramping up FCA enforcement and an aggressive attitude in Congress on expanding the scope of the FCA. Sen. Chuck Grassley, R-Iowa, is a vocal advocate for an expanded FCA. "Earlier this year, the Senator insisted that the FCA must 'come down with a sledgehammer' on those who commit fraud against the United States, signaling strong support for the Biden administration to aggressively pursue such actions," the analysis said.

Sidley also focused two important new elements to the FCA -- reverse false claims and the public disclosure bar. The public disclosure bar prohibited qui tam lawsuits from arising on publicly available information, requiring instead that the claimant be an original source to the violation. However, Sidley points out, new developments stemming from 2010's Affordable Care Act lowered the bar for qui tam FCA suits for trade cases in two ways. The ACA allowed courts to adjudicate jurisdictional questions alongside questions on the merits of the case as opposed to in order, eliminating quicker dismissals. The act also expanded who qualifies as an original source by eliminating the firsthand knowledge requirement, needing now only "knowledge that is independent of and materially adds to the publicly disclosed" information.

False claims were also dramatically changed under Fraud Enforcement and Recovery Act of 2009 -- vigorously defended by then-Vice President Biden, Sidley said. FERA changed the burden of a reverse false claim from requiring a false record or statement to requiring proof that someone “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” This change now holds importers and exporters liable for withholding information required to assess duties, ramping up the risk of trade-related false claims.