Corporate Fraudsters Beware

Amy Traub

Corporate Fraudsters Beware

I love the False Claims Act. This corporate scam fighting tool par excellence has recovered almost $8 billion in fraudulent charges billed to the federal government since 1987. Today the Washington Post reports that it's still working like a charm.

A private military contractor, Custer Battles, created phony Cayman Island companies to overcharge the U.S.-led Coalition Provisional Authority that was running Iraq after the invasion. Now thanks to the False Claims Act, the company must pay $10 million in damages for their bogus billing.

But how did we find out about the taxpayer rip-off? The beauty of the False Claims Act is that it gives whistleblowers, in this case two former employees of Custer Battles, a financial incentive to report fraud perpetrated against the federal government. The Custer employees turned in their crooked bosses and provided testimony and evidence, and in return will get a portion of the recovered money and damages.

Wrongdoers punished, whistleblowers rewarded, victims (taxpayers and the federal treasury) compensated. That's justice in my book.

But not everyone agrees. Last summer, a coalition of right wing groups, lead by Grover Norquist's Americans for Tax Reform, launched a campaign to weaken the federal False Claims Act. Why would the self-styled taxpayer advocates try to undermine a law that recovers tens of millions of taxpayer dollars from fraud every year?

They claim the Act has become too successful. Now that whistleblowers can get a cut of the damages, more and more cases of fraud are being reported and tried. There's not much evidence of a widespread pattern of would-be whistleblowers engaging in fraud themselves or allowing fraud to continue so that they can get a bigger cut of the damages, but Norquist is sure this abuse is rampant. His "solution" is to put more barriers in the way of employees who want to report that their company is scamming the feds. Hence fewer cases, less damages, a weaker and less effective False Claims Act. More impunity for corporate crooks.

Instead of weakening the federal False Claims Act, we should be learning from its success. A number of states already have their own False Claims Act legislation, but it should be replicated everywhere in the country. In New York, for example, a False Claims Act would be extremely useful for finding and investigating cases of Medicaid fraud, which cost the state as much as $18 billion a year. With rip-offs of that magnitude, we can't afford not to have this invaluable tool.