Retaining Overpayments & Reverse False Claims

The False Claims Act (FCA) is usually used to punish people and corporations that submit false claims for money to which they are not entitled. However, the FCA can also be used against those who fail to pay money they owe the government—a so-called “reverse” false claim.

For much of the FCA’s history, in order to prove a reverse false claim, whistleblowers had to prove that a false statement or record was created. This burden made it very difficult to prove reverse false claims. For example, what if a contractor knew it received an overpayment and simply pocketed the money without saying anything? Without making a false statement or record, the contractor would avoid liability under the FCA. Congress fixed this problem in 2009, when it adopted the Fraud Enforcement and Recovery Act (FERA).

Reverse False Claims

FERA amended the FCA to make it much easier to establish a reverse false claim. Now, in order to prove a reverse false claim, a whistleblower must demonstrate:

1. A person or company knowingly made, used, or caused to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the government, or
2. A person or company knowingly concealed, or knowingly and improperly avoided or decreased, an obligation to pay or transmit money or property to the government.

This means if a person or corporation knows that it owes money to the government and fails to pay, it can be held liable even without making a false record or statement. For example, the government might enter into a contract with a company to construct a building for $100 million—but requiring the company to return any unspent funds. If the company knowingly spends only $90 million to construct the building and fails to return the extra $10 million to the government, it could be liable for a reverse false claim under the FCA.

Types of Reverse False Claims

• Underpayment of customs duties. Import duties and tariffs are imposed on foreign made goods to encourage support of the domestic market. However, the government does not have enough resources to properly examine the millions of containers that enter the country each day.  As a result, customs fraud is on the rise, and the Department of Justice is pursuing fraudsters. For example, in 2020, Linde GmbH and its U.S. subsidiary paid $22 million to resolve allegations that they lied on customs declarations to avoid paying duties.

• Underpayment of royalties. Businesses in the energy and mining sectors often extract resources from land owned by the government. In exchange for permitting oil, gas, or minerals to be extracted, the government often requires these businesses to pay royalties based on the volume of resources they extract and sell. Some businesses will lie about the quantity of resources they extract and sell to fraudulently reduce their obligation to pay royalties. For example, in 2019, a gas marketer and its owners paid $4.375 million to resolve allegations that they underreported the volume and value of the natural gas they purchased from producers who had leased land from the federal government.

• Retention of overpayments. Whenever the government spends a significant amount of money, there’s a chance of an overpayment—by mistake or by fraud. Recently, TriWest Healthcare Alliance Corp. agreed to pay $179.7 million to resolve allegations that it improperly retained overpayments from the Department of Veterans Affairs in connection with its administration of certain healthcare programs.The FCA’s reverse false claim provision applies with even greater force to healthcare providers. The Affordable Care Act (ACA) requires that entities that receive an overpayment from the Medicare or Medicaid programs report and repay overpayments within 60 days of identifying the overpayment.

• Underpayment of taxes. Our tax system only works if we all pay our fair share. The IRS Whistleblower Program provides whistleblowers with a share of the recovery in any successful enforcement action where certain conditions are met. Several state laws include whistleblower provisions regarding the underpayment of taxes.

Detecting Fraudulent Retention of Overpayments & Reverse False Claims

Whistleblowers are essential in identifying, reporting, and stopping the fraudulent retention of overpayments. This fraud often involves complex financial instruments and contracts that require special expertise to identify and interpret. While many whistleblowers are employees (or former employees) of government contractors, with inside information about fraud being committed, even non-employee “outsiders” often are able to use their technical knowledge to identify and report fraud.

A whistleblower who files a successful complaint under the False Claims Act is entitled to between 15% and 30% of the amount the government recovers.

Our Team

With over 30 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $5.4 billion to federal and state agencies, with whistleblower recovery shares as high as 49%. They are ready to help if you have evidence of reverse false claims or the fraudulent retention of overpayments.

Please call (866) 845-2164 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower.  Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.