FCA Amendments of 1986

The 1986 amendments overhauled the False Claims Act in several major ways:

– Increased whistleblower rewards to 15–30% of recovered funds
– Strengthened anti-retaliation protections for employees who report fraud
– Expanded liability, making it harder for companies to escape responsibility
– Lowered the burden of proof, giving the government more flexibility
– Eliminated the “any prior government knowledge” defense that had blocked many cases
– Increased civil penalties and authorized treble damages
– Defined “knowing” to include deliberate ignorance and reckless disregard

President Reagan signed the amendments into law on October 27, 1986.

Congress amended the FCA in 1986 because the law had become largely ineffective. Prior to the amendments, the FCA was weakened by restrictive court rulings and low financial incentives for whistleblowers.

Fraud against government programs was widespread, particularly in defense contracting and healthcare, but insiders had little reason to risk their careers to come forward. The Senate report stated that the amendments were “aimed at correcting restrictive interpretations of the act’s liability standard, burden of proof, qui tam jurisdiction and other provisions in order to make the False Claims Act a more effective weapon against Government fraud.”

Highly publicized accounts of defense industry abuses, such as the government being charged tens of thousands of dollars for everyday items like hammers and toilet seats, also fueled the push for reform. Senator Chuck Grassley and Representative Howard Berman championed the legislation.

The 1986 FCA amendments significantly increased the financial rewards for whistleblowers:

– Relators became entitled to receive 15–30% of recovered funds, a substantial increase from previous miserly rewards
– The government’s recovery was increased from double to treble damages, meaning the pool from which the relator’s share is calculated grew larger
– The “any prior government knowledge” defense was eliminated, removing a major barrier that had blocked many whistleblower cases

Before 1986, the government had discretion on whether to make whistleblower awards even if funds were recovered, and whistleblowers could end up with nothing but unemployment. The amendments ensured that relators would receive a guaranteed percentage of any recovery. These changes ushered in what has been called the “golden age of the whistleblower.”

The 1986 amendments to the FCA introduced explicit anti-retaliation protections for whistleblowers for the first time:

– Made it illegal for employers to fire, demote, or harass whistleblowers who report fraud
– Created a private right of action, allowing employees to sue their employers directly in federal court for retaliation
– Expanded protections to apply to post-employment retaliation as well

Any employee disciplined for acting in furtherance of an investigation, testifying in, or assisting in an FCA action could bring an action for damages in an appropriate U.S. district court. These protections were designed to address the real risk whistleblowers faced of losing their jobs and careers.

Before 1986, FCA enforcement was weak for several reasons.

The law had been weakened by restrictive court rulings that narrowed its reach. Financial incentives for whistleblowers were low, giving insiders little reason to risk their careers to come forward. The 1943 amendments had virtually destroyed the ability of private citizens to bring successful qui tam lawsuits and a particularly damaging provision was the “any prior government knowledge” defense, which allowed defendants to argue that the government already knew about the fraud, thereby blocking whistleblower cases.

By the mid-1980s, the law had fallen into such disuse that there was reportedly only a single qui tam case pending in the entire United States. The government recovered only about $40 million per year from fraud detection and prosecution. Fraud against government programs was widespread, but the law simply lacked the teeth to address it effectively.

The 1986 FCA amendments expanded liability in several important ways:

– Expanded the definition of covered property: The law was extended to cover any property of the United States Government, not just property of the armed forces
– Broadened the definition of “claim”: The definition was expanded to include any request for money made to a contractor or grantee if the government reimburses any portion of it
– Expanded the definition of “knowing”: This now includes actual knowledge, deliberate ignorance, and reckless disregard for the truth
– Eliminated major defenses: The “any prior government knowledge” defense was removed, making it harder for companies to escape liability
– Extended statute of limitations: Actions could now be brought within three years from when material facts became known or should have become known to the responsible government official

These changes made it harder for companies to escape responsibility through loopholes and extended the reach of the FCA to various types of fraud committed against the United States.

The effects of the 1986 FCA amendments were dramatic and immediate.

Since 1986, whistleblowers have helped the U.S. recover tens of billions of dollars in fraudulent claims, with healthcare making up the largest share. The number of qui tam lawsuits filed increased more than forty times the previous number.

Prior to the reforms, the government recovered only about $40 million per year from fraud detection.

By 2015, that number had risen to $48 billion, with whistleblowers responsible for $33.2 billion or 68.7% of that sum. In 2015 alone, qui tam whistleblowers accounted for over 81% of civil fraud recoveries, resulting in over $3.5 billion returned to the U.S. government.

The FCA has proven to be the most effective anti-fraud law in the United States. The amendments succeeded in forging a solid partnership between government prosecutors and private whistleblowers and their counsel.