Last week, the Department of Justice (DOJ) announced that it had collected a record $5.69 billion in False Claims Act (FCA) settlements and recoveries over the past year, marking the first time that recoveries have breached the $5 billion threshold. The DOJ press release announcing this accomplishment highlighted two key areas of recovery: healthcare and the financial sector.
While the healthcare field is likely to remain a fertile ground for future FCA litigation, many of the recoveries involving financial institutions arose from events leading up to the financial crisis. As a result, DOJ will likely be hard-pressed to replicate this value in the upcoming year. The Supreme Court may add further complications to DOJ’s recovery efforts when it decides Kellogg Brown & Root Services v. United States ex rel. Carter, which may limit the government’s efforts to toll the FCA’s statute of limitations. Despite its unprecedented success this year, DOJ is unlikely to declare victory and refocus its efforts elsewhere. To the contrary, it is highly likely that DOJ will redouble its efforts in pursuing FCA cases and up the stakes further by shifting from a focus on monetary recovery to a focus on seeking criminal penalties.
DOJ has already announced its intent to increase emphasis on criminal prosecutions in FCA cases. In remarks on September 17, 2014, Leslie Caldwell, assistant attorney general for the Criminal Division, announced that DOJ would be implementing new procedures regarding qui tam complaints. Caldwell stated that DOJ would be increasing the resources it devotes to FCA cases by bringing in the Criminal Division early and often. Going forward, the Criminal Division’s Fraud Section will review all qui tamactions as soon as they are filed to determine whether to open parallel criminal investigations. Caldwell suggested that even if criminal charges ultimately are not filed, the civil investigation will still benefit from criminal investigators’ expertise in uncovering fraud. She also encouraged prospective relators to contact criminal as well as civil authorities before filing a qui tam suit.
The upshot of these developments is that companies should expect an increase in criminal investigations that accompany FCA cases. In particular, they should expect DOJ to intensify efforts to hold individuals criminally responsible for FCA violations. In a particularly ominous statement, Caldwell highlighted the Criminal Division’s ability to freeze assets. While this power ostensibly is used for “preventing criminals from enjoying the proceeds of their schemes,” DOJ regularly freezes assets before trial as a tactical tool to impede individuals’ ability to defend themselves against the charges.
Increased criminal scrutiny makes it even more vital for companies to undertake a comprehensive internal investigation when first confronting an FCA investigation. As a criminal investigation likely will include individual employees becoming subjects or targets, the company should identify individuals with potential exposure to government scrutiny as early as possible. Companies also should ensure that they have sufficient D&O insurance coverage to withstand an investigation involving senior-level employees. On the preventative side, this only further underscores the importance of robust compliance programs that ensure employee concerns are addressed and resolved before they turn into whistleblower or FCA cases.