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Floor Speech

By:
Date:
Location: Washington, DC

By Mr. GRASSLEY (for himself, Mr. Durbin, Mr. Leahy, Mr. Specter, and Mr. Whitehouse):

S. 458. A bill to amend the False Claims Act; to the Committee on the Judiciary.

Mr. GRASSLEY. Mr. President, I am here as part of what I am calling ``Accountability in Government Week.'' I plan to introduce various bills this week that will strengthen oversight of Government programs, integrity of taxpayer-funded initiatives, and bring sunshine to the executive, legislative, and judicial branches of our Government. These bills are important and will help all Americans better understand their Government in addition to making sure taxpayers' dollars are not lost to fraud, waste, and abuse.

The first bill I am introducing this week, and am introducing today, is the False Claims Clarification Act of 2009. I am glad to be joined by my original cosponsor, Mr. Durbin, the majority whip, the Senator from Illinois, who has worked closely with me in crafting this legislation that will update the 1986 amendments to the False Claims Act I authored.

This legislation is similar to a version that was introduced in the last Congress that cleared the Judiciary Committee by unanimous voice vote. We have made some updates to the bill that was the result of sitting down with various interested parties and hearing their concerns. We made a commitment last Congress to move that bill through regular order to ensure that all interested stakeholders had a say. I believe this version of the bill not only clarifies the original intent of the 1986 amendments but also makes a number of modifications that strengthen the False Claims Act and will help the Government recover taxpayers' dollars lost to fraud and abuse for years to come.

Senator Durbin and I are also joined by other original cosponsors, including Senator Leahy, whom you recognize is the chairman of the Judiciary Committee, and Senator Specter, its ranking member, and Senator Whitehouse, a member of the committee. It is a bipartisan bill that is about protecting taxpayers' dollars and strengthening the Government's hand in combating fraud.

A little history: Back in 1986, the Government was in a situation that had some parallel to today's economic situation. Government military expenditures were a significant portion of the budget, and there was ample evidence of fraud and abuse in Government contracts. Today, we are facing an economic situation where the Government is now on the hook for trillions of dollars in new Government spending in an attempt to jump-start our ailing economy. That is compounded by the fact that the Treasury Department has taken unprecedented steps to bail out financial institutions with hundreds of billions of taxpayers' dollars.

I am concerned this new Government spending has occurred too quickly and could be ripe with opportunities for fraud and abuse. I would say there are 99 other Senators who can say the same thing. But that is the reason this legislation is timely and urgently needed.

The False Claims Act, which is also known as Lincoln's Law, was originally passed by Congress in 1865 to combat war profiteering by Government contractors during the Civil War. The False Claims Act allowed individual citizen whistleblowers to go to court to collect Government money that was lost to unscrupulous contractors that were selling false or fraudulent goods to Union troops. This legal mechanism, known as qui tam--Q-U-I T-A-M, for you Latin lovers--is the key component to the False Claims Act, allowing individual citizens to act as private ``attorneys general'' to help unearth fraud and recover lost money.

However, following World War II, the False Claims Act was weakened by an act of Congress which lowered the penalties, limiting the money the Government could recover from this fraud.

This remained the case from the end of World War II until 1986 with the False Claims Act. That is when I authored amendments to that act which restored the teeth and breathed new life into a law that was designed to do nothing but to protect all American taxpayers.

Now, since 1986 the Federal Government has recovered $22 billion from those who defraud the Government. By working with qui tam whistleblowers, the Justice Department has turned Lincoln's law into the single most effective tool in the Federal Government's tool box to help protect taxpayers' dollars. However, it has been a hard fought battle to get the False Claims Act to where it is today as deep-pocket Government contractors have spent hundreds of millions of dollars to litigate the False Claims Act. As a result, various court interpretations have limited the applicability and the reach of the False Claims Act, cutting off many worthy cases from ever going forward. Some of these cases have been around for quite a while, others more recent. Yet the one thing these cases have in common is they threaten to undermine both the spirit and the intent of the 1986 amendments to Lincoln's law called the False Claims Act.

The first case that created problems for the False Claims Act was the Totten case where the DC Circuit Court of Appeals held that false claims must be presented directly to the Government--in this case, employees at Amtrak, which is a Government grantee--and were not actually presented to the Federal Government. As a result, the Government was precluded from recovering money lost to fraud and abuse perpetrated against Amtrak.

More recently, the Supreme Court held in Allison Engine Co. v. U.S. that for liability to attach a defendant must not only make a false statement but must intend to get the claim paid and approved directly by the Government based upon that false statement. While this sounds straightforward, it creates a huge loophole in the False Claims Act because subcontractors who receive Federal money never actually submit a claim directly to the Government because they do it through the contractors. Instead, they pass the claim to the prime contractor who then gives it to the Government. So under the Allison Engine decision, it could be virtually impossible to prove a False Claims Act case where the subcontractor knowingly ripped off the taxpayers. In fact, a judge in my home State of Iowa dismissed a case based solely upon the Allison Engine decision, even without a motion from the defendant. This has created a significant problem for recovering taxpayers' dollars that trickle down to subcontractors, particularly in Medicare and Medicaid Programs where subcontractors are frequently utilized.

Further, this could become a bigger problem if the second tranche of TARP money--some people might refer to that as the bailout money--is used to purchase distressed assets through a third party broker as originally envisioned.

Another case that is detrimental to the False Claims Act is Rockwell International Corporation v. U.S. In that case, the Supreme Court interpreted an area of the False Claims Act known as the ``public disclosure bar,'' which prohibits a false claims case from moving forward if the case was based upon publicly disclosed information such as a Government report, unless the whistleblower filing the case was the ``original source'' of the information. Here, the Supreme Court held that a qui tam whistleblower was barred from receiving a share of any money recovered unless they were the original source of all claims ultimately settled.

This may not sound like a troublesome decision. However, the impact is that oftentimes a case is brought by a whistleblower on a certain set of facts and then expanded by the Department of Justice that ultimately settles on other grounds. As a result, this case creates a disincentive for a whistleblower to bring forth information about fraud as they may not get to share in any part of that recovery. That is the incentive under false claims: a whistleblower, not a lawyer, not in the Justice Department, to get a percentage of what is recovered as an incentive to get this information out there and get it prosecuted, particularly if the Justice Department is overloaded or maybe doesn't want to take the case.

Now, one last case I will mention is the Custer Battles case decided in 2006. In this case, a jury found that a defense contractor in Iraq had defrauded the Government of $10 million. However, the judge overturned the jury's verdict, finding that the money lost was not U.S. taxpayer money but was instead Iraqi money under the control of the U.S. Government. As a result of this case, the U.S. Government may not recover for any fraud committed against the U.S. Government if the funds are not American funds, even if the U.S. Government has been entrusted with the management of those funds, just as if money is somehow not fungible. These decisions, which are by no means an exhaustive list, are contrary to the spirit and the intent of the 1986 amendments. And who should know that? I should know it because I authored this legislation.

This bill we are introducing today--a bipartisan bill by Senator Durbin and myself--seeks to clarify the False Claims Act so these judicial interpretations that have limited the False Claims Act are overruled. It is narrowly tailored--I wish to emphasize ``narrowly tailored''--to ensure that the intent of Congress in the 1986 amendments is upheld, if nothing else.

The False Claims Clarification Act would correct these negative interpretations in addition to making technical and clarifying amendments. First, the bill would address the Totten decision by removing the requirement that false claims be directly presented to the Government officials instead of tying the liability directly to Government money and property. It would also correct the Allison Engine decision, ensuring that subcontractors who rip off the taxpayers will be held accountable.

The bill would also address the Rockwell decision by requiring the Attorney General to file a timely motion to dismiss claims that violate the public disclosure bar. By allowing the Attorney General to present to the court information about public disclosures up front in a case, the bill would eliminate procedural uncertainties that exist now by allowing public disclosures to be addressed at any time during the proceeding.

The bill also clarifies that nontaxpayer funds under the control of the U.S. Government subject to fraud are actionable under the False Claims Act. Thus, monies directly under the control of the U.S. Government subject to fraud that are currently outside the scope of the False Claims Act would now be covered. This would correct the problems that have arisen following the decision of Custer Battles.

Additionally, the bill clarifies a split between the Federal Circuit Courts of Appeal that currently exists regarding whether a Government employee may file a False Claims Act case. It takes a dissenting opinion from the Tenth Circuit and codifies that by allowing Government employees to bring a False Claims Act case based upon information learned in the course of their employment only when the employee: One, discloses the fraud to a supervisor; two, discloses the fraud to the Inspector General of the agency; three, discloses the fraud to the Attorney General and then waits 18 months without Government action.

Further, it restricts a Government employee from bringing a False Claims Act case if they derive information for their case in an indictment or information, any ongoing criminal, civil, or administrative investigation, or if they are an auditor, investigator, or attorney who has a duty--a duty--to investigate fraud. This ensures that a Government employee can act as a relator, but only if he or she is truly bringing a claim that the Government has refused to investigate.

The bill makes some additional technical corrections that I am not going to go into. Finally, the bill includes a new section that will require the Attorney General to report to Congress on an annual basis regarding the use of the False Claims Act and any settlements made upon these sorts of lawsuits. This has two purposes. It allows Congress, first, to see if the Justice Department is utilizing the act consistent with the spirit and intent; and, secondly, ensures that the seal provisions allowing the case to be privately sealed with the court are not being abused to the detriment of qui tam relators.

So the False Claims Act clarification bill is narrowly tailored to ensure that the legislative intent of 1986 is truly understood. It will bring a level of reason and sanity instead of the current hodgepodge of laws across various circuit courts of appeals. This bill is designed to protect the American taxpayer from fraud and is timely, given the recent actions to shore up the balance sheets of banks and private businesses across the country.

I am glad we have a bipartisan coalition ready to pick up where we left off in the last Congress. I believe we made great strides last year in working through the concerns of various stakeholders, and I encourage my colleagues to join me and Senator Durbin in strengthening Lincoln's law so that it can stand up and work for the American taxpayers for years to come as it has for the last 22 years, bringing about $22 billion back to the Federal Treasury.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

There being no objection, the text of the bill was ordered to be placed in the Record

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