Tuesday, May 27, 2014

Circumvention and the False Claims Act

Circumvention has been one of the key topics of discussion this year in the U.S.-China aluminum extrusion trade case.  In this months blog entry I will discuss the False Claims Act.  As you may recall, earlier this year the AEC reported that several companies in the Tai Shan case had settled allegations of False Claims Act violations brought by the Department of Justice.  This news triggered a number of discussions among AEC membership about circumvention in general and generated a lot of questions about the False Claims Act. 

As the Councils program manager on the Fair Trade Case, this year part of my journey has been to learn more about circumvention and what the United States government is doing to enforce trade orders.  The government has shown significant interest in investigating companies that have allegedly falsified documentation during the importation of aluminum extrusions.  Such conduct could be considered a violation of the False Claims Act, meaning it could trigger an investigation and/or a lawsuit by the local U.S. Attorneys office and the Department of Justice’s Civil Division.

Sometimes, individuals or companies can act as whistleblowers in False Claims Act cases, providing non-public information to the government to assist in an investigation, in exchange for a potential share of any settlement or judgment against the defendant.  The government does not pursue all whistleblower cases, however.  What is often problematic in persuading the U.S. government to take action in a case is the lack of clear evidence of a False Claims Act violation.  Providing the government any falsified documentation, or at least providing evidence based on firsthand knowledge of the alleged act, is generally required.  As such, someone from within the company would need to come forward to make that declaration or supply documentation.  If the information ultimately leads to a settlement or judgment, the whistleblower can reap a reward of up to 30% of the recovered damages.  In the Tai Shen case the whistleblower, also known as a ‘relator, could be paid up to 30% of the $1.1 million settlement between Basco and the United States.  The court in the Basco case is still determining how much the whistleblower will receive. 

With more companies and individuals named in the Basco case, the figures could certainly grow!  In fact, the latest news about this case doesn’t appear promising for the defendants.  

In a False Claims Act case, a relator can bring an action in the name of the United States when he is the original source of nonpublic information evidencing that a false claim has been presented to the government for payment.  A relator can be virtually anyone.  Such a False Claims Act case is filed under seal and the government has 60 days to decide whether to intervene in the case.  If the government intervenes, it takes over the case.  If not, the relator can continue to prosecute the claim in the name of the United States.

Damages in a False Claims Act case can equal three times the actual damages sustained by the United States.  In addition, an entity found liable for a False Claims Act violation is subject to fines of $5,000 to $11,000 for each false claim submitted.  Needless to say, in our industry the numbers can add up quickly.

So, what should someone in our industry do if they believe they can bring a valid False Claims Act case?  In most instances, it makes sense to have legal support in the effort.  If you have any questions regarding the False Claims Act you might consider calling our legal team at Wiley Rein who routinely deals in these matters.  They are available to help.  For questions or help please email Ralph Caccia at RCaccia@wileyrein.com.  If I can be of any assistance in this matter, please do not hesitate to contact me directly at 847.416.7222 or jhenderson@tso.net.

This is serious business.  False Claims Act allegations can be game changers for the relators and the companies found liable for such charges.  If you know of someone making false claims to the U.S. government, understanding the available legal remedies is the first step in confronting any suspicions you, or someone you know, may have.  Most individuals are understandably intimidated by the idea of turning in an employer, vendor, or customer to the authorities.  However, working with the federal government to ferret out fraud AND earning huge amounts of money are powerful incentives to come forward with evidence of fraudulent behavior.

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