New Whistle-Blower Law Hailed : Berman Calls It a Major Tool Against Contract Fraud

A new law will enable citizens to become wealthy for performing a patriotic act, Rep. Howard Berman (D-Panorama City) said Monday.

Berman said in an interview that the False Claims Amendments of 1986, signed into law by President Reagan last week, “will serve as a major new tool to encourage direct citizen action against contractors who defraud the government.”

The congressman said that under the law any citizen who knows of false claims being made against the U.S. government can file a federal lawsuit on behalf of the government and receive from 15% to 30% of the recovery in a case that is successfully prosecuted.

Triple-Damage Proviso

For example, if a fraud is proven to be worth $30 million, the government would recover $90 million because the law has a triple-damage provision. The successful whistle-blower, Berman said, would be entitled to a minimum of 15% ($13.5 million) and a maximum of 30% ($27 million) of the $90-million recovery, depending on how important the individual’s participation has been.

“This law has the unique advantage of appealing to civic duty and the desire to be rewarded,” said Berman in an interview at the Center for Law in the Public Interest, a Los Angeles-based nonprofit firm that plans to file several suits under the new law.

The statute also provides strong protections against harassment and firing of whistle-blowers, Berman said. He said he hopes union officials will encourage their members to make use of the new law where appropriate.

Berman said he believes the new statute--actually a series of amendments to a law passed during the Civil War in an attempt to prevent fraud against the Union Army--will have a broad impact in Southern California, home of several large defense contractors.

The Justice Department has estimated that fraud by contractors against the federal government--including companies in defense, health, construction and food services--may run as high as $100 million annually, he said.

Berman and Sen. Charles Grassley (R-Iowa) authored the legislation. John Phillips, director of the Center for Law in the Public Interest, said the original False Claims Act had fallen into disuse since World War II when congressional amendments restricting its use were passed.

Phillips said he contacted Berman and Grassley about amending the law last year after he determined that whistle-blowers did not have adequate protection when they took action against fraud.

He said the center has set up a false claims project and expects to file several cases under the new law soon using information already provided by whistle-blowers. He said one of the cases in preparation “involves $20 million to $30 million in overcharges to the government.”

The law has a 10-year statute of limitations.

Phillips said that all lawsuits brought under the new act must be filed under seal for 60 days. When the suit is filed, a plaintiff also is required to notify the Justice Department and provide the department with a memorandum giving details of the allegations involved.

Investigation Option

During the next 60 days, the Justice Department and the FBI have the option of conducting their own investigation before the information becomes public and the potential defendant learns of the action.

The Justice Department has the option of taking over the suit, although the statute provides that the original plaintiff will retain a formal role in the case.

Phillips said there are provisions in the law to guard against frivolous suits. He said that no plaintiff can recover any money until a case has been successfully completed and added that a person filing a phony suit will be subject to “severe sanctions.”