Government contractors and grant recipients should heed the warning bell represented by the record haul of recoveries in 2025 under the federal False Claims Act (FCA). Although more than $6.8 billion was collected, according to the Department of Justice (DOJ), more troubling is the record number of 1,297 qui tam suits filed. This growth of whistleblower lawsuits comes just as DOJ has voiced its intent to use the FCA to combat diversity, equity and inclusion (DEI) initiatives.
DOJ Investigations
The DOJ is investigating DEI initiatives of U.S. government contractors, including Google and Verizon, according to The Wall Street Journal. DOJ also appears to be probing to find entities that receive federal money despite maintaining DEI initiatives inconsistent with the president’s Executive Orders (EOs) 14151 and 14173, which focus on eliminating “illegal DEI” initiatives in the public and private sectors, respectively. DOJ may demand a recovery if it concludes such an “illegal DEI” initiative defrauds the government under the FCA.
Current DEI investigations likely result from DOJ’s announcement of the Civil Rights Fraud Initiative, which uses the FCA for this purpose. The attorney general issued a memo admonishing those receiving federal funds to ensure their policies comply with civil rights obligations. In addition, the administration has created a new division at DOJ that will report directly to the president on national fraud enforcement. Although the press release does not mention “illegal DEI” initiatives, the search for them likely falls within the mandate of this new division.
FCA Liability
While the FCA has been around since the Civil War, it has not been used before in connection with DEI programs. In general, FCA liability may attach when an entity “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A).
Two requirements of EO 14173 could contribute to grantee or contractor liability under the FCA. First, agency heads have been directed to include in all contracts or grants “[a] term requiring such counterparty or receipt to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Second, “the contractual counterparty or grant recipient [must] agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government's payment decisions….” Theoretically, FCA liability could attach when an entity fails to disclose that it accepted payment or funds from the government while maintaining a DEI program that violates the EOs.
Relators Will Take Note
Qui tam relators are sure to note that investigations have begun because relators get a share of the government’s recovery from a relator’s complaint. Further, DOJ is encouraging relators to scrutinize policies whether categorized as a DEI program or not. Speaking during the Federal Bar Association’s Qui Tam Conference last week, Brenna Jenny, the deputy assistant attorney general of the DOJ’s commercial litigation branch, informed relators that DOJ will bring enforcement actions against activity that it deems in violation of antidiscrimination laws. Jenny condemned, for example, policies that compel employees to consider race and sex when making hiring and promotion decisions. If a violation is found, an entity faces treble damages and a hefty penalty for each violation, with the government arguing that every certification is a separate violation. Even if no violation is found, an entity bears the expense of defending against an investigation.
Practical Tips
Because qui tam relators can be everywhere, in any company or institution, government contractors and grant recipients should review their policies and general compliance programs as the recommended way to avoid costly FCA inquiries.
1) Review, revise and recirculate employee handbooks and compliance policies.
Recipients of government funds should evaluate current employee handbooks and compliance policies. This requires careful review of all policies because DOJ has not provided a simple checklist of anti-discrimination policies it will pursue. Beyond the policies themselves, entities should inform employees of these policies, by, for example, regularly scheduled training and public posting of policies.
2) Task responsible officials with ensuring compliance.
A culture of compliance flows from the top down. Appoint and support the activities of the head of compliance, and task this individual with both staying abreast of compliance requirements and implementing new policies in accordance with such requirements.
3) Create effective channels for employees to report potential compliance lapses.
Ensure employees have, and are aware of, avenues through which they can voice their compliance concerns. Ideally, this would be in the form of an independent hotline. Make clear to employees the process for communicating a compliance concern if one were to arise.
4) Ensure employees receive targeted training relevant to their position.
Go beyond a “one-size-fits-all” approach to training. Tailor training to each employee’s role to combat weaknesses that are specific to their tasks. For an example pertinent to DEI, ensure employees in charge of hiring are aware of the rules designed to prevent discrimination.
5) Set continual benchmarks for training.
Similarly, training is not a one-and-done event. Ensure regular training occurs at every level of the organization.
Conclusion
FCA enforcement against entities perceived to maintain illegal DEI programs threatens government contractors and grant recipients, like educational institutions, alike. Rather than wait for a government investigation to come knocking at your door, government contractors and grant recipients should take the opportunity to prepare themselves in advance.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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