According to Cornell’s Legal Information Institute, fraud against the government may consist of fraud in connection with federal government contracting and fraud in connection with federal and/or federally-funded entitlement programs, including public housing, agricultural programs, defense procurement fraud, educational programs and corporate frauds.
As it relates to federal government contracting, investigations often involve bribery in contracts or procurement, collusion among contractors, false or double billing, false certification of the quality of parts or of test results, and substitution of bogus or otherwise inferior parts.1
The Position in the United States of America
In the United States of America, such fraud against the government constitutes a criminal offence under the 18 U.S. Code § 371 which provides for
Conspiracy to commit offense or to defraud United States
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to affect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.
If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.
Under 18 U.S.C. § 371, the act of defrauding the government of money or property may take many forms, including the inducement of payment
- for services or supplies not provided or provided at inflated prices; -for work for which the government is not responsible. United States v.
- Vincent, 648 F.2d 1046 (5th1981); United States v. Cella, 568 F.2d 1266 (9th Cir.1978); and
- of money or property to which the applicant is not lawfully entitled because of the applicant’s status.
Proof that the United States has been defrauded does not require any showing of pecuniary or proprietary loss.2
Not only that the act of defrauding the United States is a criminal offence, the United States had enacted the False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733, also known as the “Lincoln Law”, that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. The FCA was enacted in 1863 to fight widespread fraud by companies selling rotten food, sickly mules, and defective weapons to the Union Army during the Civil War.
Now, it is the federal Government’s primary litigation tool in combating fraud against the Government3. The FCA was strengthened in 1986, when reports of the government paying exorbitant sums for everyday items – $600 for a toilet seat, $400 bills for hammers, $1,000 for bolts and $7,000 for coffee pots – came to symbolize government “waste.”4
The FCA includes a qui tam provision that allows people who are not affiliated with the government, called “relators” under the law, to file actions on behalf of the government.
In situation where the relator is employed by the organization accused in the suit, they are called “whistleblowing”. Persons filing under the FCA stand to receive a portion (usually about 15 to 30 percent) of any recovered damages.5
The FCA provided that any person who knowingly submitted false claims to the government was liable for double the government’s damages plus a penalty of $2,000 for each false claim. The FCA has been amended several times and now provides that violators are liable for triple amount of damages plus a penalty that is linked to inflation.6
The statute begins, in § 3729(a), by explaining the conduct that creates FCA liability. In very general terms, §§3729(a)(1)(A) and (B) set forth FCA liability for any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government. Section 3729(a)(1)(G) is known as the reverse false claims section; it provides liability where one acts improperly – not to get money from the government, but to avoid having to pay money to the government. Section 3729(a)(1)(C) creates liability for those who conspire to violate the FCA.7
The following are the liabilities under the FCA:
§ 3729. False claims
LIABILITY FOR CERTAIN ACTS. —
(1) IN GENERAL. —Subject to paragraph (2), any person who—
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;
(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);
(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;
(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or
(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410), plus 3 times the amount of damages which the Government sustains because of the act of that person.
(2) REDUCED DAMAGES. —If the court finds that—
(A) the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;
(B) such person fully cooperated with any Government investigation of such violation; and
(C) at the time such person furnished the United States with the information about the violation, no criminal prosecution, civil action, or administrative action had commenced under this title with respect to such violation, and the person did not have actual knowledge of the existence of an investigation into such violation, the court may assess not less than 2 times the amount of damages which the Government sustains because of the act of that person.
(3) COSTS OF CIVIL ACTIONS. —A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages.
The Department of Justice obtained more than $2.8 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending 30th September 2018.8
The Position in the United Kingdom.
Surprisingly, the qui tam enforcement was originated from England, where it served for centuries as the principal means of enforcing a wide range of statutes. However, England moved away from qui tam enforcement in the 1800s and abolished it altogether in 1951.9 There have been calls made for the United Kingdom to bring back the qui tam enforcement10. In the United Kingdom, there is no specific penal laws which tackle the issues of fraud against the government unlike the United States.
Currently, the Fraud Act 2006 that came into force on 15 January 2006 applies in England, Wales and Northern Ireland.
The Fraud Act 2006 repeals the relevant deception offences in the Theft Act of 1968 and 1978 and replaces them with a single offence of fraud (section 1).
Summarily, section 1 of the Fraud Act 2006 provides for as follows:
Fraud
(1) A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2) (which provide for different ways of committing the offence).
(2) The sections are—
a) section 2 (fraud by false representation),
b) section 3 (fraud by failing to disclose information), and
c) section 4 (fraud by abuse of position).
(3) A person who is guilty of fraud is liable—
a) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both); on conviction on indictment,
b) to imprisonment for a term not exceeding 10 years or to a fine (or to both).
(4) Subsection (3)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
On the other hand, as for civil claims for monies loss due to the act of defrauding the Government, as of now, there is no specific act/law which provides for such, unlike the United States’ FCA. Fraud in civil claims are referred to as civil or commercial fraud and it has a broad scope and general means a fraudulent misrepresentation, which is a claim under the common law and/or the tort of deceit.
The Position in Malaysia
In Malaysia, an act of defrauding the Government is also a criminal offence under, inter alia, section 18 of the Malaysian Anti-Corruption Commission Act 2009.
18. Offence of intending to deceive principal by agent.
A person commits an offence if he gives to an agent, or being an agent he uses with intent to deceive his principal, any receipt, account or other document in respect of which the principal is interested, and which he has reason to believe contains any statement which is false or erroneous or defective in any material particular, and is intended to mislead the principal.
In the appeal case of Shahrunizam bin Mashkor & Anor v Public Prosecutor and another case [2015] 8 MLJ 766, the first appellant was employed as a clerk in the Jabatan Pengairan dan Saliran (‘JPS’).
The second appellant was the director of JPS. The first appellant was charged under s 11(c) of the Anti-Corruption Act 1997 (Act) (now section 18 of the Malaysian Anti-Corruption Commission Act 2009) with deceiving the government by submitting two false claims while the second appellant was charged under s 20 of the Act for abetting the first appellant. The charges related to river deepening projects at Sungai Batu Manikar and Sungai Miri in Labuan. In respect of the first charge which related to the Sungai Batu Manikar project, the first appellant faced a charge of submitting a false claim in the sum of RM16,500. In respect of the second charge which related to the Sungai Miri project, the amount was RM18,200. The river deepening works were never done. The appellants were found guilty and the Sessions Court Judge imposed a 21 days imprisonment and a fine of RM10,000 in respect of the two charges against the appellants. The appellants appealed and during the appeal, the learned Deputy Public Prosecutor submitted that the 21 days imprisonment was inadequate whereas the counsel for appellants submitted that it was excessive. The maximum punishment under the law was 20 years imprisonment and fine. The High Court Judge held that the learned Sessions Court Judge was overly sympathetic to the appellants in imposing only 21 days of imprisonment. The amount involved in this case is relatively large, ie RM34,700.00. The appellants had abused their positions to submit a claim for two non-existent projects. The learned High Court Judge further held that the learned Sessions Court Judge had failed to give sufficient consideration to the public interest element. The appellants had defrauded the public purse for their benefits. The punishment of 21 days imprisonment was no more than a rap on their knuckles for the said corruption offences which involved a large amount of money. Having found so, the learned High Court Judge dismissed all the appeals against the conviction and enhance the term of imprisonment of 21 days to a one year imprisonment for each of the two charges in respect of which the appellants were convicted that they were to run concurrently. The fine sentences of RM10,000.00 were affirmed.
Also, similarly with the United Kingdom’s position, as for civil claims for monies loss due to the act of defrauding the Government, as of now, there is no specific act/law which provides for such, unlike the United States’ FCA. However, the Government can still claim and also sue under civil proceedings i.e. breach of contract. tort of deceit and/or tort of conspiracy to defraud.
Section 3 of the Government Proceedings Act 1956 provides for the right of the Malaysian Government to sue:
Subject to this act and of any written law where the government has a claim against any person which would, if such claim had arisen between subject and subject, afford ground for civil proceedings, the claim may be enforced by proceedings taken by or on behalf of the government for that purpose in accordance with this act.
Also, the concept of 3 times the amount of damages which the Government sustains is not provided under the Malaysian law as compared to the FCA in the United States. Even the mesne profit (double rental) under section 28(4)(a) of the Civil Law Act 1956 is only applicable for recovery of vacant possession of land under tenancy. Section 28(4)(a) of the of the Civil Law Act 1956 provides as following:
28. No person chargeable with rent bona fide paid to holder under defective title.
(4)(a) Every tenant holding over after the determination of his tenancy shall be chargeable, at the option of his landlord, with double the amount of his rent until possession is given up by him or with double the value during the period of detention of the land or premises so detained, whether notice to that effect has been given or not.
Notwithstanding that, the defrauded Government bodies/agency can probably still claim for exemplary damages, aggravated damages and other damages that are permitted under the law. The usual civil litigation process will commence and the defrauded Government can only claim and seek remedy under the existing laws e.g. the Contracts Act 1950 and the law of torts etc.
Conclusion
The functions of law are to punish the fraudster, to deter the act of fraud and/or to educate the society on the negative impacts of fraud. Although the available laws are sufficient for the government to enforce its right in the event of being defrauded, nevertheless, taking into consideration the element of public interest, a specific law to tackle the issues of fraud against the government like the United States would make the position of law clearer and enhance the rights of the government.
When people defraud the government, they are stealing from their fellow citizens. They are breaking the laws and for that fraudsters must be punished heavily and heftily, and not the millions of taxpayers who put their money and trust into the system.
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- Cornell’s Legal Information Institute, Government Fraud <https://www.law.cornell.edu/wex/government_fraud>
- The United States Department of Justice, 924. DEFRAUDING THE GOVERNMENT OF MONEY OR PROPERTY<https://www.justice.gov/jm/criminal-resource-manual-924-defraudinggovernment-money-or-property>
- United States ex rel. Steury v. Cardinal Health,Inc., 625 F.3d 262, 267 (5th Cir. 2010) (“The FCA is the Government’s primary litigation tool for recovering losses resulting from fraud.”).
- Thomson Reuters, Government Vendor Fraud: is prevention the ultimate cure?<https://legal.thomsonreuters.com/en/insights/articles/isprevention-the-ultimate-cure >
- Constantine Cannon, False Claims Act <https://constantinecannon.com/practice/whistleblower/whistleblower-types/whistleblower-reward-laws/fca/>
- The United States Department of Justice,https://www.justice.gov/civil/false-claims-act
- The False Claims Act – Department of Justice< https://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf>
- Department of Justice,https://www.justice.gov/civil/false-claims-act
- J. R. Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C. L. Rev. 539 (2000).
- Theo Blackwell, It’s time for a UK False Claims Act, 16th July, 2013, https://labourlist.org/2013/07/its-time-for-a-uk-false-claims-act/
Written by:
YM Dato’ Raja Ahmad Mohzanuddin Shah Raja Mohzan & Jason Cheong Kah Lok
