Identification, Prevention, and Remedies for False Claims in Highway Improvement Contracting (2011)

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36 SECTION XII. OTHER POTENTIALLY APPLICABLE FEDERAL STATUTES Our survey indicates that situations involving false claims or fraud associated with federal-aid state highway or bridge projects appear far more likely to result in criminal prosecutions under other statutes than to result in civil actions for recovery of damages under the Federal FCA. Of the 30 state agencies re- sponding to our questionnaire, including 23 that re- ported experiencing false claims or fraud associated with projects, 14 state agencies (or 46.7 percent of all state agencies responding), plus one federal agency, indi- cated in response to question S(d) that they had sought the initiation of federal criminal investigations in response to false claims. By contrast, only one state agency (Missouri DOT) or just 3.3 percent of the state agencies responding, plus one federal agency (FHWA's Western Federal Lands Highway Division), indicated in response to question 3(a) that they had sought recovery of civil damages under the Federal FCA. Put another way, our survey shows state trans- portation agencies as 14 times more likely to refer a false claim or fraud for criminal investigation than to pursue recovery of civil damages under the Federal FCA. For this reason, it is important for state transporta- tion officials involved in dealing with actual or poten- tial false claims or fraud on federal-aid highway and bridge projects to have at least some general familiar- ity with other federal statutes that may be potentially applicable. The table on the following pages summarizes 16 federal statutes other than the civil FCA that appear potentially applicable to false claims situations. Juris- diction for determining the applicability of federal criminal statutes rests initially with professional prose- cutors of the DOJ, including Assistant U.S. Attorneys and staff of DOJ's Criminal Division, and ultimately with the federal judiciary, rather than with any state transportation officials or state attorneys. In general terms, the statute most likely to be ap- plied by federal prosecutors is the federal mail fraud statute, 18 U.S.C. § 1341. That is because it has been applied by the Criminal Division of the DOJ many times on a nationwide basis, has sufficiently general wording to have flexible applicability to a wide variety of fraudulent and criminal conduct, and is generally considered by prosecutors to be familiar and to have relatively stable and predictable results. As the Hon- orable Jed S. Rakoff, who once served as the chief of the Business and Securities Fraud Unit of the Office of the U.S. Attorney for the Southern District of New York, now serves as a judge of the U.S. District Court for the Southern District of New York, and also lectures at Columbia Law School, famously commented in a 1980 law review article analyzing that statute: To federal prosecutors of white-collar crime, the mail fraud statute is our Stradivarius, our Colt .45, our Louis- ville Slugger, our Cuisinart—and our true love. We may flirt with [other laws] and call the conspiracy law “dar- ling,” but we always come home to the virtues of [mail fraud), with its simplicity, adaptability, and comfortable familiarity. It understands us and, like many a foolish spouse, we like to think we understand it.275 275 Jed S. Rakoff, The Federal Mail Fraud Statute (Part 1), I 8 DUQ. L. REV. 77 1 (1980).

37 OTHER POTENTIALLY APPLICABLE CRIMINAL STATUTES NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Mail Fraud [criminal stat- ute] 18 U.S.C. §§ 1341 and 1346; penal- ties, 18 U.S.C. § 3571 18 U.S.C. § 1341, Frauds and swindles—This criminal statute prohibits using the U.S. Postal Service or any private or commercial interstate carrier to send, receive, or cause another to send or receive anything for the purpose of executing any scheme or artifice to defraud, or for obtaining money or prop- erty by means of false or fraudulent pretenses, rep- resentations, or promises, or to sell, dispose of, or procure for unauthorized use any counterfeit or spurious article. 18 U.S.C. § 1346—Definition of "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services. (This statute allows prosecutors to use the Mail Fraud statute to prosecute public officials for cor- ruption.) 18 U.S.C. § 3571, Sentence of fine—If offense creates pecuniary gain or results in pecuniary loss, up to the greater of twice the gross gain or twice the gross loss; otherwise, up to $250,000 per individual or $500,000 per organization for a felony, or lesser amounts for misdemeanors. Imprisonment of up to 20 years, or fines under 18 U.S.C. § 3571, or both. If conduct affects a financial insti- tution or involves any presiden- tially-declared major disaster or emergency, im- prisonment of up to 30 years, fines of up to $1 mil- lion, or both. Wire Fraud [criminal stat- ute] 18 U.S.C. § 1343 18 U.S.C. § 1343, Fraud by wire, radio, or television— This criminal statute prohibits using wire, radio, or television communication in interstate or foreign commerce to transmit or cause to be transmitted any writings, signs, signals, pictures, or sounds for the purpose of executing a scheme or artifice to de- fraud or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises. Same penalties as for mail fraud, above. Criminal False Claims Act [criminal stat- ute] 18 U.S.C. § 287 as amended 18 U.S.C. § 287, False, fictitious or fraudulent claims—This criminal statute prohibits presenting to any federal civil or military official any claim upon or against the Federal Government or any federal department or agency, knowing such claim to be false, fictitious, or fraudulent. Imprisonment of up to 5 years and fines under 18 U.S.C. § 3571, above.

38 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Highway Fraud [criminal stat- ute] 18 U.S.C. § 1020 Note that FHWA regula- tions, 23 U.S.C. § 635.119, ex- pressly and spe- cifically require that the full text of U.S.C. § 1020 be physi- cally posted and viewable by all personnel on the sites of all federal-aid highway pro- jects. 18 U.S.C. § 1020, Highway projects—Three categories of conduct are prohibited: • Knowingly making any false statement, repre- sentation, or report in connection with the submis- sion of any plans, specifications, estimates, etc., for any highway or related project to the Federal Secre- tary of Transportation for approval as to the charac- ter, quality, quantity, or cost of work to be per- formed, material to be used, or costs of construction. • Knowingly making any false statement, repre- sentation, report, or claim in connection with the construction of any highway or related project ap- proved by the Federal Secretary of Transportation, with respect to the character, quality, quantity, or cost of any work or materials. • Knowingly making any false statement or represen- tation as to a material fact in any statement, certifi- cate, or report submitted pursuant to specified fed- eral-aid highway legislation. Imprisonment of up to 5 years, or fines under 18 U.S.C. § 3571, above, or both. Conspiracy to defraud the Government with respect to claims [criminal stat- utes] 18 U.S.C. § 286 18 U.S.C. § 286, Conspiracy to defraud the Government with respect to claims—This criminal statute prohib- its persons from entering into any agreement, combination, or conspiracy to defraud the Federal Government or its agencies by obtaining or aiding to obtain the payment or allowance of any false, fictitious, or fraudulent claim. 18 U.S.C. § 286: Imprisonment of up to 10 years, fines under 18 U.S.C. § 3571, above, or both. Forfeiture of Fraudulent Claim Act [civil statute] 28 U.S.C. § 2514 28 U.S.C. § 2514, Forfeiture of fraudulent claim—This civil statute provides that a claim against the Federal Government shall be forfeited to the Federal Government by any person who cor- ruptly practices or attempts to practice any fraud against the Federal Government in the proof, statement, establishment, or allowance of such claim. U.S. Court of Federal Claims authorized to render a judg- ment of civil for- feiture.

39 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Contract Dis- putes Act Pro- vision on Fraudulent Claims [civil statute] 41 U.S.C. § 604 (Contract Dis- putes Act is 41 U.S.C. §§ 601 et seq.) 41 U.S.C. § 604, Fraudulent claims—This civil stat- ute is applicable to situations in which a contrac- tor submitting a contract claim to the Govern- ment is unable to support any part of the claim and such inability is attributable to misrepresen- tation of fact or fraud by the contractor. In light of the provisions of 41 U.S.C. §§ 601 and 602,it appears that "government" means an executive agency of the Federal Government, and that this statute applies only to the contracts of federal executive agencies. Contractor shall be civilly liable to the govern- ment for an amount equal to unsupported part of claim, plus all costs to government of reviewing such part of claim. Conspiracy to Defraud the United States [criminal stat- ute] 18 U.S.C. § 371 18 U.S.C. § 371, Conspiracy to commit offense or defraud the United States—This criminal statute prohibits two or more persons from conspiring to defraud the Federal Government or any federal agency in any manner or for any purpose, or to commit any offense against the Federal Govern- ment, if one or more persons commits any act to carry out the conspiracy. Imprisonment of up to 5 years, or fines under 18 U.S.C. § 3571, or both; lesser pen- alties if underly- ing offense is a misdemeanor.

40 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Administra- tive Remedies for False Claims and Statements [civil statute] 31 U.S.C. §§ 3801 et seq. This civil statute grants federal agencies the au- thority to deal with false claims submitted to them through administrative investigations and proceed- ings. The effectiveness of the statute is circum- scribed, however, by the inclusion of numerous limi- tations and restrictions upon agency actions: • Per § 3803(c), agencies may not use this statute to pursue any false claims larger than $150,000. • Per § 3803(a), agencies must obtain clearance from the AG before undertaking proceedings, the AG has 90 days for review, and the AG has author- ity to block agencies from conducting proceedings; and per § 3812, the AG and his or her assistants may not delegate to any subordinates the perform- ance of functions that the statute requires the AG to perform. • Per § 3802(b)(3), an administrative determination that a contractor has submitted a false claim shall not be conclusive regarding the contractor's respon- sibility in debarment proceedings. • Per § 3803, agencies must comply with detailed procedural requirements in conducting such pro- ceedings. • Per § 3805, agency administrative determinations that a false claim has been submitted are subject to judicial review. • Per § 3806, collection of any unpaid assessments or penalties shall be handled by the AG, not by agencies. • Per § 3808, there are statutes of limitations of 6 years for false claim proceedings and of 3 years for collection proceedings. • Per § 3809, federal agencies must adopt regula- tions to implement this statute. 31 U.S.C. § 3802, assessment of up to twice the amount of the false portion of a claim, if the claim has been paid, plus a civil penalty of up to $5,000. 31 U.S.C. § 3807, any assessments, penalties, or set- tlements may be collected by ad- ministrative offset (i.e., with- held from any future contract payments).

41 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES False State- ments Act [criminal stat- ute] 18 U.S.C. § 1001 18 U.S.C. § 1001, Statements or entries generally— This criminal statute prohibits persons from know- ingly and willfully falsifying, concealing, or covering up any material fact; making any materially false, fictitious, or fraudulent statement or representa- tion; or making or using any false writing or docu- ment knowing the same to contain any materially false, fictitious, or fraudulent statement or entry, in connection with any matter under federal execu- tive, legislative, or judicial jurisdiction. Imprisonment of up to 5 years, or fines under U.S.C. § 3571, above, or both. Imprisonment of up to 8 years in certain specified types of cases. Theft of Gov- ernment Property [criminal stat- ute] 18 U.S.C. § 641 18 U.S.C. § 641, Public money, property or records— This criminal statute prohibits the theft, embez- zlement, conversion, or unauthorized sale of Federal Government property; the receiving of stolen fed- eral property; or the retention of federal property with intent to convert it. Imprisonment of up to 10 years, or fines under 18 U.S.C. § 3571, above, or both; where property not worth over $1,000, impris- onment of not more than 1 year. Theft or Brib- ery Concern- ing Programs Receiving Federal Funds [criminal stat- ute] 18 U.S.C. § 666 18 U.S.C. § 666, Theft or bribery concerning pro- grams receiving federal funds—This criminal stat- ute prohibits "agents" (defined to include officers, employees, etc.) of state or local government agen- cies, Indian tribal government agencies, or other organizations receiving federal grants, contracts, subsidies, loans, guarantees, insurance or other federal assistance of more than $10,000 per year, and persons interacting with such agents, from three categories of conduct: • Agents embezzling, stealing, obtaining by fraud, or converting property worth $5,000 or more owned by or under the custody or control of such agencies or organizations. • Agents corruptly soliciting, demanding, or accept- ing anything of value to be influenced or rewarded in connection with any agency business, transac- tion, or transactions worth $5,000 or more. • Persons corruptly giving an agent, or offering or agreeing to give an agent, anything of value in con- nection with any agency or organization business or transactions worth $5,000 or more. Imprisonment of up to 10 years, or fines under 18 U.S.C. § 3571, above, or both.

42 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Major Fraud Act [criminal stat- ute] 18 U.S.C. § 1031, as amended by FERA 18 U.S.C. § 1031, Major fraud against the United States—This criminal statute imposes criminal penalties upon any person who knowingly attempts or executes any scheme or artifice to defraud the United States, or to obtain money or property by means of false or fraudulent representations, in any federal grant, contract, subcontract, loan, guaran- tee, insurance, or other form of federal assistance valued at $1 million or more. The statute also au- thorizes the AG to pay up to $250,000 to persons who furnish information relating to a possible prosecution, with certain exceptions. This statute was amended by FERA in 2009 to clarify that, in addition to federal grants and contracts in general, it applies to grants and contracts under federal eco- nomic stimulus, recovery, or rescue plans including the Emergency Economic Stabilization Act of 2008 and Troubled Asset Relief Program loans. Imprisonment of up to 10 years, fines of up to $1 million, or both; fines of up to $5 million if the fraud involves $500,000 or more, or if the offense involves a conscious or reckless risk of serious personal injury; total fines, with mul- tiple counts, up to $10 million. Racketeer In- fluenced and Corrupt Or- ganizations Act (RICO) [includes both criminal and civil provisions] 18 U.S.C. §§ 1961 et seq. Complex statute including both criminal and civil provisions. 18 U.S.C. § 1962, Prohibited activities—It shall be unlawful for any person who has received any in- come from a pattern of racketeering activity or collection of unlawful debt to invest such income in, or acquire control of, any enterprise engaged in interstate or foreign commerce, or to conduct the affairs of such an enterprise through a pattern of racketeering activity or collection of unlawful debt. 18 U.S.C. § 1961, Definitions—This defines "rack- eteering activity" to include a very long list of predicate criminal activities involving both vio- lent and white collar crime; the list includes both mail fraud and wire fraud, among many other crimes. Criminal penal- ties, 18 U.S.C. § 1963: Impris- onment of up to 20 years, or for life if based on activity for which penalty includes life; plus forfei- ture of any inter- est in any enter- prise or any proceeds of rack- eteering activity; plus interim in- junctive relief to preserve such assets prior to an indictment or conviction. Civil remedies, 18 U.S.C. § 1964: injunctive relief, treble damages, and costs includ- ing attorneys' fees.

43 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Anti-Kickback Act [includes both criminal and civil provisions] 41 U.S.C. §§ 51 et seq. This statute applies to federal agency contracts and contractors, but does not appear to apply to federal-aid state or municipal contracts. It in- cludes both criminal and civil provisions and cer- tain other provisions of interest. 41 U.S.C. § 53, Prohibited conduct— This criminal statute prohibits any person to offer, provide, solicit, or accept any kickback, or to include the amount of any kickback in any price charged to the Federal Government for contract or subcontract work. 41 U.S.C. § 52, Definitions— This section provides a lengthy and detailed defi- nition of the term "kickback." It also defines the term "contracting agency" to be "any depart- ment, agency or establishment ofthe United States." 41 U.S.C. § 54, Criminal penalties— See summary at right. 41 U.S.C. § 55, Civil actions— This civil provision authorizes the Federal Govern- ment to bring actions to recover civil penalties, summarized at right, from contractors whose em- ployees or subcontractors pay kickbacks, and sets a 6-year statute of limitations on such actions. 41 U.S.C. § 56, Administrative offsets— See summary at right. 41 U.S.C. § 57, Contractor responsibilities— This requires each federal contract to impose upon the contractor a duty to cooperate in investigations, and to report any violations. 41 U.S.C. § 58, Inspection authority— This authorizes the GAO, the Inspector General of any federal agency that has an IG, and a designated representative of any federal agency that does not have an IG, to have access to and inspect the facili- ties and audit the books and records, including elec- tronic records, of any contractor or subcontractor under an agency contract other than a contract for the acquisition of commercial items. Criminal penal- ties, 41 U.S.C. § 54— Imprisonment of up to 10 years, fines under 18 U.S.C. § 3571, or both. Civil penalties, 41 U.S.C. § 55—A civil penalty of twice the amount of each kickback, and not more than $10,000 for each occurrence. Administrative offsets, 41 U.S.C. § 56—Federal agencies may withhold the amounts of kick- backs from con- tract payments.

44 NAME CITATION(S) CONDUCT PROHIBITED PENALTIES Bribery and Illegal Gratui- ties Statute [criminal stat- ute] 18 U.S.C. § 201(b) and (c) 18 U.S.C. § 201, Bribery of public officials and wit- nesses—This criminal statute prohibits any person from bribing any federal executive official or member of Congress, or any nominee or candidate for public office, in connection with any official act, or any witness in connection with testimony before any court, Congress, or any federal agency. It also prohibits any federal executive official or member of Congress, any nominee or candidate for public office, or witness from accepting any bribe or unlawful gratuity in connection with any official act or testimony. The statute's multiple provi- sions are lengthy, and carefully and technically phrased, to define clearly the conduct that is prohib- ited and to make it difficult for violators to avoid the criminal consequences of their actions. Among other things, 18 U.S.C. § 201(b)(1)(B) directly and expressly prohibits the giving or receiving of bribes "to commit or aid in committing, or collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States." 18 U.S.C. § 201(b)—For those offenses set forth in § 201(b), im- prisonment of up to 15 years, a fine of up to three times the amount of the bribe, and disqualification from holding any federal office. 18 U.S.C. § 201(c)—For those offenses set forth in § 201(c), im- prisonment of up to 2 years, and fines under 18 U.S.C. § 3571, above.