In a policy change introduced back in September 2015 by Deputy Attorney General Sally Yates, the United States Department of Justice (DOJ) said that it will no longer settle fraud cases unless culpable individuals have been identified and are held accountable for wrongdoing. This policy is now universally known as the “Yates Memo.”
So you find yourself a subject or target of a Department of Justice investigation. Culpable or not, you ask yourself: why me and how can I pay the government enough money to put an end to all the scrutiny?
In the post-Yates Memo enforcement world, the Justice Department’s focus is not necessarily a lot of money from a big corporation. They are squarely setting their sights on money from individuals to deter future wrongdoing. Moreover, the government has shuffled its resources to ensure that there are enough prosecutors to pursue even small dollar cases against individuals.
But what if you do not have the financial means to pay the government what it wants? Surely, the government cannot force an individual into bankruptcy. Where will the balance be struck between accountability and ability to pay? Will the government consider a lesser amount based on your personal finances? These questions will undoubtedly arise more frequently during False Claims Act settlement discussions with the government. This client alert explores these critical questions and suggests some important considerations when facing such issues.
Ability to Pay Settlements
The False Claims Act (FCA) serves as an important fraud enforcement tool for the government mostly because of its significant penalty provisions. Violations of the FCA can result in any person having to pay three times the amount of damages, and each false claim is subject to a mandatory penalty between $5,500 and $11,000 per violation. Moreover, penalties under the FCA may double in the next coming months which will have significant economic impact particularly on small companies and individuals. With higher penalties at stake, those who are subject to FCA liability may feel added pressure to settle with the government.
In government parlance, there is a category of settlement that deals with the situation when an individual may not have the ability to pay a substantial penalty. It is within the Department of Justice’s discretion whether to consider an individual’s finances when trying to resolve a FCA case. However, the burden is on the individual to demonstrate his/her inability to pay a proposed settlement amount. Indeed, if there is a desire to punish an individual then there is little stopping the government from doing so. Of course, the equities of the situation may dictate entirely otherwise. Not every alleged wrongdoer will have significant economic resources. Not every alleged wrongdoer will have personally profited from a scheme.
What factors are considered in an ability to pay settlement? The process begins with a full disclosure to the Department of Justice of an individual’s finances, both assets and liabilities. This may include a spouse’s finances as well. The disclosure must be in writing and backed by adequate documentation, e.g., bank statements, financial statements, and tax returns. The forms must be signed under penalty of perjury. Any intentional misrepresentations or omissions, therefore, could be prosecuted for perjury, false statements, or even obstruction of justice.
In short, the forms will give the Justice Department a full picture of an individual’s financial ability to pay the government. The risk is that they could determine a certain amount that is no less practicable to pay. Once you submit the forms, however, you may be stuck with the Department’s determination. It is not uncommon to find yourself at odds with their determination and your honest belief about what you can afford to pay. It is therefore important that the officials who will make determinations about your financial condition have an accurate and complete picture of your finances and the impact the settlement will have on you.
Pay Over Time
Another possibility is to request that any fine or penalty be paid over time as part of a settlement. Recent FCA settlements seem to indicate that the Department of Justice is becoming more open to such arrangements though payments generally do not extend beyond five years. When a settlement is paid over time, an upfront payment must be made, interest will likely be added to any amounts owed, and the government may ask that you provide assurances that the debt will be paid in full. Some examples are promissory notes, letters of credit from a bank, or other forms of security. Substantial penalties will be waiting for you if you miss payments or totally default on the repayment plan.
Your listed assets may be used for an upfront payment to the government. This may mean emptying savings or retirement plans. It may also mean selling certain assets or investments that can be used to satisfy a debt. In some circumstances, you could also find yourself taking out a loan to pay the government. In any event, it is critical that you be allowed to maintain your finances (including income and cash flow) in a way that allows you to survive financially and still make timely payments.
Another important settlement consideration, particularly for healthcare providers, is whether there might be any collateral consequences of entering into an agreement with the government. Such actions may significantly impact a person’s ability to pay back the government. With exclusion, an individual is precluded from receiving any federal reimbursement at all. Some employers may not even hire you if you are listed on the Office of Inspector General’s (OIG) exclusion database. If a settlement includes an integrity agreement with the OIG, then there will be costs associated with effectuating and monitoring those obligations.
Settlement of claims with the government is a harrowing experience that can lead to financial ruin for an individual. With the Justice Department’s focus on individual accountability, financial ruin may soon be the norm rather than the exception in settlement of fraud claims. However, with the right approach, the financial impact of settlement can be mitigated and lessened to some degree.
If you have any questions regarding this client alert and how it may apply to you, please contact author, Edgar Bueno.
Author’s Upcoming Speaking Event:
"What the Government Now Expects from Individuals and Their Attorneys in False Claims Act Investigations and Settlements"