Buy American and Hire American for Whistleblowers

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President Trump is signing an executive order today to implement a more muscular Buy American Act. This measure likely signals strengthened enforcement of the Buy American Act under the False Claims Act.

The Buy American Act is a domestic preference procurement program. It gives favorable treatment to contractors that are completing the project with goods Made in the United States. The requirement can be waived by the Contracting Officer if the product is not available domestically, the domestic version is 25% or more expensive, or waiving the requirement is in the public interest. The law, often shortened to the BAA, was passed by Congress in 1933 and signed by President Hoover.

The False Claims Act provides a means to enforce the Buy American Act. If a government contractor gains the contract and a pricing discount because of a promise of domestic manufacturing, it can be a violation of the False Claims Act if it makes the product overseas and knowingly certifies compliance with the Buy American Act in order to receive payment from the United States for its goods and services.

This is how our firm has come to handle cases for customs whistleblowers. Violations of the law often involve import and export of goods with false markings in order to hide that the products were not made in America.

President Trump has criticized the law because there are too many contracts where the requirement is waived because of dumping or because of reciprocal trade agreements. After the executive order, they are going to take a harder line on the waiver process so that fewer waivers are granted. For example, Contracting Officers will now be able to specifically take into account if there is dumping in the determination of whether goods are 25% cheaper. Agencies may also require government contractors to Buy American as well, according to a Senior Administration Official

The Trump Administration is going to follow this up with a report from the Secretary of Commerce concerning additional executive and regulatory actions to strength the Buy American principle. Each agency will be required to conduct a comprehensive top-to-bottom review of their implementation of the Buy American mission. This effort has been described as one to close the loopholes in the law to maximize made in America.

With respect to Hire American, there was a False Claims Act lawsuit a few years back where a whistleblower brought an action against the Indian IT company Infosys for visa fraud and failure to comply with the Immigration Reform and Control Act of 1986. The company settled the lawsuit for around $34 million. Based on the minimum required by the law, the whistleblower would have received a reward of approximately $5 million for bringing the misconduct to the attention of the U.S. Government.

The executive order also calls for agencies to review and strengthen rules covering work visas such as the H-1B.

If you are working at a government contractor where misconduct is happening with respect to either the Buy American or Hire American provisions, call 1-800-590-4116 to speak to one of our whistleblower attorneys about reporting it to the U.S. Government.

5 Areas Where President Trump Will Pay Whistleblowers

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There has already been much commentary on the impact that President Trump and his administration will have on government enforcement efforts. Trump has made it clear that he intends to streamline government regulation of business in order to spur the economy. He’s also promised to dismantle Dodd-Frank, the law that started the SEC and CFTC whistleblower programs. If Trump succeeds in getting government off the back of businesses, then that will likely mean less enforcement actions against these businesses for running afoul of regulations that don’t fit into Trump’s plan.

However, Trump has also promised to cut waste in Washington. And that likely also means additional enforcement actions to punish companies stealing from the government. Although not yet in office, Trump has already warned Boeing and Lockheed Martin about the high cost of their airplanes, which are under government contracts. It is hard to envision a President attempting to control costs that doesn’t vigorously pursue government money lost to fraud.

So here are five areas where we expect President Trump will vigorously pursue fraud and pay whistleblowers over the next four years.

  1. Customs Fraud

Trump has promised to return manufacturing to America by imposing tariffs on companies that move production overseas. He has also floated high tariffs on goods from countries that don’t engage in fair trade, such as China. Higher tariffs on imports could bring about significant customs fraud, particularly if consumers won’t bear price increases for the goods in the marketplace.

Whistleblowers can report companies intentionally circumventing the payment of customs duties through the False Claims Act. With higher tariffs under the Trump Administration, the payout for whistleblowers reporting fraud in this area will likely increase. And President Trump will be eager to pursue them, as enforcement actions against companies manufacturing overseas will be popular with his base in the public.

  1. Cybersecurity

If there is one area of enforcement actions in securities law that is likely to grow under President Trump, it is cybersecurity. Hacking has become a significant problem in society and one of the easiest ways to make money off of the information acquired is through insider trading in the stock market. SEC Chair Mary Jo White previously said that cybersecurity is the biggest risk to the financial system.

Even if Trump rolls back Dodd-Frank, it seems unlikely that he will ever give free reign to hackers to disrupt the market. As detection efforts get better, and foreign intrusions increase, more enforcement actions will be focused in on this area. Less regulation of business isn’t going to change the story here as the government seeks to create a business-friendly environment.  And with a significant population of hackers overseas, Trump could easily use foreign intrusions here as justification for his protectionist agenda.

  1. Government Procurement, Contracts and Grants

Trump has big plans to increase spending on infrastructure and defense. For the nation’s roads, bridges, and rails, the spending boost is estimated to be $1 trillion. The estimate on the cost of his plan to strengthen the military is another $500 million to $1 trillion dollars.

With this increase in spending will come fraud, waste and abuse. When a company fraudulently bills the government for defective goods, the business is going to run afoul of the False Claims Act. And even if the government declines to intervene and prosecute the case, it will likely allow the qui tam relator to continue to pursue a recovery on its behalf.

  1. VA Fraud

Trump has promised to protect our troops when they get home by ending the red tape and backlogs in the Department of Veterans Affairs. Whether he privatizes the system or brings in more contractors to fulfill portions of the mission of the VA, it’s going to take a major overhaul to reform the system. There have already been numerous articles in the media about fraud in the system, whether in disability fraud or by contractors claiming to be run by veterans. As Trump attempts to clean it up, it seems likely that more cases will come out of the woodwork here.

  1. Prescription Drug Costs

Reform is coming here. As Trump vows to cut wasteful government spending, it has to include Medicare. This could take many forms: Reigning in health care spending could involve restrictions on drug pricing or even simply allowing Medicare to negotiate the prices it pays. Any plan to restrict profits will put pressure on the pharmaceutical industry and their sales representatives. As margins decline, some of them will take unscrupulous steps to sell their drugs and run afoul of the False Claims Act.

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False Claims Act Yields $519 Million for Whistleblowers in FY2016

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The Justice Department announced the third highest annual recovery in the history of the False Claims Act yesterday – $4.7 billion for the federal government for fiscal year 2016 (ending Sept. 30th). Whistleblowers received awards of $519 million for their assistance recovering $2.9 billion – more than half of the funds returned through settlements and judgments. During President Obama’s Administration, the Government paid more than $4 billion to whistleblowers for their information and assistance in the recovery of nearly $24 billion through qui tam lawsuits.

Although it wasn’t specifically mentioned, the government’s recovery included the amount our False Claims Act attorneys helped to recover from Salix Pharmaceuticals (a Valeant subsidiary).  The $54 million settlement was announced in June.

There were 709 lawsuits filed by whistleblowers under the False Claims Act in FY 2016. Most, if not all, of those lawsuits are still under seal and being investigated by the Department of Justice currently. It will be a few years before we have information about the success of those qui tam lawsuits.

The largest area of recovery in 2016 was once again the health care industry, with the federal government recovering $2.5 billion from health care fraud. According to the DOJ, it is the seventh consecutive year that health care recoveries have topped $2 billion. Kickback cases were prominently listed among the successes, although the top case involved price reporting.

Mortgage fraud was second with nearly $1.7 billion in recoveries. In 2014, fraud in the mortgage industry during and before the Great Recession caused mortgage fraud to displace health care fraud at the top spot of the False Claims Act for a year. The 2016 mortgage recoveries were the second highest annually. The government also uses FIRREA to recover funds due to mortgage fraud – and any amount brought in through that law is not counted in this total.

Government procurement fraud, education fraud by for-profit schools, and customs fraud finished off the list of areas highlighted by the DOJ announcement. The top case of fraud in federal programs and contracts involved the BP oil spill. As part of the $20 billion dollar consent decree, the company settled allegations that it made false reports about its safe drilling margin, a condition of the lease that allowed it to do oil exploration on the Outer Continental Shelf, for $82.6 million. The customs fraud cases involved violations of the reverse false claims subsection of the law. This means that importers of foreign goods sought to avoid the payment of duties on imports.

McEldrew Young Client Exposes Customs Fraud by Military Contractor

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We are pleased to announce that our client, Todd Mihajlovic, exposed the concealment of the origin of goods imported into the United States by ECL Solutions Limited, Inc., a British company doing business with the U.S. military as Ban-Air Storage Systems (“ECL”). Yesterday, the U.S. Department of Justice announced that ECL pleaded guilty to conspiring to smuggle goods into the United States and was ordered to pay a forfeiture money judgment of $1,066,132.10 in the criminal prosecution in the U.S. District Court for the Eastern District of Pennsylvania. The Government’s press release announcing the success in the criminal matter can be found on the DOJ’s EDPA website here.

We represented Mr. Mihajlovic, who filed a civil qui tam lawsuit under the False Claims Act in the U.S. District Court for the District of Delaware in 2012. Mr. Mihajlovic’s complaint alleged that ECL violated the False Claims Act because of false representations made by the company that products it sold to the United States complied with the Buy American Act (BAA) and the Trade Agreements Act (TAA). According to the Complaint, ECL obscured the fact that its steel racking systems sold to the U.S. military were actually imported from China.

Mr. Mihajlovic has our profound gratitude for bringing the company’s scheme to the attention of the U.S. Government.  Here at McEldrew Young, Attorney Brandon Lauria took the lead on the case and spent countless hours on the case to see it to a successful resolution.  We were assisted by United Kingdom Solicitor-Advocate Howard S. Brown, who is associated with Shepherd, Finkelman, Miller & Shah, LLP.

This case is an example of the rise of international whistleblowing, as our client is located outside the United States.  Fortunately, the whistleblower laws incentivize reporting by individuals regardless of their location and citizenship.  The False Claims Act, as well as the SEC, CFTC, and IRS whistleblower programs, do not restrict the U.S. Government from rewarding international whistleblowers.  Otherwise, in the era of transnational commerce, fraud might go unchecked simply because the evidence of the corporate wrongdoing is located in a foreign country.

If you are a whistleblower, located here in the United States or abroad, interested in reporting customs fraud in America or the bribery of customs officials abroad, contact our office for a free initial legal consultation concerning your case.

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False Claims Act Case Over Customs Duties Near Settlement

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When the Department of Justice reported its Fiscal Year 2013 results, it put the use of the False Claims Act to fight health care fraud front and center.  Whistleblowers are not limited to bringing lawsuits against hospitals and drug companies, however.  The False Claims Act applies broadly to fraud against the government.  A number of companies operating outside the health care industry, including J.P. Morgan, have found that out.  Symantec, for example, recently reported potential liability of $145 million under a False Claims Act investigation.  Another wasn’t even providing services to the government under a contract.  Instead, it violated the False Claims Act by underreporting the value of imported products for customs duties.

When companies import products, they must pay duties according to the value of the imported merchandise.  The customs value is not merely the material costs of manufacturing.  It also includes the value of additional materials and services involved in making the imported merchandise, known as assists.  The value of an assist is apportioned across all of the products manufactured with the assist.  If a company intentionally excludes the assist from the value reported to U.S. Customs and Border Protection, it violates the False Claims Act.

OtterBox, a maker of smartphone and tablet cases, is now in settlement talks in the False Claims Act lawsuit brought against it by Bonnie Jimenez in 2011, according to court documents providing additional time to finalize a settlement.  Jimenez, the former Supply Chain Director at OtterBox, accused OtterBox of understating the value of imported items to Customs from 2007 to 2011.  As a result, OtterBox paid lower customs duties to the U.S. Government on imported smartphone cases.

As Otterbox would import smartphone cases from a Chinese manufacturer, it did not report engineering and tooling costs performed overseas in the value of its products.  In one example cited in the lawsuit, Otterbox imported 3,000 cases for Blackberry phones at a cost of $2.13 from a Chinese manufacturer in April 2010.  The additional value was estimated at between $2,500 and $12,000 per mold, which should have been apportioned across the manufactured products.  Because it did not report the additional value of the assist, it did not pay the proper amount of import taxes.

Any settlement must be approved by the Department of Justice, the U.S. Attorney’s Office and the Department of Homeland Security.   United States Customs and Border Protection is a division of the Department of Homeland Security.

McEldrew Young represents whistleblowers reporting fraud to the government through the False Claims Act.  For a free confidential consultation, please call Eric Young, Esq. at 1-800-590-4116 or complete our online contact form.

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