Federal Money Comes with “Strings”: The Fraud Enforcement and Recovery Act

June 22, 2009

The Fraud Enforcement and Recovery Act (“FERA”) was signed into law on May 20, 2009. FERA expands the ability of the federal government to combat fraud in a number of ways:

  1. FERA amends the criminal code to include private mortgage companies and actors among those liable under the code and includes TARP and other economic recovery funds among those protected under the code;
  2. FERA clarifies and expands the reach of the False Claims Act (“FCA”) to funds and actors with a more tenuous relationship to the federal government than previously understood;
  3. FERA authorizes $265 million per year for the next two years to support the enforcement and recovery of funds;
  4. FERA creates a Financial Crisis Inquiry Commission to examine the causes of the current financial and economic crisis.

It is particularly noteworthy that FERA legislatively overrules the recent unanimous Supreme Court decision in Allison Engine which held that under the FCA “a plaintiff… must prove that the defendant intended that the false record or statement be material to the Government’s decision to pay or approve the false claim.” 128 S.Ct. 2123, 2126 (2008). FERA removes the intent requirement altogether stating “the terms ‘knowing’ and ‘knowingly’… require no proof of specific intent to defraud.” S. 386 (4)(a)(2). It is now possible to face liability for fraud even when a person does not intend to defraud the government. (“Trust me, I’m from the Government and I’m here to help…”)

While the ultimate scope of FERA remains to be seen, it is clear that any party receiving funds from the federal government must be keenly aware of new potential liability and must act accordingly. Money from the Federal government has many strings attached, including potential jail time. Accepting Federal money makes proper paperwork and documentation more important than ever. Now is a perfect time to reinforce policies and protocols that generate a crystal clear paper trail. Also, make sure that there is absolutely no fraud or likelihood of fraud in your business dealings. Before taking any money from the government, be aware that Federal funds come with a possible ball and chain.