Connecticut taxpayers are fed up with government fraud. The recent school construction scandal is just the latest example of taxpayer money being stolen, and citizens losing valuable government services because of false claims and fraudulent activity committed by public contractors.
And yet few know a critical reason Connecticut public dollars are so easily stolen by contractors: an odd loophole in the Connecticut False Claims Act (CFCA), the main whistleblower and enforcement law designed to fight false claims and records submitted to the state. The loophole? The CFCA only covers fraud in health care contracts and programs. By contrast, the federal False Claims Act and similar laws in other states apply to all contractors.
Connecticut Attorney General William Tong and others are fighting to close that gaping loophole with long overdue legislation. The Connecticut legislature needs to join the fight.
More than 150 years ago, President Abraham Lincoln created the federal False Claims Act (“FCA”) to expose, fight, and clamp-down on crooked federal contractors. He was concerned about military contractors ripping off the Union army. However, Lincoln foresaw government being called upon to enact great infrastructure works as well. Lincoln’s FCA thus empowered the government to sue any federal contractor —military or otherwise —that submitted “false claims” to the government, and to sock them with multiple damages and civil penalties.
Critically, the FCA also expanded the government’s fraud-fighting by empowering citizen‑whistleblowers to sue crooked contractors on behalf of the government in exchange for a percentage of the recovery.
In 1986, a bi-partisan coalition re-invigorated the FCA’s whistleblower provisions while ensuring that government officials supervise whistleblower-initiated cases. Since then, the FCA has recovered $60 billion in stolen funds from corrupt contractors, 85% of which is attributable to whistleblowers. (Other states later passed FCAs to fight false claims submitted to state governments.)
But saving taxpayer dollars is only part of the story. Frauds exposed by FCAs have saved lives and made government funded projects safe, such as by exposing faulty health care devices, illegal pharmaceutical practices, inadequate military and police gear, shoddy construction, environmental violations, and cyber-security flaws.
At no time since 1863 has anyone in Congress suggested limiting the FCA to just health care contractors. Yet Connecticut’s FCA does just that. So Connecticut is really behind the times.
Indeed, the majority of other state FCAs apply to any industry. They have been resoundingly successful. New York’s FCA, for example, by policing the construction industry, resulted in the exposure and termination of unsafe building practices, overbilling, labor violations, and fake businesses that deny opportunities to women and minority contractors.
New York’s FCA also exposed fraud and recovered tens of millions of dollars for pension funds victimized by banks; school districts overcharged by food contractors; local governments overbilled for heating oil; and state taxpayers bilked by trash haulers, tech companies, and environmental contractors (among others.)
Further, because its FCA covers large-scale tax frauds, New York recouped $330 million from a sales tax scam committed by Sprint-Nextel; $175 million from hedge funds caught lying about revenue; and millions more from large out-of-state companies that unfairly competed with local businesses by deliberately failing to collect sales taxes.
But neither the Connecticut Attorney General nor whistleblowers can bring these types of cases in Connecticut. If it isn’t health care fraud, then companies have a green light to fleece Connecticut taxpayers.
Who is against fighting fraud? The construction industry and large corporate taxpayers. They are content to operate in Connecticut without proper oversight. And they peddle demonstrably false information about the Act to raise demonstrably false fears.
On April 27, Donald Shubert, President of the Connecticut Construction Industries Association, wrote that “the loose legal standards of the FCA are remarkably problematical when applied to construction disputes” and that an expanded Connecticut FCA will result in “contractors unwilling or unable to shoulder the risk of being saddled with civil fraud allegations stop bidding on public work projects.”
He wrote this despite the fact that his organization’s members have bid on federally funded contracts for decades, all of which have been subject to federal FCA enforcement since (ahem) 1863. And the “legal standards” of Connecticut’s FCA? They are identical to the federal FCA and those of over 30 states. Indeed, any contractor working on a federally funded construction contract in Connecticut is already subject to federal FCA lawsuits for false claims, even when federal funds flow through state agencies.
The question facing Connecticut is simply whether state tax dollars should be protected as well. They should be.
Shubert also ignored that the Connecticut FCA only addresses fraud, not mistakes or negligence, when warning that a “simple math error” may be considered a “false claim” under the act. In truth, the Act only holds contractors and taxpayers liable who “knowingly” present a false claim. (Look it up at § 4‑275 of the CFCA.) Dozens of federal and state cases, without exception, have held that good faith mistakes are not subject to FCA liability.
Meanwhile, the corporate-funded U.S. Council of State Taxation argued that an expanded Connecticut FCA will interfere with sound tax administration, despite over a decade of contrary experience in New York and elsewhere.
Lobbyists’ false claims about Connecticut’s FCA should not be allowed to derail legislation to fully protect Connecticut’s citizens and their tax dollars from false claims in connection with public funds and tax fraud.
Gregory M. Krakower is an Adjunct Professor of Law at Cardozo University School of Law and a former Counselor to the New York Attorney General.