Reverse False Claims
FCA Basics: Liability Theories
This is the fifth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post covers the categories and scope of FCA liability. Theories of Liability There are three principal ways an FCA defendant can be found liable: factual falsity, legal falsity, and/or “reverse” false claims. In addition, the criminal Anti-Kickback Statute often provides an independent basis for FCA liability in the healthcare sector. Factual Falsity. A claim to the federal government is factually false where some fact about the deliverable is false. A classic (and perhaps apocryphal) example traces back to the American Civil War where the Union Army was said to have received sawdust instead of gunpowder. As a more contemporary example, a claim for medical services that were not actually rendered—or that are different from those actually rendered—would be a factually false claim. Legal Falsity. A claim is legally false if it violates a legal condition of payment for the product or service being billed. For example, if a non-licensed individual provides healthcare services for a federal healthcare program beneficiary, those claims would be considered legally false for violating the condition of payment that the provider be qualified to provide the billed-for services. Reverse False Claims. The reverse false claims provisions of the FCA give the government a means to recover from someone who makes a material misrepresentation to avoid paying an obligation owed to the government. Unlike traditional false claims, reverse false claims involve preventing the government from collecting money it is owed, rather than making a false claim to receive money from the government. One classic example of a reverse false claim is if a provider knowingly retains an overpayment. Liability for retention of an overpayment arises where a party received from the government more money than it was due and knowingly fails to return the overpayment. Another increasingly common example is when importers misrepresent the product being imported into the country or the product’s country of origin to avoid paying tariffs or other duties. Notably, however, the FCA specifically excludes tax-related obligations. Anti-Kickback Statute. The Anti-Kickback Statute (“AKS”) is a criminal liability statute that prohibits rewarding or paying for referrals for services covered by federal health care programs (i.e., kickbacks). It was enacted to prevent kickbacks from influencing healthcare decisions and is designed to protect federal healthcare programs from overutilization, increased costs, and potential fraud. The AKS has numerous “safe harbor” provisions exempted certain conduct from liability, but claims submitted to the government that are “tainted” by an AKS violation are false claims under the FCA. Scope of Liability FCA damages and penalties are crucial components of FCA litigation as damages often drive the government’s or relator’s decision to litigate. The FCA imposes a rough form of justice upon those found liable for defrauding the government: the FCA applies treble (triple) damages in most circumstances, plus per-claim penalties. Public policy concerns, primarily deterrence, justify these steep penalties. However, recovery is not meant to be a windfall for the government, and FCA damages generally exclude consequential damages, pre-judgment interest, punitive damages, and investigation costs. In some FCA contexts, the government’s damages are the amount of money it paid minus the amount it would have paid had the claim not been false—multiplied by three. For example, if the government paid for $5 per widget for 100 widgets ($500) but only twenty widgets were delivered ($100), then the government’s actual damages are $400 and its trebled damages are $1,200. In other FCA contexts, the damage to the government could be the entire amount paid without claims for offsets. In reverse false claims, damages are the difference between the amount paid to the government and the amount the government should have been paid. If the government collects a duty of $2 on each microwave imported into the United States, and Acme imports 1,000 microwaves but only discloses and pays the duties on the first shipment of 100, then the actual damages are $1,800 and the trebled damages are $5,400. Trebled damages are accompanied by per-claim penalties, which are adjusted annually for inflation. Currently, the adjusted per-claim penalties range from $14,308 per claim to $28,618 per claim. As a result, what is considered a “claim” under the FCA can have significant impacts on potential exposure. The Eighth Amendment’s Excessive Fines Clause In an FCA action, civil penalties may dwarf the government’s actual damages. These situations may implicate the Excessive Fines Clause of the Eighth Amendment which prohibits punitive fines that are excessively disproportionate to an offense. Several courts have applied the Excessive Fines Clause to FCA cases as well as qui tam actions where the government has chosen not to intervene.
February 17, 2026
by Alex Hontos, Chris DeLong, Matthew Gillespie, Annie Boeckers, and Joe Coffey
Reverse False Claims
The Trump Administration’s Sweeping New Tariffs Heighten False Claims Act Risks for U.S. Importers
As the business community adjusts to the reality of the Trump Administration’s sweeping new tariff regime, importers and other organizations that rely on imports should be mindful that with the expansion and sharp increases to import tariffs come increased risks under the False Claims Act (FCA). Given the administration’s public commitment to “aggressive” FCA enforcement, organizations should assess their risks now to get ahead of potential liability or threats of FCA claims down the road. The False Claims Act The familiar application of the FCA is where a party is liable for knowingly submitting false claims for payment to the federal government, often pursuant to a contract with an agency or for medical services under Medicare or Medicaid. The FCA also establishes liability for what is called a “reverse” false claim, 31 USC § 3729(a)(1)(G), which occurs where a person or entity makes some false statement for purposes of avoiding or decreasing an obligation to pay (non-tax) money lawfully owed to the federal government. Therefore, if a company misrepresented a material fact about an imported product to decrease import tariff obligations, that misrepresentation could subject the company to an FCA investigation or litigation. Just as with other FCA litigations, “reverse” false claims can be brought by relators, often a whistleblower employee, but also potentially a competitor. Under the FCA’s qui tam provisions, relators bring FCA claims in federal court, under seal, and out of the public eye until the U.S. Department of Justice (DOJ) completes an investigation and decides if it will intervene in the case. DOJ also directly initiates FCA actions on behalf of the government. FCA liability may be three times the amount of loss to the United States (i.e., three times the amount of obligations avoided) plus an additional $14,308 to $28,618 in penalties for each FCA violation (i.e., each imported good for which the full tariff amount was not paid), and in some case the defendant may be liable for a relator’s attorneys’ fees. Examples of False Claims and Imported Goods As importers know well, whenever any good is imported into the United States, there are a wide range of representations that importers must submit to the United States for customs release of those goods. FCA risk exists among the importers and other organizations who provide information necessary to import merchandise. (Separate enforcement actions and penalty demands by U.S. Customs and Border Protection (“CBP”) are possible under customs law, and potential criminal liability as well for any knowing or intentional violations.) A few common representations may create exposure: Country of Origin of Imports. Given the United States imposition of tariffs on goods from all countries, with varying tariff rates applicable depending on the country of origin, it is more critical to accurately report the country of origin for their imports. Example: In March 2025, the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the Central District of California announced a $8.1 million settlement with an importer of multilayered wood flooring. The United States alleged the importer misrepresented, among other things, the country of origin for multilayered wood flooring manufactured in the People’s Republic of China. This settlement stemmed from a whistleblower lawsuit brought by one of the importer’s competitors. Valuation of Imports. Importers should carefully and accurately report the value of the goods they import into the United States. The dutiable value of imports is governed by customs law and CBP regulations. Overrepresenting the value leads to the obvious downside of increased tariffs, but undervaluation leads to tariff underpayment and FCA exposure. Example: In January 2023, the U.S. Attorney’s Office for the Southern District of New York announced a $1.3 million settlement against an apparel design and import company for undervaluing 67 different apparel shipments. The apparel company had recently accepted responsibility for U.S. customs clearance, which required the company to submit accurate customs value information to CBP. Tariff Classification of Imports. The Harmonized Tariff Schedule of the United States (“HTSUS”) classifies imported goods for purposes of determining applicable duty rates. CBP takes the position that the HTSUS provides only one correct tariff classification number for each imported good. However, tariff classification is not always straightforward, because the HTSUS contains numerous notes, and there could be CBP rulings and judicial cases that should be consulted to determine the correct classification. Importers should be careful in verifying the applicable tariff classification to avoid overpayment or underpayment of duties, including by consulting with knowledgeable trade attorneys. Example: In March 2022, the U.S. Attorney’s Office for the Northern District of Iowa announced a $525,000 settlement with an importer of chain saw chains and blades. The United States alleged the importer misclassified the imported chain saw chains and blades, resulting in underpayment of applicable duties. This settlement stemmed from a whistleblower lawsuit brought by one of the importer’s competitors. What Importers Can Do to Limit Exposure The best time for importers to mitigate FCA liability is before the DOJ issues a subpoena or a relator files an FCA action. If your organization is an importer of goods or deals with imported goods, here are some potential key steps: Review your import practices. Organizations should review the lines of responsibility for ensuring the accuracy of customs declarations for imported goods, and the process for confirming the accuracy of key information, such as country of origin, value, and tariff classification. This should include written internal procedures for purchases, invoicing, and logistics to avoid errors. Monitor Changes. Although the most recent tariff hikes have been broad, in many cases the Administration has imposed different tariff rates by country, has expanded certain product-specific tariffs, and issued novel interpretations of U.S. customs law. The ground shifts nearly daily. Importers should take care to make sure that they are declaring their goods in alignment with publicly available interpretive guidance. Evaluate oversight of partners. Many importers work with partners, like customs brokers, to help navigate the difficulties of customs clearance. Delegating duty payment and declaration responsibilities to a third party may not insulate importers and other organizations from liability under the FCA, so it is important for organizations to evaluate relationships with third-party partners. Consult with an attorney. If you have questions about how federal authorities will likely see certain import practices or if you just want to make sure that you are engaging in best practices, speaking with attorneys knowledgeable in trade and the FCA can help you get ahead of problems before they grow into an investigation or lawsuit.
April 21, 2025
by Alex Hontos, Chris DeLong, Dave Townsend, T. Augustine Lo, and Matthew Gillespie
