Fraud Enforcement And Recovery Act Of 2009

Floor Speech

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, the first point I wish to make is that with the false claims provisions in the Leahy-Grassley bill, which deals with other provisions as well, but the False Claims Act is essential to accomplishing the overall purposes of the bill, along with other tools to do it--to get rid of fraud. We are trying to just, in this bill, in a very rifle shot way, correct some court opinions that have been detrimental and weaken the False Claims Act. That is all we are trying to accomplish in this bill that deals with bigger things as well.

What Senator Kyl is bringing up is a legitimate subject of discussion because it has been brought up at other times since passage of the False Claims Act 22 years ago. I don't say it is not legitimate to discuss it. But there is broader false claims legislation in the Judiciary, and it ought to be discussed at a time when we have hearings on this subject. There have been no hearings on this.

These amendments should be reviewed by the full committee under the regular order process. That is the first point I wish to make to Senator Kyl about why not to consider this amendment right now.

The second one is the point he made on how big of an award is big enough to incentivize people to turn in fraud.

Mr. LEAHY. Will the Senator yield for a unanimous consent request?

Mr. GRASSLEY. Yes.

Mr. LEAHY. Mr. President, I ask unanimous consent that the vote on the Kyl amendment, now pending, occur at 11:45 but that there be 2 minutes equally divided immediately preceding the vote. First, I make that request.

The PRESIDING OFFICER. Is there objection? Without objection, it is so ordered.

Mr. LEAHY. Mr. President, I ask for the yeas and nays on the amendment.

The PRESIDING OFFICER. Is there a sufficient second? There is a sufficient second.

The yeas and nays were ordered.

Mr. LEAHY. Mr. President, I also ask unanimous consent that there not be any amendments to that amendment.

The PRESIDING OFFICER. Without objection, it is so ordered.

Mr. GRASSLEY. Mr. President, the second point I wish to make before I get to my formal remarks is on the question the Senator from Arizona raised about how big of an incentive is enough to get reported. That is a legitimate question.

Here is my experience with 22 years of the False Claims Act, dealing with whistleblowers, Government agencies listening to whistleblowers or not, the Justice Department taking a case or not taking a case, or whether the whistleblower initiates the case on their own. What I have found is that the False Claims Act does not come up early in anybody's thought process--about initiating a thought process that there might be fraud out there and somebody ought to be investigating and get to the bottom of it. Usually, the whistleblower has ample evidence of that or they wouldn't be doing it in the first place. They jeopardize their profession and their job in Government. That isn't right, but whistleblowers who want to do the patriotic thing actually jeopardize their professional future. What I have found is they don't even know about the False Claims Act or about getting a percentage of it. They don't even know about whistleblower protection laws. They want to do the patriotic thing. They want to report fraud.

So to talk about the award being the incentive to come forward, I don't want to say that in some cases that may not be the case, but in most cases these are patriotic people knowing about the fraudulent use of taxpayer money, they think it is wrong and ought to stop, and they think it ought to stop within the agency. They don't get anywhere with the agency, so they come to other people, and eventually along the line, probably, somebody says: You need to take this to court, and you can get something out of this if you win and if you have a case. Probably the majority of them don't win. So they get nothing out of it. But they are trying to be patriotic citizens.

I think that bringing up the issue of how much of an award is big enough to get this information out should not even be a part of the debate. It is still something because we are talking about taxpayer money and what is an incentive to do this, but it ought to be discussed in a thoughtful way, not on an amendment to a bill that is trying to correct a few bad court decisions to get the False Claims Act back to its original purpose.

I thank the Senator from Vermont for letting me cooperate with him on this issue. The Senator from Vermont also recognizes that the False Claims Act is a very useful tool against fraud, which is the overall purpose of the rest of Senator Leahy's and my bill.

The other thing you have to remember is that this has brought in $22 billion. Senator Leahy made that very clear. There are so many court cases I can tell you about where the Government, through the Justice Department, came in and tried to belittle the whistleblower, the claimant, to reduce, or even eliminate, any access to an award; how many times judges have had to berate people in the Justice Department. I am not talking about Presidents Obama, Bush, Reagan, Bush 1, or Clinton; I am talking about several of them where you wouldn't even have a case--in other words, saying to the prosecutor and the Justice Department: Do you realize you would not even have had a case without this patriotic whistleblower coming forward?

More recently, there has been a case where the Justice Department asked not to proceed forward. The judge stepped in and said: We are going to go forward; there is something wrong here, and we are going to get to the bottom of it.

So we have $22 billion back because of patriotic Americans. Do you know what. Just because the False Claims Act has been out there, it has been a preventive to fraud, like all the other tools Senator Leahy has in this bill that will not only help with prosecution, but the possibility of prosecution is going to be a preventive factor.

So I feel strongly that if the issue of an award limit comes up, it ought to be discussed thoroughly and thoughtfully in a tool--the False Claims Act--which has proven its worth by $22 billion and a lot of unknown preventable fraud out there. We ought to think through it thoughtfully.

I want this amendment defeated. The False Claims Act is the No. 1 tool for recovering taxpayer dollars lost to waste, fraud, and abuse. Whistleblowers who bring fraud cases on behalf of the Government, known as qui tam relators, often risk everything to uncover truth.

Currently, the False Claims Act provides a reward to whistleblowers who come forward with good-faith allegations of fraud, waste, or abuse of Government dollars.

They are allowed to file a lawsuit on behalf of the Federal Government, and the case remains under judicial seal in Federal court. The Justice Department then decides to join a case or not join a case. If the Justice Department joins a case and the case is successful, a whistleblower can recover 15 to 25 percent of the funds recovered. If the Justice Department does not join--then it is going to be a much more difficult process for the whistleblower and his or her counsel--the whistleblower can go forward with the case and if they are successful, they can recover more, somewhere between 25 and 30 percent, depending upon the judge.

While some are arguing that this represents a windfall for whistleblowers, the statistics paint a different picture.

In fact, in cases where the Department of Justice joins the whistleblower, the average share for the whistleblower is not 25 percent or 30 percent, it is 16 percent. Compare that 16 percent with the percentage it takes to administer Government generally, throughout Government--about 12 percent. Do you, Mr. President, think there are enough people in the Justice Department, enough FBI people to know where all the skeletons are buried, where all the frauds are being committed? No. This average award is not too far out of line with the average administrative costs of Government.

There have been 6,197 qui tam complaints filed since 1986 which have resulted in $13.7 billion in recoveries to the Federal Government. That averages about $2.2 million recovered for complaint filed.

In these 6,197 cases, the Government has paid qui tam whistleblowers $2.2 billion in awards. That means the average share award for a qui tam whistleblower is about $350,000. This is hardly a windfall that one would seek, particularly if one is ruining their professional career by being a whistleblower, coming forth to do what is patriotic, to do what is right. It is, in fact, an incentive that helps fuel complaints coming in.

However, if we start adding new caps to the already existing whistleblower caps, we could reduce the incentive for whistleblowers to proceed through the cases--or coming forward in the first place--that would help us then recover billions of dollars.

I wish to share the story of Tina Gonter who was a qui tam whistleblower who testified before the Judiciary Committee last year. Ms. Gonter worked closely with the Government and went undercover at the company for months collecting documents and evidence of a fraud against the Navy. She even wore a wire for the Federal agents of the Defense Department.

Ultimately, a couple of individuals went to jail as a result of Ms. Gonter's work. But the Government refused to sue the contractor for fraud. Believe that, the Government refused to sue with obvious evidence. Ms. Gonter filed a false claims case against the company, and it was not joined by our own Justice Department. The judge in that case even scolded the Justice Department and the Navy for not joining the case.

Ultimately, Ms. Gonter prevailed, and the contractor paid over $13 million to the Federal Government. Ms. Gonter received a share of that money, but had she not brought this case, the Justice Department and the Defense Department would have been satisfied with simply putting two people in jail and allowing the contractor to walk away with the money it received for providing fraudulent product to the Navy. And it is not just a case of fraudulent product to the Navy. It is a serious safety matter for the people in the military who put their lives on the line in the defense of our freedom.

That is only one example out of 6,197 that the False Claims Act provides power to get fraudulent activity under control. It is a check on the power of the Government bureaucracy to look the other way--that is what the Justice Department did in this case--and pretend that fraud did not happen on their watch. However, it is fueled by courageous whistleblowers, such as Tina Gonter, and without sufficient financial incentives to come forward and fight these cases for 5 to 10 years they can take in court, we may lose this valuable tool against fraud.

It is about recovering money, taxpayers' money. I find it ironic--I hope people are listening now because there is a conflict here between maybe people on my side of the aisle who think this is a good idea--I find it very ironic that those outside groups supporting this amendment were in staunch opposition to the idea of the Senate imposing any caps on executive compensation at companies receiving bailout funds. Now instead, they want to cap the recovery of good-faith whistleblowers to come forward with claims of fraud at companies that are ripping off American taxpayers.

The False Claims Act works and will continue to work if we do not cut the incentives for relators to go to court. The law already has a cap for whistleblower recoveries. I urge my colleagues to oppose this amendment which is based on a couple of extreme examples from outlier cases that are not the norm.

We have $22 billion coming in under this act. Early on, we fought the defense industry to get this bill passed, and the defense industry tried to gut it after it was passed. When they could not because they did not have the proper prestige, they came to the American hospital industry to fight a front for them. That did not happen. I don't know exactly what groups are out there now backing all this. But when are you ever going to realize that in this country, the taxpayers deserve some respect? And if there is fraud in your industry, it is no holds barred on the recovery and the preventing of fraud.

I yield the floor.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, I would like to point out, as I did in my debate, that we have a much larger False Claims Act bill pending in the Judiciary Committee. I think what the Senator from Arizona brought up is a legitimate subject for discussion, but it ought to be discussed in the wider global issue of the False Claims Act and not in a fraud bill where we are just trying to make some very short changes in the False Claims Act.

I ask my colleagues to vote against the Kyl amendment.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Pretty soon we are going to have a motion dealing with small business. I want to address that issue now so that I get it addressed properly as a senior member of the Senate Finance Committee.

Everyone in this body knows that small businesses are an extremely important and dynamic part of the U.S. economy. I wish to say, and I often do, that small business is the employment machine of our economy.

President Obama agrees with that. Small businesses have generated 70 percent of the net increase in jobs in the United States over a long period of time. Three weeks ago, we debated this issue during the budget resolution debate. During the debate, the Senate spoke on this point, because Senator Cornyn had a small business tax relief amendment. That amendment passed by an overwhelming vote of 82 to 16.

America's small businesses have been suffering during this recession. If you go back to your States frequently, as I do, you will hear about it from your small businesses very directly. A few weeks ago, Senator Landrieu and Senator Snowe held a hearing on the crunch hitting small business. They found that big banks have been cranking down lending to small businesses. At a time we are putting more money into big banks, why? I do not know that we got an explanation. I have been trying to get an answer out of Treasury on whether banks receiving the bailout money have been similarly squeezing out small business customers. I am still waiting for an answer from our Treasury Department.

A very good source of answer, though, as we turn elsewhere, an answer about the environment of small business, is found in the monthly surveys of small businesses conducted by the National Federation of Independent Business. We all know about the NFIB, the largest small business organization. NFIB has been conducting these surveys now for 35 years.

The membership of that organization includes hundreds of thousands of small businesses all across America. You can find the survey on NFIB's Web site www.nfib.org. I wish to encourage every Member to check out this month's survey, because I am going to be referring to it with charts I have with me.

The survey shows some extremely disturbing trends on credit availability. Small businesses depend on credit. Small businesses are getting squeezed very hard. That chart is up now. As you can see, the chart shows the availability of loans has fallen off the cliff as late as 2007 and gets worse as you get into 2009.

You see on the right side of the chart the sharp downturn evidencing the lack of ability of small businesses to get loans. This credit crunch as well as other factors has contributed to the near record low in the NFIB's index of small business optimism. I wish to have you view this, something like we regularly view, the University of Michigan's monthly index on consumer confidence.

The NFIB takes surveys regularly. This chart shows small business owners turning extremely pessimistic in the last couple of years. You can see how that has ``downturned'' very rapidly at the right end of the chart. What you see here is the attitude of decisionmakers in small business of America,
the people who create the jobs. Those are the decisionmakers for the businesses that President Obama and we in the Congress agree are most likely to grow or contract jobs.

The pessimism evidenced by the chart is at its second lowest point in the 35-year survey. This data should concern every policymaker in this body. As bad as the two sets of charts are, I have a worse picture.

This chart shows the net increase or decrease in small business hiring plans. The survey asks the small business owner simply whether he or she plans to expand, on the one hand, or contract, on the other hand, employment over the next 3 months.

As you can see even more dramatically, look at the right-hand side of the chart here. If I said on those others to the left hand, in each case I was talking about the right. I do know the difference between the left and right hand. But as you can see even more dramatically on the other two charts, this chart shows small business activity contracting tremendously.

Small business hiring plans are at their most negative level in the entire 35-year history of this survey, again, the right side of the chart. Let me repeat, because it is so important, this goes back to 1974, those surveys. Since NFIB started doing them, the likelihood of small business owners adding workers has never been worse.

With this pessimism, we should not be surprised then that job losses for small businesses have been growing dramatically. The national employment report recently released by Automatic Data Processing shows 742,000 nonfarm private sector jobs were lost from February to March 2009. Of those 742,000 lost jobs, 614,000 or 83 percent, were from small business.

The President's recent efforts to increase lending to the small business sector are commendable. The centerpiece of his small business plan will allow the Federal Government to spend up to $25 billion to purchase the small business loans that are now hindering community banks and other lenders.

Unfortunately, that is only a drop in the bucket.

Remember that small business accounts for about half of the private sector. Moreover, the positives that will come to small businesses from this relatively small package of loans--which will ultimately and obviously have to be paid back--will be heavily outweighed by the negative impact of the President's proposed tax increases. Helping small businesses get loans just to take that money back in the form of tax hikes is not helping the economy or small businesses.

The President's budget proposes to raise the top two marginal rates from 33 percent and 35 percent to 40 percent and 41 percent respectively, when PEP and Pease are fully reinstated. President Obama's marginal rate increase would mean an approximately 20 percent marginal tax rate increase on small business owners in the top two brackets.

Many of my friends on the other side will say that while they agree that successful small businesses are vital to the success of the U.S. economy, the marginal tax increases for the top two brackets will not have a significant negative impact on small businesses. I take exception to that argument. They used Tax Policy Center data, and I want to show why that should not be allowed.

Proponents of these tax increases seek to minimize their impact by referring to Tax Policy Center data that indicate about 2 percent of small business filers pay taxes in the top two brackets. In testimony before the Senate Finance Committee, the liberal think tank, Center on Budget Policy and Priorities, also used that figure. Moreover, Secretary Geithner has testified using that figure. They argue that a minimal amount of small business activity is affected.

However, there are two faulty assumptions to this small business filer argument.

The first faulty assumption is that the percentage of small business filers is static. In fact, small businesses move in and out of gain and loss status depending on the nature of the business and the business cycle. The nonpartisan Joint Committee on Taxation has indicated that, for 2011, approximately 3 percent of small business filers will be hit by these proposed higher rates. These statistics compare to a 2007 Treasury which showed 7 percent of flow-through business owners paying the top rate. In the latest analysis, when the impact of the alternative minimum tax is fully included, that percentage may drop some.

The second faulty assumption is that the level of small business activity, including employment, is proportionate to the filer percentage. This is where the argument is hogwash.

According to NFIB survey data, 50 percent of owners of small businesses that employ 20-249 workers would fall in the top two brackets. You can see it right here on this chart. It shows what I am talking about. According to the Small Business Administration, about two-thirds of the Nation's small business workers are employed by small businesses with 20 to 500 employees.

Do we really want to raise taxes on these small businesses that create new jobs and employ two-thirds of all small business workers? Of course, we don't. But that is exactly what the majority is going to do if they follow the President's lead.

With these small businesses already suffering from the credit crunch, do we really think it's wise to hit them with the double-whammy of a 20 percent increase in their marginal tax rates?

Newly developed data from the Joint Committee on Taxation demonstrates that 55 percent of the tax from the higher rates will be borne by small business owners with income over $250,000. This is a conservative number, because it doesn't include flow-through business owners making between $200,000 and $250,000 that will also be hit with the budget's proposed tax hikes.

If the proponents of the marginal rate increase on small business owners agree that a 20 percent tax increase for half of the small businesses that employee two-thirds of all small business workers is not wise, then they should either oppose these tax increases, or present data that show a different result for this group of people.

As we prepare for the conference on the budget resolution, the President and the congressional Democratic leadership have an opportunity to change course. They have an opportunity to revisit the tax heavy, spending heavy, and debt heavy budget they have passed 2 weeks ago. Both budgets would perpetuate the double whammy of constricted credit on the one hand and high taxes on the other, directed at America's job creation engine--small business.

In the coming days, we Republicans will try to persuade our Democratic friends who have all the controls of fiscal policy to change course for the benefit of small business that we all agree ought to be our first concern. One way they can change course is to focus, like a laser beam, on jump-starting the Nation's job engine--small business America. We need an upturn in the small business optimism index that is contrary to what this chart shows. We need to reverse the direction of this sharply downward sloping arrow. If we ignore this negative environment, we are just kidding ourselves. We need to change course and reverse this even more sharply downward sloping hiring plan arrow.

That is where the President and Congress agree we need to get more job growth. As we take the final steps on the budget, let's match that budget with this reality

I yield the floor.

BREAK IN TRANSCRIPT

Source