Justice Department Recovered $107 Million for Procurement Fraud in 2018

calendar iconJanuary 22, 2019

Last month, the Department of Justice issued its annual report on recoveries under the False Claims Act (“FCA”) cases during fiscal year 2018. The amount of recoveries for procurement fraud totaled approximately $107 million. However, this amount was only a small portion of the nearly $2.8 billion recovered in 2018 under the FCA, most of which was for healthcare fraud.

With respect to procurement fraud, the largest recovery was from Toyobo Co. Ltd. of Japan and its American subsidiary, Toyobo U.S.A. Inc. Toyobo paid $66 million to resolve claims that they sold defective Zylon fiber used in bulletproof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies. The U.S. alleged that between at least 2001 and 2005, Toyobo, the sole manufacturer of Zylon fiber, knew that Zylon degraded quickly in normal heat and humidity. This degradation rendered bulletproof vests containing Zylon unfit for use.

In August 2005, the National Institute of Justice completed a study of Zylon-containing vests and found that more than half of used vests could not stop bullets that they had been certified to stop. Thereafter, all Zylon-containing vests were decertified for use. With this year’s settlement, the U.S. has recovered more than $132 million regarding the manufacturing, distribution or sale of Zylon by various parties.

Inchcape Shipping Services Holdings Limited, a marine services contractor based in the U.K., paid $20 million to resolve allegations that it overbilled the U.S. Navy under contracts to provide services to Navy ships at ports around the world. TrellisWare Technologies Inc., a San Diego, CA, communications company, paid over $12 million to settle allegations that it was ineligible for multiple Small Business Innovation and Research (“SBIR”) contracts it entered into. The U.S. alleged that at the time it was awarded and performed the SBIR contracts, TrellisWare was not eligible because it was actually a majority-owned subsidiary of a large company. 3M Company, of St. Paul, Minnesota, paid $9.1 million to resolve allegations that it knowingly sold dual-ended Combat Arms Earplugs to the United States military without disclosing defects that hampered the effectiveness of the hearing protection device.

Recoveries for procurement fraud were small compared to those for healthcare fraud which totaled $2.5 billion, the ninth consecutive year such recoveries exceeded $2 billion. The recoveries were from various players in the healthcare industry including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. The largest recoveries came from the drug and medical device industry.

Most of the recoveries in 2018 were the result of whistleblower actions or qui tam actions. Qui tam actions comprise a significant percentage of the False Claims Act cases that are filed. If the government prevails, the whistleblower (also known as the relator) receives up to 30 percent of the recovery. Whistleblowers filed 645 qui tam suits in fiscal year 2018, and the Department of Justice recovered over $2.1 billion as a result of these and earlier filed suits.

The press release from the Department of Justice describing the 2018 FCA recoveries is available on the website.