President Trump’s Executive Orders suggest new targets for False Claims Act enforcement
UPDATE 2/26/2025: On February 21, 2025, the federal district court in Maryland issued a preliminary injunction in a case brought by the National Association of Diversity Officers in Higher Education, among others. The case challenges the constitutionality of two Executive Orders (EOs) relating to diversity, equity, and inclusion (DEI), including 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” In its ruling, the court found that the plaintiffs were likely to prove at trial the EO’s provisions, which raise the possibility of False Claims Act enforcement, violate the First Amendment’s free speech protections and the Fifth Amendment’s due process protections, among other things. This nationwide injunction will remain in effect until either (a) the court makes a final determination on the merits, or (b) it is successfully overturned on appeal.
Since January 21, 2025, the White House has issued a flurry of Executive Orders (EOs) and trade policies, at least two of which carry False Claims Act (FCA) implications. Not only do these EOs and policies bring potential liability risks, but their ambiguities create potential for a costly impact as would-be regulators seek to collect FCA bounties. DLA Piper’s President Trump Executive Orders hub sets out a comprehensive list of the Executive Actions of the new Administration.
Below, we provide some updates on the FCA implications of the recent EOs, as well as insights for companies and other stakeholders to consider.
The False Claims Act
The FCA is a civil fraud statute that prohibits (among other things) submitting, or causing to be submitted, false claims to the federal government, and anyone who violates the statute is subject to treble damages and penalties. The statute also has a whistleblower provision (the qui tam provision) that allows private plaintiffs (called “relators”) to file FCA lawsuits on behalf of the United States – and if the plaintiffs are successful, they are entitled to a significant share of the recovery. Thus, the FCA provides a significant incentive for private citizens and entities to file claims on behalf of the government.
Notable EO signals a shift in DEI policy
On January 21, 2025, President Donald Trump signed into law the “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” EO (DEI EO). In the name of protecting civil rights and ending “illegal preferences and discrimination,” the DEI EO requires all federal departments and agencies to “terminate” all “diversity, equity, and inclusion” (DEI) and “diversity, equity, inclusion, and accessibility” (DEIA) programs and policies, while also directing the Attorney General to submit a report containing enforcement recommendations.
This marks a significant pivot in federal policy regarding affirmative action and diversity initiatives. The DEI EO revokes several prior EOs, including EO 11246, enacted by President Lyndon B. Johnson in 1965, which mandated federal contractors and subcontractors to implement affirmative action programs to ensure equal employment opportunities for women and minorities.
The DEI EO goes beyond federal departments and agencies and explicitly seeks to curtail such programs in the private sector by extending to entities that contract with or receive grants from the federal government.
Specifically, the EO explicitly references the FCA and requires every federal contract or grant awardee to (1) agree that its compliance with all federal anti-discrimination laws is a “material” condition of payment and (2) certify that it does not operate any programs promoting DEI that violate any applicable anti-discrimination laws.
Among other things, the FCA – which allows for treble damages and penalties – prohibits the submission of “false” claims when the claimant violates a condition of payment. Thus, the EO’s explicit language will support – if not establish – the materiality of any allegedly false claim submitted by a contractor or grant recipient that maintains DEI or DEIA programs and policies that the plaintiff can establish violate applicable anti-discrimination laws.
Although the DEI EO does not appear to apply retroactively to previously signed and executed government contracts or grant awards, whether and to what extent the White House or the United States Department of Justice (DOJ) might view its applicability to existing contracts and grants is unclear. Contract and grant renewals certainly risk falling within its purview. Therefore, absent further guidance from the White House or the DOJ, these ambiguities may create significant risks for those who do business with the federal government.
Trade and customs enforcement EOs
As part of the wide-ranging EOs entered on his first day in office, President Trump issued an “American First Trade Policy Memorandum,” calling for a series of reviews of United States trade policy, as well as investigations into trade imbalances and unfair trade practices.
After the Memorandum’s release, President Trump announced plans to implement a 25 percent additional tariff on imports from Canada and Mexico and a 10 percent additional tariff on imports from China.[1] However, the White House then announced that President Trump had suspended the implementation of the tariffs with Canada and Mexico to pursue further negotiations with each country.
Nonetheless, tariffs are likely to be a particularly important tool that the Trump Administration could use to advance the Administration’s domestic and foreign agendas and to raise revenue. Here, too, the DOJ could employ the FCA to enforce compliance.
A tariff, which is a tax on imports, increases the customs duty that must be paid on an import. Although the FCA is often used to pursue entities and individuals that receive money from the government by way of fraudulent claims for payment, the FCA also applies to an entity that “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”
This type of action, sometimes called a “reverse” false claim, targets those seeking to avoid paying government obligations. Although those who seek to evade customs duties are also subject to scrutiny and enforcement by a number of different agencies, as well as a range of other criminal statutes, the government and relators can and do use the FCA – with its lower intent standard and harsh damages and penalties provisions – effectively in customs cases. Indeed, the DOJ has successfully resolved several FCA cases alleging customs fraud over the past decade.[2]
Thus, while the FCA is typically considered for issues involving false claims made to receive reimbursement from government programs, its applicability here shows that, where payments (or claims) are made that deny the government the full payments it is due, the FCA may be implicated and implemented.
Key points and takeaways
Stakeholders may consider keeping several points in mind when it comes to the new Administration and the FCA.
Timing: When will these changes take place?
The following deadlines apply to the DEI EO:
- Federal contractors are permitted to continue compliance with the prior Equal Employment Opportunity EO 11246, including operating DEI initiatives and affirmative action programs, for 90 days from the date of this EO. After these 90 days have passed, by April 21, 2025, federal contractors will no longer be able to promote diversity, promulgate affirmative action, or engage in “workplace balancing” on the basis of “race, color, sex, sexual preference, religion, or national origin” to promote equal employment opportunities.
- The Attorney General was also instructed to submit a report containing recommendations “to encourage the private sector to end illegal discrimination and preferences, including DEI” on or before May 21, 2025 (120 days from the date of this EO).
Uncertainty remains both for the private sector and federal contractors. While federal contractors may attempt to revise their policies within the next 90 days to ensure their compliance with the new EO, the Attorney General’s forthcoming report raises questions around what the Trump Administration may view as “actual compliance.”
Further, on February 3, 2025, President Trump announced that the implementation of tariffs against imported goods from Canada and Mexico would be delayed for at least 30 days. Should these tariffs eventually be imposed, they raise issues that could implicate the FCA.
Scope: FCA liability is likely not limited to federal contractors.
While the DEI EO confirms that the Administration is targeting DEI efforts within the government, it also includes a number of measures aimed at “[e]ncouraging the Private Sector to End Illegal DEI Discrimination and Preferences.” Among other things, because the DEI EO is broadly written, it has the potential to ensnare any and all companies that transact with the government. Thus, while the DEI EO explicitly addresses federal contractors and agencies, the potential reach of being held liable for FCA violations is vast. As such, entities in the private sector that transact with the government may note that any programs the government is involved with that run counter to the DEI EO’s provisions may eventually be considered “material” violations of the EO and, thus, the FCA.
FCA actions: A go-to Trump Administration tool?
Although the mine run of FCA cases has traditionally involved alleged false claims by entities transacting business with the government for healthcare or defense products and services, these EOs suggest that the Administration is considering deploying the FCA more broadly. Indeed, Attorney General Pam Bondi stated during her recent confirmation hearing that she would not only defend the constitutionality of the FCA, but that she would also devote sufficient resources to its enforcement.[3]
To learn more about these rapidly evolving developments, please contact any of the authors or your DLA Piper relationship attorney. Please also attend our upcoming webinar on February 13, 2025 focused on these and other FCA developments.
[1] See Fact Sheet: President Donald J. Trump Imposes Tariffs on Imports from Canda, Mexico and China, The White House (Feb. 1, 2025), https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/.
[2] One notable case involving customs fraud occurred in 2024. In August of 2024, the DOJ resolved a civil qui tam lawsuit in which the government intervened against a womenswear company for underpaying customs duties on imported apparel. The company paid over $7,500,000 to resolve the dispute.
[3] See Pam Bondi Confirmation Hearing Day 1, Rev, https://www.rev.com/transcripts/pam-bondi-confirmation-hearing-day-1 at 42:42 (last accessed Feb. 5, 2025).
