The Lincoln Law is 150 Years Old and Thriving

On the 150th Anniversary of its signing, the False Claims Act or "Lincoln Law" is more robust than ever and is spawning new whistleblower laws modeled after itself.

"The core idea behind the False Claims Act is both simple and brilliant" notes Kristin Amerling, President of Taxpayers Against Fraud, an organization dedicated to popularizing the law. "If you incentivize integrity by paying whistleblowers who come forward, you are likely to get more integrity, better information, and less fraud. That's not only good for taxpayers, that’s good for American business as well."

Forged in the middle of the Civil War to combat price-gouging and the selling of defective munitions and goods sold to the Union Army, the road to success has not been easy for the False Claims Act. For one thing, it took several years before the law was even published in legal texts. After that, it was largely ignored until gutted at the urging of defense contractors at the start of World War II.

As defense spending soared in the Cold War, however, the law was dusted off and revitalized in an effort spearheaded by Senator Charles Grassley and Representative Howard Berman and signed into law by President Reagan in 1986. Since then, the FCA has proven to be a spectacular success, with over $35 billion in federal civil recoveries, and another $15 billion in associated criminal fines and state recoveries.

Today, False Claims Act laws are on the books in 29 states and the District of Columbia, as well as at the federal level, and new whistleblower laws modeled on the False Claims Act have been passed that cover securities trading, commodities trading, and the Internal Revenue Service.

“The need for incentivized whistleblower programs is greater than ever," notes Amerling. "The average American lost 25% of their net worth in the economic collapse of 2008. The securities and commodities whistleblower programs established in the wake of that devastation will help prevent financial frauds against consumers in the future. In addition, the IRS whistleblower program serves as an important tool for addressing significant tax frauds. As we face rising debt and sequestration it is worth remembering that the 'tax gap’ – the difference between taxes required by law and those actually paid – is estimated at $400 billion."

The key to the success of the False Claims Act has not been Uncle Sam alone, notes Amerling. "Cases initiated by whistleblowers and their private lawyers now account for 80% of False Claims Act recoveries,” she notes. “The increase in recoveries to taxpayers under the False Claims Act since its whistleblower provisions were revitalized in 1986 is nothing short of remarkable.”

Things do not look like they are going to be slowing down in the whistleblower arena. Last year, federal and state False Claims Acts collected more than $9 billion in civil recoveries and associated criminal fines, while over at the IRS they report more than 10,000 whistleblower cases now under investigation, each potentially worth more than $2 million to the U.S. Treasury. In the world of securities and commodities trading, thousands of high-quality whistleblower tips are flooding in, and the first awards are now in the process of being made.

“It's a rare thing for a law to be as successful as its sponsors hoped,” says Amerling, “but I think the False Claims Act has almost certainly exceeded the dreams of President Lincoln.”