First COVID-19 Fraud Action Filed by the DOJ, and What It Means for Government Contractors
The U.S. Department of Justice (DOJ) announced it has taken its first action in federal court to combat fraud related to the coronavirus (COVID-19) pandemic. The heightened fraud enforcement establishes a new precedent for government contractors, in particular, to take extra steps to ensure robust compliance measures are in place, to review supply chain agreements, and to communicate the importance of fraud prevention to front line personnel.
The DOJ’s enforcement action, filed in federal court in Austin, Texas, against operators of a fraudulent website tracks Attorney General William Barr’s recent directive to DOJ prosecutors to prioritize the detection, investigation and prosecution of illegal conduct related to the pandemic.
The DOJ alleged the operators of the website “coronavirusmedicalkit.com” were engaging in “a wire fraud scheme seeking to profit from the confusion and widespread fear surrounding COVID-19.” Information published on the website claimed to offer consumers access to “free” World Health Organization (WHO) vaccine kits for a shipping charge of $4.95. According to the DOJ and other health experts, there are currently no legitimate COVID-19 vaccines, and the WHO is not distributing any such vaccine. The DOJ asked the court to immediately shut down the website while it continued to investigate. In response, the court issued a temporary restraining order requiring that the registrar of the fraudulent website immediately block public access to it.
This action highlights that businesses selling products or providing services in the COVID-19-related government contracting, medical provider, laboratory testing, or pharmaceutical sectors, as well as medical supplement and medical foundation sectors, will receive increased scrutiny by the DOJ and other federal and state law enforcement agencies as they are within the prioritized coronavirus-related enforcement.
In light of the recent easing of restrictions in the federal procurement and acquisition process, the DOJ’s focus on COVID-19-related fraud should be of particular concern to government contractors. Earlier this month, President Donald Trump issued the Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak, which in turn triggered the implementation of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, 42 U.S.C. § 5121, et seq.) and Federal Acquisition Regulation Part 18, Emergency Acquisitions. Invoking the Stafford Act by declaring a national emergency permits government agencies emergency acquisition flexibilities for their disaster or emergency assistance activities. This easing of restrictions in the acquisition process will expedite the delivery of supplies and services needed to respond to the Coronavirus pandemic. This, in turn, will result in a greater number of federal contracts and orders being executed.
As is usually the case when utilization increases, there is an increased risk for fraud and abuse. Government contractors must be particularly vigilant when government agencies are using expedited procedures to award contracts for COVID-19-related services, while at the same time, the DOJ is focusing the might of its resources on COVID-19-related fraud enforcement. This combination of factors could lead to an otherwise avoidable mistake becoming a potential False Claims Act investigation and action.
Government contractors should consider the following actions:
- Review ethics policies, procedures and processes to make sure that they are effective and being followed. Document communications that all claims should be truthful and not withhold critical information.
- Perform due diligence on any new suppliers to ensure that they are not excluded parties and can deliver the proper goods and services.
- Review supply chain policies/contracts to make sure your suppliers are not making improper claims about their products and that they indemnify you if they do.
- Review your whistleblower/employee complaint policies and be sure they reflect your position on when employees should report suspicious behavior and to whom.
- Ensure that electronic information and data networks are secure and cybersecurity protocols are being followed.
- Educate and train employees about the risks of cyber threats, phishing attempts, and ransomware, and make them an active part of the contractor’s cyber defense plan.
Stinson’s Coronavirus Task Force and Government Contracts and Investigations team will continue to monitor COVID-19-related fraud enforcement and provide periodic updates. This team includes leaders who are alumni of many of the sections of the DOJ and other federal agencies.
Due to the dynamic nature and rapidly changing circumstances, we will continue to provide legal updates on fraud, and we welcome your questions
For more information on the DOJ’s heightened fraud enforcement in relation to the Coronavirus and government contracting matters, please contact the author, or other members of the GCI team, Judith Araujo, Susan Warshaw Ebner, Roddy Stieger, Eric Whytsell, or the Stinson LLP contact with whom you regularly work.
Contact Habib Ilahi for more information.