Thank you for that introduction, and thank you to the Rotary Club for hosting me here today.
The Trump Administration is a little over two years old, and I’m sure you’d agree with me that it’s been a fairly quiet two years. Well, maybe not. But hopefully today I can tell you a little about things we’ve done that haven’t been in the front pages, but that have nevertheless been important for the rule of law, for enforcement, for business, for the economy, and for the public at large.
I’ve had the privilege of serving the last two years in the Office of the Associate Attorney General at the Department of Justice. Every day I get to work with some of the most talented and dedicated people I’ve known in my career, and you should know that they care about doing what’s right for the taxpayer.
At the top of the Department is the Attorney General, and the Deputy Attorney General is like the chief operating officer at the Department. The Associate Attorney General is the third ranking official, and our office oversees five litigating divisions. Much of that work involves defending the government in litigation. You might have heard: the Administration gets sued a lot. In truth, every Administration gets sued a lot. It’s a part of government life, and our office spends a lot of time with the Civil Division dealing with this defensive litigation.
As for me, I focus most of my energy working at the intersection of enforcement and regulatory reform, trying to promote the rule of law while reigning in potential overreach wherever I see it. For example, I work closely with our Consumer Protection Branch and the Commercial Litigation Branch on civil and criminal enforcement relating to healthcare fraud, financial fraud, and fraud on the government, and I serve as the executive director of the Attorney General’s Regulatory Reform Task Force.
My plan today is to give you some insight into the regulatory and enforcement reforms we’ve announced at the Department of Justice and why they matter.
But let me start with some perspective about the Department’s chief function, which is litigating cases on behalf of the United States. No one has described it better than my former boss Associate Attorney General Rachel Brand.
She said, “We are not your typical litigator or litigant: We don’t represent individual clients in the usual sense... We represent the United States. And when you represent the United States, it’s not just about winning.”
Instead, we have to consider what is fair, and what is in the best interests of the American people. “We have to think about whether the outcome [we] are seeking is appropriate, not only whether it’s achievable. We … have to think about whether the arguments we make are consistent with law – not just whether we could convince a court to buy them in order to win the case.”
This is the perspective that informs our work every day, and hopefully that’s evident in the policies and principles that we’ve announced at the Department of Justice since we came into office.
Third Party Payments
One of the very first changes that we announced in 2017 had to do with the Attorney General’s authority to settle litigation. It is an enormous authority with great implications for the taxpayer because we are either spending the taxpayer’s funds or bringing money back into the Treasury in enforcement cases. In some cases, we’re talking about hundreds of millions or billions of dollars.
In July of 2017, our first Attorney General, Jeff Sessions, ended the Department’s practice of including “third party payments” in settlements. Some commentators and lawmakers had described these payments as “settlement slush funds” because billions of dollars had been directed to third-party non-profit organizations. Let me give you a couple examples—one on the enforcement side, and another on the defensive litigation side.
There were a number of financial fraud investigations in which the Department was pursuing enforcement actions against major banks for residential mortgage backed securities fraud. In resolving the allegations, the Department entered into billion-dollar settlements that required penalties and damages to be paid to the U.S. Treasury, but also provided for payments to third parties and special interest groups that were neither parties in litigation nor victims of the conduct at issue. It was the subject of major controversy.
The Department also included third-party payments in settlements of cases where the government was the defendant. For example, in the Keepseagle case, the Department of Agriculture was sued in a class action by Native American farmers who alleged that USDA had discriminated against them. In settling the case, the government paid for a $680 million fund to pay individual claimants, and after all the individual claims were paid, there was $300 million leftover. Instead of that money being returned to the Treasury, the settlement agreement allowed the money to go to nonprofit groups identified by a trust controlled by the plaintiffs’ lawyers.
As Senator Grassley and others in Congress have noted, sometimes the recipients of these funds were organizations from which Congress had cut funding through the appropriations process. In other words, the settlement agreements could restore funding to organizations that Congress had deliberately defunded.
It was a proud moment for me when Attorney General Sessions ended this practice. To my mind, the policy was not just about the money—it’s about our constitutional values. Under our Constitution, Congress has the power of the purse. It is an awesome power. James Madison called it “the most complete and effectual weapon… [to] arm the … representatives of the people.” We should respect that power. Using litigation settlements to effectively appropriate money to third parties has the appearance of an end run around the Constitution.
Second, let me turn to regulatory reform, which may be the Administration’s highest priority. The regulatory reform agenda is underway at every agency. All of us are evaluating existing rules and regulations, looking for candidates for repeal, replacement, or modification, with an eye toward reducing unnecessary regulatory burdens on the public.
At the Department of Justice, we’re also looking at improving the regulatory process overall, with the same goal in mind of reducing burdens, but also with a focus on adhering to the rule of law and the relevant process that Congress has prescribed. We are the Department of Justice, and our first priority is to enforce the rule of law. That’s why we want to be a model for other regulatory agencies by adopting best lawmaking practices and raising the bar for what we expect of other agencies.
One of the first areas of reform we identified relates to a practice called “rulemaking by guidance.” Under our Constitution, the Legislative Branch has the lawmaking power, and the Executive Branch takes care that those laws are faithfully executed. But Congress often passes broad legislation and then delegates further lawmaking authority to executive agencies, which then pass regulations to implement or clarify the legislation or fill in any gaps.
Here is how regulation is supposed to work: When an agency has the statutory authority to regulate and seeks to alter the public’s rights and obligations, the proper way to exercise that authority is through the rulemaking process governed by the Administrative Procedure Act. Under the APA, agencies generally have to provide the public with notice of proposed rules, they solicit comments from the public and regulated entities, and then they finalize the rules taking into account the comments that have come in. That’s typically how regulations become law.
But rulemaking can be cumbersome and slow. It can take many years. And not surprisingly, we have seen agencies using shortcuts. In particular, sometimes agencies have issued so-called “guidance documents”—in the form of “dear colleague letters,” online bulletins, agency newsletters, “frequently asked questions,” and other communications—with the purpose of expanding the law and changing the public’s behavior. Agencies use this “guidance” to effectively make new rules, but they circumvent the appropriate process for rulemaking.
There’s a lot of guidance out there, too. Several years ago, before he went on the Supreme Court, Judge Neil Gorsuch wrote an opinion discussing the overwhelming amount of guidance from one particular agency, the Centers for Medicaid and Medicare Services, whose website contained about 37,000 guidance documents, and even that wasn’t a complete inventory.
It is hard to fathom how the public can keep up with these rules. One scholar refers to agency guidance documents as the 10,000 Commandments. Others have called it “subregulatory dark matter.”
To be fair, guidance documents can be helpful in educating the public about statutes, regulations, and legal developments. But our view at the Department of Justice is that it is improper to try to use guidance to bind the public by imposing new obligations or expanding obligations beyond those already enshrined in existing statutes or properly promulgated regulatory provisions. Put simply, agency guidance should educate, not regulate.
That is why, in November 2017, former Attorney General Sessions announced that the Department will no longer engage in the practice of rulemaking by guidance. In other words, the Department will no longer issue guidance documents that effectively bind the public without undergoing the notice-and-comment rulemaking process.
We took this policy one step further in January 2018, when we began instructing Department attorneys not to use our enforcement authority to convert other agencies’ sub-regulatory guidance into rules that have the force or effect of law. In other words, if a company does not comply with some agency’s guidance document, our prosecutors are not going to treat that as establishing a violation of law. If we want to bring a case against a company for breaking the law, we’re going to rest our arguments on the statutes and regulations—not “subregulatory dark matter.”
Again, we hope the Department of Justice regulatory reform efforts can serve as a model for other agencies. And we’ve seen evidence of that with rulemaking by guidance. In late 2017, the Chairman of the Senate Judiciary Committee sent a letter to the President praising what we were doing and suggesting that other agencies be made to follow our commonsense principles. Last September, six of the banking regulators followed the Department’s lead and announced limits on the issuance and enforcement of sub-regulatory guidance. In December, with similar principles in mind, the Department of Transportation issued an important memo clarifying and updating its procedures for guidance documents. We expect other agencies to follow suit. These policies keep government restrained and promote the rule of law, fair notice, and due process.
False Claims Act
Next I’ll address a new development relating to the False Claims Act, which is the statute the Department uses to fight fraud on the taxpayer—and recover loss to the taxpayer.
It’s worth giving a little background on the law.
The Act was passed during the Civil War to fight fraud on the Union Army, and for that reason it is sometimes called “Lincoln’s Law.” At the time, as our Assistant Attorney General for Civil Division Jody Hunt has recently noted, there were crooked contractors defrauding the Union Army by selling sick mules, lame horses, sawdust instead of gunpowder, and rotted ships with fresh paint. Lincoln’s Law was an answer to those problems one hundred and fifty years ago.
The Act fell into relative disuse over the years, but was revitalized in 1986 through amendments spearheaded by Senator Grassley. In particular, the 1986 amendments increased the incentives for whistleblowers to file lawsuits alleging false claims on behalf of the government. The statute contains a “qui tam” provision that allows a plaintiff or a “relator” to sue a fraudster on behalf of the United States and receive a cut of the proceeds. These whisteblower lawsuits are called qui tam suits, and since the 1986 amendments, qui tam actions filed by whistleblowers have returned over $42 billion to the Treasury. Needless to say, there is a lot of money involved in qui tam litigation.
I’ll get back to qui tam litigation in a little bit, but first let me just say how the Department uses the False Claims Act. It is one of the most important tools we have to fight healthcare fraud, grant fraud, financial fraud, government-contracting fraud, and many other types of fraud on the government. Enforcing the False Claims Act is a top priority for the Department.
Our work in the False Claims Act space not only protects the taxpayer, but it serves other important goals.
When a company falsely certifies the quality of military equipment, it sends our brave men and women into harm’s way with less protection. When medical providers submit false claims to Medicare, they often fail to provide adequate medical care to their patients. Kick-back schemes not only defraud the government, they also drive up consumer costs, undermine competition, and may distort independent medical decision-making.
By effectively enforcing the False Claims Act, we protect the taxpayer, we deter bad actors, we protect victims, and we level the playing field in the markets.
With that background, let me turn back to qui tam actions filed by whistleblowers.
As I mentioned earlier, the success of the False Claims Act is due in large part to the partnership between the federal government and whistleblowers.
One of the reasons for this partnership is that whistleblowers are often uniquely situated to bring fraudulent practices to light—particularly in suits filed by corporate insiders, who have frequently disclosed complex corporate wrongdoing that the government would have been hard-pressed to understand and unearth without their assistance.
Qui tam filings have been on the rise for many years. We might see 600 or 700 new qui tam lawsuits in a given year. The Department takes over—or “intervenes” in—about 20% of the cases that are filed. The whistleblower is still involved (and will still get a cut), but the government is litigating the case. What about the other 80% of cases? Well, often the whistleblower will drop the case, but the statute allows the litigation to proceed if the relator elects to do so. When the relator does proceed in a “declined” case, the Department plays more of a passive role, but our role in these cases still consumes time and resources – not only in investigating the allegations initially, but also in terms of monitoring and participating in any ensuing discovery, litigation, or settlement.
In these declined cases, the relators essentially stand in the shoes of the Attorney General. Because these relators and their lawyers may not always have the same interests as the United States, we take very seriously our responsibility to monitor False Claims Act cases when we decline to intervene. Indeed, the Department serves an important role as a gatekeeper. And the False Claims Act gives the Department the authority to step in and dismiss or settle the case if that’s in the best interests of the United States.
In 2017, we began looking into what the Department should do when qui tam cases are frivolous, abusive, or contrary to the interests of justice. These cases impose unnecessary costs on the government, on the judiciary, on defendants, and on third parties. Plus, bad cases often result in bad law, which inhibits our ability to enforce the False Claims Act in good and righteous cases. And from a resource perspective, when the Department’s resources are consumed for other things, we have less time to fulfill our priorities.
In my view, if we see a qui tam action raising frivolous or non-meritorious allegations that the Department of Justice disagrees with or could not make in good faith, we should not let a plaintiff try the case on behalf of the United States.
This is why we have instructed our lawyers to consider filing motions to dismiss in qui tam cases when they are not in our best interests. This authority is an important tool to protect the integrity of the False Claims Act, the interests of the United States, and the interests of the defendants, judiciary, and public at large.
This authority to dismiss qui tam cases has been used sparingly. In the past, the Department might have dismissed one or two cases in a given year, but since 2017, the Department has moved to dismiss over two dozen cases. Our exercise of this authority will remain judicious, but we will use this tool more consistently to preserve our resources for cases that are in the United States’ interests and to reign in overreach in whistleblower litigation.
Let me turn now to a Department policy discouraging a practice of “piling on.” This policy was announced by the Deputy Attorney General last summer, and it applies across the board to civil and criminal cases.
As you might imagine, often the same conduct can violate multiple statutes. We have no shortage of laws in this country, and there can be a lot of overlap.
When multiple law enforcement and regulatory agencies pursue a single defendant for the same or substantially similar conduct, and then impose unwarranted and disproportionate penalties for that conduct, this is what we call “piling on.” Piling on can viewed as inconsistent with the concepts of fair play and the need for certainty and finality.
To avoid this problem of piling on, we announced a policy that promotes coordination within the Department and with other agencies—and even other governments—to apportion penalties and fines where appropriate. We also reminded our attorneys not to use our criminal enforcement authority for purposes unrelated to the investigation and prosecution of a possible crime. For example, we are not going to invoke the threat of criminal prosecution just to persuade a company to pay a larger settlement in a civil case. This is a critical policy that we bear in mind every day.
The most prominent example of this policy in action was a $680 million Foreign Corrupt Practices Act settlement in June with Société Générale, a global financial services institution based in Paris, for Foreign Corrupt Practices Act violations in Libya and for LIBOR manipulation. This was handled by the Department’s Criminal Division, which is not supervised by our office, but we made clear that the Department credited $292 million that the firm paid to the French Authorities, an amount equal to 50% of the total criminal penalty otherwise payable to the United States.
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It is a privilege working at the Department of Justice, and you should know that our lawyers are committed to exercising the Department’s regulatory and enforcement discretion consistent with the rule of law.
I hope that my remarks today have given you a better understanding of our perspective and the priorities of the Justice Department.