The False Claims Act and the Telecom Industry: Compliance Challenges
The False Claims Act (FCA) is a federal law that imposes liability on persons and companies who defraud the government. The FCA allows the federal government to recover treble damages and penalties from those who knowingly submit or cause the submission of false or fraudulent claims for payment to the government. The telecom industry has faced increasing scrutiny and enforcement under the FCA in recent years.
The telecom industry provides critical infrastructure that enables modern communication. However, the complex regulatory framework governing this industry can lead to compliance challenges. Telecom companies routinely enter into substantial contracts to provide services to federal and state government agencies. They also receive large subsidies administered through programs like the Federal Communications Commission’s (FCC) Universal Service Fund. This intersection with government contracting and funds creates FCA risk exposure.
Overview of the False Claims Act
The FCA imposes civil liability on any person who:[1]
- Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval
- Knowingly makes or uses a false record or statement material to a false claim
- Conspires to violate the FCA
- Knowingly conceals or improperly avoids or decreases an obligation to pay money to the government
Under the FCA, the terms “knowing” and “knowingly” include acting in deliberate ignorance or reckless disregard of truth or falsity. No proof of specific intent to defraud is required. FCA violations are subject to civil penalties currently ranging from approximately $12,000 to $24,000 per false claim, plus three times the damages sustained by the government.
In addition to direct government enforcement, the FCA authorizes qui tam lawsuits brought by private citizen relators on behalf of the government. If successful, the relator receives a share of the recovery. Telecom qui tam actions frequently allege overbilling and violations of complex government contracting provisions or regulations governing subsidies.
FCA Risk Areas for the Telecom Industry
Based on recent FCA investigations and settlements, several areas pose particular compliance challenges and risks for telecom companies:
1. Federal and State Government Contracts
Telecom companies contract with government customers at all levels to provide an array of services. These agreements present multiple FCA risks. The government has pursued FCA actions based on allegations of:[2]
- Overbilling for services or equipment provided
- Charging for expenses that are expressly unallowable under applicable regulations
- Falsely certifying compliance with material contractual provisions
A notable telecom FCA settlement involved Sprint Communications, which paid $2.9 million to resolve alleged false billing and contractual noncompliance on a General Services Administration (GSA) contract. The relator claimed Sprint failed to provide contractually required credits and discounts. The company also allegedly did not comply with provisions requiring most favored customer status and lowest corresponding price structures.
2. Federal Subsidy Programs
Telecommunication companies participate in federal programs that provide subsidies for specified activities. The FCC’s Universal Service Fund (USF) supports broadband internet access in rural areas and connectivity for schools, libraries, and healthcare facilities. Such programs have rules for calculating, reporting, and obtaining reimbursements. FCA cases have targeted telecom companies for:[3]
- Seeking reimbursement for services not actually provided
- Using false subscriber data to obtain higher subsidies
- Billing for uncovered expenses
- Violating program bidding process rules
For instance, CenturyLink (now Lumen Technologies) paid $55 million to settle a qui tam suit alleging it defrauded the FCC’s E-Rate and rural health care support programs. According to the DOJ, CenturyLink billed for internet speeds it couldn’t provide. It also billed the government for costs prohibited by FCC rules and imposed unauthorized surcharges.
3. State and Local Government Contracts
State and municipal governments also contract with telecom companies for telephone, video, and internet services. California, New York City, Chicago, and Mississippi are among state and local entities that have pursued FCA actions against AT&T, Verizon, Comcast and various competitors. These cases often allege conduct like:
- Overbilling based on inaccurate or falsified data
- Charging undisclosed fees
- Misrepresenting available services and connection speeds
- Not fulfilling all contracted service and performance obligations
For example, New York City filed a still-pending FCA lawsuit claiming Verizon failed to meet fiber optic network installation benchmarks under its cable franchise agreements. Los Angeles similarly sued Time Warner Cable for allegedly deceiving the city during franchise agreement negotiations.
Best Practices for Telecom FCA Compliance
Given the FCA’s risks, telecommunication companies should implement compliance practices like:
- Closely track billing and maintain supporting records
- Carefully review certifications related to government contracts
- Verify satisfaction of material performance obligations
- Rigorously confirm subsidy program eligibility
- Watch for undisclosed fees or charges
- Validate service capabilities and network data
- Train personnel on FCA risks
- Perform periodic audits focused on FCA trouble spots
Documenting and demonstrating compliance efforts can also help mitigate potential FCA liability.
The FCA and State Law Analogues
Beyond the federal FCA, analogous false claims laws in 30 states and the District of Columbia also expose telecom companies to liability. These state laws typically mirror the federal FCA’s provisions. Some contain unique aspects like longer statutes of limitations, damages enhancements, expanded retaliation protections for whistleblowers, and broader definitions of a false claim. Multistate settlements have resolved alleged telecom billing improprieties violating both federal and state false claims statutes.
Conclusion
Allegations of fraud and false claims have resulted in substantial telecom industry FCA settlements with federal and state governments. Telecom providers face elevated compliance obligations and risks under the FCA and state analogues due to large government contracts, complex regulations around subsidy programs, and vulnerability to billing disputes. Companies in this space should emphasize FCA compliance and preparedness through preventative measures, training, auditing, and documentation.
[1] 31 U.S.C. § 3729(a). ↩
[2] Press Release, Dep’t of Justice, Sprint Communications Company LP Agrees to Pay $2.9 Million to Settle False Billing and Contractual Compliance Allegations (July 17, 2020). ↩
[3] Press Release, Dep’t of Justice, CenturyLink Agrees to Pay $55 Million to Resolve Allegations Under the False Claims Act that it Billed Inflated Charges to Federal Agencies (Jan. 4, 2022). ↩