Key Takeaways
- The U.S. Department of Justice has announced a "Civil Rights Fraud Initiative" that will utilize the False Claims Act (FCA) against recipients of federal funds who engage in "illegal DEI."
- The Deputy Attorney General's announcement of the Civil Rights Fraud Initiative increases the risk of FCA liability for federal partners and contractors subject to E.O. 14173's certification requirements.
- The threat of substantial FCA liability, including the accompanying investigation and litigation, can create significant financial and legal disruption for entities, regardless of whether such claims are ultimately successful.
- Liability can be minimized by enacting a thorough compliance structure that allows organizations to raise a good faith certification defense.
- DOJ's encouragement of whistleblower actions presents additional legal challenges, requiring careful attention to potential violations of whistleblower protection laws.
On May 19, 2025, the Deputy Attorney General released a memorandum announcing the creation of the Civil Rights Fraud Initiative, which "will utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws" (the "Memorandum").1
Background
The creation of the Civil Rights Fraud Initiative is the latest attempt by the Trump Administration to root out DEI. These efforts began on the second day of the Administration when President Trump signed a series of Executive Orders (E.O.s) targeting diversity, equity and inclusion (DEI) programs and were discussed in Dechert's earlier OnPoints.2
One of the January E.O.s, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity" (E.O. 14173), requires federal contractors to certify that they do not operate any "illegal DEI programs."3 Federal agencies including the U.S. Equal Employment Opportunity Commission and DOJ subsequently released technical guidance describing how DEI programs may implicate Title VII and offering employees various ways to pursue claims of discriminatory practices or policies in their workplace. Nevertheless, there still remains some confusion about what constitutes "illegal DEI."4
The Memorandum
According to the Memorandum, the Initiative will be co-led by the Civil Rights Division and the Civil Division, who will assess whether any recipient of federal funds who "knowingly violates civil rights laws" and "falsely certifies compliance with such laws" has violated the False Claims Act (FCA). Each division will appoint a group of attorneys to "aggressively pursue" such claims and each US Attorney's Office will appoint at least one prosecutor to focus on this effort. To ensure the breadth of the Initiative, its members will also work with the Criminal Division, other federal agencies, state attorneys general and local law enforcement.
The Memorandum advocates an aggressive expansion of the FCA and shows an intent by the administration to use that law to compel federal contractors to adopt the administration's reading of the civil rights laws. While the Civil Rights Fraud Initiative is currently focused on universities, by its terms it has far broader application to private sector companies and their employment and other policies. Specifically, the Initiative makes clear that the FCA will be used to target recipients of federal funding who knowingly engage in undefined "racist preferences," including through DEI programs "that assign benefits or burdens on race, ethnicity, or national origin," yet certify compliance with civil rights laws.
The FCA empowers the federal government to investigate and bring claims against entities that submit false claims for payment to the government.5 This includes companies that are federal contractors doing business with the government, as well as universities, local governments and non-profit organizations that receive federal grant money. Liability requires proof that a company knowingly or recklessly submitted a false claim or statement that was material to the government's decision to pay a claim, which caused the government to make payment.6The FCA also allows whistleblowers to file lawsuits on behalf of the government and receive a portion of any government recovery under the qui tam provisions of the Act.7 In 2024, 979 actions were brought as qui tam actions, whereas 423 were initiated by the government.8 This was the highest number of whistleblower claims ever brought in a single year.9 Damages under the FCA allow for three times the government's damages plus a statutory penalty ranging from $13,946 to $27,894.10The DOJ collected over $2.9 billion from entities across various industries in fiscal year 2024 as a result of FCA enforcement efforts.11 Over 30 states have enacted their own similar statutes, and qui tam plaintiffs are increasingly bringing actions under both federal and state laws.12Notably, the Memorandum strongly encourages such actions and urges private citizens to report suspected violations to federal authorities to facilitate enforcement.
Practical Advice and Recommendations
In light of the Trump administration's reliance on FCA, to limit their exposure grant recipients and government contractors at a minimum, must:
- Carefully audit policies and procedures to ensure compliance with federal anti-discrimination laws and to ensure that any required certifications of compliance are accurate based on good faith inquiry, after consultation with counsel, coupled with a robust and effective compliance regime;
- Consult counsel regarding compliance with applicable civil rights laws and potential defenses, including a good-faith defense;
- Thoroughly investigate any reports or complaints of civil rights violations, and buttress internal reporting policies and procedures to encourage formal and informal reporting of potential violations; and
- Take care to avoid any action that could be viewed as retaliatory under the FCA or other applicable law as such claims can result in substantial damages such as backpay, reinstatement, front pay, out of pocket losses, damages for pain and suffering, punitive damages and attorney's fees/court costs.13
Footnotes
1 Memorandum from the Deputy Attorney General, "Civil Rights Fraud Initiative" (May 19, 2025).
2 Executive Order 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," January 21, 2025; Executive Order 14151, "Ending Radical And Wasteful Government DEI Programs And Preferencing," January 20, 2025; Executive Order 14168, "Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government," January 20. 2025. White House Revokes Executive Order 11246, Discourages DEI, January 27, 2025, https://www.dechert.com/knowledge/onpoint/2025/1/white-house-revokes-executive-order-11246--discourages-dei.html; U.S. Attorney General and Office of Personnel Management Continue Trump Administration's Attacks on DEI and DEIA, February 11, 2025, https://www.dechert.com/knowledge/onpoint/2025/2/u-s--attorney-general-and-office-of-personnel-management-continu.html.
3 Id. at Sec. 3(iv)(B). EO 14173 also required, among other things, that the Attorney General, within 120 days of the Order, submit a report to the Assistant to the President for Domestic Policy containing recommendations for enforcing Federal civil rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI. That Report, the DOJ Fraud Initiative Memo, discussed here, was issued two days before the required deadline.
4 What you Should Know About DEI-Related Discrimination at Work, https://www.eeoc.gov/wysk/what-you-should-know-about-dei-related-discrimination-work; What To Do If You Experience Discrimination Related to DEI at Work, https://www.eeoc.gov/what-do-if-you-experience-discrimination-related-dei-work.
5 31 U.S.C. § 3729 et seq.
6 31 U.S.C. § 3729(a); § 3729(b)(1)(A); § 3729(b)(4). Universal Health Servs., Inc. v. United States, 579 U.S. 176, (2016).
7 The False Claims Act, https://www.justice.gov/civil/false-claims-act.
8 Fraud Statistics Overview, October 1, 1986 – September 30, 2024, https://www.justice.gov/archives/opa/media/1384546/dl.
9 False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024, January 15, 2025, https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-and-judgments-exceed-29b-fiscal-year-2024.
10 28 C.F.R. 85.5.
11 False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024, January 15, 2025, https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-and-judgments-exceed-29b-fiscal-year-2024.
12 See, for example, U.S. ex rel. Ge v. Takeda Pharm. Co., No. 10-11043, 2012 WL 5398564, at *1 (D. Mass. Nov. 1, 2012), aff'd, 737 F.3d 116 (1st Cir. 2013).
13 31 U.S.C. §3730(h)(2).
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