California Bill Proposes Expanding False Claims Act to Include Tax-Related Claims
California lawmakers are considering Senate Bill 799 (SB 799), introduced by Sen. Ben Allen, which proposes amending the California False Claims Act (CFCA) to encompass tax-related claims under the Revenue and Taxation Code.
The CFCA currently encourages employees, contractors, or agents to report false or fraudulent claims made to the state or political subdivisions, offering protection against retaliation. Under the CFCA, civil actions may be initiated by the attorney general, local prosecuting authorities, or qui tam plaintiffs on behalf of the state or political subdivisions. The statute also permits treble damages and civil penalties.
At present, tax claims are excluded from the scope of the CFCA. SB 799 aims to amend the law by explicitly allowing tax-related false claims actions under the Revenue and Taxation Code, subject to the following conditions:
1. The damages pleaded in the action exceed $200,000. 2. The taxable income, gross receipts, or total sales of the individual or entity against whom the action is brought exceed $500,000 per taxable year.
Further, SB 799 would authorize the attorney general and prosecuting authorities to access confidential tax-related records necessary to investigate or prosecute suspected violations. This information would remain confidential, and unauthorized disclosure would be subject to existing legal penalties. The bill also seeks to broaden the definition of “prosecuting authority” to include counsel retained by a political subdivision to act on its behalf.
Historically, the federal government and most states have excluded tax claims from their False Claims Act statutes due to the complexity and ambiguity of tax laws, which can result in increased litigation and strain judicial resources. Experiences in states like New York and Illinois illustrate challenges associated with expanding false claims statutes to include tax claims. For instance, a telecommunications company settled a New York False Claims Act case involving alleged under collection of sales tax for over $300 million, with the whistleblower receiving more than $60 million. Such substantial incentives have led to the rise of specialized law firms targeting ambiguous sales tax collection obligations, contributing to heightened litigation.
If enacted, SB 799 would require California taxpayers to evaluate their exposure under the CFCA for any positions or claim taken on tax returns. Importantly, the CFCA has a statute of limitations of up to 10 years from the date of violation, significantly longer than the typical three- or four-year limitations period applicable to California tax matters. Taxpayers may also need to reassess past tax positions to address potential risks stemming from this extended limitations period.
CFTC Unveils Replacement Penalty Mitigation Policy Focused on Self-Reporting, Cooperation, and Remediation
The Commodity Futures Trading Commission (CFTC), an independent U.S. government agency that regulates the U.S. derivatives markets, including futures, options, and swaps, has announced a new policy for mitigating potential penalties, potentially cutting them in half, based on the level of voluntary self-reporting, cooperation, and remediation of potential misconduct.
Quick Hits
The CFTC’s new policy allows companies to potentially reduce penalties by up to 55 percent through voluntary self-reporting, cooperation, and effective remediation of misconduct.
The policy introduces a matrix for mitigating penalties based on the level of voluntary self-reporting, ranging from “No Self-Report” to “Exemplary Self-Report,” and the level of cooperation, ranging from “No Cooperation” to “Exemplary Cooperation.”
The policy emphasizes a proactive approach, enabling companies to demonstrate good faith through cooperation and remediation efforts in enforcement actions.
On February 25, 2025, the CFTC’s Division of Enforcement issued a new advisory detailing how it will evaluate companies’ self-reporting, cooperation, and remediation and reduce penalties accordingly in enforcement actions.
The CFTC, through its Division of Enforcement, investigates violations of the Commodity Exchange Act (CEA) and the CFTC Regulations. Violations can be certain actions or behavior in connection with futures, options, and swaps and in connection for a contract of sale of any commodity in interstate commerce.
The CFTC’s new advisory replaces prior guidance with a new matrix that the Division of Enforcement will use to determine an appropriate reduction in penalties, or a “mitigation credit,” which can reach up to 55 percent of a possible penalty. The CFTC characterized the new guidance as a significant step toward transparency in enforcement actions.
“From the beginning, I have encouraged firms to self-report to proactively take ownership, ensure accountability, and prevent future violations,” Acting Chairman Caroline D. Pham said in a statement. “By making the CFTC’s expectations for self-reporting, cooperation, and remediation more clear—including a first-ever matrix for mitigation credit—this advisory creates meaningful incentives for firms to come forward and get cases resolved faster with reasonable penalties.”
Acting Chairman Pham further emphasized that the new program implements President Donald Trump’s EO 14219, “Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative,” which calls for streamlining federal government processes.
Three-Tiered Scale for Self-Reporting
The advisory outlines a three-tiered scale the CFTC Division of Enforcement will use to evaluate the “voluntariness” of self-reporting:
No Self-Report—The advisory states that this factor would apply when an organization has not self-reported in a timely manner, “no timely self-report,” or when a self-report was not “reasonably related to the potential violation or not reasonably designed to notify the Commission of the potential violation.”
Satisfactory Self-Report—This factor applies when there was notification of a potential violation to the Commission, but the notification lacked “all material information reasonably related to the potential violation that the reporting party knew at the time of the self-report.”
Exemplary Self-Report—This factor applies when a comprehensive notification includes all material information and additional information that assists with the investigation and conserves the agency’s resources.
According to the advisory, to receive full credit, disclosures must be (1) voluntary, (2) made to the Commission, (3) timely, and (4) complete. Reports can be made to the Division of Enforcement or other relevant CFTC divisions. The CFTC will provide a safe harbor for good faith self-reporting, allowing for corrections of any inaccuracies discovered post-reporting.
Cooperation and Remediation
Similarly, the advisory explains that the division will evaluate cooperation on a four-tiered scale:
No Cooperation: According to the advisory, the division will apply this factor in cases where there has been compliance with legal obligations but no substantial assistance.
Satisfactory Cooperation: This factor applies when documents, information, and witness interviews have been voluntarily provided.
Excellent Cooperation: This factor applies when there has been consistent, substantial assistance, including internal investigations and thorough analysis.
Exemplary Cooperation: This factor applies when there has been proactive engagement and significant resource allocation to assist the Division of Enforcement.
Additionally, according to the advisory, the division will consider remediation efforts as part of a company’s cooperation evaluation. Specifically, the division will assess whether substantial efforts were made to prevent future violations, including corrective actions and implementation of appropriate remediation plans. In some cases, a compliance monitor or consultant may be recommended to ensure the completion of undertakings.
Mitigation Credit Matrix
The advisory further introduces a “Mitigation Credit Matrix,” which explains a “mitigation credit” will be applied based on the levels of voluntariness and cooperation as a percentage of the initial civil monetary penalty. The matrix ranges from 0 percent for no self-report and no cooperation to 55 percent for exemplary self-report and exemplary cooperation. However, the division said it will retain discretion to deviate from the matrix based on each case’s unique facts and circumstances.
Next Steps
The advisory and Mitigation Credit Matrix provides more clarity and transparency about how the CFTC will evaluate voluntary self-reporting of potential misconduct and cooperation with subsequent CFTC enforcement actions, applying a new matrix that considers the levels of voluntariness and cooperation. Prior guidance had focused on whether an entity self-reported or not and whether cooperation “materially advanced” the division’s investigation.
Future enforcement and administration of the advisory will be necessary to clarify how the Trump administration will handle self-reporting and cooperation. Further, the CFTC has maintained discretion in applying the matrix and mitigation factors, and there is still some room for ambiguity in applying the factors. CFTC Commissioner Kristin N. Johnson dissented from the issuance of the new guidance. In a separate statement, Commissioner Johnson said that while she supports improvements to “transparency, clarity, and efficiency” processes to incentivize self-reporting, cooperation, and remediation, the CFTC “must be careful not to muddy the waters.”
The new advisory comes amid a broader push by federal enforcement agencies, including the CFTC, to encourage self-reporting and whistleblowing, at least under the Biden administration.
The advisory makes it clear it is now the division’s sole policy on self-reporting, cooperation, and remediation and explains that all previously announced policies, including those contained in six different division advisories as well as in the division’s enforcement manual, are no longer the policy of the division.
Thus far, no federal enforcement agencies have indicated their whistleblower protections will be weakened under the Trump administration.
CFTC-regulated businesses may want to review and update their compliance programs and related policies, considering the CFTC’s self-reporting, cooperation, and remediation incentive mechanisms. According to the advisory, entities must undergo an “exemplary self-report” and “exemplary cooperation” to maximize the potential for lowered penalties.
Moreover, entities regulated by other federal enforcement agencies may want to consider that the CFTC advisory could signal a revised approach generally under the Trump administration and keep a close watch on whether any modifications similar to those set forth in this advisory are adopted by other agencies.
FinCEN Exempts U.S. Companies and U.S. Persons from Beneficial Ownership Reporting Requirements
An interim final rule issued by the Financial Crimes Enforcement Network (FinCEN), makes the following significant changes to beneficial ownership information reporting (BOIR) requirements:
defines a “reporting company” subject to BOIR requirements to mean only those entities previously defined as a “foreign reporting company” (created under the law of a foreign country and registered to do business in the United States, including registration with any Tribal jurisdiction, through filing a document with a secretary of state or similar office)
exempts domestic reporting companies from BOIR requirements
exempts foreign reporting companies from having to report the beneficial ownership information of any U.S. person who is a beneficial owner of such foreign reporting company
exempts U.S. persons from having to provide such beneficial ownership information to any foreign reporting company of which it is a beneficial owner
subject to certain exceptions, extends the deadlines applicable to beneficial ownership information reports required to be filed or updated by such foreign reporting companies.
Following the comment period, FinCEN intends to issue a final rule later this year.
The interim final rule follows recent announcements by FinCEN on February 27, 2025, and the U.S. Department of the Treasury on March 2, 2025, indicating that there would be a significant reduction in enforcement of BOIR requirements against U.S. citizens and domestic reporting companies. Additional information regarding these announcements can be found in our prior legal alert.
FinCEN’s full release is available here:
FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons, Sets New Deadlines for Foreign Companies
Immediate Release: 3.21.25
WASHINGTON –– Consistent with the U.S. Department of the Treasury’s March 2, 2025, announcement, the Financial Crimes Enforcement Network (FinCEN) is issuing an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.
In that interim final rule, FinCEN revises the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.
Thus, through this interim final rule, all entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
Upon the publication of the interim final rule, the following deadlines apply for foreign entities that are reporting companies:
Reporting companies registered to do business in the United States before the date of publication of the IFR must file BOI reports no later than 30 days from that date.
Reporting companies registered to do business in the United States on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
FinCEN is accepting comments on this interim final rule and intends to finalize the rule this year.
Pennsylvania AG Alleges Mortgage Brokers Engaged in Illegal Referral Scheme
On January 17, the Pennsylvania Attorney General filed a civil enforcement action in the U.S. District Court for the Eastern District of Pennsylvania against a group of mortgage brokers and their manager, alleging that they operated an unlawful referral scheme in violation of the Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Act (CFPA), and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.
According to the complaint, the defendants offered real estate professionals a mix of financial incentives—such as discounted shares in a joint venture mortgage company, event tickets, and luxury meals—in exchange for directing clients to affiliated mortgage brokerages. These referral arrangements were not disclosed to homebuyers.
The Attorney General alleges that the defendants:
Improperly transferred ownerships interests. Real estate agents were offered discounted, nonvoting shares in affiliated mortgage companies to incentivize referrals, in violation of RESPA and state consumer protection law kickback prohibitions.
Provided high-value entertainment. Agents allegedly received event tickets and luxury dinners in exchange for steering homebuyers, conduct the Attorney General contends violates RESPA and constitutes unfair and deceptive acts under the CFPA.
Disguised payments as legitimate business deals. The scheme was structured to appear as stock sales and profit distributions to conceal kickbacks, allegedly violating RESPA and both federal and state consumer protection statutes.
Failed to meet disclosure requirements. The defendants allegedly did not comply with the legal standards for affiliated business arrangements under RESPA, depriving consumers of material information and transparency.
The lawsuit seeks injunctive relief, restitution, civil penalties, and recovery of attorneys’ fees.
Putting It Into Practice: This state enforcement continues the trend of states ramping up regulation and enforcement of financial services companies (previously discussed here and here). As certain states continue to align themselves with the CFPB’s January recommendations encouraging states to adopt and apply the “abusive” standard under the CFPA (previously discussed here), we expect to see more states ramp up their consumer financial protection efforts.
Listen to this post
CFTC Accepting Whistleblower Award Claims for Financial Grooming Scam
On March 26, the CFTC posted a Notice of Covered Action for a $2.3 million enforcement action taken against a purported digital asset platform for an alleged online romance scam, signaling that the Commissions is accepting whistleblower award claims for the case.
Key Takeaways:
A court judgement found Debiex liable for misappropriating over $2 million in customers’ funds in an online romance fraud scheme
Online romance fraud schemes, including “pig butchering,” are a focus of the CFTC
Qualified CFTC whistleblowers are eligible to receive awards of 10-30% of the funds collected in connection with their disclosure
On March 26, the Commodity Futures Trading Commission (CFTC) posted a Notice of Covered Action (NCA) for a $2.3 million enforcement action taken against a purported digital asset platform for an alleged online romance scam. The NCA signals that the Commission is now accepting whistleblower award claims for the case.
Debiex Pig Butchering Case
The CFTC announced on March 21 that the U.S. District Court for the District of Arizona issued a default judgment against Debiex in response to the CFTC’s enforcement action. The judgement finds Debiex liable for misappropriating over $2 million in customers’ funds.
According to the CFTC, “Debiex’s unidentified officers and/or managers cultivated friendly or romantic relationships with potential customers by communicating falsehoods to gain trust, and then solicited them to open and fund trading accounts with Debiex.”
“Unbeknownst to the customers, and as alleged, the Debiex websites merely mimicked the features of a legitimate live trading platform and the ‘trading accounts’ depicted on the websites were a complete ruse,” the CFTC further claims. “No actual digital asset trading took place on the customers’ behalf.”
The type of online romance scam carried out by Debiex is known as “Sha Zhu Pan” or “Pig Butchering.”
“As the graphic name suggests, these schemes liken the practice of soliciting consumers to participate in a fraudulent investment opportunity to ‘fattening up’ an unsuspecting pig prior to slaughtering it,” CFTC Commissioner Kristin N. Johnson explained in a January statement announcing the charges against Debiex.
The court order bans Debiex from trading in any CFTC regulated markets or registering with the CFTC and requires Debiex to pay a $221,466 civil monetary penalty and over $2.2 million in restitution.
“This judgment demonstrates the CFTC’s ongoing commitment to protecting U.S. citizens from online scams,” said Director of Enforcement Brian Young.
Notice of Covered Action and CFTC Whistleblower Program
The Notice of Covered Action posted by the CFTC for this enforcement action signals that individuals have 90 days to file a whistleblower award claim for the case.
Under the CFTC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide original information which leads to a successful enforcement action, are eligible to receive monetary awards of 10-30% of the funds collected in the action.
In 2023, the CFTC Whistleblower Office published a whistleblower alert on the ability to anonymously blow the whistle on romance investment frauds and qualify for awards and protections.
“Under the Whistleblower Program of the Commodity Futures Trading Commission (CFTC), individuals may become eligible for both financial awards and certain protections by assisting the CFTC with identifying perpetrators and facilitators of romance investment frauds under the CFTC’s jurisdiction, such as solicitations related to digital assets, precious metals, and/or over-the-counter foreign currency exchange (forex) trading,” the alert reads.
Since issuing its first award in 2014, the CFTC Whistleblower Program has awarded nearly $390 million to qualified whistleblowers. In the 2023 Fiscal Year, the CFTC received a record 1,744 whistleblower tips and issued 12 award orders, the most it has granted in a single year.
New Bill Strengthens Protections for Federal Whistleblowers who Make Disclosures to Congress
On March 26, Senator Richard Blumenthal (D-CT) introduced the Congressional Whistleblower Protection Act of 2025. The bill strengthens protections for federal employee whistleblowers who make disclosures to Congress, expanding the types of whistleblowers covered and granting them the right to have their case heard in federal court if there are delays in administrative proceedings.
“This law is a significant step forward for federal employees,” said Stephen M. Kohn, founding partner of Kohn, Kohn & Colapinto and Chairman of the National Whistleblower Center. “Retaliation against whistleblowers who testify before Congress is unacceptable. This law is highly significant and should be passed quickly. It is absolutely necessary if Congress is serious about engaging in meaningful oversight.”
The bill ensures that whistleblowers are able to file an administrative complaint if their right to share information with Congress has been interfered with or denied. It expands the definition of qualified whistleblowers to include former employees, contractors, and job applicants.
Furthermore, the bill allows for whistleblowers to seek relief in federal court if corrective action is not reached within 180 days of filing a complaint.
Senator Blumenthal previously introduced the Congressional Whistleblower Protection Act during the last session of Congress.
“Whistleblowers must be protected against retaliation when they bravely reveal waste, fraud, and abuse,” Blumenthal stated when introducing the previous version. “This measure will strengthen safeguards for anyone reporting government misconduct and empower them to seek relief if they face retaliation. Congressional whistleblowers are essential to our democracy, and they deserve vigorous protection.”
The Congressional Whistleblower Protection Act is cosponsored by Senators Mazi Hirono (D-HI), Amy Klobuchar (D-MN), Edward Markey (D-MA), Bernie Sanders (I-VT), Adam Schiff (D-CA), Chris Van Hollen (D-MD), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR).
An In-Depth Look at Three of the Most Common Types of Government Procurement Fraud
While government procurement fraud can take many different forms, certain forms are more common than others. These forms of fraud within the procurement process cost taxpayers hundreds of billions of dollars per year, and they impact agencies across the federal government.
Although federal agencies have the authority to audit their contractors, and while the U.S. Department of Justice (DOJ) and Offices of Inspectors General (OIGs) specifically target procurement fraud, the federal government still relies heavily on whistleblowers to report fraud, waste, and abuse. This makes it critical for whistleblowers to come forward when they have information that could help uncover procurement fraud cases—and the False Claim Act’s whistleblower reward provisions provide a direct financial incentive to do so.
“Whistleblowers play a critical role in the federal government’s ongoing fight against government procurement fraud. From bid rigging and collusion to violations of the Buy American Act (BAA), whistleblowers can receive financial rewards for reporting all types of procurement fraud to the appropriate federal authorities.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
With all of this in mind, when can (and should) employees, former employees, and others consider serving as a federal whistleblower? Here is an in-depth look at three of the most common types of government procurement fraud:
3 Common Types of Government Procurement Fraud
1. Bid Rigging and Collusion
The U.S. General Services Administration’s Office of Inspector General (GSAIG) identifies bid rigging and collusion as being among the most common types of government procurement fraud. It specifically identifies five forms of bid rigging and collusion that are particularly common within the federal contracting sector:
Bid Rotation – Bid rotation involves “tak[ing] turns submitting the lowest (winning) bid on a series of contracts” based on a “pre-established agreement.”
Bid Suppression – Bid suppression involves an agreement “not to bid, or withdraw a previously submitted bid, so a designated bidder is ensured to win.”
Bidding Collusion – Bidding collusion involves contractors agreeing to “set prices they will charge . . . , set a minimum price they will not sell below, or reduce or eliminate discounts.”
Complementary Bidding – Complementary bidding involves certain contractors “submit[ting] bids which are intentionally high or which intentionally fail to comply with bid requirements.”
Customer and Market Division – Customer and market division involve contractors agreement “not to bid or submit only complementary bids for customers or geographic areas.”
Even when competitive bids are submitted, the integrity of the bid evaluation process can be compromised through coordinated efforts to mislead contracting officials. As a result, recognizing unusual patterns in the bids governments receive can be a key first step toward identifying collusion or fraud in the procurement process.
If left undiscovered and unreported, all forms of bid rigging and collusion can lead to federal agencies paying more than necessary for essential products and services. In many cases, contractors will engage in multiple forms of bid rigging, price fixing, and collusion in an effort to create the appearance of legitimate competition. Contractors’ current and former employees will often have access to information that federal agencies have no practical way of discerning on their own—and this is one of several reasons why whistleblowers play such an important role in the federal government’s fight against procurement fraud.
According to the GSAIG, the following are common indicators (among others) of potential bid rigging and collusion:
Competing bids that contain identical line items or lump sums
Bids that greatly exceed the contracting agency’s estimated contract value
Bids that greatly exceed the total contract value of competing bids
Last-minute alterations or withdrawals of competitive bids
Contractors giving different bid amounts for the same line items on different contracts
Non-submission of bids by qualified contractors
Frequent interactions or communications between bidders near the time of submission
Certain contractors never (or rarely) bidding against others
Contractors only bidding for certain types of contracts despite broader capabilities
Joint venture submissions when both contractors have the ability to perform individually
2. Defective Pricing and Other Pricing Violations
Defective pricing and other pricing-related violations are also extremely common forms of procurement fraud. Here too, federal agencies often rely heavily on whistleblowers to inform them of suspect pricing practices, as they otherwise have limited options for uncovering pricing violations without initiating a costly and time-consuming audit or investigation. While conducting an audit or investigation can be well worth it when there is something to find, auditing all federal contractors to search for evidence of a potential pricing violation or another fraudulent scheme simply is not feasible.
Some common examples of pricing-related violations in the federal procurement sector include:
Defective Pricing – Defective pricing is defined as “provid[ing] incomplete, inaccurate or not current disclosures during contract negotiations.” While federal agencies can reduce government contract prices under the Federal Acquisition Regulations (FAR) in the event of defective pricing, again, agencies are often reliant on whistleblowers to inform them that action is warranted.
Price Reduction Violations – Price reduction violations involve contractors failing to lower their prices for government agencies when they offer discounts to other clients or customers. While these price reductions are not required across the board, non-compliance with this requirement (when it applies) is fairly common.
Progress Payments Fraud – Progress payments fraud involves “submit[ting] a request for payment with a false certification of work completed or falsified costs such as direct labor not rendered and materials not purchased.” This is a common form of fraud as well that can also be difficult for contracting agencies to uncover on their own—particularly in certain industries.
Similar to bid rigging and collusion, pricing-related violations can result in substantial overpayments and allow unqualified contractors to acquire contracts they wouldn’t win with accurate pricing disclosures. Whether intentional or inadvertent, these violations warrant correction to help preserve taxpayer funds and maintain the integrity of the federal procurement system. When committed intentionally, defective pricing and other pricing-related violations may warrant criminal enforcement action as well.
According to the GSAIG, the following are common indicators (among others) of potential pricing-related violations under federal contracts:
Nondisclosure of standard concessions
Nondisclosure of standard discounts
Nondisclosure of standard rebates
Failure to provide updated pricing information to the federal government
Delays in releasing updated pricing information
Failure to disclose third-party customer agreements that contain more favorable pricing than that offered to the federal government
Offering better pricing on the open market than offered to the federal government
Providing financial data and pricing information for different time periods
Inability to explain why certain supplies or materials were necessary
Reporting hours worked that are inconsistent with hours documented on employees’ timecards
3. Charging Violations
Charging violations also involve improperly billing the government under procurement contracts, but they relate more to the products and services provided (or lack thereof) than the pricing offered. For example, as identified by GSAIG, some of the most common forms of government procurement fraud that involve charging violations are:
Charging for Products Not Used or Delivered – Charging federal agencies for products not used or delivered is an extremely common form of government procurement fraud. This includes charging for materials and supplies that contractors have purchased but not used as well as billing federal agencies for end products that have not been delivered.
Charging for Services Not Performed – Charging for services not performed is another extremely common form of government procurement fraud. Many federal procurement fraud investigations focus on allegations that contractors have altered their employees’ timecards or inflated the time spent on contract-related activities.
Charging for Inferior Products or Services (Substitution) – Charging for inferior products or services (also commonly referred to as service or product substitution fraud) is common as well, especially when contractors fail to meet contract specifications. Federal contractors have an obligation to deliver in accordance with the terms to which they have agreed, and delivering inferior products or services violates this obligation.
Cost Mischarging – Cost mischarging involves “charg[ing] the government for costs which are not allowable, reasonable, or allocated directly or indirectly to the contract.” This includes misrepresenting charges as allowable, concealing unallowable costs within government billings, and hiding unallowable costs in accounts that are difficult for federal agencies to audit effectively.
Improperly Charging Under a Time and Materials (T&M) Contract – Charging expenses under a time and materials (T&M) contract that should be billed under a contractor’s firm fixed price (FFP) contract with the government is also a common type of charging violation. This, too, can be difficult for federal agencies to identify without whistleblowers’ help.
Violations of the Buy American Act (BAA) and Trade Agreements Act (TAA) fall into this category as well. The BAA requires the federal government to buy “articles, materials, and supplies” from domestic producers unless an exemption applies, while the TAA restricts the sources of end products delivered to federal agencies. Noncompliance with these statutes and falsely certifying compliance with these statutes are both common forms of federal procurement fraud.
According to the GSAIG, the following are common indicators (among others) of potential charging violations:
Costs billed under T&M contracts that exceed contract estimates
Products or services billed under FFP contracts that fall below contract estimates
Billing costs under a T&M contract that are not related to the subject matter of the contract
Using vague terms or descriptions when billing for discrete products or services
Modification of purchase orders or timecards
Inadequate documentation to support charges under federal contracts
Increases in labor hours without corresponding increases in output
Billing for labor hours at or extremely near the budgeted amount
Efforts to prevent auditing, inspection, or testing of delivered products or products in development
Irregularities in dates, signatures, and other details pertaining to charged amounts
Again, these are just three of the most common types of government procurement fraud. From manipulating the bidding process to paying kickbacks and falsely claiming small business or veteran-owned status, procurement fraud can take many other forms as well. If you believe that you may have information about any form of procurement fraud and are thinking about serving as a federal whistleblower, you should consult with an experienced attorney promptly.
Navigating Whistleblower Protections and Compliance with DEI Executive Orders
As Polsinelli has discussed, President Donald Trump issued Executive Order No. 14151 titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” and Executive Order No. 14173 titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” (collectively, the “Orders”) shortly after taking office, and that a District Court of Maryland enjoined certain aspects of those Orders. The Trump administration appealed the District Court’s decision, and on March 14, 2025, the U.S. Court of Appeals for the Fourth Circuit granted the Trump administration’s request for a stay (i.e., pause) of the injunction pending the outcome of the appeal. This means that during the appeal, the Orders are in full force and effect.
There are many articles discussing the importance of employers taking steps to determine whether their actions, policies and procedures may violate the Orders.
Given the back-and-forth nature of the decisions related to the Orders, a question that some employers may have is whether an employee is protected from retaliation if they report that they believe their employer is violating one of the Orders, but that Order is eventually struck down. Employers may be surprised to learn that if an employee reasonably believes the employer’s activity violates a legal provision (here, for example, the Orders), then they may be protected even if the Orders are later revoked or struck down.
Whistleblower Protections and Potential Activity Related to the DEI Executive Orders
What might protected activity look like with regard to these Orders? Examples of potential whistleblowing activity could include:
An employee may report the employer is continuing DEI programs, trainings or initiatives that they believe violate the Orders prohibiting race- or gender-based preferences.
An employee may report that an employer or an employee of the employer is prioritizing hiring, promotions or contracting decisions based on race, gender or other DEI-related criteria.
An employee may report that their employer is requiring them to participate in DEI training and claim such training promotes race- or gender-based biases, in violation of the Orders.
Employees working for federal contractors may report that their employer is not following the Orders’ requirements regarding DEI restrictions in government-funded projects or is inaccurately certifying compliance with DEI-related contract terms.
How Should Employers Respond to Whistleblowing?
When an employee reports a concern or engages in whistleblowing activities, employers should carefully evaluate and respond to the allegations. Steps an employer should consider taking include:
Assessing the complexity and seriousness of the employee’s complaint and, if appropriate, consider an investigation conducted under the attorney-client privilege or by an external investigator in conjunction with human resources.
Documenting findings and actions taken.
Maintaining a communication channel with the employee throughout the process.
Communicating with the employee that the investigation has concluded, sharing appropriate information considering the privacy of other employees and privilege considerations.
A well-handled response not only helps address and potentially resolve immediate concerns but also demonstrates the company’s commitment to compliance and transparency, reducing potential legal exposure.
Given the current fast-changing circumstances, now may be a good time for employers to review their complaint reporting procedures. An effective internal reporting system typically will be accessible, confidential and supported by a clear policy that outlines the process for handling reports and the protections available to employees.
How Should Employers Treat Whistleblowers?
Employers should not try to identify who made a report of an alleged violation of law to a governmental agency, particularly if the agency is then investigating the employer. That information is usually not necessary to respond to the report and could create additional risk for the employer.
If an employer knows who has made a complaint, then the employer should treat that employee with the same level of care it would afford its other employees. In particular, the complaining employee should not be held to a higher performance or behavior standard.
That said, making a complaint does not mean that an employee cannot be held to performance and behavior standards. Nor does making a complaint mean that an employee cannot be separated from employment for lawful reasons. However, as in many areas, employers would be wise to consult counsel before taking adverse action against an employee if the employee has recently complained that the employer has violated the law. This is so because many courts have held that close timing is enough to infer a retaliatory motive. Thus, employers should be very careful to show that it has a legitimate, non-retaliatory reason for separating an employee who it knows has complained (rightly or wrongly) of a violation of law, particularly if that complaint occurred close in time to when the separation will occur.
Next Steps for Employers
Employers should also consider regularly reviewing their policies and procedures to ensure ongoing compliance with applicable law. Reviewing policies and procedures with legal counsel can help identify areas of risk and ways to implement changes. By taking a proactive approach to compliance and employee relations, employers can create a positive work environment that supports both legal obligations and business objectives.
Finally, employers particularly impacted by the recent changes may want to consider offering training to managers by knowledgeable trainers who can explain these new laws and how they may change the way an employer operates.
New Interim Rule Removes CTA Reporting Requirements for U.S. Companies and U.S. Persons
On March 21, 2025, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule to the U.S. Corporate Transparency Act (“CTA”) that eliminates beneficial ownership information (“BOI”) reporting requirements for domestic entities and U.S. persons. The immediate result of the interim final rule is that no U.S. entities are required to register or update any BOI reports, and no beneficial owners who are U.S. persons are required to provide BOI.
The prior rule applied to:
“domestic reporting companies”: entities created by a filing with a Secretary of State or any similar office, and
“foreign reporting companies”: entities formed under the law of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office.
These companies were required to file a report with FinCEN identifying their beneficial owners—the persons who ultimately own or control the company—and provide similar identifying information about the persons who formed the entity, absent an applicable exemption.
FinCEN stated that the interim final rule is intended to minimize regulatory burdens on small businesses, a priority for the new federal administration. In the preamble to the interim final rule, FinCEN stated that most domestic reporting companies not covered by an exemption under the prior rule were small businesses and determined that exempting these domestic reporting companies would not negatively impact national security, intelligence, or law enforcement efforts. FinCEN concluded that much of the BOI that would otherwise have been reported under the prior rule is provided to financial institutions at the time an entity opens a bank account or is otherwise available to law enforcement.
Modifications Under the Interim Final Rule:
The interim final rule modifies the definition of “reporting company” to only include foreign reporting companies.
All domestic reporting companies and their beneficial owners are exempt from the CTA and are not required to file or update any BOI reports.
Non-exempt foreign reporting companies are still required to file BOI reports with FinCEN, but such reports are not required to include the BOI of any beneficial owner that is a “U.S. person”.
Foreign reporting companies that only have beneficial owners that are “U.S. persons” are not required to report beneficial owners.
The special rule for foreign pooled investment vehicles only requires disclosure of the individual exercising substantial control if that individual is not a U.S. person. If more than one individual exercises substantial control over a foreign pooled investment vehicle and at least one of those individuals is not a U.S. person, the entity is required to report BOI with respect to the non-U.S. person who has the greatest authority over the strategic management of the entity.
Both the prior rule and the interim final rule incorporate the definition of “United States person” from the Internal Revenue Code, which includes U.S. citizens as well as permanent residents and persons who meet the substantial presence test under the Internal Revenue Code. As a result, the exemptions for U.S. persons apparently also apply to those foreign nationals who fall under the Internal Revenue Code’s definition of United States person. FinCEN appears to use the terms “U.S. person” and “United States person” interchangeably.
Certain U.S. Persons Are Still Required to Report BOI
U.S. persons who are company applicants (i.e., those persons who directly file, and who are primarily responsible for filing, or directing or controlling the filing of, the foreign reporting company’s registration documents with a Secretary of State or similar office) remain obligated to provide their BOI to non-exempt foreign reporting companies.
Compliance Deadlines
The interim final rule is effective as of March 26, 2025. Existing foreign reporting companies are required to file their BOI reports by April 25, 2025. Foreign companies newly registered to do business in a U.S. state or tribal jurisdiction will have thirty days from the date they receive notice that the registration is effective to file a BOI report.
The interim final rule will be open to comments until May 27, 2025; however, the interim final rule will be in effect during the comment period. FinCEN indicated that it had good cause to implement the interim final rule immediately, given that domestic entities were facing a filing deadline of March 21, 2025 and there was not enough time to solicit public comment and implement a final rule before that deadline. FinCEN intends to issue a final rule before the end of the year.
The CTA remains subject to a number of legal challenges despite the issuance of the interim final rule.
We continue to closely monitor further developments with respect to the CTA.
Martine Seiden Agatston also contributed to this article.
Corporate Transparency Act Shakeup: Domestic Companies off the Hook, Foreign Entities Still Reporting
In a significant change to the Corporate Transparency Act (“CTA”), the Financial Crimes Enforcement Network (“FinCEN”) has announced that U.S.-based companies are no longer required to report beneficial ownership information (“BOI”).
This interim final rule, released on March 21, 2025, means that only foreign entities registered to do business in the United States will still need to meet the CTA’s reporting requirements.
Originally enacted to increase corporate transparency and fight financial crime, the CTA previously required both domestic and foreign companies to disclose their beneficial owners to FinCEN. However, domestic entities are no longer obligated to file BOI reports under the new rule. Instead, the focus has shifted to foreign companies doing business within the United States.
New Reporting Deadlines for Foreign Entities
For those foreign entities that still fall under the reporting requirements, FinCEN has outlined new deadlines based on the publication of the interim final rule. These deadlines are as follows:
Foreign entities registered before March 21, 2025: Must file their BOI reports within 30 calendar days from that date.
Foreign entities registering on or after March 21, 2025: Must file within 30 calendar days of receiving notice of their effective registration.
This update comes shortly after FinCEN’s February 27 announcement, in which the agency stated that it would not impose fines or penalties for failures to file or update BOI reports by the previous deadlines as it awaited the release of this interim final rule. It also aligns with the U.S. Department of the Treasury’s decision to suspend enforcement of the CTA.
What Qualifies as a Foreign Entity?
With reporting now limited to foreign entities, it’s essential to understand which businesses fall under this classification. According to FinCEN, foreign reporting companies are defined as entities—including corporations and limited liability companies—that are formed under the law of a foreign country and have registered to do business in the United States by filing a document with a secretary of state or any similar office. These entities are the only ones still subject to BOI reporting requirements under the revised rule.
Public Comment and Next Steps
As FinCEN continues to refine the regulation, the agency is actively seeking public feedback on the interim rule before finalizing it later this year. Companies impacted by the change are encouraged to participate in the comment process to ensure their perspectives are considered.
FinCEN Eliminates Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons and Sets New Deadlines for Foreign Companies
On March 21, 2025, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule under the Corporate Transparency Act (“CTA”) to eliminate the requirement for U.S. companies and U.S. persons to report any beneficial ownership information (“BOI”) to FinCEN under the CTA.
Under the interim final rule only foreign legal entities formed in a foreign country and registered to do business in the United States by filing with secretaries of state or similar offices (these entities are referred to herein as “foreign reporting companies”) are required to report BOI as reporting companies under the CTA. However, under the interim final rule foreign reporting companies are no longer required to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company and U.S. persons are exempt from having to provide such information to any foreign reporting company in which they are a beneficial owner. Accordingly, foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirements to report any beneficial owners.
While the interim final rule does not substantially change the requirement for foreign reporting companies that registered to do business in the United States by filing with secretaries of state or similar offices before March 26, 2025, it does extend the deadline for such entities to file initial BOI reports and to update or correct previously filed BOI to April 25, 2025. In addition, on or after March 26, 2025, a foreign reporting company will be required to file an initial BOI report within 30 calendar days of the date it registered to do business in the United States by filing with secretaries of state or similar offices.
Although the interim rule is still subject to a comment period ending on May 27, 2025, the interim final rule became effective on March 26, 2025.
CTA UPDATE: FinCEN Issues Interim Final Rule Exempting Domestic Companies and US Beneficial Owners From Reporting Requirements
Go-To Guide:
Domestic companies and their beneficial owners are now exempt from the requirement to file beneficial ownership information (BOI) reports, or to update or correct previously filed BOI reports.
Foreign reporting companies that do not qualify for an exemption must report BOI by April 25, 2025, but need not report their U.S. beneficial owners.
The Financial Crimes Enforcement Network (FinCEN) is soliciting public comments on the interim final rule and intends to issue a final rule later this year.
On March 21, 2025, FinCEN issued an interim final rule narrowing the scope of the CTA’s BOI Reporting Rule (Reporting Rule) to foreign reporting companies and foreign beneficial owners. This change follows a series of shifts in the status of the CTA since Dec. 3, 2024,1 when a Texas district court in Texas Top Cop Shop, Inc. v. Bondi preliminarily enjoined the CTA and the Reporting Rule on a nationwide basis.
Going forward, entities formed in the United States (regardless of when) are categorically exempt from CTA reporting requirements and do not have to report BOI to FinCEN, nor update or correct any BOI that may previously have been reported to FinCEN.
Foreign reporting companies (i.e., entities formed in a foreign country that are registered to do business in the United States) that do not qualify for an exemption must file their BOI reports by no later than April 25, 2025. Newly registered foreign reporting companies will have 30 days from their registration in the United States to comply with BOI reporting requirements.
Notably, foreign reporting companies need not report the BOI of any beneficial owners who are U.S. persons (including U.S. persons who are beneficial owners of foreign pooled investment vehicles by virtue of their substantial control). U.S. beneficial owners are likewise exempt from having to report their BOI with respect to foreign reporting companies in which they hold interests.
The Interim Final Rule does not exempt reporting of U.S. persons who serve as company applicants for foreign reporting companies.2
The Interim Final Rule significantly reduces the number of entities subject to BOI reporting. FinCEN now estimates approximately 12,000 reporting companies must comply with the CTA and its implementing regulations—down from the 32.6 million projected under the previous rule.
Looking Ahead
FinCEN is accepting comments on the Interim Final Rule until May 27, 2025. A final rule is expected to be issued later this year. The Interim Final Rule, with its narrower scope of reporting requirements, will be in effect in the meantime.
Foreign reporting companies should prepare to comply with the CTA and the Reporting Rule, as amended by the Interim Final Rule. Interested parties may also consider submitting written comments to FinCEN by the May 27, 2025, deadline. Additionally, all companies should stay updated on FinCEN announcements, including with respect to the final rule.
It remains to be seen whether the Interim Final Rule will be the subject of any legal challenges. In the appeal pending in the Texas Top Cop Shop challenge, the Fifth Circuit has asked for supplemental briefing on whether the dispute remains live in light of the Interim Final Rule.
For additional information regarding the CTA and its reporting requirements, visit GT’s CTA Task Force page.
1 On Dec. 3, 2024, the CTA and its Reporting Rule were preliminarily enjoined on a nationwide basis, approximately four weeks ahead of a key Jan. 1, 2025, deadline. FinCEN appealed that ruling, and on Dec. 23, 2024, a motions panel of the U.S. Court of Appeal for the Fifth Circuit stayed the injunction, allowing the CTA to go back into effect. Three days later, on Dec. 26, 2024, a merits panel of the Fifth Circuit vacated the motion panel’s stay, effectively reinstating the nationwide preliminary injunction against the CTA and Reporting Rule. On Dec. 31, 2024, the government filed an emergency application with the U.S. Supreme Court to stay that preliminary injunction. On Jan. 23, 2025, the Supreme Court granted that application (SCOTUS Order), staying the nationwide preliminary injunction in Texas Top Cop Shop, Inc. v. Bondi. See McHenry v. Texas Top Cop Shop, Inc., 145 S. Ct. (2025). Then, notwithstanding the SCOTUS Order staying the injunction in Texas Top Cop Shop, on Jan. 24, 2025, FinCEN confirmed that reporting companies were not required to file BOI Reports with FinCEN due to the separate nationwide relief entered in Smith v. U.S. Department of the Treasury (and while the order in Smith remained in effect). No. 6:24-CV-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). On Feb. 5, 2025, the government appealed the ruling in Smith to the U.S. Court of Appeals for the Fifth Circuit and asked the District Court to stay relief pending that appeal. On Feb. 18, 2025, the District Court in Smith granted a stay of its preliminary injunction pending appeal, thereby reinstating BOI reporting requirements once again. In response, on Feb. 19, 2025, FinCEN announced that the new filing deadline to file an initial, updated, and/or corrected BOI report was generally March 21, 2025. On March 2, the U.S. Department of the Treasury issued a press release announcing that it will not enforce any penalties or fines under the CTA against U.S. citizens, domestic reporting companies, or their beneficial owners under the current Reporting Rule or after the forthcoming rule changes take effect.
2 A company applicant, in this context, would be (a) the person who directly files the document that registers the company in a U.S. state; and (b) if more than one person is involved with the document’s filing, the person who is primarily responsible for directing or controlling the filing.