July 28, 2023
A kickback is in essence a type of bribe by which, typically, a person wrongfully pays money to a second person with the ability to provide the payer with a benefit, such as selecting the payer for a business transaction. A classic example from TV and movies is a mobster paying a city official to choose a company of the mobster’s choosing for a public project. But federal kickback laws encompass far more than this type of situation, and participants in kickback schemes – whether as the payer or payee of the kickback – can face significant criminal penalties for their involvement in a kickback. Below are several examples of federal kickback laws.
Honest Services Fraud
As part of the federal mail and wire fraud criminal statutes which prohibit schemes or artifices to defraud using certain interstate communications (e.g. mail, email, tv/radio, etc.), 18 U.S.C. § 1346 indicates that such a criminal scheme or artifice can include one “to deprive another of the intangible right of honest services.” This statute has come to be known as the Honest Services Fraud statute, and the U.S. Supreme Court has interpreted the statute to target bribe and kickback schemes.
In short, when an individual or organization – either acting in the public or private sphere – engages in efforts to obtain kickbacks, what they are doing is depriving the consumer or the public from obtaining the “honest services” they would otherwise receive had the kickback not occurred. For example, if a city council member accepts a kickback from a construction company to win a contract with the city where the construction company did not present the best deal for the city, the taxpayers of the city are deprived of the “honest services” they would have received had another construction company that could do the job more efficiently been chosen. In the private sphere, if the CFO of a company chooses an IT vendor that provides him with personal kickbacks, the shareholders of that company are deprived of the honest services of a more efficient IT vendor.
As a real life recent example, the “Varsity Blues” scandal of the late 2010s by which parents paid bribes to university officials to secure admission into elite universities for their children involved prosecutions under the Honest Services Fraud theory, although several of those convictions have been overturned on appeal in 2023 based on interpretation of the statute.
The Anti-Kickback Statute
The Anti-Kickback Statute is a federal criminal law which prohibits the knowing and willful payment or receipt of any “remuneration” (including any kickback, bribe, or rebate) in return for either:
- Referring an individual to a person for any item or service for which payment may be made in whole or in part under a federal health care program, or
- Purchasing, leasing, ordering, or arranging for any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program (or simply for recommending the purchase, leasing, or ordering of any such good, facility, service or item)
Thus, at its simplest level, the Anti-Kickback statute (found at 42 U.S.C. § 1320a-7b(b)) makes it a crime to have any paid referral arrangement (whether in cash, property, or in-kind arrangement) for any health care services or goods for which payment is made under federal health care programs such as Medicare or Medicaid, subject to certain exceptions.
While it may be customary in other industries to have such referral arrangements, doing so in the health care industry can expose individuals and organizations to criminal charges and penalties which can include fines, jail terms, and exclusion from participation in federal health care programs. The Anti-Kickback Statute targets both those who make payments for referrals and those who receive them, and violation of the statute is a felony. An individual found guilty of violating the Anti-Kickback Statute faces up to ten years in prison and a $100,000 fine, in addition to being excluded from federal health care programs.
Kickbacks and the False Claims Act
The federal False Claims Act – or FCA as it is commonly known – is a law originally enacted during the Civil War as a way of preventing unscrupulous private suppliers to the Union Army from defrauding the federal government by providing inferior goods. The FCA was notable in providing a mechanism by which individual whistleblowers with knowledge of fraudulent activity targeting the federal government (and therefore U.S. taxpayers) could bring a lawsuit to recover damages, a portion of which would be received by the private whistleblower personally.
Billions of dollars have been recovered for the federal government over the many decades of the FCA’s existence through successful FCA lawsuits. Notably, FCA lawsuits are typically initiated by private individuals with knowledge of illegal activity, and, if successful, said private individuals are eligible to receive a financial reward of between 15-30% of the total financial penalties imposed on an FCA defendant. In addition to civil penalties, federal prosecutors may prosecute individuals criminally for violating the FCA.
The FCA covers a number of activities that defraud the government (and thereby the taxpayers), and certain kickback scenarios are included within that scope. For example, if a government official receives a kickback from a military procurement provider to provide defense goods or services, this could form the basis of an FCA claim against the provider for defrauding the government. In the realm of healthcare, if a physician receives a kickback from a specialist for referring patients to that specialist, and then the specialist receives Medicare reimbursement from the federal government, this too could result in an FCA criminal and/or civil claim against both the physician and the specialist. Furthermore, such actions may also result in criminal prosecution under the Anti-Kickback Statute as well.
Contact a Los Angeles Kickback Defense Attorney Today
Note that the above statutes – the Honest Services Fraud statute, the Anti-Kickback Statute, and the False Claims Act – only represent some of the federal statutes that provide criminal penalties for kickbacks. Numerous other state and federal laws provide civil and criminal penalties for kickbacks.
Whether you have already been charged with a crime in federal or state court, face potential civil or criminal enforcement action, have been approached by law enforcement or an employer with questions regarding potential wrongful activity, or are concerned about potential civil or criminal ramifications of an action that you may have participated in or even simply been aware of, it is important to seek out experienced civil and/or criminal defense counsel at the earliest possible moment to discuss your issues in a confidential environment and develop strategies and approaches to minimize your risk. The first steps one takes in responding to a potential civil or criminal enforcement matter are often the most critical, and our attorneys have the experience and skills to counsel and defend you throughout the process to work towards an outcome that defends your freedom, financial interests, and reputation. Contact our office to speak with an experienced federal or state court defense attorney regarding your situation today.
