GOVERNMENT CONTRACTING INSIGHTS DEFENSE DEPARTMENT
Govt. Launches New Cyber Fraud Initiative
Last year, the Department of Justice warned that cybersecurity fraud could see enhanced enforcement under the False Claims Act. On Oct. 6, Deputy Attorney General Lisa Monaco announced that the department would be following through on that warning with the launch of its Civil Cyber-Fraud Initiative.
The key component of the initiative is the use of the False Claims Act against government contractors that fail to comply with cybersecurity requirements — including information security standards and cyber incident reporting obligations — imposed by contract, statute, or regulation.
Defense contracts often include numerous stringent cybersecurity obligations, and defense contractors will therefore be at risk of an FCA suit if they are unable to meet them. Under the act, the government can recover treble damages and penalties from federal contractors and subcontractors that knowingly submit false claims for payment. The act incentivizes private citizens (relators), including contractor employees, to file qui tam suits on behalf of the government by guaranteeing them between 15 and 30 percent of the recovery.
The Justice Department stated that it intended to work with federal agencies, subject matter experts and law enforcement partners on the Civil Cyber-Fraud Initiative. Recently, Acting Assistant Attorney General Brian Boynton confirmed that this initiative was also intended to incentivize relators and the aggressive relators’ bar to focus their attention on potential cybersecurity noncompliance as the basis for qui tam actions.
The announcement identified several types of actions for which the department intends to hold individuals and entities accountable, including knowingly providing deficient cybersecurity products or services, knowingly misrepresenting their cybersecurity practices or protocols, and knowingly violating obligations to report cybersecurity incidents and breaches.
Compounding the risk to contractors is the fact that the initiative follows numerous other recent efforts to increase cybersecurity requirements within the government and its supply chain. For example, on May 12, the Biden administration issued an “Executive Order on Improving the Nation’s Cybersecurity,” which intended to strengthen the government’s ability to respond to and prevent cybersecurity threats, including by modernizing federal networks, enhancing the government’s software supply chain security, implementing enhanced cybersecurity practices and procedures in the government, and creating government-wide plans for incident response.
The Defense Department has taken several actions to increase obligations on contractors that handle controlled unclassified information, including by requiring contractors to report NIST SP 800-171 assessment scores, and imposing a Cybersecurity Maturity Model Certification program to require contractors to undergo third-party assessments of their compliance with new information safeguarding requirements.
On top of these requirements, the government has implemented other cybersecurity-related supply chain initiatives recently, such as a statutory ban applicable to virtually all government contracts under Section 889 of the 2019 National Defense Authorization Act, which prohibits the government from either procuring certain covered telecommunications equipment and services from unauthorized sources or entering into an agreement with any entity that uses such equipment or services as a “substantial or essential component of any system, or as critical technology as part of any system.”
Covered telecommunications equipment and services are defined in the statute as all telecommunications equipment produced and provided by Huawei Technologies Co. or ZTE Corp. and their affiliates or subsidiaries and video surveillance and telecommunications equipment used for national security purposes that is produced and provided by Hytera Communications Corp., Hangzhou Hikvision Digital Technology Co., or Dahua Technology Co., and their affiliates or subsidiaries.
Noncompliance with any of these myriad requirements could serve as the basis for scrutiny by the Justice Department under its broad new initiative.
There is little doubt that the department intends to move out smartly with implementation. By way of example, its Procurement Collusion Strike Force initiative, announced in November 2019, is now functioning, and currently has more than 30 active investigations. The strike force now has roughly 500 individual investigators and attorneys assigned to U.S. attorney’s offices around the country.
We can expect that the Justice Department will aggressively prioritize the Civil Cyber-Fraud Initiative. The announcement indicated the department would be partnering with other federal agencies and law enforcement to implement it.
It will be important to stay tuned as further details emerge about issues such as: how individual U.S. attorney’s offices will be involved in the initiative; how the department will partner with the Office of Inspector General community in investigating matters; and how civil division attorneys will interact with their criminal division counterparts and law enforcement.
The initiative raises the stakes on contactor compliance programs. With the threat of the False Claims Act’s treble damages and penalties, contractors are at much greater risk when implementing required cybersecurity safeguards and when they decide whether to report a breach.
Considering the scope and complexity of recently implemented cybersecurity obligations, contractors should stay abreast of the changing regulatory landscape and ensure they have appropriate programs in place to limit their risk of being subjected to an FCA action asserted by the Justice Department or relators.
Susan Cassidy and Peter Hutt II are partners and Darby Rourick an associate at Covington & Burling LLP. Robert Huffman, senior of counsel at the firm, also contributed to this article.
Topics: Defense Department