Major Fraud Act of 1988

SPONSORED BY U.S. Representative William Hughes from New Jersey, the Major Fraud Act (Public Law 100–700) was signed into law by President Ronald Reagan on November 11, 1988. The Major Fraud Act significantly increased the maximum penalties which could be assessed for certain major frauds committed against the United States government.

Title XVIII of the U.S. Code, primarily known as the Federal Criminal Code, was amended considerably to allow for increased penalties against anyone who knowingly and willingly commits or attempts to commit a plan to fraudulently receive property or services from the U.S. government valued at $1 million or more. The act increases the maximum penalty for a single count to $1 million and for multiple counts to $10 million. Criteria for the specified amounts of fines are set forth by the act, and fraud violators may also face prison terms of up to 10 years. The act authorizes the U.S. Sentencing Commission to come up with guidelines or to modify existing ones to better deal with frauds, especially those which have a high risk of potentially serious injuries as a possible result of the unlawful actions.

Employees who assist prosecutors with a fraud case are protected by the act if their employment is terminated or modified in a negative way as a result of the proceedings. However, in order for employees to receive this protection, they must not have acted with complicity in the fraud that was committed. If a person qualifies for this protection, the act stipulates specific remedies for adverse actions taken against employees.

The Major Fraud Act states that fraudulent contractors may not seek reimbursements for costs incurred during any fraud proceedings initiated by the federal government, or a state government, which deal with a violation or failure to comply, if the defendant is found to be guilty of the violation. The recovery of costs is permitted when the proceedings are ended by a compromise that results in an agreement between the contractor and the U.S. government. Usually, the amount which is to be reimbursed to the contractor is provided within the terms of the agreement. Also, costs may be recovered if the director of the department or agency which committed to do business with the contractor consents, under certain conditions, that the costs were covered under specific provisions within the original agreement between the contractor and the U.S. government.

In order to guarantee enforcement, the act provided for the creation of additional positions within the Department of Justice, including the addition of an assistant U.S. attorney, solely in order to investigate and prosecute fraud against the U.S. government. The U.S. attorney general is required by the act to report to Congress annually concerning statistics which record the number of referrals of fraud cases by government departments and agencies, number of investigations of contractors, number of attorneys, support, and agents utilized [Page 510]in cases, and number of convictions, acquittals, sentences, reimbursements, and penalties. Since its enactment, the Major Fraud Act has been amended numerous times, including some minor and major changes. Most of the amendments deal with specific types of fraudulent activities such as credit card fraud, computer fraud, bank fraud, among other fraud crimes. The fraud crimes which are most often prosecuted are usually not violations in excess of $1 million, but smaller violations such as false statements, false claims, and conspiracy to defraud.

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