How Do Qui Tam Actions and Bounty Actions Work?

In short, the government creates economic incentives (rewards and bounties) to encourage whistleblowers to expose fraud against the government and other unlawful conduct.  Like offering rewards for wanted criminals, governments throughout time have found that the most efficient and effective way to expose fraud and unlawful conduct was to encourage private citizens through rewards to identify and expose unlawful practices, criminals, and criminal conduct. 

Modern Whistleblower Reward law uses a combination of economic rewards and whistleblower protections to encourage persons with specialized and original knowledge of significant fraud to step forward and blow the whistle on unlawful conduct.  These whistleblower reward laws not only make retaliation against whistleblowers that are exposing significant fraud a federal crime, but also can provide confidentiality protections that protect the identity of whistleblowers that are represented by an attorney.

Economic Incentives to Encourage Whistleblowers to Expose Fraud Against the Government and other Unlawful Conduct

Economic Incentives including rewards and bounties have been an extremely effective method of identifying unlawful conduct, crime, and criminals.  When the government offers the economic reward to a private citizen for exposing fraud against the government, such actions are called "qui tam actions".  In these actions, the plaintiff is suing on their own behalf as well for the government and taxpayers.

The qui tam provisions of the False Claims Act are based on the theory that one of the least expensive and most effective means of preventing frauds on taxpayers and the government is to make the perpetrators of government fraud liable to actions by private persons acting under the strong stimulus of personal ill will or the hope of gain.

The strong public policy behind creating an economic gain for whistleblowers is that  the government would be significantly less likely to learn of the allegations of fraud, but for persons in certain positions with specialized knowledge of fraud that has been committed. Congress has made it clear that creating this economic incentive is beneficial not only for the government, taxpayers, and the realtor, but is an efficient method of regulating government to prevent fraud and fraudulent schemes.

The central purpose of the qui tam provisions of the False Claims Act is to set up incentives to supplement government regulation and enforcement by encouraging whistleblowers with specialized knowledge of fraud going on in the government to blow the whistle on the crime.

Similarly, new bounty actions work under the same premise.  By encouraging private citizens with specialized knowledge of financial fraud, the government is seeking to deter investment fraud, securities fraud, SEC violations, retirement fund fraud, corporate malfeasance, and other forms of financial fraud by offering rewards or bounties to persons that properly expose this fraud.

Governments have long had trouble with unscrupulous government contractors defrauding the government by providing defective goods, over billing services, and seeking payment for goods and services never provided.   The solution that many governments have created is to set up economic incentives for whistleblowers with inside information of fraudulent government contracts to blow the whistle on government contractors that are committing fraud.

Qui tam actions were used in the 13th century England as a way to enforce the King's laws. These actions have existed in the United States since colonial times, and were embraced by the first U.S. Congress as a way to enforce the laws when the new federal government had virtually no law enforcement officers. 

During the Civil War, corrupt military contractors were defrauding the United States Army out of hundreds of thousands of dollars and putting troops at risk by supplying troops with defective products and faulty war equipment. Illegal price gouging was a common practice and the armed forces of the United States suffered.  In response, Abraham Lincoln enacted the Federal Civil False Claims Act. A key provision of the act was known as qui tam.

This Act was weakened in 1943 during World War II while the government rushed to sign large military procurement contracts. However, it was strengthened again in 1986 after a long period of and increase in military spending as well as many stories of defense contractor price gouging and government waste.