Most federal civil monetary penalties will increase by an additional 1.636%, rounded to the nearest dollar, for new assessments issued after the effective date of each respective agency’s implementing regulations. This new increase is on top of last year’s huge, one-time, “catch-up” adjustments intended to offset inflation through October 2015, and is the first of what hereafter will be annual adjustments based upon changes in the Consumer Price Index for all Urban Consumers (CPI–U) for the most recent October-October period.
As previously discussed here in November 2015 Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701 of the Bipartisan Budget Act of 2015, Public Law 114–74; hereafter the 2015 Act), requiring all federal agencies to amend their regulations to provide for inflationary adjustments to civil monetary penalties under their purview. This was to be done through an initial catch-up adjustment to be effective no later than August 1, 2016, followed by annual adjustments beginning in January 2017, per guidance to be issued by the Office of Management and Budget (OMB) by December 15 of each year. Notably, the 2015 Act includes penalties under the Occupational Safety and Health Act (OSHA) and the Social Security Act. However, it does not include penalties under the Internal Revenue Code and the Tariff Act.
OMB recently issued Memorandum M-17-11, providing guidance to all agencies to assist in making the 2017 annual inflation adjustment. OMB determined that the 2017 cost-of-living adjustment multiplier, based on the CPI-U for October 2016, is 1.01636. Agencies are required to complete these adjustments no later than January 15, 2017. While many have complied, action by others is still pending. Importantly, agencies are not required to comply with the notice and comment procedures provided in Section 553 of the Administrative Procedures Act (APA) in implementing the annual inflationary adjustments. The agency rules therefore will be effective upon issuance or as specified, and will apply to all assessments issued after the effective date, including assessments based upon violations prior to such date.
The 2015 Act broadly defined a civil monetary penalty as any monetary assessment levied for a violation of a Federal civil statute or regulation, assessed or enforceable through a civil action in Federal court or an administrative proceeding. This, however, does not include a penalty levied for violation of a criminal statute, or fees for service, licenses, permits or other regulatory reviews. Moreover, the adjustments apply only to penalties with a dollar amount, and do not apply to penalties written as functions of violations, such as “restoration and repair” or “reimbursement” of actual damages.
Agencies were required to adjust “the maximum civil monetary penalty or the range of minimum and maximum civil monetary penalties, as applicable, for each civil monetary penalty by the cost-of-living adjustment.” However, the 2015 Act did not alter existing agency authorities to adjust penalties or to assess penalties below the maximum level, within the new inflation-adjusted ranges.
The 2017 upwards adjustment, at 1.636%, is not particularly impactful, standing alone. However, when combined with the large recent 2016 “catch-up” adjustments, the impact is dramatic, resulting in civil penalties as much as 100% or more higher than those previously in effect. For example, civil monetary penalties for violations of the False Claims Act, 31 U.S.C. § 3729 et seq. (FCA), have almost doubled from a range of $5,500 to $11,000 per false claim in November 2015, to a new range of $10,957 to $21,914. Moreover, the prospect of future annual inflationary increases is a serious issue, particularly should inflation start to pick-up and begin going up at a higher rate.
In assessing impact, one needs to recall that each invoice is deemed a separate violation. Civil penalties therefore can pyramid very quickly and become a major concern, particularly in situations involving large numbers of modestly-valued invoices. For example, in a much criticized decision in United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., the Fourth Circuit directed the assessment of $24 million in civil penalties in a case involving 9,136 invoices for the overseas movement of military household goods for which the Government paid a total of only $3.3 million.
The bottom line is that the costs and risks of wrongdoing continue to increase. Companies need to ensure that they have robust compliance programs and procedures in place to deter, and detect as early as possible, any wrongdoing so as to minimize exposure to potentially crippling civil penalties on top of other possible damages and sanctions.
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