The renewable energy industry is facing uncertainty about the direction of energy policy and future of the Inflation Reduction Act (IRA).
President Trump has initiated a severe curtailment of federal investments in renewable energy, and some members of Congress have suggested investigating federal loans recently dispensed to renewable energy companies. Possible government investigations targeting some market participants can be initiated using legislation that was commonly deployed during the Biden Administration – the False Claims Act (FCA).
Building Upon a Biden Era Trend
The FCA allows for government enforcement litigation and whistleblower actions. During the Biden Administration, more than 1,400 new FCA matters were initiated by whistleblowers. That’s the largest number of newly initiated actions in a single year, and a 15% increase over the previous one. It’s not just whistleblowers who filed actions; the DOJ initiated 423 cases, the second-largest number filed in a single year. All told, the DOJ recovered approximately $2.9 billion through judgments and settlements, making fiscal year 2024 the 16th straight year in which recoveries surpassed $2 billion.
Under the second Trump Administration, this trend will likely continue but this time with a particular focus on the renewable energy industry. Given both the passage of sweeping legislation by the Biden Administration like the Bipartisan Infrastructure Law (BIL) and the IRA, which earmarked billions of dollars for a variety of renewable energy projects, and the Trump Administration’s freeze on further disbursement of funds from the IRA, renewable energy market participants should anticipate vigorous review of government funding and possibly defending against aggressive FCA enforcement litigation concerning their use of those federal loans.
Nevertheless, renewable energy companies can successfully manage FCA investigations, and even significantly reduce potential penalties, with enhanced compliance procedures, conducting routine risk assessments and monitoring government contracting loan..
What Is the False Claims Act?
The FCA is one of the Government’s chief civil enforcement tools for combatting fraud against federal agencies and programs.
Companies and individuals violate the FCA by making fraudulent claims to the Government to receive money or property. This typically happens when a company knowingly submits false or fraudulent claims, or submits false statements or records, for payment or reimbursement. The FCA also has an interesting provision that allows private citizen whistleblowers to file suits on behalf of the Government, called “qui tam” actions. This essentially can turn employees into an army of investigators, buoyed by attractive financial incentives: in successful qui tam suits, whistleblowers are awarded between 15 and 30 percent of the Government’s overall recovery—and that recovery quite often can be considerable.
Indeed, penalties under the FCA are significant. The FCA provides for a mandatory, inflation-adjusted civil penalty of “not less than $5,000 and not more than $10,000” for each violation, and it also awards treble damages, meaning three times the amount of actual damages to the Government. As a result, liability for defendant entities can balloon quickly and, at times, unpredictably, and penalties can accumulate at exorbitant numbers.
Precedents and Risk for Energy Companies
In the past, the energy sector at large has faced unique exposure to the FCA. For example, energy companies that excavate oil, natural gas, and other fossil fuels on federal land have faced FCA enforcement actions when they failed to pay a share of their profits from their exploration activities to the Government as a royalty.
Energy companies have also come under scrutiny for overcharging on federal contracts. Recent enforcement and whistleblower (qui tam) actions include: (i) false claims for reimbursement under subcontracts for building materials for the construction of a nuclear fuel fabrication facility; (ii) double-billing by employees for professional services rendered to the Department of Energy; and (iii) overbilling and no-show work under Department of Energy environmental cleanup and remediation contracts.
Loan Programs Office & Recent Executive Action
But with President Trump’s recent return to the White House, renewable energy companies may become new targets of the Government’s energy-related FCA enforcement priorities.
Under the Biden Administration, the Department of Energy’s Loan Programs Office (LPO) granted tens of billions in loans to fund clean energy technologies, advanced transportation, and Tribal energy projects in the U.S. These loans come with strict obligations and covenants that must be satisfied by the companies receiving the funds. The loan approval process is exceptionally thorough, with the LPO going over every little detail of a company’s business plans. Once the loan is granted, the LPO then continues to oversee projects through to completion.
Adding to this existing pressure from the LPO, the Trump Administration has swiftly taken steps to claw back unspent federal funds related to renewable energy investment under the IRA. Within hours of taking office, President Trump signed the “Unleashing American Energy” executive order, which among other things directs all agencies to pause the disbursement of funds appropriated through the IRA. Coupled with such executive action, some members of Congress have also recently vowed to investigate renewable energy companies that received loans under the IRA.
With this increased scrutiny, renewable companies investing in clean power projects using federal money must maintain a robust system of controls to ensure compliance with loan programs, and to constantly assess the risk of fraudulent behavior at all levels of the organization.
Risk Mitigation Strategies
The key to preventing or minimizing risk associated with FCA violations is to maintain a robust internal compliance program at your company.
- Compliance Programs: The best compliance programs instruct employees in a clear and practical manner on how to maintain legal and ethical standards in their work, and contain procedures for internal investigations as well. Even following an investigation by the Government and a decision to file an enforcement action, evidence of a far-reaching, and regularly maintained, compliance program is often considered by prosecutors to evaluate whether to bring a civil action (as opposed to a criminal indictment), the terms of a potential civil corporate resolution, and the need for the imposition of an independent compliance monitor following resolution of the enforcement action. But companies must “live their policy” in order to reap its benefits.
- Monitoring and Audit: Compliance programs work best when they are paired with mechanisms that allow internal compliance personnel to monitor and audit business operations, and to easily spot issues that would run afoul of a company’s contractual obligations to the Government, and therefore the FCA. Renewable energy companies should conduct a review of current policies and procedures to ensure compliance with the terms of its current government contracts and project requirements.
- Voluntary Self-Disclosure: We see, in case after case brought under the FCA, that voluntary self-disclosure and cooperation with a subsequent investigation meaningfully reduces the penalty associated with financial misconduct. Whether that self-disclosure is preemptive, before the Government is aware of the violative conduct, or after the Government opens an investigation, it pays to cooperate with prosecutors, albeit under guidance from outside counsel.
The authors wish to thank Bracewell associates Patrick Morley and Kim Kirschenbaum for their contributions to this article.
