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How the False Claims Act [USA] transforms CyberSecurity Non-Compliance Risks into ➲ Fraud against the US Gov
This blog article is a timely warning to all US Federal Government Contractors who have not met cybersecurity requirements under US Federal Government contracts since 2017. It also addresses some US State Government Contractors and any merger or acquisition parties that have purchased a US Government Contractor with existing or historical cyber gaps or breaches that have not been identified, or if identified, no safe harbor protections have been invoked.
"The False Claims Act is an American federal law that imposes liability on persons and companies who defraud governmental programs. It is the federal government's primary litigation tool in combating fraud against the government.
The law includes a qui tam provision that allows people who are not affiliated with the government, called "relators" under the law, to file actions on behalf of the government. Wikipedia"
The DOJ has published a free 28-page Primer about the False Claims Act [Downloadable PDF].
How the False Claims Act [USA] transforms CyberSecurity Non-compliance Risks into ➲ Fraud against the US Gov
Under the Federal False Claims Act (FCA) each potential false claim can result in a civil penalty of up to $28,619 in 2025 plus three times the amount of damages (treble damages) the government sustains.
The $28,000 Civil Penalty per each potential false claim used in the Infographic
The figure of $28,000 used in the infographic is largely accurate and, in some cases, slightly lower than the actual maximum penalty for 2025.
Under the False Claims Act (FCA), each potential false claim can result in a civil penalty of up to $28,619 in 2025, plus three times the amount of damages (treble damages) the government sustains.
Here is a breakdown of how these penalties are calculated and applied according to the sources:
A. Per-Claim Civil Penalties
The penalty amount is adjusted periodically for inflation. While some sources note a range of $13,508 to 27,018∗∗forviolationsoccurringafter2023,updatedfiguresfor2025reachashighas∗∗28,619 per claim.
For older violations occurring on or before November 2, 2015, the penalty range remains lower, between $5,500 and $11,000 per violation.
B. Multiplier for Damages
In addition to the per-claim penalty, the government can recover treble damages, which is three times the actual loss suffered by the public fisc.
This combination of fixed penalties and tripled damages is intended to hold contractors and individuals accountable for misusing taxpayer funds.
C. Application in Cybersecurity (CMMC)
In the context of the Cybersecurity Maturity Model Certification (CMMC), the financial risk is particularly high because:
• Individual Controls as Triggers: Each of the 110 NIST SP 800-171 controls required at CMMC Level 2 could potentially trigger separate FCA penalties if the government believes there was a false claim or attestation.
• Compounding Costs: Failure to properly implement even a small number of controls can generate massive total penalties. For example, a major defense contractor recently settled a cyber-related FCA case for over $11 million.
• Administrative Actions: Beyond monetary fines, compliance issues can lead to contract termination, negative performance ratings, and suspension or debarment from government contracting.
4. Administrative False Claims Act (AFCA)
For smaller cybersecurity lapses where damages are less than $1,000,000, federal agencies can use the Administrative False Claims Act. This allows agencies to pursue claims through streamlined internal procedures rather than a full Department of Justice lawsuit
2017 - The Critical Turning Point
The year 2017 is considered the critical turning point because it was the final deadline for Department of Defense (DoD) contractors to fully implement the 110 security controls outlined in NIST SP 800-171.
The following factors explain why 2017 created this liability trigger and why it was handled differently prior to that date:
1. The DFARS 252.204-7012 Mandate
The primary reason for the 2017 focus is DFARS clause 252.204-7012, titled "Safeguarding Covered Defense Information and Cyber Incident Reporting".
While this regulation was introduced earlier, the government set a hard deadline of 31 December 2017 for contractors and subcontractors to have all required security measures in place.
Prior to this deadline, contractors were expected to be working toward these goals, but after this date, full implementation became a mandatory contractual obligation rather than an aspirational target.
2. Transition from "Aspirational" to "Material"
Before 2017, cybersecurity was often treated as a technical footnote or a secondary operational requirement.
The 2017 deadline fundamentally shifted the legal status of these controls:
• Condition of Payment: The Department of Justice (DOJ) now views compliance with these standards as a material condition of payment.
• Implied Certification: Under the False Claims Act, every time a contractor submits an invoice after the 2017 deadline, they are "impliedly certifying" that they have met all material requirements of the contract, including these cyber standards.
• Pre-2017 Context: Before the deadline, it was harder for the government to argue that a gap was a "false claim" because the final compliance date had not yet passed, and the standards were still being phased in.
3. The "Self-Attestation" Era
Following the 2017 deadline, the DoD relied on a "trust-based" model where contractors self-attested to their compliance. This created a massive window for False Claims Act liability because:
• Contractors had to report their scores to the Supplier Performance Risk System (SPRS).
• Many companies claimed high scores while actually having significant security gaps.
• Because the 2017 deadline had passed, any misrepresentation of these scores after that date was viewed as a deliberate or reckless act of fraud to secure government funds.
The Civil Cyber-Fraud Initiative Catalyst
"While the 2017 deadline created the legal baseline, it was the 2021 launch of the Civil Cyber-Fraud Initiative that began aggressively prosecuting gaps that had existed since that 2017 window.
For example, a 2025 settlement involving Health Net Federal Services for $11.25 million specifically targeted false certifications made between 2015 and 2018, capturing the period immediately surrounding the 2017 implementation deadline.
In summary, 2017 is the "trigger year" because it was the moment the government stopped asking for progress and started demanding verified implementation of the NIST controls. Any invoice submitted since then by a non-compliant contractor potentially constitutes a false claim."
A Call to Action for Whistleblowers
If you are aware of any cyber gaps, false cyber certifications, or failures to report cyber breaches that can be prosecuted as fraud against the US Federal Government (or US State Government where a state False Claims Act applies), we encourage you to privately contact us.
Financial rewards under one of the False Claims Acts may be available for those who come forward.
Cybersecurity Compliance Fraud Overview
Timeline and Outcomes CYBERSECURITY FRAUD CASE LIFECYCLE ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Breach Discovery: 0-6 months Investigation: 12-24 months Settlement/Trial: 18-36 months ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ TOTAL AVERAGE: 3-5 years
Raytheon NIST Compliance Failure (2024) - Violation: Knew systems non-compliant - Certified: Full compliance to DOD - Whistleblower: IT security manager - Settlement: $428M+ [This is the 2nd largest government procurement fraud recovery under the False Claims Act in history].
COMPLIANCE GAPS: Required: Encryption at rest Reality: 30% unencrypted Required: Multifactor authentication Reality: Password only Required: Audit logs retained 1 year Reality: 30 days
BREACH TIMELINE: Day 1: Breach detected internally Day 10: Management informed Day 240: Finally reported to DOD Requirement: Report within 72 hours
IT Contractor False Security Audits (2024) - Company: Major federal IT provider - Fraud: Fake penetration testing reports - Method: Recycled old reports with new dates - Status: Under investigation
AUDIT FRAUD: 2020 Report: 15 vulnerabilities found 2021 "Report": Same 15 vulnerabilities (copy/paste) 2022 "Report": Same 15 (systems never tested) Reality: 200+ vulnerabilities when actually tested
Cybersecurity Fraud Trends
RAPID GROWTH AREA 2020-2024 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ New compliance standards ↗ 500% in cases
Supply chain attacks ↗ 400% focus
Ransomware disclosure ↗ 600% enforcement
Cloud security fraud ↗ 300% increase
AI/ML security claims ↗ New area emerging
Social Sharing Image: The cover infographic and video were both generated using Google's NotebookLM.
Credits: This blog article was written by James D. Ford Esq., GAICD CIPP/US CC | Attorney-at-Law, Blue Ocean Law Group℠.
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