In addition to actual damages, which are intended to make the United States whole after being defrauded, the False Claims Act includes a separate per-claim civil penalty that is meant to “provide for restitution to the government of money taken from it by fraud.” In other words, Congress is saying “here’s a little extra for the trouble.”

The False Claims Act makes violators “liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.” Accordingly, sometimes complaints drafted by inexperienced qui tam attorneys will carelessly request statutory penalties for $5,000 to $10,000. But such a demand is not only incorrect, it may severely shortchange your recovery.

Under the Inflation Adjustment Act, the civil penalty range increased to $5,500 to $11,000 in 1996. It has remained at those levels ever since, as over the following two decades, Congress simply never got around to passing the legislation necessary to adjust it.

This year, that will finally change. Beginning on August 1, 2016, false claims will engender civil penalties of $10,781 to $21,563 per claim. And those amounts will be adjusted annually for inflation every January.

A common question we get already from clients, and one we are sure to hear much more often with this increase, is whether we are all going to get rich from statutory penalties! For example, a doctor’s office submits thousands upon thousands of claims, one per office visit, and so even a small damages case could grow exponentially as a result of civil penalties.

Alas, the answer is no. FCA statutory penalties have many purposes, but they are generally not utilized to drastically increase damages. For one thing, they only really matter if you win at trial. For another, some courts have found the imposition of penalties to be unconstitutional when they are “overwhelmingly disproportionate” to the government’s actual sustained losses. For example, if a defendant submitted one-thousand false claims for $1 each, actual damages would be $1,000, but the minimum civil penalties (under the current rule) would be $5.5 million. Courts are not going to give you millions of dollars in penalties on a case with negligible damages, but the statute also does not give them discretion to fashion a “fairer” award that is less than $5,500 per claim.

So what good are they then? The obvious answer is that sometimes a case goes through trial, the United States wins, and civil penalties are levied without being found unconstitutional. In such instances, the penalties are often the whipped cream and cherry on the sundae. For another thing, they are a major deterrent; the mere threat of such astronomical penalties keeps potential violators on the straight and narrow. Similarly, they drive settlements; when a defendant is faced with the option of paying back what they stole, or litigating against the United States and possibly facing enormous civil penalties, they often choose the easy way out. And civil penalties have been particularly valuable in cases where there are no monetary damages, but there is fraud nonetheless. For example, if a defendant submitted claims, but the Government realized they were false and rejected them, the defendant does not get a free pass simply because it was caught.

In any case, more ways to punish crooks is rarely a bad thing!