In a decision released on August 6, 2012 in the case of United States of America v. BNP Paribas SA; BNP Paribas AMERICA; BNP Paribas Houston Agency; and Jovenal Miranda Cruz, the United States District Court for the Southern District of Texas, Houston Division allowed the government’s lawsuit alleging banking fraud under the False Claims Act (“FCA”) to move forward, denying the defendants’ motions to dismiss. The defendants, various divisions of the bank BNP Paribas (“BNPP”), are alleged to have engaged in a scheme to defraud the Commodity Credit Corporation (“CCC”). The CCC is a federally chartered corporation within the United States Department of Agriculture (“USDA”) that administers a Supplier Credit Guarantee Program (“SCGP”), which extends credit guarantees to eligible commodity exporters. Under the program, exporters assign to a financial institution both an importer’s promissory note and the exporter’s right to payment, and the CCC guarantees payment to the financial institution. The government’s complaint alleges that BNP, largely through the initiative of defendant Cruz, who was serving as VP and Manager of Trade Finance for BNP in Houston, entered into a series of Master Purchase and Sale Agreements (“MPSAs”) with several United States exporters pursuant to which BNPP agreed to provide financing to the Exporters in exchange for receipt of payment obligations from a series of corresponding Mexican importers and SCGP guarantees for those payment obligations. Because the exporters were owned and/or controlled by Mexican national Pablo Villareal Cantu (“Villareal”), who also owns the importers with which the exporters enter into commerce, the Villareal exporters are ineglible for participation in the SCGP program. The SCGP does not guarantee payments to exporters that are directly or indirectly owned or controlled by the foreign importer or by a person or entity that owns or controls the importer. According to the United States’ complaint, the Villareal exporters and importers submitted false documents to the CCC, as a result of which they received SCGP guarantees. Subsequently, the guarantees and importers’ payment obligations were assigned to BNPP. The arrangement provided that BNPP would extend a line of credit to the exporters up to the amount of the importer payment obligations, minus a fee. After certain importers failed to make over $78 million in payments owed to BNPP, the banks filed claims with the CCC to recover their losses. The fraudulent CCC claims are the gravamen of the government’s complaint, constituting the false claims that gave rise to liability under the FCA.
The BNPP defendants, including Cruz, filed motions to dismiss in the case, both for failure to state claims for which relief can be granted and for failure to plead fraud with particularity pursuant to Rule 9(b) of the Federal Rules of Civil Procedure. The defendants claimed that, taken on their face, the government’s pleadings affirmatively demonstrated that the FCA’s six year statute of limitations barred the claims. Moreover, the defendants argued that the three year equitable tolling period provided for in the statute did not apply. The court rejected these arguments, and additionally found that a federal law originally dating back to the World War I period, the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, applied to civil claims under the FCA and thus the statute of limitations was suspended at any rate. The WSLA was amended in 2008 to apply not only during times of war, but also “‘[w]hen… Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).'” The court’s finding on the applicability of the WSLA to civil FCA claims may be of great import to whistleblowers.
At the heart of the case, however, was the defendants’ contention that technically “true” claims submitted to the government pursuant to fraudulently-induced contracts could not constitute false claims as a matter of law. The court roundly rejected this argument, underscoring that fraudulent inducement to contract does indeed result in FCA liability. Since the exporters and importers in the BNPP case knowingly submitted false claims in order to qualify for the CCC guarantees in the first place, any claims registered pursuant to the guarantees are tainted by fraud and give rise to FCA liability.
Dating back to 1863 to combat war profiteering during the Civil War, the FCA is a federal statute that has qui tam provisions that allow relators (i.e., whistleblowers) to file claims on behalf of the government for fraud. Submission of a false claim, or knowingly making, using, or causing to be made or used, false records or statements material to false a claim, creates liability under the statute. Recent amendments passed in 2009 and 2010 have broadened the ambit of liability and strengthened the law’s protections for employees against employer retaliation. While the government may elect to intervene in a qui tam suit, it does not always elect to do so, and relators may proceed with their claims regardless of government intervention. Victorious relators stand to recover between 15% and 30% of any final judgment or settlement.