Congress Passes False Claims Act Allowing Citizens to Sue War Profiteers After Contractor Fraud Crisis

President Lincoln signs the False Claims Act into law on March 2, 1863, creating a revolutionary mechanism to combat rampant war profiteering after unscrupulous contractors sell the Union Army defective equipment including sawdust-filled crates instead of muskets, diseased mules, substandard uniforms, rotten food, and even the same cavalry horses multiple times. The Act, sometimes called “Lincoln’s Law,” is enacted after Lincoln realizes pervasive contractor fraud could undermine the entire war effort. One profiteer boasts that “You can sell anything to the government at almost any price if you’ve got the guts to ask,” exemplifying the culture of corruption that costs the Union millions while endangering soldiers’ lives. The legislation is groundbreaking because it allows private citizens to act as “private attorney generals” by filing qui tam lawsuits on the government’s behalf against those committing fraud—the Latin phrase qui tam derives from “qui tam pro domino rege quam pro se ipso in hac parte sequitur” (“he who brings a case on behalf of our lord the King, as well as for himself”). As incentive, whistleblowers receive up to 50 percent of funds recovered, creating powerful financial motivation to expose fraud. Defendants face both civil and criminal penalties, paying $2,000 for each fraudulent claim plus double the government’s actual damages.

The False Claims Act represents Congress’s recognition that traditional enforcement mechanisms cannot combat contractor fraud when government officials are overwhelmed, complicit, or lack incentive to pursue cases. The qui tam provision innovatively harnesses private interest to serve public purposes—individuals with knowledge of fraud gain financial stake in exposing it, creating an enforcement army far larger than any government agency could field. The law acknowledges that during rapid government expansion and wartime urgency, internal oversight fails to keep pace with spending, requiring external accountability mechanisms. The substantial whistleblower rewards (up to half of recoveries) recognize that exposing fraud often requires personal risk including retaliation, job loss, and social ostracism, compensating citizens for serving public interest despite personal cost. The Act’s passage implicitly admits that the War Department’s own procurement systems, even after Simon Cameron’s replacement by Edwin Stanton, cannot prevent contractor fraud without citizen enforcement.

The False Claims Act exemplifies democratic accountability responding to kakistocracy and corruption. When government officials fail to police contractor fraud—whether through incompetence, being overwhelmed, or corruption—the Act empowers citizens to bypass failed institutional oversight and directly enforce government interests through civil litigation. The legislation recognizes that corruption at scale (fully one-quarter of war spending lost to fraud) requires systemic solutions beyond individual prosecutions, creating economic incentives that align private interest with public good. The qui tam mechanism acknowledges that those closest to fraud (employees, contractors, business partners) have knowledge that governments lack but also face disincentives to report without protection and compensation. The False Claims Act proves remarkably durable and effective, with the government recovering $62.1 billion between 1987 and 2019, 72 percent from qui tam cases brought by private citizens. The law demonstrates how institutional failure can be addressed through citizen empowerment when traditional accountability mechanisms prove inadequate, establishing precedents for whistleblower protection and incentivization that extend far beyond Civil War profiteering to modern healthcare, defense, and financial fraud enforcement.