Compliance to Cybersecurity Requirements and False Claims Act
9.11.2018 securityaffairs Cyber
There’s a growing risk of companies receiving substantial fines for not complying with cybersecurity standards under False Claims Act.
However, an emerging concern for businesses that act as contract-based service providers for government entities is that those establishments could also be liable under the False Claims Act (FCA).
What Is the False Claims Act?
The False Claims Act is enforced at the federal level as well as in over two dozen states and the District of Columbia. It stipulates that private citizens can file lawsuits against entities engaging in fraud or dishonesty during certain government transactions.
The citizens that participate in such legal action are called whistleblowers and typically receive between 15 and 25 percent of the recovered amount in a successful suit. Many FCA violations relate to inaccurate billing or falsified information given to government authorities. However, federal contractors can also be held liable for not adhering to the terms of their agreements.
More specifically, the Supreme Court ruled that FCA liability can occur if a government contractor submits a claim for payment for services but does not mention nonadherence to a statutory, regulatory or contractual requirement. The contractor must also know that the shortcoming would affect the government’s decision to pay.
The Link Between the False Claims Act and Cybersecurity
It may not initially be clear how the FCA relates to cybersecurity until people realize that federal contractors must abide by numerous cybersecurity best practices under the Federal Acquisition Regulation (FAR), established June 15, 2016.
The FAR mentions 15 “basic safeguarding requirements” for cybersecurity, including sanitizing or destroying media or devices containing federal contract information at the end of their usage periods and limiting access to information systems so that it encompasses only the actions that authorized users should carry out — not additional privileges.
There’s also the Defense Federal Acquisition Regulation Supplement (DFARS). It relates to contractors working for the Department of Defense (DoD) and dictates how they must handle controlled unclassified information (CUI) by protecting it adequately and reporting breaches promptly.
Parties that did not get in compliance by the end of December 2017 were at risk of losing their contracts or getting stop-work orders. They also had to report how they failed to meet the standards set.
Then, in early 2018, the General Services Administration (GSA) announced plans to officially regulate how federal contractors protect information. Whereas the FAR does not cover cybersecurity breach reporting requirements, the GSA holds contractors responsible for reporting breaches and doing so to the appropriate parties within a defined timeframe.
A Lack of Cybersecurity Best Practices Could Cause Obstacles
The details about the regulations above show how companies that provide services to government entities could be liable under the FCA for not honoring the terms of their contracts — specifically those relating to cybersecurity. Each false claim made that falls within the specifications of the FCA carries a fine of $5,500 to $11,000. The offending party must also pay the whistleblower’s legal fees.
However, even the businesses that don’t experience that consequence of noncompliance could find that a lack of cybersecurity readiness hinders operations.
The DoD proposed taking cybersecurity into account when choosing contractors. Already, the body evaluates cost, schedule and performance. But DoD representatives recognize that contractors are at risk of being infiltrated by cybercriminals, so if contractors don’t take cybersecurity seriously, they could find it difficult to remain competitive during the contract bidding process.
Even businesses that provide non-DoD-related services could become limited by not focusing on appropriate levels of cybersecurity. If other government agencies follow the DoD’s lead and make cybersecurity a priority, the businesses that provide services to government-run entities like public schools or veterans’ affairs hospitals could find their federal associations ceasing.
Breaches Bring About Worldwide Headlines
The worst cybersecurity breaches attract attention around the world. The total number of victims could rise to the millions, and some attacks even threaten local infrastructure, such as power grids. Although the emphasis here was on U.S. cybersecurity, the matter of staying safe from online threats is a global concern.
It’s not difficult to see why government entities know they can’t afford to do business with companies that aren’t well protected against cybersecurity issues.
When businesses neglect cybersecurity, they could get sued under the FCA, lose government contracts and suffer substantial reputational damage.