Justice Department’s New Civil Rights Fraud Initiative Poses Major Risks for Federal Contractors

The Department of Justice has launched a significant new enforcement strategy that could expose federal contractors to substantial legal and financial risks. The Civil Rights Fraud Initiative, introduced last May by Deputy Attorney General Todd Blanch, directs DOJ attorneys to use the False Claims Act to investigate and pursue claims against recipients of federal funds who violate civil rights laws.

This initiative represents a major shift in how the government will enforce compliance among contractors, according to legal experts Scott Pechaitis and Jeremy Schneider, co-leaders of Jackson Lewis’ Government Contracts and Compliance group.

“The DOJ is widening the lens,” explained Schneider. “Civil rights compliance is now going to be front and center.”

The False Claims Act (FCA), often referred to as “Lincoln’s Law,” dates back to the Civil War when the Union Army faced widespread fraud from suppliers. The law encourages whistleblowers to report suspected government fraud by allowing them to share in recovered funds. Today, it serves as the government’s primary tool for combating fraud, with approximately $4 billion recovered annually.

Traditionally, the DOJ has targeted fraudulently obtained funds directly related to contract performance or program participation. The new initiative, however, expands this focus to include civil rights violations.

The policy adds enforcement mechanisms to Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which was signed early in the Trump administration. Under this expanded approach, contractors who falsely certify compliance with federal civil rights laws could face severe penalties under the FCA, including treble damages and potential criminal liability.

Industry observers note that the initiative significantly raises the stakes for government contractors, who already must comply with Title VII of the Civil Rights Act and other anti-discrimination statutes. What’s new is the application of the FCA’s powerful penalties to civil rights compliance issues.

The DOJ has already begun issuing civil investigative demands (CIDs)—essentially subpoenas requiring contractor responses—specifically targeting diversity, equity, and inclusion (DEI) programs and hiring practices. While no lawsuits have been filed yet, these initial investigative actions signal the department’s enforcement priorities.

The scope of potential targets is broad, encompassing traditional government contractors, medical providers billing Medicare or Medicaid, construction companies on federal projects, housing providers participating in federal assistance programs, and pharmaceutical companies subject to anti-kickback laws.

“A safe bet is that if you receive federal funds or participate in a federally funded program, you are a contractor for the purposes of the Civil Rights Fraud Initiative,” Schneider noted.

Legal experts are advising contractors to take immediate protective measures. These include updating risk assessments to incorporate civil rights compliance, reviewing certification requirements, examining DEI programs to ensure legal compliance, training leadership teams on civil rights obligations, preparing for DOJ document requests, and strengthening internal whistleblower reporting systems.

The government appears to be initially focusing on large contractors whose DEI practices have received media attention. “This is low-hanging fruit for the administration. They are looking for a big impact, at least right now,” said Schneider.

Experts emphasize that robust internal reporting mechanisms can help contractors identify and address potential issues before they escalate into government investigations. While encouraging whistleblowers might seem counterintuitive, having employees report concerns internally first provides companies the opportunity to investigate and take corrective action before facing external scrutiny.

For government contractors, the message is clear: civil rights compliance is now directly tied to False Claims Act exposure, with the potential for significant penalties. Those receiving federal funds must quickly assess their programs, strengthen compliance controls, and stay informed about evolving enforcement trends to mitigate these newly heightened risks.