By David Carney, Adriaen Morse, and Jonathan Haskin | SECIL Law PLLC
On April 10, 2025, the Department of Justice (DOJ) resolved False Claims Act (FCA) claims arising out of a federal contractor’s implementation of a diversity, equity, and inclusion (DEI) program. The DOJ alleged that the DEI program breached anti-discrimination obligations in federal contracts by discriminating against employees and applicants on the basis of race, color, national origin, or sex. After receiving cooperation credit, International Business Machines (IBM) agreed to pay $17,077,043 and to credit the government for related unallowable costs (and interest and penalties) previously paid by the government. (A copy of the settlement agreement is available here, and a copy of the press release is available here.)
Key Takeaways
- Government contractors and other recipients of federal funds that have or had DEI programs should evaluate those programs in light of the programmatic elements at issue in the IBM “proof of concept” resolution for its Civil Rights Fraud Initiative and the DOJ’s overall approach to civil rights laws, although these are still early days.
- The DOJ is seeking significant financial sanctions for alleged violations of civil rights laws through DEI programs.
- The DOJ, though, appears amenable to limiting financial sanctions for those that make voluntary self-disclosures or otherwise earn cooperation credit.
- Because this theory of liability has not been challenged through litigation, the courts’ receptiveness to the DOJ’s current views on DEI in the FCA context remains to be seen.
- Skilled counsel can assist with evaluating exposure risk and mitigating that risk through disclosure and cooperation credit.
Discussion
A federal contract typically contains provisions that mandate compliance with the anti-discrimination requirements of Title VII of the Civil Rights Act and the Federal Acquisition Regulations (FAR), including FAR clause 52.222-26. As part of its contract obligations, a contractor must certify that (i) it will not discriminate against an employee or applicant based on race, color, national origin, or sex and (ii) it will take steps to ensure that applicants are employed, and employees are treated without regard to race, color, national origin, or sex. In May 2025, the DOJ established the Civil Rights Fraud Initiative to investigate and pursue FCA claims against contractors and other recipients of federal funds that knowingly violated federal civil rights laws. (The announcement of the Civil Rights Fraud Initiative is available here.)
The government contended that, between January 1, 2019, and April 10, 2026, IBM certified compliance with statutory and FAR obligations while knowingly engaging in practices that illegally discriminated against employees and applicants. Specifically, the government identified what it claimed were four violative practices:
- Modifications to compensation that caused employees to account for race, color, national origin, or sex when making employment decisions, including a diversity factor that tied bonus compensation to achieving certain demographic goals;
- Accounting for race, color, national origin, or sex in personnel decisions through use of “diverse interview slates,” “diverse sourcing,” and similar practices, including considering such impermissible factors for interview eligibility;
- Developing race- and sex-based demographic goals for business units and making decisions to advance these goals; and
- Offering employee development opportunities based on race, color, national origin, or sex.
The government also alleged that IBM allocated costs relating to its DEI programs to its federal government contracts and sought payment and reimbursement of these costs. The government maintained that these costs were unallowable.
In reaching the resolution, the government applied the Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters, Justice Manual § 4-4.112. Specifically, the government credited IBM for significant cooperation in the government investigation. IBM made early disclosures of findings of its internal investigation. IBM provided information to assist in the calculation of damages and penalties. And IBM implemented voluntary remediation, including the termination or modification of DEI programs and practices.
About the Authors
David E. Carney and Adriaen Morse are Partners, and B. Jonathan Haskin is an Associate at SECIL Law PLLC, a Washington, D.C.–based boutique focused on white-collar criminal defense, government and internal investigations, securities disputes, and complex civil litigation.
Collectively, the authors bring extensive experience navigating parallel civil and criminal enforcement risk, complex regulatory frameworks, and time-sensitive litigation strategy, and routinely counsel companies confronting government investigations.
David, Adriaen, and Jonathan can be reached at dcarney@secillaw.com, amorse@secillaw.com, and jhaskin@secillaw.com, respectively.
