By Fred Satterwhite
Federal contractors who have been waiting to find out how Executive Order (EO) 14173 would be implemented now know at least one piece of the federal government’s enforcement plan.
On May 19, 2025, the U.S. Department of Justice (DOJ) announced the creation of the Civil Rights Fraud Initiative (CRFI) to investigate and pursue claims against federal contractors and recipients of federal funds who knowingly violate federal civil rights laws. CRFI will be led by teams of attorneys from the DOJ Civil Division’s Fraud Section and the Civil Rights Division. Using the False Claims Act (FCA), CRFI will pursue contractors who certify compliance with federal civil rights laws “while knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin,” according to the memo issued by Deputy Attorney General Todd Blanche.
False Claims Act
The False Claims Act, which originated during the Civil War to ensure that Union Army suppliers were not defrauding the U.S. government, provides that any entity who knowingly submits false claims to the federal government is liable for triple the amount of the government’s damages, plus a civil penalty of up to $27,894 for each false claim. This liability includes knowingly making a false record or statement to get paid by the federal government.
The FCA also includes a “whistleblower” provision—known as a “qui tam” action—which allows a private person (the “relator”) to file a suit for violations of the FCA on behalf of the federal government. In such cases, the relator is entitled to receive up to 30 percent of the amount recovered by the federal government, plus legal fees and associated expenses. While qui tam actions under the FCA historically have been relatively rare—roughly 685 per year over the last decade—and difficult to win, the results have been expensive: in FY 2024 alone, DOJ reported over $2.4 billion in qui tam settlements and judgments.
Legal Back-and-Forth
The ability for the Trump Administration to use the FCA enforcement option has been in flux over the past few months. EO 14173, issued on January 21, 2025, introduced the concept of using the FCA for enforcement actions aimed at eliminating “illegal DEI” practices used by private employers. One month later, on February 21, 2025, U.S. District Judge Adam B. Abelson in the District of Maryland granted a preliminary injunction stating that the federal government shall not “bring any False Claims Act enforcement action, or other enforcement action, pursuant to the Enforcement Threat Provision” as it relates to EO 14173. A few weeks later, on March 14, 2025, the United States Court of Appeals for the Fourth Circuit granted the federal government’s motion for a stay pending appeal in the case, which lifted the preliminary injunction while the case continues in court. This reopened—at least, temporarily—the option for the federal government to use the FCA in enforcement targeting private employers’ DEI programs.
Enforcement Using the False Claims Act
The DOJ memo reaffirmed that racial discrimination has always been illegal but cited the need for the new CRFI because, according to the memo, “many corporations and schools continue to adhere to racist policies and preferences—albeit camouflaged with cosmetic changes that disguise their discriminatory nature.” In the DOJ press release announcing CRFI, Deputy Attorney General Blanche stated, “The days of using federal funds to further discrimination are over.”
With the Civil Rights Fraud Initiative, DOJ will seek to use a comprehensive enforcement approach. CRFI will include an Assistant U.S. Attorney from each of the 93 U.S. Attorney’s Offices, and will engage with DOJ’s Criminal Division and other federal agencies, such as the Departments of Education, Health and Human Services, Housing and Urban Development, and Labor, as well as state attorneys general and local law enforcement to share information about and coordinate enforcement regarding potential violations by federal contractors and funding recipients. In addition, DOJ is seeking to crowdsource enforcement by encouraging potential whistleblowers and members of the public to report instances of discrimination through a fraud reporting page.
Federal contractors should expect to see more activity related to the new CRFI and additional enforcement based on EO 14173 going forward, as the current administration has made combating “illegal DEI” an executive branch priority and appears inclined to use negative publicity as a potential deterrent as part of its overall enforcement strategy.
Another piece of the EO 14173 enforcement plan—a proposed Federal Acquisition Regulation (FAR) interim final rule titled FAR Case 2025-004, Restoring Merit-Based Opportunity in Federal Contracts—currently is under review by the Office of Information and Regulatory Affairs (OIRA). The FAR rule, which is expected to be published soon, should provide federal contractors with additional clarity regarding compliance requirements under EO 14173.
DCI will continue to monitor developments as they occur.
