On May 19, 2025, the U.S. Deputy Attorney General issued a memorandum (the “Memo”) announcing a Civil Rights Fraud Initiative (the “Initiative”) and instructing the U.S. Department of Justice (“DOJ”) to pursue False Claims Act (“FCA”) enforcement against “any recipient of federal funds that knowingly violates federal civil rights laws.”  The Memo, among other things, includes the following:

• Establishes an internal DOJ team that will coordinate with other federal and state agencies “to aggressively pursue” FCA enforcement actions against federal contractors, federal grantees, and federally funded universities who falsely “certify compliance with civil rights laws” under Executive Order 14173 (“EO 14173”);

• Indicates that DOJ intends to pursue FCA enforcement against federal fund recipients who have Diversity, Equity, and Inclusion (“DEI”) programs that provide racial preferences or against universities that allow antisemitism or support transgender policies on campus; and

• Encourages private individuals to pursue FCA qui tam whistleblower suits and report suspected violations of civil rights laws by federal fund recipients.

DOJ’s new Initiative and stated plan to “aggressively” pursue FCA enforcement reinforces the need for federal contractors and federal fund recipients to review their DEI and compliance programs in light of recent executive orders and related administration guidance and consider taking the action steps discussed below.

Background

As we previously reported in earlier updates here and here, on January 21, 2025, President Trump signed an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (EO 14173), which rescinded affirmative action and “illegal preferences” applying to federal contractors, required contractors to certify that they do not have “unlawful” “DEI programs or principles,” and creation of a strategic enforcement plan targeting illegal DEI programs in the private sector.  EO 14173 specifically requires the heads of each federal agency to include in every federal contract and grant terms requiring contractors and grantees to:

• Certify they are not “operat[ing] any programs promoting DEI that violate any applicable Federal anti-discrimination laws”; and
• Agree that their “compliance in all respects with all applicable Federal anti‑discrimination laws is material to the government’s payment decisions” for purposes of the FCA.

EO 14173 also requires the U.S. attorney general, by May 21, 2025, to create a strategic plan for pursuing enforcement actions against “illegal” DEI in the private sector, including, among other things, having each federal agency identify “up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments exceeding $1 billion.”

On February 5, 2025, the U.S. attorney general issued a memorandum titled Ending Illegal DEI and DEIA Discrimination and Preferences (the “February 5 Memo”), requiring the DOJ’s Civil Rights Division and Office of Legal Policy to submit a report with recommendations for enforcing civil rights laws to end “illegal” DEI programs in the private sector, consistent with EO 14173, including criminal investigations of corporate DEI programs.

The New Initiative

In accordance with EO 14173 and the February 5 Memo, the Memo establishes a Civil Rights Fraud Initiative, which will be co-led by the DOJ’s Civil Division’s Fraud Section (which enforces the FCA) and the Civil Rights Division (which enforces civil rights laws).  The Memo requires those divisions to assign a team of attorneys “to aggressively pursue” FCA enforcement of civil rights law violations by federal fund recipients.  It also instructs those divisions to coordinate enforcement activities and share information with the following:

• Each of the 93 United States attorneys’ offices must identify at least one assistant United States attorney to assist with these efforts;
• The DOJ Criminal Division;
• Other federal agencies that enforce civil rights requirements for federal funding recipients (g., U.S. Department of Labor and U.S. Department of Education); and
• State attorneys general and local law enforcement.

FCA Enforcement for Civil Rights Violations

The Memo instructs the DOJ to use the FCA as its “primary weapon against government fraud, waste, and abuse” and prevent the government from “subsidiz[ing] unlawful discrimination.”  The Memo requires DOJ to pursue violations of various federal civil rights laws, “including but not limited to Title IV, Title VI, and Title IX, of the Civil Rights Act of 1964.”

Several examples of FCA enforcement actions DOJ may pursue against federal fund recipients are noted in the Memo, including the following:

• A federal contractor or fund recipient could violate the FCA if, for example, they “certify compliance with 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.”

• A university that receives federal funds that certifies compliance with federal antidiscrimination laws could violate the FCA if, for example, it “encourages antisemitism, refuses to protect Jewish students, allows men to intrude into women’s bathrooms, or requires women to compete against men in athletic competitions.”

It also appears that DOJ will be looking beyond what it might view as “window dressing” changes to corporate DEI programs.  Indeed, the Memo warns that “many corporations and schools continue to adhere to racist policies and preferences—albeit camouflaged with cosmetic changes that disguise their discriminatory nature.”

Qui Tam Whistleblowers Encouraged

The Memo “strongly encourages” private individuals to pursue qui tam actions or report to the DOJ federal fund recipients who they believe have violated federal antidiscrimination laws.  Recognizing that the government may not have the resources to pursue all of these claims, the Memo encourages private actors, such as employees, to bring these claims, noting the substantial financial recoveries that they can obtain for bringing qui tam suits.

Practical Implications

The Memo underscores the significant risk federal contractors and fund recipients now face related to FCA enforcement and qui tam actions especially concerning their DEI programs and compliance with federal antidiscrimination laws.  FCA actions can have significant business and financial consequences, with damages and penalties quickly escalating.  Violators may be required to pay treble damages, or up to three times the total value of the contract, in addition to per-claim penalties ranging from approximately $14,000 to $28,000 for each time a contractor or service provider bills the government.  Organizations can also face substantial collateral consequences, including potential debarment, reputational damage, and private civil suits, including shareholder class actions.  FCA liability, or even settlement of an FCA case, is reportable when seeking further government contracting or grant opportunities.  In short, having an FCA case filed against a contractor or grantee can be costly and have downstream implications.

Despite the lack of any formal rulemaking for the certification requirements under EO 14173, some government agencies already have begun implementing the certification requirements mandated by EO 14173 for federal contractors and grant recipients.  Implementation of those certifications will likely increase in the coming weeks.

Federal contractors and organizations receiving federal funds should prepare to see an influx of DOJ enforcement and whistleblower complaints related to alleged violations of federal civil rights laws.  Indeed, DOJ appears to have already started enforcement activity in this space.  The New York Times reported that DOJ is investigating Harvard University’s admissions policies under the FCA for alleged non-compliance with the U.S. Supreme Court’s decision in Students for Fair Admissions, which effectively ended affirmative action in college admissions.

The Memo also essentially deputizes employees to police federal fund recipients’ DEI programs—or initiatives that could be perceived as such.  With the rising number of employees objecting to their organizations’ DEI programs and practices, it is not hard to envision a drastic uptick in FCA whistleblower complaints.  Given the resources DOJ appears to be devoting to the new Initiative, DOJ also may be more prone to intervene in such suits than has historically been the case.

Nevertheless, federal contractors or fund recipients facing FCA claims or enforcement actions for alleged violations of civil rights laws may have viable defenses.  For example, a federal contractor might be able to show that its certification under EO 14173 was not false or that the contractor did not have the requisite scienter (or intent) to violate federal antidiscrimination laws, particularly since the government has yet to define what constitutes “DEI programs or principles” or which of those programs might violate federal antidiscrimination laws.

Of course, the best defense is sometimes a good offense, so federal fund recipients should consider taking the proactive steps outlined below to mitigate risk in light of these developments:

• Audit DEI programs under privilege. Audit all DEI initiatives for risk, including those not directly tied to federal funding, under the protection of the attorney-client privilege in light of the anticipation of litigation.  Identify any practices, policies, or communications that could be perceived as unlawful preferences or quotas based on race or other protected characteristics.  Rank initiatives by potential legal exposure and document both their risk profile and organizational value.  The outcome of these audits can provide actionable intelligence for companies to consider their DEI strategies moving forward based on risk tolerances and preferences and adjust as appropriate to ensure compliance with the law.  These audits are even more critical for federal contractors and fund recipients before they certify their compliance with federal antidiscrimination laws as part of their federal contracts and grants.  Conducting these audits under attorney-client privilege minimizes the risk of having to disclose the audit findings in response to litigation, government investigations, or shareholder proposals.  Our DEI Strategy + Defense Task Force helps companies navigate these difficult issues through our privileged DEI risk audits.  By proactively reviewing our clients’ DEI programs, policies, and communications, we provide clients with actionable intelligence to help appropriately mitigate risk while upholding corporate values and reputations.

• Strengthen internal investigation protocols. Proper and timely investigations can provide critical defenses to whistleblower claims related to EO 14173.  Review and reinforce internal procedures for documenting and escalating such complaints—especially given the potential for FCA exposure under EO 14173.  Promptly document, investigate, and—where warranted—adjust DEI practices in response to internal complaints.

• Train Human Resources (HR) personnel and managers on risk and escalation. Arm HR teams and people managers with guidance on how to respond to employee complaints regarding DEI programs, policies, and communications.  Ensure leadership understands the legal and reputational stakes and that HR managers are fully cognizant of the prohibition against retaliation.

• Document Employment Decisions Carefully. Because the Memo effectively deputizes employees to scrutinize DEI programs and increases the risk of claims that certain employment decisions—e.g., hiring, firing, promotions, etc.—were due to allegedly DEI programs or related to employee complaints about “unlawful” DEI programs.  This means employment decisions are likely to be the subject and focus of increased scrutiny and litigation, including FCA qui tam  Federal contractors and fund recipients should review their procedures for documenting and justifying employment decisions to ensure they are sufficient to identify and support the legitimate business reasons for those decisions, with extra emphasis on demonstrating that particular employment decisions were based on merit—not unlawful consideration of race or other protected characteristics.

• Avoid overcorrecting. Rolling back DEI programs too aggressively can also invite legal and business risks—potentially triggering traditional discrimination claims, undermining recruitment or retention efforts, or prompting dissatisfaction from employees, customers, and other stakeholders.  Organizations should be mindful that their corrective measures remain aligned with their stated corporate goals and values.  Evaluate the legal and business implications of scaling back, or removing entirely, initiatives aimed at mitigating bias, before taking action.

This post comes to us from Morrison & Foerster LLP. It is based on the firm’s memorandum, “DOJ Creates Initiative to Pursue Aggressive False Claims Act Enforcement Against DEI Programs and Civil Rights Violations,” dated May 21, 2025, and available here.