DOJ Settles First FCA Claims Under Civil Rights Fraud Initiative and Signals Heightened Enforcement Against Corporate DEI Programs

On April 10, 2026, the U.S. Department of Justice (DOJ) announced that IBM agreed to pay more than $17 million to resolve allegations that it violated the False Claims Act (FCA) by failing to comply with anti-discrimination requirements as a federal contractor and by seeking costs relating to practices that the United States contends discriminated against IBM employees and applicants. 

This is the first resolution of FCA claims under the Civil Rights Fraud Initiative, which targets diversity, equity, and inclusion (DEI) programs at federal contractors and recipients of federal funds. Taken together with a recent executive order targeting DEI practices by federal contractors, the settlement signals that DOJ is actively pursuing, not merely threatening, FCA enforcement against corporate DEI programs.

The Civil Rights Fraud Initiative

On May 19, 2025, then-Deputy (now-Acting) Attorney General Todd Blanche issued a memorandum entitled “Civil Rights Fraud Initiative,” which Lowenstein Sandler detailed in a prior alert. The memo announced “vigorous enforcement” of the FCA, including using the FCA to “aggressively pursue” claims against recipients of federal funds and federal contractors that knowingly violate federal civil rights laws. Violations of the FCA can impose significant financial costs due to per-violation penalties and its treble (triple) damages provision.

The Civil Rights Fraud Initiative created an enforcement mechanism for President Trump’s January 21, 2025 Executive Order 14173 entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which targeted DEI programs and practices at companies and organizations that receive federal funding or have contracts with the federal government.¹ The memo explained that the FCA is “implicated” when such companies and organizations “certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities,” including through DEI programs “that assign benefits or burdens on race, ethnicity, or national origin.”

From the outset, the Initiative thus posed a substantial if theoretical risk to any organization that maintained a DEI program and received federal funds or had a contract with the federal government. The IBM settlement confirms that this risk is real.

The IBM Settlement Agreement

DOJ’s settlement with IBM marks the first resolution of FCA claims under the Civil Rights Fraud Initiative. The Government alleged that, as a federal contractor, IBM was required to comply with anti-discrimination requirements and that IBM certified compliance with these requirements in its federal contracts. But, according to the Government, IBM did so while knowingly maintaining practices that the Government contends discriminated against employees and applicants for employment because of race, color, national origin, or sex. The Government also alleged that IBM sought payment and reimbursement under its federal contracts for costs relating to such practices.

The alleged practices included:

• Tying bonus compensation to achieving demographic targets through a “diversity modifier”;
• Altering interview eligibility criteria based on race, color, national origin, or sex, including through “diverse interview slates,” “diverse sourcing,” and other related employment practices;
• Setting goals based on race and sex and taking race, color, national origin, or sex into account when making employment decisions to achieve progress towards those demographic goals; and
• Offering certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources, and similar opportunities only to certain employees based on race, color, national origin, or sex.
  
  

The settlement covered conduct dating back to January 1, 2019, predating the Civil Rights Fraud Initiative by more than six years. 

The settlement appears to rely on an implied certification theory, which means that a contractor can be liable for failing to disclose noncompliance even without an express certification of compliance.² Here, the Government alleged that IBM was required to comply with anti-discrimination requirements as set forth in Title VII of the Civil Rights Act of 1964, “as incorporated into its federal contracts,” and the Federal Acquisition Regulation’s clause 52.222-26 entitled “Equal Opportunity,” which prohibits discrimination but on its own does not require express certification of compliance. In its announcement, however, DOJ stated that “[m]ost federal contracts contain provisions that require contractors to comply with anti-discrimination requirements as to employees and applicants for employment.”

Additionally, there is an argument that materiality should be assessed at the time of the alleged violation. Here, much of the conduct occurred before President Trump’s January 21, 2025 Executive Order 14173 and the Civil Rights Fraud Initiative, which signaled this administration’s view that DEI programs violate civil rights laws and are material to government payment decisions. Proving that DEI programs violated civil rights laws and would have been material to government payment decisions before the Civil Rights Fraud Initiative could prove challenging. It appears that IBM either did not dispute this point or used it in negotiating the settlement.

IBM did not admit liability in the settlement. Indeed, IBM denies that it engaged in the alleged practices. But it cooperated in the Government’s investigation, which it received credit for. As part of its cooperation, IBM disclosed facts promptly, provided information to assist in determining damages and penalties, and took voluntary remedial measures, including terminating or modifying its programs or policies.

To resolve these claims, IBM agreed to pay $17,077,043, including civil penalties.

Executive Order 14398

The settlement comes on the heels of President Trump’s March 26, 2026 Executive Order 14398 entitled “Addressing DEI Discrimination by Federal Contractors.”³ The order requires executive departments and agencies, within 30 days, to include in federal contracts a clause expressly certifying that:

• The contractor “will not engage in any racially discriminatory DEI activities”;
• The contractor “will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency” to ascertain compliance with this clause;
• The contract may be canceled, terminated, or suspended in whole or in part in the event of noncompliance with this clause, and the contractor may be “declared ineligible” for further government contracts;
• The contractor will report any subcontractor’s “known or reasonably knowable conduct” that may violate this clause;
• The contractor will inform the contracting department or agency if a subcontractor sues the contractor concerning the validity of this clause; and
• The contractor “recognizes that compliance with the requirements of this clause are material to” the government’s “payment decisions” for purposes of the FCA.
  
  

Following the executive order, new federal contracts must include express certifications that the contractor engages in no “racially discriminatory DEI activities,” which the government will consider material to its payment decisions. With these express certifications, the government seeks to establish two of the elements necessary to prove an FCA claim: falsity and materiality. 

As to falsity, the express certification that the contractor engages in no “racially discriminatory DEI activities” permits the government to pursue FCA claims whenever it suspects that the contractor does engage in such activities, on the straightforward theory that the contractor expressly and falsely certified that it does not do so. Unlike the implied certification theory that may have been used in the IBM settlement, this express certification leaves far less room for legal challenge. If a contractor certifies that it engages in no DEI activities and that representation is false, the government has a clear path to asserting an FCA violation.

As for materiality, the Supreme Court has held that the government’s “decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.”⁴ The fact of this clause in a federal contract alone does not establish materiality, but it will likely help the government prove this element of its FCA claims.

The new clause will also impose burdens on federal contractors (a duty to furnish information, additional reporting obligations, and granting the government access to records and accounts) and penalties for noncompliance (termination of the contract and ineligibility for further government contracts), in addition to the threat of FCA claims.

Why It Matters

The IBM settlement and Executive Order 14398, individually and taken together, represent a significant escalation in the government’s fight against DEI programs at federal contractors and recipients of federal funding. 

The IBM settlement is the first resolution of FCA claims under the Civil Rights Fraud Initiative, signaling that DOJ is actively pursuing FCA enforcement against organizations with DEI programs.

The United States is also expanding its enforcement toolkit with Executive Order 14398. While the IBM settlement appeared to rely on an implied certification theory—which requires the government to establish that the contractor made specific representations about the goods or services provided and that noncompliance with anti-discrimination requirements were material and rendered the contractor’s representations misleading—the new express certification clause gives the government a more straightforward theory for asserting both falsity and materiality in future cases.

Lowenstein Sandler’s White Collar Defense group is closely monitoring FCA enforcement developments under the Civil Rights Fraud Initiative. If your organization holds federal contracts or receives federal funding and maintains DEI-related programs or practices, we encourage you to contact us.

¹ Exec. Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” 90 Fed. Reg. 8633 (Jan. 21, 2025).
² See Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579 U.S. 176, 190 (2016).
³ Exec. Order 14398, “Addressing DEI Discrimination by Federal Contractors,” 91 Fed. Reg. 16147 (Mar. 26, 2026).
⁴ Escobar, 579 U.S. at 194.