March 26, 2013

How much money could be saved if perjurers feared being held accountable for their words?

Every day, in courtrooms across America, crimes are committed in front of judges and juries. The crime is perjury, intentionally giving false testimony under oath. It usually goes unpunished. The only time you hear about perjury or obstruction of justice being prosecuted, it seems, is when the government wants to nail a prominent person and doesn’t have much else to work with. Just ask  Martha Stewart or Scooter Libby or  Barry Bonds.

Plenty has been written about police who lie under oath to convict criminals. Relatively little has been said about the commercial side of perjury and its cousins in dissembling, such as filing fraudulent Medicare claims. These crimes deprive victims of justice, at enormous cost to individuals, companies and taxpayers. Perjury in particular demeans the judicial system, but enforcement of laws against it is statistically de minimis.

The result: People lie in legal matters with seeming impunity. Courthouse dishonesty is nothing new—”Perjury, The National Sin” was published in London in 1689. Yet in that book the unnamed author deplored widespread violations of an oath to God. In the modern era, the matter merits serious attention because of the economic impact of dissembling under oath and in sworn statements. Millions, if not billions, of dollars could be saved if people worried more about being punished for public prevarication. It would cost relatively little to instill such fear.

The immediate victims of the crime are other litigants, but the economic consequences of successful false testimony and other kinds of misrepresentation are passed on to the public directly by adding to the cost of goods and services. Liability insurance premiums include the significant expense of settlements, judgments and defense costs for litigation decided on the basis of fraud and deception. According to the 2008 report of the “Coalition Against Insurance Fraud,” nationwide insurance fraud of all kinds amounts to $80 billion a year, including $6.8 billion (or 18%) of bogus auto insurance claims for bodily injury and property damage combined.

Health care is another liar magnet. The U.S. Attorney in Manhattan revealed in October 2011 an investigation into Long Island Railroad workers’ fraudulent disability claims adding up to millions of dollars. As of January, 32 people had been indicted, with 16 guilty pleas involving perjury, health-care fraud and obstruction of justice.

An FBI report on financial crimes for the 2010-11 fiscal year calculated that fraudulent billing to health-care payers, Medicare, Medicaid and private health insurers is between 2% and 10% of total health-care expenditures. The conservatively estimated total of the rip-off: $2.4 trillion (14% of GDP). Types of fraud the FBI investigates include billing for services not rendered, “upcoding” reimbursable services, performing unnecessary services, adding tests to generate high fees, kickbacks and pharmaceutical drug diversion. These resulted in 736 federal convictions of health-care fraud, $1.2 billion in restitution, $1 billion in fines and over $1 billion in civil settlements. Given the scale of the total deceit, those amounts are relatively minor.

Taxpayers are burdened by excessive municipal tort claims, a significant portion of which are based on fraud. In 2011, New York City paid $550 million in personal-injury and property-damage tort settlements and judgments to claimants—about $70 per resident. City lawyers have previously said that up to 10% of the claims against the city involve fraud or misrepresentation.

Multiply New York City’s personal-injury claims expenses by any number of other American cities and it becomes clear that American taxpayers are spending billions on fraudulent claims.

For several years, I have made a habit of asking personal-injury trial lawyers about their actual experience with perjury or fraudulent documents in litigation. The consistent answer: At least 25% of cases, though some insist that the perjury and fraud rate goes as high as 50%.

Just a few of the most common examples include: fakers caught by videotaped surveillance; plaintiffs claiming medical problems attributable to the accident until the defendant discovers medical records showing the same injury had been treated long before the accident; a defendant tells a story under oath that differs from the one he told the investigating officers at the accident scene; an eyewitness is shown to have been elsewhere when the accident occurred.

Why are fraud and perjury so rampant? Because prosecutors are reluctant to devote limited resources to prosecutions, which most often arise in commercial cases. Lawyers in civil cases who bring likely perjury cases to a district attorney rarely make much headway. Prosecuting criminals whose transgressions are more dramatic is understandably more appealing.

Maybe if prosecutors across the country were made aware of the problem’s extent, and the economic costs involved, they would be more inclined to take action. To that end, investigations on the state or congressional level into the harmful economic effects of perjury would help draw attention to the matter. The Manhattan district attorney is currently studying the extent of the problem, with a report expected later this year.

Here are some practical steps to rein in the perjuring plague:

• Create a fund specifically for the prosecution of perjurers and other public liars by imposing a small tax on large personal-injury judgments. The money would be used to form an independent team of prosecutors, both on the federal and state level, whose sole mission is to provide a resource to go after those who lie under oath at trial or when making claims.

• Establish a new statutory civil tort for those damaged during litigation by deliberate fraudulent documents or intended false testimony under oath, allowing victims to recover actual and punitive damages and legal fees.

• To avoid having to launch criminal investigations, authorize civil trial judges to punish through fines or sanctions those proven to have perjured themselves in a civil case, and encourage judges to use their authority to adjust the size of judgments when perjury is established.

Surely many other strategies could be developed to combat perjury and the filing of fraudulent claims. The first step toward finding a solution is taking an honest look at the nation’s problem with telling the truth.

—  Mr. Lifflander, a lawyer, is counsel to SNR Denton and author of “The Impeachment of Governor Sulzer” (SUNY Press, 2012).A version of this article appeared March 26, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: The Economic Truth About Lying

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