DOJ Announces First False Claims Act Settlement Under Civil Rights Fraud Initiative: IBM To Pay $17 Million To Resolve Allegations Of Discrimination Through DEI Practices

Key Takeaways

• On April 10, 2026, Acting Attorney General Todd Blanche announced the first False Claims Act (“FCA”) resolution under the Department of Justice’s (“DOJ”) Civil Rights Fraud Initiative, with IBM agreeing to pay $17,077,043 to resolve allegations that its diversity, equity, and inclusion (“DEI”) practices violated anti-discrimination requirements in its federal contracts.
• The settlement is the first FCA case brought by DOJ that has been made public implementing the Trump Administration’s strategy of using FCA for civil rights enforcement.
• The categories of conduct alleged in the IBM settlement reflect a range of practices affecting hiring, compensation, and other employment practices that take race or sex into account. Companies that contract with or receive funding from the federal government should take a broad view when assessing which practices may give rise to civil rights compliance risk.

I. The IBM Settlement

On April 10, 2026, DOJ announced that IBM agreed to pay the United States $17,077,043, inclusive of civil penalties, to resolve allegations that it violated the FCA by failing to comply with anti-discrimination requirements in its federal contracts. Specifically, IBM’s contracts required it to comply with Title VII of the Civil Rights Act of 1964 and the Federal Acquisition Regulation, including FAR clause 52.222-26.

According to DOJ, IBM knowingly maintained practices that discriminated against employees and applicants for employment because of race, color, national origin, or sex within the 2019-2026 time period, while certifying compliance with the anti-discrimination provisions incorporated into its federal contracts. The settlement is based on allegations alone, and no admissions or determinations of liability have been made by IBM or any court.

Specifically, the settlement contends that the United States had various civil claims against IBM for knowingly engaging in allegedly discriminatory practices, including:

1. The use of a “diversity modifier” that tied bonus compensation to achieving demographic targets, thereby taking race, color, national origin, or sex into account when making compensation decisions.
2. Altering interview criteria based on race or sex by using “diverse interview slates” and other related employment practices in connection with identifying “diverse” candidates for hiring, transfer, or promotion.
3. Developing race and sex demographic goals for business units and taking race and sex into account when making employment decisions to achieve progress toward those goals.
4. Offering certain training, partnerships, mentoring, leadership development programs, and educational opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of race or sex.

DOJ’s press release states IBM received credit under DOJ’s cooperation guidelines for the steps it took during the investigation. According to DOJ, IBM made early disclosures of facts relevant to the government’s investigation that IBM had gathered during its own independent investigation, including information to assist in the calculation of damages and penalties. The company also undertook voluntary remedial measures, including the termination and/or modification of various programs and practices at issue.

II. Background: The Administration’s Enforcement Framework

The IBM settlement is the first public outcome of an enforcement framework that the Trump administration has been building since the earliest days of its second term. The Trump administration’s interest in using the False Claims Act as a mechanism against DEI programs has been well documented. We briefly summarize again here, as understanding this framework is critical for federal contractors and funding recipients assessing their own risk exposure.

Executive Order 14173 and the Certification Regime. On January 21, 2025, President Trump issued Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which directed federal agencies to include two key provisions in every contract, grant, or award for funding: (1) a term acknowledging that “compliance in all respects” with all applicable federal anti-discrimination laws is “material” to the government’s payment decision for purposes of the FCA, and (2) a certification requirement that the party receiving payment certify that “it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.” The executive order also revoked several prior executive orders establishing DEI initiatives, including Executive Order 11246 (Equal Employment Opportunity), which had been in place for nearly 60 years.

By making compliance with federal anti-discrimination laws “material” to the government’s payment decisions and by coupling this with a certification requirement, the executive order was designed to bring the FCA’s substantial enforcement apparatus, including treble damages, statutory per-claim penalties, and attorney’s fees, to bear on entities that the administration views as engaging in unlawful DEI practices. The FCA also permits private individuals, known as “whistleblowers” or “relators,” to file civil lawsuits on behalf of the federal government. Successful whistleblowers may receive up to 30% of any recovered damages, creating powerful financial incentives for private enforcement.

The Civil Rights Fraud Initiative. On May 19, 2025, DOJ formally launched its Civil Rights Fraud Initiative through a memorandum issued by then-Deputy Attorney General Todd Blanche. The initiative outlined DOJ’s plan to use the FCA as its “primary weapon” against what it characterized as civil rights fraud by federal contractors and funds recipients. The memorandum warned that FCA claims could arise when a federal funds recipient certifies compliance with civil rights laws while knowingly violating such laws.

DOJ also committed substantial resources to this initiative: the Civil Division’s Fraud Section and the Civil Rights Division were directed to co-lead enforcement efforts, each U.S. Attorney’s Office was directed to identify an Assistant U.S. Attorney to support the initiative, and federal agencies were instructed to coordinate and share information on potential violations.

The memorandum identified several categories of conduct that DOJ views as potentially actionable under the FCA, including engaging in “racist preferences, mandates, policies, programs, and activities, including [DEI] programs that assign benefits or burdens on race, ethnicity, or national origin.” While the memorandum specifically identified colleges and universities as potential targets, it made clear that the FCA applies broadly across nearly every sector of the economy where federal funds are involved.

AG Guidance Memorandum. On July 29, 2025, Attorney General Bondi published a guidance memorandum outlining the administration’s interpretation of federal antidiscrimination laws and providing examples of conduct it viewed as “unlawful.” This guidance provided further specificity about the types of programs and practices that could trigger enforcement action.

Ongoing Investigations. Even before the IBM settlement, there were indications that DOJ’s enforcement efforts were gaining momentum. Various large public corporations, such as Google and Verizon, reportedly received subpoenas from DOJ concerning their workplace programs. Whistleblowers have also begun filing their own FCA actions, though courts have not yet validated the administration’s FCA theory in contested litigation.

III. Significance for Federal Contractors and Grant Recipients

The IBM settlement carries several significant implications for organizations that receive federal funding.

The FCA Framework Is Now Operational. The IBM settlement demonstrates that DOJ’s Civil Rights Fraud Initiative has moved from policy pronouncement to active enforcement. Acting Attorney General Blanche’s statement that “[r]acial discrimination is illegal, and government contractors cannot evade the law by repackaging it as DEI,” included in the press release regarding the settlement, signals that DOJ views this as a model for future enforcement actions. While the broader FCA strategy remains untested in court, high-value settlements like these reinforce DOJ’s use of this strategy. The administration has indicated that additional investigations and enforcement actions should be expected.

Broad Range of Practices at Issue. The categories of conduct alleged in the IBM settlement – diversity modifiers tied to compensation, diverse interview slates, demographic goals for business units, and race- or sex-limited programs and training opportunities – reflect a broad interpretation of what constitutes unlawful, actionable practices under Title VII.

Whistleblower Risk Is Real. The FCA’s qui tam provisions allow private individuals to bring lawsuits on behalf of the government and receive a significant amount of any recovery. The Civil Rights Fraud Initiative “strongly encourage[d]” whistleblowers to file qui tam lawsuits under the FCA, and the IBM settlement will likely incentivize additional whistleblower activity.

If You Are the Subject of an Investigation, Cooperation Matters. IBM’s receipt of credit for cooperation underscores the importance of DOJ’s cooperation framework in FCA matters. The fact that IBM made early factual disclosures, provided information to assist in calculating damages and penalties, and undertook voluntary remedial measures, appears to have been a meaningful factor in the resolution. Federal contractors facing inquiries or investigations should carefully evaluate the potential benefits of early cooperation, including self-disclosure and voluntary remediationIV. Recommended Actions

Clients who are federal contractors and grant recipients should consider taking the following steps, if they haven’t already:

1. Review DEI-Related Employment Practices. Organizations should conduct a thorough review of their policies, practices, and programming, including aspects of its operations that go beyond the traditional “DEI” label or standard employment practices.
2. Assess Federal Contract Certifications. Organizations should review all applicable contracts and agreements in connection with the receipt of federal funding, including any requiring ongoing or periodic certifications, to understand what representations they are making to the government and ensure those representations are accurate.
3. Make Thoughtful Decisions Around Documentation. Organizations should work with counsel to maintain necessary records of its key practices and decisions, with an eye towards compliance, maintaining the attorney-client privilege, and responding to potential federal investigations or inquiries.

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