On April 10, 2026, Acting Attorney General Todd Blanche announced the first False Claims Act (FCA) resolution secured under the U.S. Department of Justice’s (DOJ) Civil Rights Fraud Initiative. IBM agreed to pay $17 million to resolve allegations they violated federal contractor anti-discrimination requirements by engaging in “illegal diversity, equity, and inclusion (DEI)” activities.
The FCA states that a federal contractor or grantee who knowingly submits false claims to the government for payment is liable for damages, as well as penalties and costs. While the FCA has historically not been used in relation to anti-discrimination laws, the DOJ had made it clear that they intended to use it for that purpose. An interesting aspect of the FCA is that claims can be brought by the government or by private citizens acting as whistleblowers. In IBM’s case, it seems this settlement stems from an investigation brought by the government.
In the settlement, the government alleges that from January 1, 2019 through the effective date of the agreement, IBM certified compliance with federal anti‑discrimination requirements in their contracts while maintaining employment practices that considered race or sex in hiring, promotion, compensation, and development decisions. The settlement outlines four practices that the DOJ alleged violated federal anti-discrimination laws:
IBM had a practice of linking bonus compensation to achieving demographic targets, which had the effect of causing employees to take race, color, national origin, or sex into account when making employment decisions.
IBM used “diverse interview slates” or “diverse sourcing”, which resulted in altering interview eligibility criteria based on protected characteristics.
IBM created race and sex demographic goals for business units within the company, and took race, sex, color, or national origin into account when making employment decisions to make progress toward those goals.
IBM offered opportunities like training, mentoring programs, and leadership development programs only to certain employees depending on their race, color, national origin, or sex.
The settlement specifically calls out that IBM “allocated costs to its federal government contracts relating to these practices and sought payment and reimbursement under its federal government contracts for such costs.”
It is important to note that the settlement states that IBM denies that it engaged in the employment practices outlined. The settlement also states that IBM was cooperative during the investigative process, including disclosing facts early on and sharing information that assisted DOJ with determining the amount of damages and penalties. The company also undertook voluntary remedial action, including ending or modifying the practices and policies outlined in the settlement. These efforts by IBM allowed for a reduction in the liability payment under the DOJ’s guidance about taking disclosure, cooperation and remediation into account in FCA matters – an important point for all federal contractors to note.
While the settlement includes no admission of liability, it reinforces the importance for HR and compliance leaders (particularly at federal contractors) to ensure that employee initiatives, incentive structures, and talent programs are designed and implemented in a way that is race and sex neutral, merit‑based, and legally defensible. Taken in conjunction with the recent Executive Order 14398, the stakes for federal contractors continue to rise when it comes to their employment practices and personnel decisions. Employers should review the following aspects of their employment practices:
Hiring, promotion, termination, and pay decisions to confirm they are clearly merit‑based and consistently applied
Interview and sourcing practices to ensure access to opportunities are not based on protected characteristics
Incentive and bonus programs that link to demographic targets
Training, mentoring, and development programs to ensure eligibility is inclusive and legally compliant.
A cursory review of programs and practices will likely not be sufficient. As evidenced in this settlement, the DOJ will be looking at company’s historical practices, regardless of whether they have been ended or modified. Employers would be wise to inventory practices that occurred in the past to get a full picture of any risk. Additionally, thorough data analysis is recommended as the best way to determine the effect, if any, programs or practices had on employees because of their race or sex.
Berkshire is committed to keeping contractors informed and will continue to report on these developments and their impact on the federal contractor community.