On April 10, 2026, the Department of Justice (“DOJ”) announced a $17 million civil False Claims Act (“FCA”) settlement with IBM Corporation.  This is the first FCA settlement reached under the Civil Rights Fraud Initiative, which was created in May of 2025 and tasked with using the FCA as a tool to prosecute federal contractors that engage in diversity, equity, and inclusion (“DEI”) programs that violate federal anti-discrimination laws.

The IBM settlement offers insight into what federal contractors can expect from DOJ enforcement of the Administration’s campaign against DEI.  DOJ appears to be casting a wide net with its investigations, targeting conduct that took place years before this Administration and may have been considered legal at the time it occurred.

Background: The Administration’s Campaign Against DEI

The Civil Rights Fraud Initiative is part of the current Administration’s broader effort to eliminate DEI practices it considers discriminatory from the federal government, federal procurement, and the private sector generally.  The Administration has thus far advanced its goals through a series of executive orders and policy memoranda, including an executive order revoking the 1965 Executive Order 11246, Equal Opportunity, and the Federal Acquisition Regulation clauses implementing that framework. 

Prior to 2025, most federal contracts required that contractors maintain affirmative action plans to ensure equal opportunity for women and minorities.  This requirement reflected the government’s long-standing interpretation of federal anti-discrimination laws as permitting or even encouraging employer efforts to create a diverse workforce.  The current Administration has taken a different view, namely that affirmative action and targeted recruiting or retention efforts, among other activities, constitute illegal discrimination.

Most recently, President Trump signed an executive order mandating a new DEI clause in all federal contracts and contract-like instruments and declaring that contractor compliance with this clause “material” to government payment decisions under the FCA.  The Administration has also encouraged private parties to file qui tam actions under the FCA to report illegal DEI activity.

The IBM Settlement

According to the settlement agreement, DOJ alleges that IBM made false claims and false statements to the government while knowingly violating federal anti-discrimination laws by: (1) using a “diversity modifier” tying compensation to achieving demographic targets in employment; (2) taking race, color, national origin, or sex into account as part of decision to hire, transfer, or promote; (3) creating race and sex demographic goals and then making employment decisions designed to meet those goals (4) offering certain employment development opportunities to individuals based on their protected characteristics. 

The settlement covers alleged conduct between January 2019 and the settlement date—years before the current Administration announced its interpretation of federal anti-discrimination laws.  Thus, it appears that DOJ is targeting conduct retroactively that may have been considered legal at the time it occurred.  If the conduct was indeed legal under prior administrations, this kind of retroactive prosecution should fail if taken to trial (or possibly appeal), though it would undoubtedly be a long and expensive legal battle.

DOJ also claims that IBM allocated DEI-related costs to its federal government contracts and sought payment and reimbursement for such costs.  As part of the settlement, IBM agreed to pay the federal government $17,077,043, including $8,204,348 in restitution, to resolve the FCA allegations.  The restitution value represents the government’s measure of its single damages from the alleged fraud.  IBM terminated or modified various internal programs and policies in response to the investigation but denies engaging in any unlawful activity.  According to the settlement terms, IBM also received credit for cooperation and remediation.

Notably, the settlement agreement cites IBM’s alleged breach of the FAR 52.222-26 Equal Opportunity clause included in its federal contracts as one basis for its potential FCA liability.  However, the current Administration revoked FAR 52.222-26 in early 2025 alongside Executive Order 11246; FAR 52.222-26 requires that contractors “shall take affirmative action” to ensure equal opportunity.  The Department of Defense directed its contracting personnel to eliminate and stop enforcing the clause in early 2025, and GSA similarly directed contracting personnel to remove the clause from use.  Yet, DOJ has resurrected the denounced clause as a basis for FCA liability. 

The settlement agreement does not disclose the source or impetus for DOJ’s investigation.  However, in December 2023 a conservative advocacy group sent an investigation request to the Equal Employment Opportunity Commission regarding IBM’s internal DEI practices.  IBM also received a 2024 shareholder proposal from another conservative advocacy group requesting that IBM issue a report on the risks of its DEI activities.  IBM ultimately forwarded the proposal to the Securities and Exchange Commission, objecting to alleged material misrepresentations within the proposal.

Key Takeaways

Contractors should expect more targeted FCA action under the Civil Rights Fraud Initiative.  If the IBM settlement is any indication, these investigations could reach back even to DEI practices that were considered lawful at the time they occurred.  Upon receipt of a Civil Investigation Demand or subpoena from DOJ, contractors should engage counsel early to strategize and preserve every potential defense.

In the short term, contractors should review their current diversity and inclusion policies and programs to determine whether any could be interpreted as encouraging disparate treatment based on protected characteristics under federal guidance.  Contractors should also be mindful of how they discuss and represent those policies internally, given the DOJ’s prioritization of qui tam FCA complaints.