On May 19, 2025, Deputy Attorney General Todd Blanche published a memorandum with the subject “Civil Rights Fraud Initiative.”¹  The memorandum states that “[o]ne of the most effective ways” the Department of Justice (“DOJ”) can accomplish its objective of enforcing federal civil rights laws and ensuring equal protection under the law is through “vigorous enforcement” of the False Claims Act (“FCA”)²—the government’s primary vehicle for prosecuting government fraud, waste, and abuse and recovering fraudulently obtained funds, including treble damages and additional penalties.

The Trump Administration’s focus on so-called civil rights fraud is a significant departure from the policy of prior administrations and has the potential to expose federal contractors, grant recipients, and other federally funded entities to substantial liability based on diversity, equity, and inclusion (“DEI”) programs or policies that were previously permitted and even encouraged under prior administrations.  Companies that contract with the federal government or receive federal funds should immediately review their policies to ensure they are in compliance with the DOJ’s current guidelines.  

Evolution of Affirmative Action Legal and Policy Changes

In June 2023, the United States Supreme Court issued its opinion in Students for Fair Admissions, Inc. v. President & Fellows of Harvard, upending longstanding precedent and holding that the Fourteenth Amendment precludes public universities and private universities that accept federal funds from engaging in affirmative action based on protected characteristics because such programs “unavoidably employ race in a negative manner.”³

Thereafter, on the first day of his second term, President Trump issued an Executive Order titled “Ending Radical and Wasteful Government DEI Programs and Preferencing,” in which the President directed that the federal government “coordinate the termination of all discriminatory programs, including illegal DEI and ‘diversity, equity, inclusion, and accessibility’ (DEIA) mandates, policies, programs, preferences, and activities.”⁴  On January 21, 2025, President Trump issued another Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” further targeting “dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called” DEI or DEIA programs.⁵  The Executive Order requires the government to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities” by requiring federal contractors and subcontractors to “comply with [] civil-rights laws.”⁶  The Executive Order prohibits “[f]ederal contractors and subcontractors [from] engag[ing] in workforce balancing based on race, color, sex, sexual preference, religion, or national origin” and requires all future government contracts to include “[a] term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of” the FCA.⁷

Building on the Executive Order, the May 19, 2025 DOJ memorandum states that DEI programs “that assign benefits or burdens on race, ethnicity, or national origin” are illegal and “racist.”⁸  President Trump’s executive orders and the DOJ memorandum are the latest, and clearest, sign that the Trump Administration intends to forcefully enforce its position that DEI programs are discriminatory and unconstitutional.  

The Civil Rights Fraud Initiative and the False Claims Act

The Civil Rights Fraud Initiative is intended to “utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.”⁹  The memorandum specifically mentions that the DOJ “alone cannot identify every instance of civil rights fraud” and that the Department “strongly encourages” whistleblowers (called “relators”) to use the FCA to initiate private lawsuits on the government’s behalf and to “shar[e] any monetary recovery.”¹⁰  

The DOJ has continued to actively pursue investigations of DEI policies at private universities and other businesses, including prominent law firms, and has indicated that its next focus will be “aggressively pursu[ing]” government contractors.¹¹  This represents a clear signal that recipients of federal funds will be subject to increased scrutiny and more aggressive government and private qui tam litigation in connection with DEI policies and programs.¹²  Due to the historical popularity of DEI as well as activist commitment to maintaining DEI policies where possible, entities receiving federal funds should conduct a privileged review of their DEI policies to ensure that they are in compliance with government policy.

Establishing Materiality Under the False Claims Act

President Trump’s Executive Order requires all future government contracts to include “[a] term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of” the FCA.¹³  However, it is questionable whether the inclusion of anti-DEI contract terms that purport to be material will ultimately contribute to courts finding that those provisions are in fact material for purposes of the FCA.¹⁴  The FCA defines “material” to mean “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”¹⁵  

In 2016, the Supreme Court decided Universal Health Servs., Inc. v. United States, in which it held that “statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment.”¹⁶  Writing for the unanimous Court, Justice Thomas explained that “even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability.”¹⁷  Rather, liability turns on “whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”¹⁸

On May 22, 2025, the Supreme Court revisited the materiality requirement in the context of Kousisis v. United States.¹⁹  That case required the Court to consider whether liability for fraud can attach where there is no economic loss to the government.  The contract in question required state government contractors to subcontract a certain portion of the work to a disadvantaged-business enterprise (“DBE”).²⁰  Defendant violated that requirement.  Because materiality was uncontested in the case, the Court did not address the applicable standard for materiality.²¹  However, in dueling concurring opinions, Justices Thomas and Sotomayor explained their respective interpretations of the materiality requirement.  

In Justice Thomas’ view, “regulatory requirements in a contract are not automatically material.”²²  Rather, a term is material only where it has “some impact on the final work product.”²³  According to Justice Thomas’s concurrence, “the DBE conditions had no bearing on [the contractors’] ability to complete their projects” because the “DBE provisions were irrelevant to the contracts’ fundamental purpose—bridge repair.”²⁴  It was also significant to Justice Thomas that “nothing in the contracts required [the government] to take any action, let alone to withhold or deduct payment” in the event the DBE provisions were breached.²⁵

Justice Sotomayor, on the other hand, would have found the DBA provisions material: “To put it simply, [the contractors] devised a scheme to trick [the government] out of its money by promising one thing and delivering something materially different,” i.e., work performed by contractors in violation of the DBE requirements.²⁶  She found convincing the fact that the state “dedicated an entire phase of the contract bidding process to confirming that its prospective contractor had identified a qualified DBE partner” and that the state would have violated its own federal obligations if it failed to properly administer the DBE program.²⁷  In Justice Sotomayor’s view, parties “explicitly designate contractual terms as material in order to ensure compliance, particularly where the other party might not otherwise comply.”²⁸

Key Considerations for Federal Contractors

All entities contracting with the federal government or receiving federal money should take steps to ensure their policies comply with federal anti-discrimination laws, update their compliance programs, and assess their potential FCA enforcement risk stemming from their DEI efforts.  Whether or not courts ultimately conclude that DEI materiality clauses in government contracts are enforceable, defending against government investigations and/or FCA litigation is often time consuming, distracting, and expensive.  Thus, companies should strive to comply with all terms required by their government contracts, including those limiting the permissibility of DEI initiatives.

A privileged audit led by outside counsel can provide tailored advice to ensure ongoing compliance—particularly for entities receiving federal funds in previously less-regulated industries lacking requisite compliance experience or policies.  Regardless, all entities entering into contracts with the federal government or receiving federal funds should be aware of these new compliance requirements and the potential for costly FCA investigations and lawsuits—in addition to the potential for traditional discrimination lawsuits based on DEI.  

In particular, government contractors and other entities receiving federal funds should identify relevant practices and analyze whether those policies, programs, or initiatives may be susceptible to legal challenge.  Such companies must ensure their personnel decisions and access to programs do not provide any benefits based on an individual’s “race, color, sex, sexual preference, religion, or national origin.”²⁹  Broad nondiscrimination policies that lack clear procedures for enforcement or that are inconsistently applied should be updated.

Critically, any written DEI policies should emphasize that any preferential decisions are based on non-discriminatory factors such as socioeconomic, geographic, or other neutral criteria.  In-house counsel and HR departments should be trained, and the reasons underlying all hiring, promotion, termination, and program access decisions should be clearly documented based on merit-based and other legally compliant reasons.  Additionally, internal whistleblower disclosure systems and protections should be implemented or updated to allow the entity to identify and remediate potential compliance risks.  Taking active steps as outlined above will place entities in the best position to rebut an argument that its employment or program access decisions were influenced by unlawful factors. 

1. Memorandum from Deputy Attorney General Todd Blanche to All United States Attorneys (May 19, 2025), available at https://www.justice.gov/dag/media/1400826/dl?inline=&utm_medium=email&utm_source=govdelivery. 
2.  Id.
3.  600 U.S. 181, 230 (2023).
4.  Exec. Order No. 14151, 90 Fed. Reg. 8339 (Jan. 20, 2025).
5.  Exec. Order No. 14173, 90 Fed. Reg. 8633 (Jan. 21, 2025).
6. Id
7.  Id.
8.  Memorandum from Deputy Attorney General Blanche, supra.
9.  Id.
10.  Id.
11. Id
12.  For additional information on the FCA, see Wendy H. Schwartz and Ian C. Lerman, “DOJ Focuses on FCA Enforcement for Federal Healthcare Programs” (May 28, 2025), available at https://natlawreview.com/article/doj-focuses-fca-enforcement-federal-healthcare-programs.
13.  Exec. Order No. 14173, supra.
14.  The constitutionality of the Executive Order is separately being challenged on separation of powers, free speech, vagueness, and other grounds.  See National Association of Diversity Officers in Higher Education v. Trump, No. 1:25-cv-00333 (D. Md.).
15.  31 U.S.C. § 3729(b)(4).
16.  579 U.S. 176, 191 (2016).
17.  Id. at 181.
18. Id
19.  605 U.S. --, 145 S. Ct. 1382 (2025).
20.  Id. at 1385.
21.  Id. at 1396.
22.  Id. at 1401 (Thomas, J. concurring).
23.  Id. at 1402.
24. Id
25. Id
26.  Id. at 1411 (Sotomayor, J. concurring).
27.  Id. at 1413.
28.  Id. at 1414.
29. Exec. Order No. 14173, supra.