The Department of Justice announced last week that an Illinois family farm business, known collectively as Dowson Farms, will pay almost $5.4 million to the US government to resolve allegations that it created fake partnerships to avoid limits on federal farm subsidies. The United States has alleged that Dowson Farms’ principal owners violated the False Claims Act by creating fake partnerships in the names of employees, and falsely claiming that said partnerships were actively engaged in farming that was separate and distinct from the Dowson Farms conglomerate. As a result, Dowson Farms’ owners allegedly received farm subsidies to which they were not authorized.

Throughout this time period, Congress had established an annual limit for each qualified participant in the program.  In particular, Congress permitted an individual to receive payments on up to three entities. Under what is known as the “Three Entity Rule,” no person may receive payments subject to these rules from more than three entities in which the person held substantial beneficial interest. If an individual received payments as an individual, he or she could not also receive payment from more than two entities that receive payment as a separate ‘person.’ Using this provision, along with other regulations, an individual was effectively allowed to receive payments to himself and on behalf of up to two additional entities in which the individual held up to a 50 percent interest.

According to federal prosecutors, the Dowsons created multiple limited partnerships for the apparent purpose of concealing the interests of the principle owners in the entities’ farming operations. For the multiple limited partnerships established by the Dowsons, on paper, 98% of the purported ownership was held by various employees, including farm hands and other straw men, while the Dowsons retained only a 2% interest.

Federal prosecutors have argued that the limited partners contributed nothing to establish their ownership interest, and none had any authority to conduct business on behalf of their respective partnership. Meanwhile, the Dowsons wholly controlled the partnerships’ finances and commodity sales. Farm Service Agency regulations specifically prohibit a person from adopting a scheme or device designed to evade the payment limitations. According to the United States, the creation and use of these limited partnerships, at a minimum, had the effect of evading payment limitations.

Overall, Dowson Farms will pay a total amount of $5,364,000 to settle these allegations.