DOJ’s False Claims Act Resolution Against IBM Signals Heightened Risk for Federal Contractors with DEI Programs

On Friday, April 10, 2026, the U.S. Department of Justice (DOJ) announced that International Business Machines Corporation (IBM) has agreed to pay just over $17 million to resolve allegations that it violated the False Claims Act (FCA) by failing to comply with federal anti-discrimination requirements incorporated into its federal contracts due to allegedly discriminatory diversity, equity, and inclusion (DEI) employment practices. This resolution marks the first FCA settlement secured by the DOJ under its Civil Rights Fraud Initiative, created in May 2025, and announced by then-Deputy Attorney General Todd Blanche as part of the administration’s coordinated efforts to target allegedly unlawful DEI practices. Per the agreement, the settlement is neither an admission of liability by IBM nor a concession by the United States that its claims are not well founded.

Specifically, the government alleged that IBM unlawfully considered race, color, national origin, and sex in a range of employment decisions during the period of January 1, 2019, through present day, but nonetheless certified compliance with anti-discrimination requirements set forth in Title VII of the Civil Rights Act of 1964 and Federal Acquisition Regulation (FAR) 52.222-26. IBM’s allegedly unlawful practices included:

• Modifications or adjustments to pay, bonus, or other compensation that caused employees to take race, color, national origin, or sex into account, such as a “diversity modifier” that tied bonus compensation to achieving demographic targets.
• The use of “diverse interview slates,” “diverse sourcing,” and other related practices that altered interview eligibility criteria based on race, color, national origin, or sex in connection with hiring, transfer, and promotion decisions.
• The development of race- and sex-based demographic goals for business units and consideration of race and sex in employment decisions to achieve progress toward those goals.
• The restriction of eligibility for, or access to, certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources, and similar opportunities on the basis of race, color, national origin, or sex. 

The government also alleged that IBM allocated costs relating to these discriminatory practices to its federal government contracts and sought payment and reimbursement from the government for such costs. Notably, the recitals in the settlement agreement explicitly state that IBM received credit under DOJ’s guidelines for taking disclosure, cooperation, and remediation into account in FCA cases as set forth in § 4-4.112 of the Justice Manual, which likely affected the total amount of the settlement.

In the press release announcing the settlement, Acting Attorney General Todd Blanche emphasized that the “[t]he Department launched the Civil Rights Fraud Initiative to root out [DEI], hold offenders accountable, and end this practice for good.” The Initiative followed President Trump’s January 21, 2025, Executive Order 14173 (EO 14173), “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which — among other things — required federal contractors to certify that they do not operate any programs promoting DEI that violate applicable federal anti-discrimination laws. The order also directed federal agencies to identify up to nine of the "most egregious and discriminatory DEI practitioners" for civil compliance investigation within 120 days. Following this directive, the DOJ created the Civil Rights Fraud Initiative to investigate and pursue federal contractors that knowingly violate federal civil rights laws under the FCA — a novel use of a statute primarily used to combat fraud against the federal government. Though no lists of “egregious DEI practitioners” were made public last year, this latest announcement indicates that DOJ and government agencies have been actively pursuing the EO 14173 mandate to combat what the administration believes is unlawful DEI.

The potential legal risk for federal contractors is compounded by the recently issued Executive Order 14398 (EO 14398), “Addressing DEI Discrimination by Federal Contractors.” EO 14398 created a new mandatory contract clause requiring federal contractors, among other things, to refrain from engaging in “racially discriminatory DEI activities” and acknowledge that such compliance is material to the government's payment decisions for purposes of FCA compliance. The IBM settlement exemplifies the continuing and significant exposure federal contractors face if the administration deems their DEI practices to be unlawful. As has been publicly reported, other companies and their DEI programs are under investigation by DOJ under the Civil Rights Fraud Initiative. The settlement also provides an important reminder that contractors may be able to obtain potentially valuable credit in resolving such matters depending on their level of cooperation.   

Crowell & Moring has been advising clients on the legality of their DEI programs in light of these developments over the past 15 months and is available to counsel clients on compliance and responding to government investigations to mitigate risk of FCA liability.