On April 10, 2026, the U.S. Department of Justice (DOJ) Civil Division announced a $17 million settlement with IBM, marking the first-ever False Claims Act (FCA) settlement under the Civil Rights Fraud Initiative announced in May 2025. The settlement resolves allegations that IBM violated the FCA by failing to comply with anti-discrimination requirements in its federal contracts due to practices the United States contends discriminated against employees and applicants for employment on the basis of race, color, national origin or sex. This is the first time DOJ has identified a company that was the subject of an FCA investigation relating to diversity, equity and inclusion (DEI) practices. The Wall Street Journal reported in December 2025 that DOJ was scrutinizing companies in the telecommunications, technology, automotive, pharmaceutical, defense and utilities industries.

The settlement agreement outlines the specific practices that the government contends violated the anti-discrimination requirements as set forth in Title VII of the Civil Rights Act of 1964, including:

• Modifications or adjustments to pay, bonus or other compensation that caused employees to take race, color, national origin or sex into account when making employment decisions, including a diversity modifier that tied bonus compensation to achieving demographic targets.
• Taking race, color, national origin or sex into account as part of decisions to hire, transfer or promote through the use of “diverse interview slates” and other practices.
• Developing race and sex demographic goals.
• Offering certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources only to certain employees.

The government further alleged that IBM allocated costs associated with these practices to federal government contracts and sought payment or reimbursement for those costs. While the agreement does not identify specific contracts alleged to have been affected by IBM’s practices, the settled allegations span more than seven years, from January 2019 through the date of the settlement.

These alleged practices mirror fact patterns that, as we previously reported, Deputy Assistant Attorney General Brenna Jenny of DOJ’s Commercial Litigation Branch identified in a February 2026 speech at the Federal Bar Association’s Qui Tam Conference as repeatedly arising in DOJ’s DEI investigations. Notably, Ms. Jenny and the Associate Attorney General, DOJ’s third highest official, personally signed the IBM settlement agreement on behalf of DOJ, underscoring the priority placed by DOJ leadership on these matters. Ms. Jenny stated in February these FCA enforcement matters were receiving “expedited priority” consideration.

The government, as is customary, did not explain how it arrived at its damages figure, but referenced that the amount was inclusive of civil penalties, consistent with Ms. Jenny’s prior statements that she expected to see civil penalties in DOJ’s FCA resolutions of DEI matters.

In announcing the settlement, the government acknowledged IBM’s cooperation, including early disclosures of facts relevant to the investigation and voluntary remedial measures, including the termination or modification of various programs and practices at issue. Notably, however, IBM denied the government’s allegations.

This settlement follows several major actions from the administration and DOJ demonstrating their emphasis on eliminating “illegal DEI.”

• January 21, 2025: The White House issued Executive Order (EO) 14173 providing that DEI policies “can violate the civil-rights laws of this Nation.” The EO requires federal contracts and grants to include certifications that recipients do not operate DEI programs that violate federal anti-discrimination law and acknowledge that compliance is material under the FCA.
• February 5, 2025: The Attorney General issued a memorandum for DOJ employees titled “Ending Illegal DEI and DEIA Discrimination and Preferences.” Citing the EO, the memo stated that DOJ would “investigate, eliminate, and penalize illegal DEI and DEI preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”
• May 19, 2025: DOJ launched the Civil Rights Fraud Initiative, a joint effort between DOJ’s Civil Division (Fraud Section) and DOJ Civil Rights Division, to use the FCA to investigate recipients of federal funds that knowingly violate civil rights law through “discriminatory practices” including DEI programs.
• July 29, 2025: DOJ issued guidance to all federal funds recipients explaining that federal anti-discrimination laws apply regardless of whether a program is labeled DEI and outlining a whole host of purportedly prohibited practices.
• January 28, 2026: The General Services Administration (GSA), as we previously advised clients, published a request for comment on the regulatory burden of a proposed update to the SAM.gov Financial Assistance General Representations and Certifications, which are the representations and certifications that both current and potential federal financial assistance awardees are required to complete in order to be eligible for grants, cooperative agreements, loans and government-sponsored insurance. The proposed update would require SAM.gov registrants to certify compliance with new language addressing “Illegal DEI,” illegal immigration and terrorism.
• March 26, 2026: The White House, as we advised clients, issued a second EO, Addressing DEI Discrimination by Federal Contractors. This EO requires federal agencies to incorporate a new DEI-related clause into covered contracts and contract-like instruments; allows DOJ and agencies access to books and records; and explicitly ties noncompliance to FCA liability, contract termination and debarment.

Main Takeaways:

• Taking action to address “illegal DEI” is a priority for DOJ leadership, and DOJ will likely continue using the FCA to enforce alleged violations of anti-discrimination law, whether through whistleblower “qui tam” suits or DOJ-initiated investigations like the one against IBM.
• Given the uncertainty of what constitutes “illegal DEI,” companies should proactively assess whether any of their practices bear similarities to the conduct specified in the IBM settlement agreement and prepare to defend practices they choose to keep as consistent with civil rights laws.
• Employment practices, including hiring, bonuses, promotion practices and mentorship programs, may now present FCA risk where the costs associated with such practices are allocated to federal contracts.
• In addition to damages, DOJ will likely require civil penalties as part of any “illegal DEI” settlement, even when the defendant has allegedly cooperated and is receiving cooperation credit. Companies under investigation should consult with experienced counsel on how to achieve the best possible resolution of any FCA investigation concerning DEI practices.