On August 25, 2026, the Department of Justice (“DOJ”) announced a $21.5 million civil False Claim Act (“FCA”) settlement with the large professional services (consulting) firm, Deloitte LLP (“Deloitte”).[1] The settlement, the second reached under the DOJ’s Civil Rights Fraud Initiative, highlights the types of diversity, equity, and inclusion (“DEI”) practices targeted as part of the current administration’s campaign against DEI, as well as a pattern of enforcement targeting DEI practices in place prior to the current administration’s revised approach to enforcing federal antidiscrimination laws.
Background: The Civil Rights Fraud Initiative
The Civil Rights Fraud Initiative was created in May 2025 as part of the administration’s broader efforts to eliminate what it characterizes as “illegal DEI” practices that it considers to be discriminatory when practiced in matters related (as relevant here) to federal procurement. The administration’s anti-DEI efforts have been explained in 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 (“FAR”) clauses that previously implemented various DEI measures. The administration has encouraged private parties to file qui tam actions under the FCA to report “illegal DEI” activity.
In early 2025, the administration sent letters to numerous federal contractors and grant recipients informing them that they were being investigated for illegal DEI practices. The letters did not define what the administration considers “illegal.” Prior to 2025, most federal contracts included affirmative action requirements for contractors, reflecting long-standing government interpretations of federal anti-discrimination laws as permitting or even encouraging company efforts to provide products and services with a diverse workforce.
In April 2026, DOJ reached its first FCA settlement under the Initiative with IBM Corporation. As Fox Rothschild previously covered here, IBM settled that litigation by paying $17 million and agreeing to several other conditions. DOJ alleged that IBM made false claims and statements to the government while knowingly violating federal anti-discrimination laws from January 2019 through April of 2026, a timespan that began before the current administration announced its position on those laws.
The Deloitte Settlement
According to the settlement agreement, DOJ alleges that Deloitte took “race or sex into account” when making hiring, promotion, and staffing decisions to “achieve progress towards non-public race and sex-based workforce composition goals for business units.” Deloitte’s purported misconduct included tracking demographic goals within each business unit, evaluating partners, principles, and managing directors based on their contributions to Deloitte’s workforce composition goals, and staffing federal contracts based on the demographics of employees. DOJ also alleges that Deloitte offered certain “training, mentoring and leadership development programs, educational opportunities or resources, and/or similar opportunities to eligible employees on the basis of race or sex.”
The settlement covers alleged conduct from January of 2017 through the settlement date. It thus spans eight years before the current administration announced its interpretation of federal anti-discrimination laws. This confirms that the DOJ is targeting conduct retroactively, even when that conduct may have been considered lawful when it occurred. Previous administrations treated DEI programs conducted by federal contractors as legal—if not required—under the regulatory framework implementing EO 11246. For example, President Biden, on his first day in office, signed an executive order affirming the federal government’s support for advancing racial equity and support for underserved and marginalized communities. If conduct like Deloitte’s was lawful under prior administrations, any attempt at retroactive fraud claims based on internal documents discussing the then-understood-to-be-legal activities would face significant legal challenges at trial or on appeal, though discovery and defending those challenges would pose significant burdens.
DOJ also claims that Deloitte allocated DEI-related costs to its federal government contracts and sought payment and reimbursement for such costs. Under the settlement agreement, Deloitte agreed to pay $21,500,000 to the government, including $9,995,000 in restitution, to resolve the FCA claims. Deloitte received credit for cooperation and remediation but denied engaging in any unlawful activity. Notably, the settlement agreement does not release Deloitte from any currently pending or future charges filed with the Equal Employment Opportunity Commission.
As with the IBM settlement, the DOJ cites Deloitte’s alleged breach of the FAR 52.222-26 Equal Opportunity clause as a basis for potential FCA liability. That clause, which the current administration revoked in early 2025 along with EO 11246, required that contractors “shall take affirmative action” to ensure equal opportunity. Although agencies have sought to eliminate enforcement of the clause, DOJ continues to use it as a basis for FCA claims.
Unlike the IBM settlement, which did not disclose the source of the DOJ’s investigation, the Deloitte settlement specifically identifies American Alliance for Equal Rights, a conservative legal advocacy group, as the relator. The group filed a qui tam action in April 2025 against Deloitte in the United States District Court for the Northern District of Texas and will receive $4,300,00 of the settlement proceeds.
A typical relator-driven qui tam action can take several years to resolve, with DOJ’s preliminary investigation investigative alone potentially lasting years. The administration has devoted unprecedented resources to pursue claims against companies that practiced DEI when doing so was consistent with then-prevailing law. A recent executive order directed DOJ to prioritize and expedite review of qui tam claims within the statutory 60-day period, a significant departure from DOJ’s prior practice of extending its investigation beyond this time limit. The Deloitte settlement illustrates the speed and scale of the government’s enforcement posture in this area.
Key Takeaways
The Deloitte settlement, combined with the IBM settlement, shows that the DOJ’s FCA investigations extend back to DEI practices that were considered lawful at the time that they occurred. Contractors should expect continued and escalating FCA investigations under the Civil Rights Fraud Initiative and should keep the following in mind:
- Engage counsel early. Upon receipt of a Civil Investigative Demand or subpoena from the DOJ, contractors should engage counsel early to strategize and preserve every possible defense.
- Audit existing policies. Contractors should review their diversity and inclusion policies to determine whether any could be interpreted as encouraging disparate treatment based on protected characteristics, including race and sex, under current federal guidance.
- Mind internal and external communications and anticipate private enforcement. Contractors should be mindful of how they discuss and represent their policies both internally and externally. Because this settlement arose from a qui tam action, contractors should be aware of the possibility that additional private whistleblowers may bring similar actions. Qui tam actions can arise from statements by a company’s own employees or from a third party. The relator here is notable: American Alliance for Equal Rights’ stated purpose is to challenge “distinctions and preferences made on the basis of race and ethnicity.” The group previously filed numerous similar “anti-discrimination” lawsuits in federal and state court. It is likely that groups like American Alliance for Equal Rights will similarly target federal contractors’ previous diversity and inclusion policies.
[1] Four Deloitte affiliates, Deloitte Consulting LLP, Deloitte & Touche LLP, Deloitte Financial Advisory Services LLP, and Deloitte Transactions and Business Analytics LLP, were also named defendants.
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