On April 10, 2026, the U.S. Department of Justice (DOJ) Civil Division announced that IBM agreed to pay more than $17 million to settle allegations that it violated the False Claims Act (FCA) by failing to comply with antidiscrimination requirements in its federal contracts. This marks the first settlement since the DOJ launched its Civil Rights Fraud Initiative in May 2025.
According to the DOJ, IBM maintained practices that discriminated against employees and applicants, rendering its antidiscrimination certifications to the government false. The settlement comes on the heels of Executive Order (EO) 14398 (“Addressing DEI Discrimination by Federal Contractors”), reinforcing the Trump Administration’s stated commitment to using the FCA to challenge what it characterizes as discriminatory diversity, equity, and inclusion (DEI) practices by federal contractors.
Recent Background on DEI Enforcement
Leading up to the settlement, the Administration and the DOJ issued multiple directives targeting what they describe as “illegal DEI.”
- EO 14151. Issued January 20, 2025, the order directs federal agencies to eliminate DEI-related practices and terminate “equity-related” grants, contracts, and performance requirements for employees, contractors, or grantees.
- EO 14173. Issued January 21, 2025, this order focuses on federal contractors, requiring federal agencies to include two provisions in every contract or grant award: (1) a clause stating that compliance with federal antidiscrimination laws is material to the government’s payment decisions; and (2) a certification that the contractor doesn’t operate DEI programs that violate federal antidiscrimination laws.
- DOJ Memo. Issued February 5, 2025, the memorandum directs the DOJ’s Civil Rights Division to investigate, eliminate, and penalize DEI-related practices in the private sector.
- DOJ’s Civil Rights Fraud Initiative. Announced May 19, 2025, the Civil Rights Fraud Initiative instructs the DOJ to use the FCA to pursue claims against any federal funding recipient that “knowingly violates federal civil rights laws.”
- DOJ Guidance on Federal Funds and DEI. Issued July 29, 2025, the guidance memo outlines examples of practices that could lead to revoked grant funding or legal liability.
Most recently, on March 26, 2026, the Administration issued EO 14398, setting up a framework for regulating DEI practices among federal contractors. The order takes aim at what it describes as “racially discriminatory DEI activities”—defined as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or the allocation or deployment of an entity’s resources.”
As we discussed in a prior Alston & Bird Advisory, the order also requires executive departments and agencies to include a mandatory clause in their contracts (including subcontracts) by April 25, 2026.
That clause provides six key elements:
- A ban on racially discriminatory DEI activities.
- A commitment to provide all information, records, and accounts needed for compliance checks.
- Acknowledgment that noncompliance can mean contract cancellation, suspension, or debarment.
- A duty to report any subcontractor’s known or reasonably knowable violations to the contracting agency and to take corrective action.
- A requirement to notify the contracting agency if a subcontractor sues to challenge the clause.
- An express acknowledgment that compliance is “material to the Government’s payment decisions” under the False Claims Act.
The order also sends a clear message about enforcement priorities: it directs the Attorney General to consider bringing FCA claims against noncompliant contractors and to make sure qui tam actions get reviewed promptly.
Settlement Allegations
While this settlement does not appear to stem from a whistleblower qui tam complaint, it will almost certainly lead to future whistleblower activity. The government claims that IBM falsely certified compliance in its federal contracts while maintaining practices that violated Title VII of the Civil Rights Act of 1964. According to the DOJ, IBM engaged in the following conduct:
- Discriminatory Compensation. Making compensation and employment decisions based on race, color, national origin, or sex, including tying bonus pay to hitting demographic targets.
- Discriminatory Hiring. Factoring race, color, national origin, or sex into hiring, transfer, and promotion decisions, including using “diverse interview slates” and “diverse sourcing.”
- Discriminatory Employment Decisions. Setting race and sex demographic goals and factoring those characteristics into employment decisions to meet those goals.
- Exclusionary Programs and Training. Offering training, mentoring, leadership development, or educational resources to only certain employees based on race, color, national origin, or sex.
Under the settlement, IBM will pay the government $17,077,043, which includes $8,204,348 in restitution. Importantly, IBM did not admit liability and denies the alleged conduct. The settlement agreement also notes that IBM got credit under the DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account for cooperating with the investigation and disclosing relevant facts early based on its own internal investigation.
Recommended Steps to Mitigate Risk
Given the IBM settlement and the latest DEI-related Executive Order, federal contractors should expect the Trump Administration to pursue FCA litigation aggressively. In 2025, whistleblowers filed 1,297 qui tam lawsuits—the highest number in a single year—and the government opened 401 investigations, recovering over $6.8 billion in FCA settlements and judgments during the fiscal year.
As discussed in our prior Alston & Bird Advisory, the FCA landscape will likely remain active in 2026, with continued focus on the Administration’s priority areas, such as DEI compliance. The government’s confirmed focus on DEI enforcement may lead to an influx of qui tam actions being brought related to these issues.
Federal contractors should consider the following steps to assess and mitigate risk:
- Review DEI-related programs, policies, and practices to determine whether any can be characterized as involving disparate treatment based on race, color, national origin, or sex.
- Review subcontractor agreements and monitor subcontractor compliance.
- Prepare for increased False Claims Act scrutiny by thoroughly documenting decision-making in employment, contracting, and resource allocation.
- Prepare for potential termination of federal contracts.
- If faced with a government investigation, work with counsel to independently investigate the allegations and demonstrate cooperation early on.
Federal contractors should keep in mind that information regarding enforcement trends is continuing to develop. Because qui tam FCA cases are filed under seal, it can take months or years for these cases to become public.
Conclusion
The government’s investigation of IBM’s allegedly discriminatory practices and the resulting settlement agreement signal the DOJ’s continued enforcement focus on DEI programs and practices. This settlement serves as an example of the types of allegations and practices the government is likely to target in future investigations of federal contractors.
If you have any questions, or would like additional information, please contact one of the attorneys on our Labor & Employment team or one of the attorneys on our False Claims Act team.
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