On April 9, 2026, we issued an update on President Trump’s March 26, 2026 Executive Order, Addressing DEI Discrimination by Federal Contractors, warning that the EO’s False Claims Act enforcement architecture, including its explicit instruction to the DOJ to expedite review of qui tam whistleblower actions under 31 U.S.C. § 3730, was not aspirational. It was operational. We did not expect to be proven right almost immediately.

On April 10, 2026, fifteen days after the EO was signed, the Department of Justice announced a $17,077,043 settlement with International Business Machines Corporation (IBM) to resolve False Claims Act allegations that IBM knowingly certified compliance with federal anti-discrimination requirements while maintaining race- and sex-based employment practices across its federal contracting operations. The settlement was signed by Associate Attorney General Stanley H. Woodward, Jr., a signal that DOJ leadership is personally invested in this enforcement initiative.

This is the first major FCA enforcement action under the new DEI contracting framework. It will not be the last. And for ANCs, tribes, and Native Hawaiian Organizations engaged in federal contracting, the implications could be significant, not because their hiring preferences are unlawful, but because this settlement shows how quickly the government is moving and how broadly it is defining the conduct that triggers liability.

The settlement agreement identifies four categories of “Covered Conduct” spanning the period from January 1, 2019, through the effective date of the agreement. Each maps directly to the types of activities prohibited by the March 26 EO:

Compensation tied to demographic targets. IBM allegedly modified pay, bonus, or other compensation in ways 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.

Race-conscious hiring and promotion decisions. IBM allegedly used “diverse interview slates,” “diverse sourcing,” and related practices—including altering interview eligibility criteria based on race, color, national origin, or sex—as part of decisions to hire, transfer, or promote.

Demographic goals for business units. IBM allegedly developed race and sex demographic goals for business units and factored race, color, national origin, or sex into employment decisions to achieve progress toward those goals.

Race-limited professional development opportunities. IBM allegedly offered certain training, partnerships, mentoring, leadership development programs, educational opportunities, or resources only to certain employees, with eligibility limited on the basis of race, color, national origin, or sex.

The legal theory is straightforward: IBM was required to comply with anti-discrimination requirements under Title VII of the Civil Rights Act of 1964, as incorporated into its federal contracts and FAR clause 52.222-26. The government contends IBM certified compliance with those requirements while knowingly maintaining the practices described above, and then allocated the costs of those practices to its federal contracts and sought reimbursement. That is a textbook False Claims Act case.

Several features of the IBM settlement deserve close attention:

The FCA theory works. The government did not necessarily need the March 26 EO to bring this case.  It used existing Title VII obligations incorporated into federal contracts via FAR 52.222-26. The EO adds a second contractual hook: once the new EO clause is in your contracts, certifying compliance with that clause is also material to payment decisions under 31 U.S.C. § 3729(b)(4). There will be two independent FCA triggers for the same category of conduct.

Cooperation credit matters. The settlement explicitly notes that IBM received credit under the DOJ’s Guidelines for Taking Disclosure, Cooperation and Remediation into Account in False Claims Act Matters (Justice Manual § 4-4.112). IBM’s cooperation included early disclosure of relevant facts, providing information to assist in determining damages and penalties, and taking voluntary remedial measures, including terminating or modifying programs described in the Covered Conduct. The $17 million figure almost certainly reflects a discount for this cooperation.

The costs-on-contracts theory expands the exposure. DOJ did not just allege that IBM maintained discriminatory practices. It contended that IBM allocated the costs of those practices to federal contracts and sought payment and reimbursement. This means the costs of administering DEI programs, training costs, personnel costs for DEI staff, and costs of diversity initiatives can themselves be treated as false claims if the underlying programs are discriminatory. For any entity that charges overhead or G&A to federal contracts, this is a critical consideration.

Administrative remedies are reserved. The settlement explicitly reserves the government’s suspension and debarment rights. IBM paid $17 million and is not off the hook for potential exclusion from federal contracting. For smaller contractors, the debarment risk may be more threatening than the monetary penalty.

The IBM settlement does not change the legal analysis on shareholder hire preferences, tribal member preferences, or Native hire preferences. Those preferences are based on political classifications, not racial ones, and remain lawful under Morton v. Mancari, 417 U.S. 535 (1974), ANCSA, the Indian Self-Determination Act, tribal employment rights ordinances, and related authorities. The March 26 EO itself defines prohibited conduct as “racially discriminatory DEI activities” based on “race or ethnicity.”

But the IBM Covered Conduct merits a close look. The overlap in language, if not in legal substance, may be a problem:

• • IBM settled over “diverse interview slates” and “diverse sourcing.” Some ANCs maintain shareholder hire preferences that require interviewing qualified shareholders before external candidates. The practice is legally distinguishable, but the optics to an uninformed contracting officer or a disgruntled employee are not obvious.
  • IBM settled over demographic goals tied to employment decisions. Some ANCs track shareholder and descendant employment levels as part of their ANCSA mission. The purpose is fundamentally different—serving a congressional mandate to benefit shareholders—but a qui tam relator does not need to understand ANCSA to file a complaint.
  • IBM settled over race-limited training and mentoring programs. Some ANCs and tribes offer shareholder-specific or tribal member-specific professional development, internship, and leadership programs. Again, this should be lawful when based on political classification. But the category of conduct is facially similar.
  • IBM settled over compensation practices tied to demographic outcomes. Some ANCs have bonus structures or performance metrics that incorporate shareholder hire and development objectives. These need to be reviewed for how they are documented and communicated internally.

The risk is not necessarily that a tribal member or shareholder preference is illegal. The risk is that someone, an employee, a competitor, a contracting officer, or a DOJ attorney screening a qui tam complaint, looks at the conduct, sees the superficial similarity to IBM’s Covered Conduct, and acts before understanding the legal distinction. And as we noted in our companion update issued today, the qui tam provisions of 31 U.S.C. § 3730 give private whistleblowers a direct financial incentive to file: 15–25% of any recovery if the government intervenes, and 25–30% if the relator proceeds alone.

The IBM settlement proves that the FCA enforcement theory we flagged in our prior update is not theoretical. IBM paid $17 million and still faces potential suspension and debarment. The Associate Attorney General signed the settlement personally. DOJ is treating DEI-related false claims as an enforcement priority.

For ANCs, tribes, and NHOs, the core message has not changed: shareholder and tribal member hire preferences should be lawful. But the enforcement environment has changed dramatically. The gap between what a preference is and what it looks like to someone who doesn’t understand ANCSA or Morton v. Mancari is the space where qui tam complaints get filed, agency inquiries get opened, and contract performance gets disrupted.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.