In plain English
FAR 52.203-8, Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity, is a contract clause prescribed at FAR 3.104-9(a), most recently dated May 2014. The complete official text is reproduced below, verbatim, from GSA's published FAR source files.
Its text contains no sentence requiring insertion into subcontracts; see the flowdown section below for what that does and does not mean.
Does it flow down to subcontracts?
No flowdown mandate found in the clause text
We scanned the full clause text and found no sentence directing the contractor to insert this clause into subcontracts. That is a statement about the text, not legal advice: a prime contractor may still flow terms down contractually, an agency supplement (DFARS, VAAR, …) may add requirements, and clauses listed below (if any) may order this clause into subcontracts from the outside.
Where it's prescribed
As prescribed in 3.104-9(a), insert the following clause:
Prescribing reference: FAR 3.104-9(a).
The official text, verbatim
As prescribed in 3.104-9(a), insert the following clause:
Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity (May 2014)
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(a) If the Government receives information that a contractor or a person has violated 41 U.S.C. 2102-2104, Restrictions on Obtaining and Disclosing Certain Information, the Government may-
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(1) Cancel the solicitation, if the contract has not yet been awarded or issued; or
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(2) Rescind the contract with respect to which-
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(i) The Contractor or someone acting for the Contractor has been convicted for an offense where the conduct violates 41 U.S.C.2102 for the purpose of either-
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(A) Exchanging the information covered by such subsections for anything of value; or
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(B) Obtaining or giving anyone a competitive advantage in the award of a Federal agency procurement contract; or
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(ii) The head of the contracting activity has determined, based upon a preponderance of the evidence, that the Contractor or someone acting for the Contractor has engaged in conduct punishable under 41 U.S.C. 2105(a).
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(b) If the Government rescinds the contract under paragraph (a) of this clause, the Government is entitled to recover, in addition to any penalty prescribed by law, the amount expended under the contract.
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(c) The rights and remedies of the Government specified herein are not exclusive, and are in addition to any other rights and remedies provided by law, regulation, or under this contract.
(End of clause)