After the Ministry of Justice indicted over 100 people last year for fraudulently seeking more than $ 360 million in emergency loans and other payments under the CARES Act, the federal government took additional steps this year to combat fraud in federal COVID relief programs. These new efforts include expanding the investigation and indictment of more criminal cases, initiating civil execution and forfeiture actions to recover money from the treasury, and hiring dedicated staff to prosecute fraud under the CARES Act.
By passing the CARES (Coronavirus Aid, Relief and Economic Security) Act and related legislation last year, Congress provided for several types of emergency pandemic relief to be administered by the Small Business Association and d ‘other federal agencies. These include the PPP (the paycheck protection program), the EIDL (loans in the event of an economic disaster), the PUA (unemployment assistance in the event of a pandemic), the FPUC (federal compensation). unemployment in the event of a pandemic) and EIP (economic impact payments). Of the more than $ 2 trillion authorized under the CARES Act in 2020, more than 500 billion dollars has been allocated for PPP loans. A second PPP cycle opened in January and applications for this cycle close on March 31. Many of these loans are repayable if program participants follow the rules regarding the use of loan proceeds and related business operations, such as keeping employees on the payroll. These programs aim to keep small businesses and their employees afloat, and loan statistics reflect this goal: The average size of PPP loans was around $ 100,000, and over 80% of PPP loans were $ 150,000 or less. Likewise, the average amount of EIDL loans was just over $ 50,000.
Like most fraud charges, allegations in COVID relief fraud cases involve two different types of conduct: fraudulent representations in requesting relief funding and fraudulent use of relief proceeds. The types of fraudulent claims involved are: eligibility for redress; falsification of business, employee and tax records; and false certifications regarding criminal records and other issues. Most of the fraudulent uses in the cases brought to this stage involve funds embezzled for personal expenses, but at least one case involves allegations that a Utah defendant used the loan proceeds to business expenses different from those included in the loan application. In another case, prosecutors brought fraud charges against several defendants, even after they repaid loans and withdrew other loan applications.
Investigative and media scrutiny of COVID relief programs in recent months has led to a dramatic expansion in understanding of the likely extent of fraud related to requests for funding from these programs. On March 25, the Special House Subcommittee on the Coronavirus Crisis published a note on its recent findings on fraud in these programs. These results include that:
- Reviews of applications, records, and other data tend to show that there was approximately $ 84 billion in potential fraud from government PPP (over $ 4 billion) and EIDL (over $ 79 billion) payments. );
- Over 1.3 million EIDL fraud referrals (over 700,000 of which involved identity theft) were made to the SBA Inspector General’s office;
- Almost 150,000 hotline complaints related to potential PPP or EIDL fraud were lodged with the SBA Inspector General’s office, an increase of nearly 20,000% over previous years; and
- Financial institutions have deposited more than 41,000 Suspicious activity reports related to potential PPP and EIDL fraud during the period of May to October 2020 alone.
Here’s how the House subcommittee busted some of the $ 84 billion in alleged fraud by type:
- Approximately $ 67.5 billion was paid to applicants with duplicate email and physical addresses, IP information and / or bank accounts;
- Approximately $ 7.9 billion was paid to applicants whose banking information was different from that shown on their applications;
- About $ 3.2 billion appears to have involved identity theft;
- About $ 3.6 billion went to borrowers on the Treasury Department’s Do Not Pay list; and
- About $ 557 million went to potentially ineligible recipients who registered employer identification numbers after the program deadline.
While all of this is consistent with previous reports that the FBI alone had already opened “several hundred” investigations into PPP fraud, there are now more than thirty federal and state agencies investigating allegations of fraud in these programs. Besides the FBI, these include other law enforcement agencies affiliated with the DOJ, various offices of the Inspector General, US Secret Service, IRS Criminal Investigations, Investigative Services. criminal defense, homeland security investigations, the United States Postal Inspection Service and financial crimes. Application network.
On March 26, the DOJ published an update on its efforts to combat the CARES Act and related fraud. Over the past year, more than 470 people have been publicly charged in 56 of 94 federal districts with fraud and related crimes related to the COVID pandemic, including more than 240 people charged with PPP and / or EIDL fraud. These cases represent more than $ 569 million in attempted fraud by the government and others. The DOJ also obtained the first civil settlement related to the misconduct of the CARES Act in a case of the Eastern District of California. In this settlement, a California company and one of its executives repaid all PPP funds received plus $ 100,000 in damages and penalties. Civil enforcement going forward will likely involve two of the laws involved in the California case: the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). FCA allows DOJ to seek damages and penalties for false claims of payment from the federal government, while FIRREA allows DOJ to seek civil penalties for violations of certain federal criminal laws, including those involving institutions. federal financial institutions. The DOJ also brought forfeiture and other actions to seize EIDL proceeds resulting from the CARES Act fraud and other related applications; these efforts (many of which are managed by the EIDL Fraud Task Force headquartered in the District of Colorado) have already produced foreclosures of more than $ 626 million.
The expansion of the scope of fraud under the CARES Act has been followed by a corresponding increase in federal government resources toward this effort. The American rescue plan adopted on March 11 Includes $ 142 million for the offices of the Inspector General and other oversight bodies designed to investigate and uncover fraud. After ask each US attorney’s office to appoint a coronavirus fraud coordinator to lead the district’s efforts and work with other districts and DOJ leaders to address COVID-related fraud, the DOJ announced earlier this month that it was in the process of creating three new prosecutor positions within the Market Integrity and Major Fraud Unit (MIMF) of the Fraud Section to work exclusively on the investigation of fraud cases under the CARES Act (or “CAF”). These three prosecutors will serve terms of at least two years focusing on CAF investigations along with the 45 other prosecutors in the MIMF unit and with coronavirus fraud coordinators and other federal prosecutors across the country.
Mobilizing additional resources and strengthening civil enforcement to more effectively combat COVID-related fraud increase the challenges for program funding recipients: non-compliance SBA regulations or other rules related to program funding may result in treble damages and other significant penalties even if the conduct does not reach the level of criminal charges. In light of these efforts (and with more certainty to follow), working with lawyers to establish a strong compliance regime will be even more important for companies that have received COVID relief funds from government agencies.
