• Tue. Nov 22nd, 2022

Government plan for COVID-19 fraud investigations

ByMadeleine J. Pierce

Sep 19, 2022

In a recent article in The New York Times, David Fahrenthold described the big problem facing prosecutors investigating COVID-era fraud: the sheer scale of it. The title of the article, “Prosecutors struggle to catch up with a tidal wave of pandemic fraud,” is dead.

The various COVID relief programs injected $5 trillion into the economy, incredibly quickly and with relatively minimal control. Within this huge and necessary package of economic stimulus packages was probably the greatest amount of fraud committed against the government in the shortest time frame in history.

The COVID aid unleashed a gushing river of free money that few could resist taking. While some businesses like restaurants and hotels were instantly and obviously impacted by pandemic restrictions, few businesses were unaffected and virtually all business owners were concerned about the impact of COVID. on their numbers and results. In total, nearly 15 million different beneficiaries applied for and received 22 million loans and grants totaling nearly $5.3 trillion. Many recipients were in desperate need of a cash injection to maintain their employees’ salaries and continue to pay the mortgage or rent despite the drop in income. But some opportunistic scammers looking for a quick score simply invented a business or workforce, applied, and collected easy money from the government. It must have felt like taking candy from a baby.

The vast majority of recipients of the money did not commit fraud, but engaged in a number of maneuvers before deciding to apply for a loan or grant. Many recipients did not know if or how their business would be affected. Each of them experienced uncertainty and each of them did not want to let the free money go by that they were entitled to make him lose. Many companies have consulted lawyers or accountants to help navigate the application and certification process, with none of them certain of the rules or process – because the government itself was finding out at the stolen. But before the end of the programs, 15 million beneficiaries and many other applicants certified, as required, “in good faith” that “[c]the current economic uncertainty makes this loan request necessary to support the applicant’s ongoing operations. »

From my perspective as a lawyer representing those under investigation by the government, the PPP certification standard is quite lenient and leaves a lot of wiggle room given the genuine uncertainty felt by all during the pandemic. With minimal guidance, millions of businesses have achieved certification and cashed the checks rather than miss the gravy train. Many recipients really needed the lifeline; many, it turns out, did not. But no matter what, real uncertainty meant real right to the money, whether or not business waned, grew, or continued. And as long as the money was put to good use, the loan was canceled – free money indeed!

As with all major fraud investigations, the government—in this case, the federal government through various agencies, offices of inspectors general, and the Department of Justice (DOJ)—is slow to gain momentum. Often compared to a turning battleship, it does so slowly and carefully, but when it’s turned and if it’s facing you, it can be terrifying.

The government knows that there has been a tremendous amount of fraud and that probably tens or hundreds of billions of dollars have been received due to misrepresentations during the application process and misrepresentations about how the money was been used. The government is good at rooting out fraud after learning many lessons in health care, where the government spends huge amounts of money but has a great return on investment by investigating and prosecuting fraud via criminal health care laws. health care fraud and civil misrepresentation. Law.

Leading the group is the Pandemic Response Accountability Committee or PRAC, a task force of 21 inspectors general and a staff of around 50. The PRAC helps coordinate the monitoring efforts of the various agencies responsible for administering loans and grants and detecting fraud.

As in healthcare, pandemic fraud hunters are using cutting-edge data analytics to identify potential fraud. While the Small Business Administration (SBA), which oversees PPP loans, at one point intended to audit every loan over $2 million, recognizing the enormity of this task, it is moving to a model risk-based for reviewing loans and canceling loans. . By cross-checking loan applications or remittance information or documentation with financial data available to the government, its data analytics models are able to capture anomalies or inconsistencies that may warrant further investigation by a Inspector General or the FBI.

The PRAC has consolidated all disbursement information on a publicly accessible website to seek public assistance in sifting through the data to find anomalies. Whistleblowers inside or outside a company can see how much money the company has received and are incentivized to file lawsuits that tam secretly alerting the government to possible fraud and preparing for a windfall in case the government investigates and recovers.

As Mr. Fahrenthold illustrated in his New York Times article, prosecutors are catching up. To date, there have been numerous prosecutions of pandemic fraudsters, but for the most part these cases have involved outright fraud, not a thorough investigation into whether the funds received were necessary, or whether the standard should be applied: if the beneficiary believed that they were necessary in the light of the uncertainties that then existed.

These cases will come with time. Qui tam cases, classified under seal, can take a long time to unfold while the government investigates. Recognizing that government needs time and is playing a long game, in early August Congress and President Biden enacted laws extending to ten years the time the government has to pursue criminal or civil action against fraudsters in the event of pandemic.

For any fund recipient who wasn’t quite sure they were eligible but took the money anyway, it’s a long wait to see if the government will check or investigate those specific circumstances. Hundreds of thousands of PPP loan recipients have never requested loan forgiveness, which in itself is not evidence of fraud, as the loan proceeds may not have been able to be used as required for the discount. In these cases, the loans must be repaid. But the PRAC has determined that failure to apply for a pardon may be an indicator that the original application was fraudulent and can investigate further.

Some recipients may feel uncomfortable about taking the loan and/or being forgiven. As it has done for overseas tax evaders, the government may consider an amnesty program to allow funds to be returned with minimal penalty, but avoiding the serious consequences of a conviction for bank fraud or fraud. mail or the cudgel of treble damages of the False Claims Act. The government will certainly seek to give examples of companies or individuals for whom it can prove that they did not need the funds and that there was no real uncertainty. The government will want to send a deterrent message for the future and will likely also encourage self-disclosure of ill-gotten funds, promising leniency under the cooperative credit policies established by the DOJ.

Consistently through each successive administration over the past decade, the DOJ has emphasized its interest in prosecuting the individuals who direct a company’s wrongdoings and not just the company itself. In deciding which cases to pursue, the government will be on the lookout for overly aggressive conduct by executives, board members or investors. Lawyers representing whistleblowers know this and will use it as a selling point to launch a DOJ investigation or file a qui tam complaint.

Many relief fund recipients will continue to wonder if the battleship will ever turn to them and whether their certifications and specific circumstances at the time of application or pardon will be reviewed by the government. The government cannot investigate every loan, so it will continue to rely on data analysis, whistleblower advice and luck to root out fraud. The government is chasing a tidal wave, but its tools will get better and better and it still has a long way to go.

Any business or individual who feels uncomfortable with having received loan funds or having forgiven a loan should contact an attorney to best assess the situation and decide on a course of action or calculated inaction.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC All rights reserved.National Law Review, Volume XII, Number 262