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DoJ Investigations into PPP Loan Fraud: Everything You Need to Know
The COVID-19 pandemic has ravaged businesses worldwide. The US government introduced the Paycheck Protection Program (PPP) as a remedy, offering forgivable, federally-backed loans to eligible businesses, aiming to alleviate the economic impact of the pandemic.
However, fraudsters targeted these funds, leading to PPP loan fraud that the Department of Justice (DoJ) is actively investigating. If you are under investigation or concerned about the risk, it’s crucial to understand what PPP loan fraud means and how DoJ investigations work. In this article, we outline essential information you must know about DoJ investigations into PPP loan fraud.
What is PPP Loan Fraud?
PPP loan fraud occurs when companies or individuals misuse federally-backed and forgivable loans intended for businesses affected by the COVID-19 pandemic. Reports show that many fraudulent activities occurred in the distribution of these loans. The fraudulent activities have included shell businesses, personal use of funds, and repeated applications.
What Happens If DoJ Investigates You or Your Company for PPP Loan Fraud?
If your company or you are under investigation for PPP loan fraud, it could lead to severe consequences in the future. It is imperative to seek legal guidance right away while also understanding the risks involved. Here’s what you need to know:
The DoJ Takes Prosecution Seriously
Media coverage on governmental efforts will see aggressively pursue those submitting fraudulent PPP loan applications and misusing funds through investigations and criminal proceedings.
PPP Loan Fraud Cases Lead To Criminal Charges
The numerous cases resulting in criminal charges have revealed practices such as creating shell businesses and misrepresenting payroll details, among others.
You Won’t Face DoJ Investigations Alone
While handling investigations on PPP loan fraud, multiple federal agencies collaborate with the Department Of Justice. These agencies include SBA-OIG (Small Business Administration Office of Inspector General), FDIC-OIG (Federal Deposit Insurance Corporation office of Inspector General), FBI (Federal Bureau of Investigation), and IRS-CI (Internal Revenue Service – Criminal Investigations).
What Defense Can You Use Against The Charges?
Charges of PPP loan fraud carry severe consequences, but you have various defenses that can counter them. Here are two examples:
PPP Compliance Defense
Demonstrating your company’s PPP compliance by lawfully obtaining the loan, maintaining a separate PPP account, and correctly documenting usage helps resolve issues relatively quickly in some cases. However, giving sensitive information to DoJ requires caution as any unintended incriminating disclosure can work against you.
Absence of Intent to Defraud
Proving beyond reasonable doubt regarding intent necessary for criminal liability lies within the jurisdiction of the law. Unknown receipt while ineligible, inappropriate use or presenting fraudulent forgiveness certification could be counted as an absence of intent defense. Despite unintentional fraud still punishable as a civil offense attracting hefty fines or penalties.
Potential Federal Charges in PPP Loan Fraud Investigations
PPP loan fraud charges do not come from the program itself but civil and criminal charges under pre-existing federal statutes. Some commonly used statutes include:
Making False Statements
Submitting false statements or reports attracts a federal criminal offense under Section 18 United States Code 1014 against SBA. This statute applies broadly to statements made on PPP loan applications such as Borrower Application Forms or certifications for loan forgiveness.
Bank Fraud, Wire Fraud & Aggravated Identity theft
Individuals making false reports to their lenders face prosecution under bank fraud (18 U.S.C. § 1344) or wire fraud (18 U.S.C § 1343). Furthermore, fraudulent acquisition done through someone else’s ID could attract aggravated identity theft charges under §1028A.
Tax Evasion
PPP loan fraud results in tax evasion allegations under 26 U.S.C. §7201, leading to federal prosecution when Payroll tax evaded or businesses’ PPP-funded activities unreported.
Conspiracy and Attempt
Federal conspiracy statutes attract prosecution when multiple people agree to commit federal offenses such as PPP loan fraud. Additionally, unsuccessful attempts still draw charges under the federal attempt statute (18 U.S.C §1349).
Violations of False Claims Act
The False Claims Act criminalizes fraud targeting government programs, attracting civil and criminal penalties. Intentional PPP fraud attracts criminal prosecution while unintentional fraud results in civil penalties.
Conclusion
DoJ continues to investigate the numerous cases involving PPP loan fraud. Companies and individuals caught in investigations should stay informed about potential consequences and defense options. In addition, it’s essential to get an experienced legal representative on board as soon as possible for the outcomes.
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