US Department of Justice Tackles Massive PPP Loan Fraud | Greenbaum, Rowe, Smith & Davis LLP

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hat you need to know

  • The federal government estimates total Paycheck Protection Program fraud to be $80 billion, due to fallout from an expedited candidate vetting process that resulted in a relaxation of internal controls against fraud.
  • Federal prosecutors’ aggressive pursuit of PPP fraud, while aimed at intentional wrongdoers, may also involve some well-meaning borrowers who inadvertently failed to comply with program requirements for relief fund recipients.
  • It is essential that business owners who have received PPP funds proactively review their compliance, mitigate any non-compliance and take necessary corrective action.

The US Department of Justice (DOJ) recently confirmed what many suspected – that the federal government will continue to persistently pursue Paycheck Protection Program (PPP) fraud, which is estimated to total $80 billion. dollars. Federal prosecutors are calling this theft of taxpayers’ money intended to help those harmed by the coronavirus pandemic “the biggest fraud in US history” because it accounts for about 10% of the $800 billion distributed to small businesses in the form of low-interest unsecured loans starting April 3. , 2020, through May 31, 2021. The prevalence of pandemic relief fraud has been known for some time, but the extent and implications of this fraud are only now becoming clear.

The PPP relief was designed to incentivize workers to stay employed, but far too many business owners have instead pocketed the money or misappropriated the funds to buy personal items. For example, federal prosecutors have targeted people who used their PPP loan funds to pay for luxury purchases, including hotel stays, automobiles, jewelry and clothing. Due to the urgency caused by the impacts of the pandemic on the business sector, the need to provide this important relief to workers has come at the cost of putting in place a stricter candidate selection process. While many businesses and individuals have benefited from using their relief payments as intended, this expedited process has led to a relaxation of internal controls which, in turn, has also increased the risk of PPP fraud.

In late March 2022, the DOJ said only 178 people nationwide had been convicted in PPP fraud cases to date, but the government signaled that many more prosecutions were forthcoming, making those initial convictions the peak. from the iceberg.

During the DOJ’s pursuit of PPP fraud prosecutions, it can become difficult for the government to distinguish between borrowers who intended and acted positively to commit fraud and those who were well-intentioned but who nevertheless failed to comply with this fast-track federal aid. program. As a result, many unwitting borrowers may find themselves caught in the DOJ’s fishing net of fraud charges. Therefore, it is essential that business owners who have received PPP funds immediately review their compliance, mitigate any non-compliance, and discuss corrective action and enforcement exposure with the appropriate government agency.

Critical Next Steps

A critical first step is to obtain competent legal counsel or other experts who can accurately assess whether compliance was sufficient, what the potential exposure might be, and how, if necessary, to effectively address that exposure.

Business owners cannot afford to be reactive and wait for the government to knock on their door because those who are proactive are more likely to get a more favorable outcome.

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