On March 26, 2021, the U.S. Department of Justice (“DOJ”) reported on the agency’s heightened criminal and civil enforcement activities in connection with COVID-19-related fraud. As of that date, DOJ had publicly charged 474 defendants with criminal offenses in connection with COVID-19-related schemes across 56 federal districts to recover more than $569 million in U.S. government funds.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is a federal law, enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. The CARES Act provides relief through a number of different programs, including the Paycheck Protection Program (“PPP”), Economic Injury Disaster Loans (“EIDL”), the Provider Relief Fund, and Unemployment Insurance (“UI”). With the promulgation of these programs, DOJ has ramped up efforts in identifying and investigating fraud to protect the integrity of the $2.2 trillion in taxpayer funds appropriated under the CARES Act.
Criminal Enforcement Activities
The majority of fraud cases brought by DOJ have originated in the Criminal Division’s Fraud Section, accounting for at least 120 defendants charged with PPP fraud. The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds must be used by businesses for payroll costs, interest on mortgages, rent, and utilities. Most of these defendants are facing charges for allegedly misappropriating loan payments for prohibited purposes, such as luxury purchases, while another significant portion are charged in connection with allegedly inflating payroll expenses in order to obtain larger PPP loans.
DOJ also announced that it has seized over $580 million in fraudulent application proceeds in connection with the EIDL program, which is designed to provide loans to small businesses and agricultural and nonprofit entities. DOJ’s primary concerns with respect to this program have related to fraudulent applications for EIDL advances and loans on behalf of shell or nonexistent businesses.
In response to a rise in UI fraud schemes, DOJ has established the National Unemployment Insurance Fraud Task Force to investigate domestic and international organized crime groups targeting unemployment funds through the use of identity theft. Since the start of the pandemic, over 140 defendants have been publicly charged with federal offenses related to UI fraud.
Civil Enforcement Activities
As it relates to civil enforcement, DOJ continues to combat fraud in connection with the CARES Act and other government relief programs using its primary tool, the federal False Claims Act (“FCA”), which allows the U.S. government to recover damages and penalties against those who submit false or fraudulent claims for payment to government-sponsored health care programs.
For instance, as we previously covered here, on January 12, 2021, the U.S. Attorney’s Office for the Eastern District of California announced the first civil settlement to resolve allegations of fraud involving PPP funds. In that matter, SlideBelts Inc. and its president/CEO agreed to pay the United States a combined $100,000 in damages and penalties for alleged violations of the FCA and the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”). Similar to the FCA’s penalties provision, the FIRREA allows the government to impose civil penalties for violations of enumerated federal criminal statutes, which include fraud against federally-financed institutions.
DOJ has also announced that it has prioritized supporting foreign counterparts in investigating international fraud through the International Computer Hacking and Intellectual Property (“ICHIP”) program. The ICHIP program has assisted foreign counterparts in combating cyber and intellectual property crimes, including the marketing of fraudulent COVID-19 treatments and cures. DOJ has similarly brought actions to combat these types of cybercrimes domestically against individuals selling false or unapproved products claiming to treat or prevent COVID-19 infections. DOJ has partnered with various agencies to shutter hundreds of fraudulent websites promoting consumer scams and has taken action to disrupt the networks supporting such schemes.
Notwithstanding DOJ’s historical enforcement activity during the pandemic, DOJ has signaled its continued commitment to rigorous enforcement of COVID-19-related fraud, and we anticipate a continued increase in criminal and civil enforcement activity and investigations in the coming months.