Penalties for PPP Loan Fraud

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Individuals and companies prosecuted for fraud under the Paycheck Protection Program (PPP) can face various penalties. These penalties can be either civil or criminal in nature, and they can range from fines to decades behind bars.

Federal authorities are targeting companies nationwide for Paycheck Protection Program (PPP) loan fraud. As stated in a recent report from the federal Pandemic Response Accountability Committee (PRAC), flaws in the structure, administration, and terms of the PPP created multiple fraud risks, and it appears as though many individuals and companies may have fraudulently taken advantage of the program’s quick rollout at the height of the COVID-19 crisis. According to PRAC:

“Increased guaranties from SBA reduce[] the risk to lenders, who, as a result, may not exercise due diligence in originating loans, thereby increasing the risk of potential financial losses to SBA. In addition, increased loan volume, loan amounts, and expedited loan processing timeframes may make it more difficult for SBA to identify red flags in loan applications. Without sufficient controls in place, SBA programs suffer increased vulnerability to fraud and unnecessary losses when SBA and its lending partners expedite loan transactions to provide quick relief.”

With more than $500 million in forgivable, federally-backed loans issued to more than 4.5 million businesses, the PPP’s immense scope presents a number of enforcement challenges. However, this is not preventing the U.S. Department of Justice (DOJ), the Small Business Administration Office of Inspector General (SBA-OIG), the Internal Revenue Service (IRS), and other federal agencies from doing their jobs. Efforts to identify and prosecute individuals and companies that committed PPP loan fraud are already well underway, and the DOJ has already filed charges in numerous PPP loan fraud cases.

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Ray Yuen

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Dennis A. Wichern

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Potential Charges in Federal PPP Loan Fraud Investigations

While the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which created the Paycheck Protection Program, does not contain penal provisions for PPP loan fraud, fraud under the program can trigger civil and criminal charges under a variety of pre-existing federal statutes. Potential charges in federal PPP loan fraud investigations include (but are not limited to):

Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014)

Making false statements to the Small Business Administration (SBA) is a federal criminal offense under 18 U.S.C. § 1014. The statute imposes penalties for anyone who, “knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of the . . . Small Business Administration.” This language is broad enough to encompass statements made on companies’ PPP loan applications (including their Borrower Application Forms), as well as companies’ certifications for loan forgiveness.

Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014)

The prohibitions contained in 18 U.S.C. § 1014 also extend to false statements and reports submitted to financial institutions that are insured by the Federal Deposit Insurance Corporation (FDIC) and other banks. As a result, not only can companies and individuals be prosecuted for submitting false information to the SBA, but they can be prosecuted for submitting false information to their PPP lenders as well.

Bank Fraud (18 U.S.C. § 1344)

In addition to prosecution for submitting false statements or reports to their PPP lenders under 18 U.S.C. § 1344, companies and individuals can also face prosecution for bank fraud under 18 U.S.C. § 1344. This federal statute makes it a criminal offense to, “knowingly execute[], or attempt[] to execute, a scheme or artifice—(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.”

Wire Fraud (18 U.S.C. § 1343)

The federal wire fraud statute, 18 U.S.C. § 1343, is a potent tool for federal prosecutors because it allows them to seek substantial penalties under a broad range of circumstances. The U.S. Department of Justice (DOJ) has already filed wire fraud charges in several PPP-related cases, as the statute prohibits the use of the Internet in connection with, “any scheme or artifice to defraud, or . . . obtaining money or property by means of false or fraudulent pretenses, representations, or promises. . . .”

Aggravated Identity Theft (18 U.S.C. § 1028A)

Under 18 U.S.C. § 1028A, the federal crime of aggravated identity theft is defined as, “knowingly transfer[ring], possess[ing], or us[ing], without lawful authority, a means of identification of another person,” in connection with the commission of certain specified felony offenses. These offenses include, among others, bank fraud and wire fraud. The DOJ has already filed aggravated identity theft charges in multiple PPP loan fraud cases arising out of allegations that the individuals involved sought to fraudulently obtain loans on behalf of companies that they did not own.

Tax Evasion (26 U.S.C. § 7201)

Many individuals and companies accused of PPP loan fraud will face allegations of tax evasion as well. Under 26 U.S.C. § 7201, “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue Code],” can face criminal prosecution. This includes evading payroll tax (i.e. by unlawfully claiming deductions for payroll expenses covered with PPP loan funds) as well as evading income tax by failing to report income derived from business activities funded by PPP loans.

Making False Statements to Federal Agents (18 U.S.C. § 1001)

In addition to facing prosecution for making false statements in PPP loan applications and forgiveness certifications, company owners, executives, and others can also face prosecution for making false statements to federal agents during a PPP loan fraud audit or investigation. Under 18 U.S.C. § 1001, the DOJ can prosecute anyone who, “(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry,” during a federal inquiry.

Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349)

The federal conspiracy statutes, 18 U.S.C. § 371 and 18 U.S.C. § 1349, allow for the prosecution of multiple individuals and/or businesses that are collectively involved in efforts to fraudulently obtain federal funds under the Paycheck Protection Program. Crucially, these efforts do not actually have to result in the issuance of a PPP loan in order to support a criminal charge for conspiracy.

Attempt (18 U.S.C. § 1349)

The federal attempt statute similarly imposes criminal penalties for “unsuccessful” efforts to commit PPP loan fraud. The statute, 18 U.S.C. § 1349, states in pertinent part, “Any person who attempts . . . to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt . . . .”

False Claims Act Violations (31 U.S.C. §§ 3729 – 3733)

The federal False Claims Act imposes civil and criminal penalties for fraud targeting federal government programs. The DOJ can pursue civil charges in cases involving unintentional PPP loan application or forgiveness certification fraud, while intentional PPP loan fraud can lead to criminal prosecution.

Potential Penalties in Federal PPP Loan Fraud Investigations

How serious is a PPP loan fraud investigation? The penalties for each of the offenses listed above are as follows:

  • Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014) – Up to a $1 million fine and 30 years of federal imprisonment.
  • Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014) – Up to a $1 million fine and 30 years of federal imprisonment.
  • Bank Fraud (18 U.S.C. § 1344) – Up to a $1 million fine and 30 years of federal imprisonment.
  • Wire Fraud (18 U.S.C. § 1343) – Statutory fines (under 18 U.S.C. § 3571) and up to 20 years of federal imprisonment.
  • Aggravated Identity Theft (18 U.S.C. § 1028A) – Up to two years of additional imprisonment, served consecutively.
  • Tax Evasion (26 U.S.C. § 7201) – A fine of up to $100,000 (for individuals) or $500,000 (for corporations) and up to five years of federal imprisonment.
  • Making False Statements to Federal Agents (18 U.S.C. § 1001) – Statutory fines and up to five years of federal imprisonment.
  • Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349) – Statutory fines and up to five years of federal imprisonment under 18 U.S.C. § 371, and the same penalties prescribed for the underlying offense under 18 U.S.C. § 1349.
  • Attempt (18 U.S.C. § 1349) – The same penalties prescribed for the underlying offense.
  • False Claims Act Violations (31 U.S.C. §§ 3729 – 3733) – Monetary penalties in civil cases, and statutory fines and up to five years of federal imprisonment in criminal cases.

Contact Oberheiden P.C. about Federal PPP Loan Fraud Defense

If you need to speak with an attorney about defending against a PPP loan fraud audit or investigation, we encourage you to contact us promptly. Our federal defense lawyers have centuries of combined experience in federal white-collar cases, including prior experience as DOJ prosecutors and U.S. Attorneys. To discuss your case in confidence as soon as possible, call 888-680-1745 or tell us how we can reach you online now.

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