05 May Pandemic Relief Fraud Prosecutors (Part Two)
According to federal law enforcement, it will take years to discover all the fraud in pandemic relief programs, and it’ll take prosecutors even longer to prosecute it. During the past two years of the pandemic. Congress poured nearly $6 trillion of taxpayer dollars into the economy to bolster families and businesses, particularly in the healthcare sector. Such a massive influx of funds into the economy became a prime target for fraud.
The government suspects people received more than $100 billion in pandemic relief funds through fraud. Yet private experts suspect it could be as much as $400 billion. More specifically, the fraudulent schemes targeted
- the Paycheck Protection Program (PPP),
- the Economic Injury Disaster Loan program (EIDL),
- pandemic unemployment Insurance
- and numerous other programs.
Other misconduct subject to scrutiny includes
- the promotion of fake vaccine passports,
- price-gouging of scarce resources during the pandemic,
- tests that proved faulty or cures that turned out to be fake and
- fake Medicare claims submitted to the government for reimbursement.
Since the COVID-19 pandemic started, the Department of Justice (DOJ) has already investigated thousands of fraud cases. In most cases, people illegally obtained forgivable loans meant for small businesses and payroll protection during the pandemic. In other cases, people illegally exploited unemployment insurance benefits.
The DOJ has now seized over $1 billion and launched civil investigations into more than 1,800 individuals and entities for alleged fraud in connection with more than $6 billion in loans. The DOJ is prosecuting more than 1,000 defendants in over 500 criminal cases. The total amount of pandemic-related fraud losses thus far exceeds $1.1 billion. And that’s still only a fraction of the suspected billions of total pandemic fraud.
Due to the unprecedented levels of fraud at issue, federal authorities created a specific pandemic fraud task force and appointed a chief pandemic fraud prosecutor to supplement the work of dozens of federal agencies.
The COVID-19 Fraud Enforcement Task Force
In the last year, Attorney General Merrick Garland announced the multi-agency Fraud Enforcement Task Force to facilitate nationwide coordinated action. The COVID-19 Fraud Enforcement Task Force intends to facilitate sharing of resources and cooperation among various government agencies working to uncover fraud schemes.
This month, the DOJ made headlines announcing the Task Force’s most significant case to date: the filing of criminal cases against 21 defendants in federal district courts in several different states. These cases comprise approximately $150 million in fraud from pandemic-related fraudulent billings to federal programs and theft from federally funded pandemic assistance programs.
Specifically, the DOJ revealed criminal charges that include the following activities related to the COVID-19 pandemic:
- healthcare fraud,
- illegal kickbacks,
- money laundering,
- wire fraud,
- theft of government property,
- making false statements and
- aggravated identity theft.
Among the more egregious cases, people stand accused of offering COVID-19 tests as a ruse to obtain patients’ personal information and saliva or blood samples. They submitted false claims to Medicare for unrelated, medically unnecessary and far more expensive tests or services using the patient samples and personal details.
This is precisely the type of coordinated enforcement a task force targets. The COVID-19 Fraud Enforcement Task Force ensures that law enforcement efforts to investigate and prosecute domestic and international perpetrators are not disjointed.
A Chief Pandemic Fraud Prosecutor
To further reinforce and expand the leadership of the Task Force, the federal government also named a chief prosecutor to lead various teams of prosecutors and federal agents. Specifically, the DOJ announced the appointment of Associate Deputy Attorney General Kevin Chambers as Chief Prosecutor. Chambers now works with the Task Force to focus on the most egregious cases of pandemic fraud.
As the new Chief Prosecutor, Chambers leads teams of agents, data scientists and lawyers. These individuals will analyze the astounding amount of data that could unlock new charges. These charges will target large-scale criminal enterprises and foreign actors the government accuses of profiting off Americans during the COVID-19 pandemic. In addition, intense focus has been placed on detecting large-scale unemployment insurance fraud and identity theft, domestically and abroad.
The DOJ Task Force and the recently named chief prosecutor will continue using state-of-the-art data analytics tools to crack down on complex national and international fraud schemes, including large-scale identity theft. The federal government will also continue to investigate major criminal fraud cases in PPP, EISL, pandemic unemployment insurance and all other programs.
Observers expect the added resources will result in hundreds, if not thousands, of new indictments of individuals and businesses. The DOJ has also requested that Congress provide additional financial resources needed for the DOJ Task Force. These additional resources will expand investigations and prosecutions of pandemic fraud.
The DOJ is now working more closely than ever with Inspectors General across the federal government. Together, these individuals will identify instances of healthcare fraud, procurement fraud and every other kind of government-program fraud.
Financial resources will not be a barrier. The fiscal 2022 DOJ budget plans for 120 new attorneys focusing exclusively on pandemic relief crimes. The budget also allocates $325 million to fund over 900 FBI agents. These agents are investigating pandemic relief fraud and working with agents from multiple federal agencies, including the IRS, the U.S. Postal Service, the Social Security Administration and Interpol. Finally, the budget request for fiscal 2022 seeks an additional $36.5 million for the US Attorneys’ Offices and the Criminal Division. This additional funding will help the department increase its actions to combat pandemic fraud.
The federal government cannot afford actual or perceived exploitation of public health emergencies. PPP borrowers will continue to be the low-hanging fruit — where much of the fraud is most easily detectable. However, bank and non-bank lenders are now also in the crosshairs, as the recent New York federal prosecution of a PPP lender CEO and other investigations announced suggest.
Recently published data from the Small Business Administration shows that small banks and non-bank lenders account for a significant and disproportionate number of PPP loans versus the larger institutions. For example, more than 4000 small banks approved and funded close to $2 billion in loans. This resulted in a net loan amount of more than $101 billion.
Small banks and non-bank lenders may prove fertile ground. Borrowers have complained of aggressive tactics. And such prosecutions may shed light on these allegations. Consumer protection observers have also raised concerns about lenders who encouraged many desperate people to accept pandemic loans without considering the full panoply of ramifications.
In many communities, small business owners maintain their bankers are to blame. They allege bankers stated that they’d “have to be crazy not to apply” for readily available pandemic relief. Messages about legal risks and obligations, if given, were drowned out. Lenders did little to warn people and foster more cautious behavior.
In addition, the Small Business Administration and other federal agencies encouraged lenders to work fast, prioritizing speed in an effort to prevent an economic crash. Again, for many people now in the throes of government investigations, this translated into “free money is readily available, just go for it.”
Given the pandemic environment, consumer protection activists welcome increased scrutiny of small banks, community banks and other nontraditional lenders. We already know that they turned a blind eye to suspicious PPP loan applications in many instances. Further scrutiny would determine if they failed to comply with gatekeeping requirements, including the Bank Secrecy Act and anti-money laundering obligations.
The criminal justice system will be dealing with the aftermath of pandemic relief fraud investigations for the foreseeable future. It will do so in the name of protecting the integrity of government programs and discouraging such behavior in the future. As noted, the DOJ announced in March that it has already uncovered fraud tied to more than $8 billion in federal pandemic aid.
Even people not involucrated in misconduct may still find themselves in the throes of government investigations as potential witnesses. The government’s massive investigation efforts will affect the lives of many people.