Covid-19 Pandemic Fraud Requires Bold and Swift Response

The Covid-19 pandemic took the lives of more than a million Americans while it wreaked havoc on the economy. The government is now going after individuals and businesses who may have fraudulently taken more than $200 billion in Economic Injury Disaster, and Paycheck Protection Program loans, along with more than $45 billion in pandemic unemployment benefits.

As the Department of Justice and other federal agencies criminally prosecute offenders who took advantage of pandemic assistance programs, a parallel effort is underway to collect the massive amounts still outstanding. Civil actions under the False Claims Act and other statutes are already showing meaningful results with significantly less investment of resources.

Government programs were set up to address the pandemic’s huge economic toll, but thousands of parties with no legitimate claim tapped into the money by fabricating EINs or SSNs. The resulting tales have the hallmarks of fraud so widespread it seemed to draw in even those not normally prone to committing crime.

According to the Small Business Administration, at least 17% of $1.2 trillion in EIDL and PPP loans went to between 90,000 and 250,000 potentially fraudulent actors. The Pandemic Response Accountability Committee identified 69,000 questionable SSNs used to obtain $5.4 billion in possibly undeserved pandemic small business loans and grants. The Labor Department’s Inspector General estimates that pandemic unemployment fraud was as high as $45.6 billion.

Traditional investigative techniques—subpoenaing records, interviewing witnesses, trying to flip individuals who are part of broader criminal schemes—are helping track down many of the larger criminal operations. The DOJ, the Labor Department, and agencies ranging from the IRS to the Secret Service and Postal Inspection Service are working overtime to recover losses: correlating loan applications with incarcerated individuals, identifying business addresses that are vacant lots, and uncovering false EINS and SSNs.

The Department of Justice’s Pandemic Response Accountability Committee, comprised of 20 agency inspectors general, has prioritized multimillion-dollar fraud cases and is using data scientists to find $38 million in potentially improper or fraudulent loans obtained with the SSNs of deceased individuals. The Labor Department has opened roughly 160,000 investigations into unemployment fraud. The Justice Department reported in August that it had filed charges or launched investigations into roughly $8.6 billion in alleged coronavirus aid fraud, including instigating hundreds of cases, pleas, sentences, and other developments from May through July.

While criminal cases may make for colorful and riveting prosecutions, civil enforcement of the False Claims Act and other statutes can lead to significant dollar recoveries for the government. The civil division of the US attorney’s office has engaged with local offices across the country to identify fraud at the local level, with notable success.

The office for the Northern District of Mississippi has obtained more than 200 judgments and expects to bring in more than $23 million. With the combined efforts of the DOJ and 93 US attorney’s offices across the country, civil recoveries have the potential to exceed $1 billion.

Unlike a criminal trial, with its higher evidentiary burden and focus on penalizing offenders, a civil action prioritizes a monetary recovery and requires just a preponderance of the evidence to prevail. The government is often able to negotiate repayment terms that provide assurance of at least some recovery.

Repayment amounts under the False Claims Act can be as high as treble damages, but double damages will still produce significant returns. The ultimate recovery may be just pennies on the dollar, but it’s still worth the effort. Civil judgments can yield substantially more than might be recovered through criminal prosecutions, at a cost far lower than would be spent pursuing convictions.

Time is tight. Charges under the False Claims Act must be brought within the longer of six years from the criminal act or three years from the date when the government knew or should have known about the act. Unless Congress passes S.1018 to extend the statute of limitations to 10 years, states will have just three years to recover unlawfully obtained pandemic unemployment benefits.

Both criminal and civil cases should discourage others from committing fraud against government programs in the future, but they underscore how ill-prepared the government was during this last national emergency. The Treasury Department’s Do Not Pay List would have identified suspect SBA loan applicants, but the government chose not to use that system due to the delay that it would have caused in processing the loans. Given the billions of dollars lost and the thousands of hours spent to recoup funds, it seems that a one-week delay would have been a small price to pay.

As it continues to prosecute large criminal operations, the government must also use the civil justice process to recover pandemic funds. Attorney General Merrick Garland said the new enforcement “should send a message Covid-19 public emergency may have ended, but the Justice Department’s work to identify and prosecute those who stole pandemic relief funds is far from over.”

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Christine Adams handles white-collar matters, internal investigations, civil litigation, and SEC investigations with Adams, Duerk and Kamenstein, a boutique firm in Los Angeles.

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