INSIGHT: How to Prepare for the Covid-19 CARES Act Enforcement Wave

The $500 billion in corporate and $377 billion in small business relief that Congress included in the $2 trillion Covid-19 stimulus law will be tapped by companies in the health-care and life sciences, defense, transportation, entertainment and other industries.

The legislation includes significant appropriations for monitoring and enforcement of fraud in connection with the funding, including a special inspector general invested with sweeping enforcement authority. In particular, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) earmarks $100 billion for hospitals and health care providers and another $27 billion for vaccines and other therapies and personal protective equipment.

While some in these industries are accustomed to living under the lens of the government’s enforcement microscope, others are less well-prepared to minimize the risk that they will be swept up in an inevitable wave of criminal and civil actions that will be brought against companies and individuals that seek and receive stimulus funding.

Below are steps companies should take now to mitigate enforcement risk.

Understand Funding Restrictions Before You Apply

The myriad qualifications to access certain buckets of stimulus funding and restrictions on the use of those funds and even on the operation of a business that receives funding—notably restrictions on stock buybacks and certain executive compensation—are complex, nuanced, and raise questions to which there are not yet clear answers.

The legislation vests with the relevant agencies the responsibility to determine the particular eligibility requirements that will apply and companies should expect various certifications and attestations. For example, the Small Business Administration paycheck protection applications include certifications that the applicant is eligible to receive the loan, meets the regulatory definition of a small business, will purchase only American-made equipment and products “to the extent feasible,” and “is not engaged in any activity that is illegal under federal, state, or local law.”

Such attestations can later be leveraged as the basis of a criminal fraud charge or False Claims Act action if they are less than complete or materially misleading.

Applicants must leverage their internal and external legal and regulatory colleagues across disciplines before attempting to access funds to ensure that they understand the qualifications and restrictions on use and that they are positioned to comply with these requirements.

Adopt Systems, Dedicate Personnel to Monitor for Additional Requirements

The rules and guidance applicable to CARES Act funding is developing and the requirements that apply to funding at the time a company applies may well not be the final word.

Companies that seek to participate in the stimulus program must ensure they are monitoring for developments and nimbly move to comply with changed expectations.

Shore Up Compliance Programs

Companies that are experienced at government contracting or that participate in normal-course federal lending and other programs may have robust compliance programs and staff experienced in navigating the landmines that can be buried within program qualifications, contract terms, and application certifications. Those that do not have this experience would be wise to invest in these capabilities now.

Companies should pay close attention to building out monitoring and auditing mechanisms designed to ensure that certifications made to the government are true at the time they are made and commitments to comply with laws or aid requirements are carried through.

Companies must also ensure that internal reporting systems are functioning, and, when whistleblower complaints are received, companies must ensure that they are investigated swiftly and thoroughly and that remediation, if necessary, is implemented.

Document, Track, and Repeat

Companies should ensure they have real-time documentation to substantiate representations that are made in the context of applying for stimulus funding. Not only will doing so force the careful examination of the truth and accuracy of the representations being made, but it will help to establish the company’s appropriate intent if questions later are raised. Similarly, systems must be built to segregate, track, and trace funding received to ensure that it is applied in the manner intended and that the appropriate use of the funding later can be documented.

Employees charged with submitting applications or otherwise dealing with the government must be trained to document all representations made in real time as well as the factual support for each representation. Where applicants or government representatives discuss or agree on modifications to published program requirements or regulations it is critical that companies confirm in writing the new expectation.

Know the Risk and Take Only What You Need

The temptation to tap into millions of dollars of potential funding, particularly with the promise that a loan may later be forgiven, is powerful. Even companies that are assured that they qualify for a particular source of funding should consider whether the restrictions and enforcement risk that comes with accepting the funds is worth the potential upside.

In particular, those companies that are not convinced they will need to spend the funds may be advised to pass on the opportunity and avoid enforcement scrutiny later about whether their acceptance of the money was in good faith.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Jaime L.M. Jones, partner of Sidley Austin LLP and global co-leader of the firm’s Healthcare practice, represents leading pharmaceutical and medical device manufacturers and healthcare providers in civil and criminal government enforcement matters and False Claims Act litigation. She also leverages her enforcement and litigation experience to conduct confidential internal investigations, and helps clients design compliance program controls to address these risks.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.