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INSIGHT: DOJ Ramps Up Crypto, FCA Enforcement Efforts During Covid-19

May 26, 2020, 8:01 AM

The Department of Justice has made clear its intent to vigorously prosecute Covid-19-related fraud, and federal prosecutors have wasted little time in bringing criminal charges against suspected fraudsters. It is focusing on areas where schemes are already increasing, as well as those involving Covid-19 tests, small business loans, and cryptocurrency schemes

On March 26, the U.S. Attorney’s Office for the District of New Jersey brought DOJ’s first criminal case related to the pandemic when it charged a Georgia man for his alleged involvement in a scheme to fraudulently bill Medicare for unnecessary Covid-19 tests. In a telephone call recorded by the government, the defendant was heard explaining the pandemic as a money-making opportunity, stating: “While there are people going through what they are going through, you can either go bankrupt or you can prosper.” Charged with one count of conspiring to violate the Anti-Kickback Statute and one count of conspiring to commit health care fraud, the defendant could spend up to 15 years in prison if convicted on both counts.

Then, in the first week of May, federal prosecutors in the District of Rhode Island charged two businessmen with conspiring to seek forgivable loans under the Paycheck Protection Program, claiming that they employed dozens of employees earning wages at four different business entities when no employees actually worked for any of the businesses. The DOJ announced that the defendants were the first individuals in the nation charged with allegedly defrauding the CARES Act SBA Paycheck Protection Program.

Trends to Watch

As evidenced above, the DOJ’s adjusted focus on fighting fraud relating to Covid-19 has been seamless. We can expect the DOJ and its U.S. attorney’s offices around the country to continue investigating and prosecuting federal crimes like those described above, and anticipate seeing one or more of the following enforcement trends develop throughout the remainder of the pandemic’s lifecycle and in its aftermath:

Increased Coordination Between Federal, State, and Local Authorities: Deputy Attorney General Jeffrey Rosen has called on all federal law enforcement components to work closely with state and local authorities in order to quickly identify misconduct and use all appropriate enforcement tools available to punish it.

This enhanced coordination will likely lead to more criminal enforcement actions in the future. And by sharing information and resources with each other, law enforcement agencies may get more creative (and hence, more aggressive) in the tools they use to investigate and prosecute crime.

Increase in Cryptocurrency Scams: The DOJ has advised the public to be on the lookout for cryptocurrency schemes related to Covid-19. Under one such scheme, scammers posing as fellow employees ask people to accept a donation of funds into their personal bank accounts and then deposit the funds into a crypto kiosk. The FBI warns that the “donation” is likely money that has been stolen from others, and that acceptance and transfer of the stolen money is considered illegal money mule activity.

Under another scheme, scammers lure customers from trusted e-commerce sites offering products that claim to prevent Covid-19 onto unregulated messaging sites to accept payment in cryptocurrencies for treatments and products that do not actually exist. These crypto scams (and others like it) will likely be concerns well after the pandemic.

Indeed, the SEC’s Hester Peirce in May stated that people will turn more interest to the crypto space as they become more comfortable working in a virtual world like the one we are currently operating in amidst the pandemic. We may therefore see greater crypto fraud schemes in the coming years and more law enforcement resources devoted to combating fraud in this unique space.

Increase in Whistleblower Reporting: On May 12, members of Congress introduced a discussion draft of the Coronavirus Oversight and Recovery Ethics Act (CORE Act), a proposed bill comprised of oversight and anti-corruption measures designed to ensure the transparency and proper spending of government funds. If passed, the CORE Act would offer protections to whistleblowers in both the public and private sectors who report fraud, waste, and other abuses involving funds appropriated by Congress.

For example, whistleblowers would be able to report complaints directly to the oversight authorities created by the CORE Act, and would be protected from retaliatory actions such as firing, demotion, and blacklisting.

With protections like these being offered at a time when the government is spending trillions of dollars in economic relief due to the pandemic, we can expect an uptick in criminal enforcement actions if this bill is passed.

More FCA Enforcement: If history is any indication, the False Claims Act (FCA) is poised to take center stage in the aftermath of Covid-19. While FCA violations often lead to multi-million dollar fines, criminal penalties are also available and can include prison terms.

We can expect the DOJ to utilize the FCA as a tool to bring more civil and criminal cases against individuals and companies that submitted false statements or claims to the government to obtain stimulus relief under the CARES Act and other government-backed loans that may become available.

Corporate Compliance is Top Priority

Now is not the time for companies to begin relaxing their compliance standards. The government will continue to prosecute crimes despite the numerous challenges posed by the Covid-19 pandemic, and the DOJ has demonstrated what appears to be a shift in its enforcement efforts towards specifically combating coronavirus-related offenses.

Therefore, companies may consider taking a close look at their internal policies and controls to ensure strict compliance with applicable laws and regulations related to fraud, especially in an environment that encourages and protects employees who blow the whistle.

Companies may also consider implementing mandatory training that focuses on the laws that are likely implicated in pandemic-related crimes, such as 18 U.S.C. § 1347 (Healthcare Fraud); 31 U.S.C. §§ 3729-3733 (False Claims Act); and 18 U.S.C. §§ 1341 and 1343 (Mail and Wire Fraud).

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

Author Information

Maurice Bellan is the managing partner of the Washington, D.C., office of Baker McKenzie and a member of the Global Dispute Resolution and North America Litigation and Government Enforcement Steering Committees. He is a former trial attorney at the Department of Justice and is experienced in a broad range of fraud and anti-corruption matters.

Aleesha Fowler is an associate in Baker McKenzie’s North American Litigation Practice Group in New York. She has experience in the areas of white collar criminal defense, internal investigations, regulatory compliance matters, and complex civil litigation.

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