Penalties for PPP Loan Fraud
The Consequences of PPP Loan Fraud Investigations
Individuals and companies that fraudulently took advantage of the Paycheck Protection Program (PPP) created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act are at risk of facing severe penalties. These penalties can be either civil or criminal in nature, and they can range from hefty fines to decades behind bars. Companies across the nation have been targeted by federal authorities for PPP loan fraud, and 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 are actively working to identify and prosecute individuals and companies that have committed PPP loan fraud.
The Risks of PPP Fraud
According to a report from the federal Pandemic Response Accountability Committee (PRAC), the structure, administration, and terms of the PPP created many fraud risks. The report indicates that the PPP’s quick rollout at the height of the COVID-19 crisis made it easier for individuals and companies to fraudulently take advantage of the program. With more than $500 million in federally-backed, forgivable loans having been issued to over 4.5 million businesses, the PPP’s immense scope presents a number of enforcement challenges. However, this is not preventing federal agencies from doing their job in identifying and prosecuting fraudsters.
Potential Charges in Federal PPP Loan Fraud Investigations
Although the CARES Act does not contain penal provisions for PPP loan fraud, fraud under the program can trigger civil and criminal charges under numerous pre-existing federal statutes. Potential charges in federal PPP loan fraud investigations include (but are not limited to):
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Potential ChargesFederal StatuteMaking False Statements to the Small Business Administration (SBA)18 U.S.C. § 1014Making False Statements to an FDIC-Insured Bank18 U.S.C. § 1014Bank Fraud18 U.S.C. § 1344Wire Fraud18 U.S.C. § 1343Aggravated Identity Theft18 U.S.C. § 1028ATax Evasion26 U.S.C. § 7201Making False Statements to Federal Agents18 U.S.C. § 1001Conspiracy18 U.S.C. § 371 and 18 U.S.C. § 1349Attempt18 U.S.C. § 1349False Claims Act Violations31 U.S.C. §§ 3729 – 3733
Details of Potential Charges
The federal statutes that apply to PPP loan fraud are broad and offer prosecutors many options for charging individuals and companies. The following sections outline some of the details of potential charges in federal PPP loan fraud investigations:
Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014)
This federal criminal offense under 18 U.S.C. § 1014 imposes penalties on anyone who, “knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of the . . . Small Business Administration.” False statements made on companies’ PPP loan applications, including their Borrower Application Forms, as well as companies’ certifications for loan forgiveness, can trigger this charge. Penalties for this offense can include a fine of up to $1 million and 30 years of federal imprisonment.
Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014)
18 U.S.C. § 1014 applies 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, companies and individuals can face prosecution for submitting false information not only to the SBA but also to their PPP lenders. Penalties for this offense are the same as those for making false statements to the SBA.
Bank Fraud (18 U.S.C. § 1344)
Companies and individuals can face prosecution for submitting false statements or reports to their PPP lenders under 18 U.S.C. § 1344, which 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.” Penalties for bank fraud under this statute can include a fine of up to $1 million and 30 years of federal imprisonment.
Wire Fraud (18 U.S.C. § 1343)
The federal wire fraud statute, 18 U.S.C. § 1343, 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. . . .” The U.S. Department of Justice (DOJ) has already filed wire fraud charges in several PPP-related cases. Penalties for this offense can include statutory fines under 18 U.S.C. § 3571 and up to 20 years of federal imprisonment.
Aggravated Identity Theft (18 U.S.C. § 1028A)
The federal crime of aggravated identity theft, defined under 18 U.S.C. § 1028A, occurs when an individual “knowingly transfer[s], possesse[s], or use[s], without lawful authority, a means of identification of another person,” in connection with the commission of certain specified felony offenses, including bank and wire fraud. The DOJ has already filed aggravated identity theft charges in numerous PPP loan fraud cases due to allegations that the individuals involved sought to fraudulently obtain loans on behalf of companies that they did not own. This offense can result in up to two years of additional imprisonment, served consecutively.