PPP LOAN FRAUD LAWYERS

Which Federal Agencies Investigate PPP Loan Fraud?

Federal Agencies Conducting PPP Loan Fraud Investigations: What You Need to Know

The federal Paycheck Protection Program (PPP) was established in 2020 to provide low-interest, forgivable loans to small businesses in the United States. As the PPP continues to be scrutinized, the scope of the fraud perpetrated under the program has come into sharper focus. As a result, several federal agencies are conducting civil and criminal PPP loan fraud investigations.

If your company received a PPP loan, it is imperative to conduct an internal assessment focused on assessing PPP compliance promptly. Facing a PPP loan fraud investigation can be a daunting and extremely serious matter. It is critical to identify the federal agency involved and engage federal defense counsel immediately.

In this article, we will discuss the four federal agencies that are currently conducting PPP loan fraud investigations and how you can know if your company is under investigation.

Federal Agencies Conducting PPP Loan Fraud Investigations

There are at least four federal agencies currently conducting PPP loan fraud investigations. These agencies are working to create cases based on a variety of different charges by collecting evidence through the issuance of subpoenas, criminal complaints, and other means. Federal authorities are also freezing companies’ PPP loan accounts as they determine whether these companies obtained their loans unlawfully or are using the funds for unlawful purposes.

SBA Office of Inspector General (SBA-OIG)
The SBA Office of Inspector General (SBA-OIG) is the integrity and accountability arm of the SBA. The SBA-OIG conducts financial and performance audits of participants in SBA programs to promote the economical, efficient, and effective operation of SBA programs. The Auditing Division of the SBA-OIG is involved in the audits of all recipients of PPP loans of $2 million or greater, and the Investigations Division is handling allegations of PPP loan fraud on a case-by-case basis. When an investigation shows evidence of criminal fraud, this can lead to prosecution by the local U.S. Attorney’s Office in federal district court.

Federal Bureau of Investigation (FBI)
The Federal Bureau of Investigation (FBI) investigates all forms of federal fraud. The FBI is targeting individuals and companies that have either submitted false information or fraudulent certifications in support of their PPP loan applications, used PPP loan funds for unlawful purposes, or submitted fraudulent certifications for loan forgiveness. Companies that may have violated the PPP’s requirements will need to be prepared to defend themselves if targeted by the FBI.

U.S. Department of Justice (DOJ)
The U.S. Department of Justice (DOJ) is aggressively targeting and prosecuting individuals suspected of perpetrating fraud under the PPP. The DOJ filed its first PPP-related criminal complaint in early May. Since then, it has initiated numerous cases against company owners, executives, and alleged scam artists who are accused of fraudulently applying for and obtaining PPP funds. The DOJ has included charges for bank fraud, wire fraud, aggravated identity theft, making false statements, and conspiracy in the criminal complaints filed to date.

Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is participating in PPP loan fraud investigations to the extent that they involve the underreporting and/or underpayment of companies’ or individuals’ federal tax liabilities. The IRS’s determination that expenses paid with forgiven PPP loans are not eligible for ordinary business deductions has the potential to lead to trouble for many PPP loan recipients.

How to Know if Your Company is Under Investigation for PPP Loan Fraud

Companies can find out if they are under investigation by the SBA-OIG, FBI, DOJ, or IRS for PPP loan fraud in several ways. For investigations that are civil in nature, these agencies will often give notice in the form of a target letter or civil investigative demand (CID). If your company receives one of these forms of notification, it is critical to engage federal defense counsel promptly. If not handled appropriately, a civil investigation can turn criminal in nature, and the civil penalties for federal fraud can be substantial.

Companies may also learn about the investigation through the issuance of a criminal complaint, subpoena, or search warrant if they are being targeted for criminal fraud. They may also discover that their PPP loan account has been frozen. Facing a federal criminal fraud investigation is an extremely serious matter, and it is crucial to engage defense counsel immediately.

Can an SBA PPP Audit Lead to a Federal Fraud Investigation?

It is important for PPP loan recipients to remember that SBA audits and federal fraud investigations are not exclusive of one another. If an SBA audit reveals evidence of fraud, the SBA-OIG’s Auditing Division may refer the case to the office’s Investigations Division or another agency, and investigators will be able to use the information obtained during the audit process.

Tips for Defending Against PPP Loan Fraud Allegations

If your company is facing a PPP loan fraud investigation, it is crucial to take immediate steps to protect your interests. Here are some tips for defending against PPP loan fraud allegations:

Identify the federal agency (or agencies) involved in the investigation.
Engage experienced federal defense counsel who understands the specific allegations involved and the procedures followed by the investigating agencies.
Conduct an internal assessment of PPP compliance, identifying any potential areas of weakness or non-compliance and developing a strategy to address them.
Cooperate fully with the investigating agencies, while at the same time protecting your rights and interests.
Document all aspects of your PPP loan and use of funds, including communications with your lender, and maintain accurate financial records.
Be proactive in addressing any potential areas of weakness or non-compliance identified during your internal assessment.
Be prepared to negotiate a resolution with the investigating agencies, including a plea bargain or settlement agreement.
Conclusion

The federal agencies conducting PPP loan fraud investigations are actively seeking evidence of fraud and pursuing criminal and civil charges against individuals and companies suspected of perpetrating fraud under the program. If your company is facing a PPP loan fraud investigation, it is critical to identify the federal agency (or agencies) involved and engage experienced federal defense counsel immediately. You should also conduct an internal assessment of PPP compliance and take steps to address any potential areas of weakness or non-compliance. Finally, be prepared to negotiate a resolution with the investigating agencies if necessary.