Are Banks Reporting PPP Loan Fraud to the Government?
Risks of Facing Audits and Investigations for PPP Loan Recipients
If your company received federal loans under the Paycheck Protection Program (PPP) worth $2 million or more, it faces the risk of an audit or investigation by the U.S. Small Business Administration (SBA), the U.S. Department of Justice (DOJ), and other federal agencies. The SBA is conducting audits on all companies that received PPP loans of $2 million or greater, while federal agencies are investigating PPP loan fraud. These audits can lead to a loss of forgiveness eligibility and other penalties, while investigations can result in criminal charges carrying substantial fines and federal imprisonment.
What Companies Need to Know
It’s crucial for companies that received PPP loans to understand the potential risks they face. While the audit risk is straightforward for companies that received $2 million or more from the PPP, there is another risk that companies should be aware of: they could also be targeted in an investigation.
Companies could potentially be investigated by different sources, one of which could be the bank that issued their PPP loan. The DOJ has already sent grand jury subpoenas to major banks seeking records as part of a broader investigation into potential abuse of a $660 billion emergency loan program for small businesses affected by the coronavirus.
Investigations into PPP Loan Fraud
The DOJ and other agencies are targeting borrowers who have illegally obtained and/or misused PPP loan funds. Charges have already been filed against several company owners and executives who allegedly committed fraud under the PPP. These charges include creating shell companies to file PPP loan applications, falsifying payroll data to obtain PPP loans, diverting funds after fraudulently filing PPP loan applications, submitting fraudulent certifications, and using PPP loan funds for personal expenses.
Previously, the DOJ, the SBA’s Investigations Division, and other authorities relied on information contained in PPP loan applications and additional information obtained from the targets of their investigations. However, with the issuance of subpoenas to PPP lenders, it could open up a new source of evidence that federal prosecutors could use to bring charges. Banks have reams of information that could point to fraud, and federal authorities are likely to use all available means to uncover potential PPP loan fraud.
PPP Loan Fraud Investigations and Banks
For PPP loan recipients, it’s essential to know what it means if PPP lenders share their information with the DOJ. The primary consequence would likely be an increase in the speed with which new criminal complaints are filed. By analyzing the banks’ records, the DOJ will be able to systematically flag any companies that appear to have participated in PPP loan fraud.
It is also crucial to note that the DOJ is pursuing criminal charges in many cases, including charges such as wire fraud, bank fraud, and making false statements to the government. These charges carry hefty fines and long terms of federal imprisonment, and companies and individuals must be prepared to do everything possible to prevent charges from being filed when targeted in PPP loan fraud investigations.
Preparing for a Federal Investigation
If you are a company owner, executive, or individual concerned about the potential outcomes of a federal PPP loan fraud investigation, it’s crucial to take a proactive approach to prepare for the possibility of a federal investigation. This approach should include answering questions such as:
Compliance with PPP Loan Program
Did your company’s PPP loan application comply with the terms of the program? Companies had an obligation to ensure that they met all of the eligibility criteria when they submitted their PPP loan applications.
Documentation to Prove Compliance
Do you have the documentation to prove that your company’s application was compliant? It’s crucial to compile all records that demonstrate compliance to avoid being at risk in the event of a federal investigation.
Segregating PPP Funds
Has your company appropriately segregated its PPP funds so that their use can be tracked in accordance with the program? Companies should separate PPP funds into distinct accounts and clearly document all expenditures to demonstrate their proper use.
Using PPP Loan Funds for Permissible Expenditures
Have any PPP loan funds been used for impermissible expenditures? Using PPP loan funds to cover personal expenses and other impermissible expenditures are issues that have already come up multiple times in DOJ PPP loan fraud investigations. It’s crucial to carefully track and document all expenditures from companies’ PPP loan accounts.
Other Violations of PPP Program
Has your company otherwise violated the terms of the Paycheck Protection Program? Conducting an internal compliance assessment is necessary to identify any other violations of the PPP. This step should be undertaken with the advice and oversight of outside legal counsel.
Challenging Federal Subpoenas
Banks that receive subpoenas from the DOJ may challenge those subpoenas and seek to protect their borrowers’ information, but the grounds for challenging federal subpoenas are limited. Banks may also have an interest in complying with the government’s investigations if there is something in it for them. Federal prosecutors could use information from banks to bring charges against companies suspected of PPP loan fraud.
In conclusion, companies that received federal loans under the PPP must be aware of the risks they face, including audits and investigations. PPP loan fraud investigations are ongoing, and federal authorities are using all available means to uncover potential fraud. Companies must take a proactive approach to prepare for the possibility of a federal investigation, including ensuring compliance with PPP loan program terms, segregating PPP funds, using PPP loan funds for permissible expenditures, and avoiding other violations of the PPP program. Companies must react swiftly to protect themselves and prevent charges from being filed when targeted in PPP loan fraud investigations.