June 9, 2021
On March 26, 2021, the Department of Justice (DOJ) announced updated results of its expanded criminal and civil enforcement cracking down on COVID-19 fraud. These efforts resulted in DOJ publicly charging 474 defendants with criminal offenses related to COVID-19 schemes, involving efforts to acquire over $569 million from the U.S. government and other individuals through fraudulent means.
DOJ targeted schemes relating to several CARES Act programs which have been a priority for DOJ since the early days of the pandemic. These include the Economic Injury Disaster Loan (EIDL) program, Paycheck Protection Program (PPP), and the Unemployment Insurance (UI) programs. Also important are actions to protect consumers and fight health care and cyber fraud.
DOJ’s historic enforcement initiative to combat COVID fraud was explained by Acting Assistant Attorney General Nicholas McQuaid.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2.2 trillion stimulus package passed by Congress and signed into law in March 2020. The Act was passed in response to the economic fallout of the COVID-19 pandemic in the United States, and was designed to provide emergency relief and financial assistance to the millions of Americans suffering from these economic effects.
Simultaneously, the DOJ ramped up efforts dedicated to identifying and prosecuting fraud related to the COVID-19 pandemic. Adopting a multi-district enforcement approach, the DOJ is expected to yield additional criminal and civil actions in the next few months.
With regards to criminal actions, the Department of Justice’s attempts to fight COVID-19 have centered on several main types of fraud.
The COVID-19 Economic Injury Disaster Loan was passed to provide loans to small businesses and nonprofit organizations experiencing a temporary loss of revenue. Fraudsters have targeted the EIDL program by applying for loans on behalf of newly-created or non-existent businesses, then using the funds for illegal purposes. The Department of Justice has seized $580 million of loan proceeds from such fraudulent applications, with more seizures ongoing.
The Paycheck Protection Program is a loan backed by the Small Business Administration that helps businesses keep their workforce employed during the COVID-19 crisis. The Department of Justice has cracked down on cases involving individual business owners who have inflated their payroll expenses to receive larger loans than they would have otherwise qualified for. The DOJ has also prosecuted fraudsters in their attempt to apply for multiple false loans by reviving dormant corporations and purchasing shell companies with no actual operations. At least 120 defendants have been charged with PPP fraud to date. Most of these defendants misappropriated loan proceeds for illegal purposes, such as purchasing houses, cars, or luxury items.
Because of the COVID-19 pandemic, over $860 billion in federal funds have been appropriated for UI benefits. International organized crime groups have targeted these funds by using stolen identities to file for UI benefits. Domestic identity thieves have also tried to take advantage of the federal funds by posing as others in order to commit UI fraud. Since the start of the pandemic, over 140 fraudsters have been charged for federal offenses relating to UI fraud.
A number of COVID-19-related schemes have centered on the selling of fake or illegal cures, treatments, and protective equipment. As of March 2021, the Department of Justice has prosecuted dozens of individuals selling products with unapproved claims about their abilities to treat COVID-19 infection—products including industrial bleach, vitamin supplements, and ozone gas. The DOJ has also cracked down on hundreds of websites facilitating these scams, and has disrupted the networks of a significant number of fraudsters in the process.
Through the DOJ’s International Computer Hacking and Intellectual Property (ICHIP) Program, ICHIP advisors have been able to combat cyber-related health care crimes, including the sale of counterfeit pharmaceuticals and of mislabeled COVID-19 treatments. Advisors have also cracked down on intellectual property crime across the United States, resulting in substantial seizures of counterfeit medicines and other illicit medical supplies.
The Department of Justice has also used several civil tools to combat CARES Act and other Covid-19 fraud. In California, the department obtained its first civil settlement for fraud under the Paycheck Protection Program (PPP), and settled civil claims under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The FCA settlement involved an internet retail company that had issued false statements to federally insured banks to influence them to approve a PPP loan.
The FCA is recognized as one of the most effective weapons in DOJ’s arsenal. FCA actions have returned over $64 billion to the U.S. Treasury since 1986, and whistleblowers have received billions of dollars in rewards.
Whistleblower complaints under the FCA have been on the rise since the start of the COVID-19 pandemic, and with new government programs continuing to distribute aid, whistleblower cases remain a fundamental way of helping combat the abuse of taxpayer dollars.
As noted above, there are many areas where we can expect to see COVID-19 fraud. Fortunately, whistleblowers can help the DOJ fight COVID-19 fraud and protect taxpayer dollars. If you know of COVID-19 fraud, please contact us. Whistleblowers can be eligible for rewards under the False Claims Act or other whistleblower programs.
***Andrew Tran, a student at Boston University School of Law, worked as an extern with Whistleblower Law Collaborative this spring***