11 Sep 2020
The Justice Department said on Thursday that it had charged 57 people with trying to steal more than $175 million from the Paycheck Protection Program to help small businesses during the coronavirus pandemic as questions swirled about how its funds were disbursed.
Some cases involved “individuals or small groups, acting on their own, who lied about having legitimate businesses or who claimed that they needed P.P.P. money for things like paying workers or paying bills, but instead used it to buy splashy luxury items for themselves,” Brian C. Rabbitt, the acting head of the department’s criminal division, said at a news conference.
In other cases, coordinated criminal rings stole large sums of money from the loan program, Mr. Rabbitt said. “We will be focusing on these types of cases going forward,” he said.
The federal government offered emergency loans to small businesses through the Paycheck Protection Program as part of the Coronavirus Aid, Relief and Economic Security Act enacted in March to stave off a wave of catastrophic job losses as the pandemic took hold in the United States and businesses were forced to close. The loans could be forgiven if the funds were used to cover payroll and certain other expenses.
Mr. Rabbitt said that the 57 cases charged by the criminal division ranged from loan requests for $30,000 to about $24 million, and that cases had been brought across the United States. Federal prosecutors had also brought separate fraud cases related to the coronavirus relief programs, he said, but he did not mention how many.
The department and other law enforcement agencies this week arrested suspects accused of trying to steal $24 million in funds from the program as part of a criminal ring. On Thursday morning, the Justice Department unsealed charges against seven people accused of participating in a separate criminal ring that worked to steal and launder hundreds of thousands of dollars from the lending program; it arrested two men in Buffalo accused of trying to steal $7.6 million.
When applications for the program closed last month, 5.2 million loans had been made totaling more than $525 billion.
But even as details of the program were being finished, Justice Department officials prepared for a wave of fraudulent activity, particularly because the loans would be distributed as quickly as possible and with less scrutiny than other traditional business loans.
The department announced its first fraud case in May, just weeks after the emergency lending program began.
Not long after the Paycheck Protection Program had disbursed its first tranche of loans, myriad problems emerged, partly because officials had struggled to define what constituted a small business for its purposes.
Some large, publicly traded companies took the loans, as did contentious borrowers like small financial firms that manage money for the country’s riches families; Washington lobbying firms; Kanye West’s company, Yeezy; and President Trump’s longtime personal lawyer Marc E. Kasowitz. While their loans were not fraudulent, lawmakers and small-business advocates argued that the money had been diverted from businesses in need to enrich wealthy people and companies.
Much of the federal coronavirus aid was also distributed through banks, which were criticized for favoring their existing customers.
JPMorgan Chase, which distributed more than $29 billion in Paycheck Protection Program loans, the most by any lender, recently acknowledged in a memo to employees that some employees and customers had misused federal aid money that had been intended to provide coronavirus relief.
By Katie Benner, The New York Times, 10 September 2020
Read more at The New York Times
RiskScreen: Eliminating Financial Crime with Smart Technology
Count this content towards your CPD minutes, by signing up to our CPD WalletFREE CPD Wallet