On March 26, 2021, the US Department of Justice (“DOJ”) reported on the agency’s intensified criminal and civil law enforcement activities in connection with COVID-19 fraud.[1] As of that date, the DOJ had publicly indicted 474 accused of criminal offenses related to COVID-19-related projects in 56 federal districts to recover more than $ 569 million in US government funds.

The CARES (Coronavirus Aid, Relief, and Economic Security) law is a federal law, enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects of the COVID-19 pandemic. . The CARES Act provides relief through a number of different programs including the Paycheck Protection Program (“PPP”), Disaster Economic Injury Loans (“EIDL”) , the Providers Relief Fund and Unemployment Insurance (“UI”).[2] With the enactment of these programs, DOJ intensified its efforts to identify and investigate fraud in order to protect the integrity of the $ 2.2 trillion in taxpayer funds allocated under the CARES Act.

Criminal law enforcement activities

The majority of fraud cases brought by the DOJ originate from the fraud section of the Criminal Division, which has at least 120 defendants accused of PPP fraud.[3] The PPP allows small businesses and other eligible organizations to benefit from loans with a two-year term and an interest rate of 1%. Proceeds from PPP loans are to be used by businesses for staff costs, mortgage interest, rent, and utilities. Most of these defendants face charges for allegedly embezzling loan payments for prohibited purposes, such as luxury purchases, while another significant portion is billed in connection with alleged wage bill inflation in order to ” obtain larger PPP loans.[4]

The DOJ also announced that it has seized more than $ 580 million in fraudulent claim proceeds under the EIDL program, which is designed to provide loans to small businesses and agricultural and nonprofit entities. DOJ’s primary concerns with this program relate to fraudulent requests for EIDL advances and loans on behalf of fictitious or non-existent businesses.

In response to an increase in unemployment insurance fraud schemes, the DOJ established the National Unemployment Insurance Fraud Task Force to investigate national and international organized crime groups targeting unemployment funds by through identity theft. Since the start of the pandemic, more than 140 defendants have been publicly charged with federal offenses related to unemployment insurance fraud.[5]

Civil enforcement activities

With respect to civil enforcement, the DOJ continues to fight fraud under the CARES Act and other government relief programs using its primary tool, the federal False Claims Act (“FCA”), which allows the U.S. government to recover damages and penalties from those who submit false or fraudulent claims to government-sponsored health care programs.

For example, as we have seen previously here, on January 12, 2021, the U.S. Attorney’s Office for the Eastern District of California announced the first civil settlement aimed at resolving allegations of fraud involving PPP funds.[6] In this case, SlideBelts Inc. and its President / CEO agreed to pay the United States a total of $ 100,000 in damages and penalties for alleged violations of the FCA and the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”). Similar to the FCA Sanctions Provision, FIRREA allows the government to impose civil sanctions for violations of listed federal criminal laws, which include fraud against federally funded institutions.[7]

The DOJ also announced that it has prioritized supporting foreign counterparts in investigating international fraud through the International Hacking and Intellectual Property Program (“ICHIP”). The ICHIP program has helped foreign counterparts fight cybercrime and intellectual property crimes, including the commercialization of fraudulent COVID-19 treatments and cures. The DOJ has also taken action to tackle these types of cybercrime nationwide against people selling bogus or unapproved products claiming to treat or prevent COVID-19 infections. The DOJ has partnered with various agencies to shut down hundreds of fraudulent websites promoting scams to consumers and has taken action to disrupt the networks supporting such programs.

Notwithstanding DOJ’s historic law enforcement activities during the pandemic, the DOJ has signaled its continued commitment to a rigorous enforcement of COVID-19 fraud, and we anticipate a continued increase in criminal and civil activities and investigations in the months to come.

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[1] Justice Department Takes Action Against COVID-19 Fraud, Press Release (March 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud.

[2] The CARES Act, Pub. L. No. 116-136 (2020).

[3] Username.

[4] Texas man pleads guilty to $ 24 million COVID-19 fraud relief program, press release (March 24, 2021), https://www.justice.gov/opa/pr/texas-man-pleads-guilty-24-million-covid-relief-fraud-scheme; Four additional members of Los Angeles-based fraud ring indicted for operating COVID relief programs, press release (March 12, 2021), https://www.justice.gov/opa/pr/four-additional-members-los-angeles-based-fraud-ring-indicted-exploiting-covid-relief.

[5] Justice Department Takes Action Against COVID-19 Fraud, Press Release (March 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud.

[6] Eastern District of California Obtains First Civil Settlement for Fraud on Cares Act Paycheck Protection Program, Press Release (January 12, 2021), https://www.justice.gov/usao-edca/pr/eastern-district-california-obtains-nation-s-first-civil-settlement-fraud-cares-act.

[7] Justice Department Takes Action Against COVID-19 Fraud, Press Release (March 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud.

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