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Investigations currently underway by federal agencies focus on abuses in the Paycheck Protection Program (PPP) administered by the federal Small Business Administration (SBA). If your company received a low-interest, forgivable PPP loan, you may face scrutiny about compliance with regulations. An internal review can alert you to anything that has the potential to initiate a federal investigation. In addition, identifying the agencies that investigate PPP loan fraud and understanding their investigative procedures can help you comply with the steps each agency requires for executing an effective defense.
Examining the PPP Loan Fraud Investigative Agencies
Through criminal complaints, subpoenas and other measures, four federal agencies currently collect evidence to build cases on a range of charges. Actions may include placing a freeze on PPP loan accounts until the SBA-OIG can determine an unlawful activity.
1. SBA Office of Inspector General (SBA-OIG)
The SBA-OIG conducts most investigations in combination with a U.S. Attorney’s office because most subjects participate in its programs. Two divisions of the SPA-OIG administer activities through field offices. The Auditing Division participates in ongoing audits of companies receiving $2 million or more from PPP loans. With a focus on allegations of PPP loan fraud, the Investigations Division examines them case by case.
While almost no one regards the SBA as a law enforcement agency, investigations that substantiate criminal fraud can result in prosecution in federal court by the local U.S. Attorney’s Office. Therefore, if the SBA-OIG targets your company, you may need to prepare a defense to lessen the risk of facing criminal charges at the federal level.
2. Internal Revenue Service (IRS)
Underpayment or underreporting of federal tax liabilities can involve the IRS in PPP loan fraud investigations. Enforcement by the Internal Revenue Service Criminal Investigations (IRS-CI) arm includes aggressively targeting individuals or companies it suspects of tax evasion or fraud. While a failure to report taxable income, fraudulently claim losses or illegally claim personal expenses as business deductions attract examination, another issue seems even more pressing.
When the IRS determines that a “double tax benefit” exists, trouble can surely follow. The agency disallows expenses that companies pay with forgiven PPP loans and does not consider them ordinary business deductions. Without regard to any specific allegations, the potential for fines, interest and long-term imprisonment exists for federal tax fraud or evasion.
3. Federal Bureau of Investigation (FBI)
The FBI’s White Collar Crime division investigates corporate entities as well as fraud in government benefit programs. With tips from company insiders, customers and clients, the FBI uses verifiable input that may provide support for federal criminal charges.
Specific targets include companies or individuals who falsify PPP loan application certifications, use PPP loans unlawfully or fraudulently seek loan forgiveness. Experience with the rollout of PPP funds shows that a lack of guidance and enforcement allowed the inappropriate use of funds. As a result, companies that took advantage of the program requirements or cannot substantiate compliance with regulations may need to prepare a defense against charges by the FBI.
4. U.S. Department of Justice (DOJ)
Criminal complaints against company owners, officers and purported scammers include “stacking” multiple PPP loan applications with numerous lenders. In addition, making false claims of legitimate business ownership, creating fictitious company names and paying for personal expenses with PPP funds provide targets for the DOJ. The agency shares evidence and builds cases for prosecution with SBA-OIG, FBI and IRS in some situations.
Inquiring about Investigative Status of PPP Loan Fraud
You can find out if the investigative agencies plan to target your company. They send either a target letter or a civil investigative demand (CID) for civil investigations. If the agencies send you one of these notifications, you need to obtain federal defense counsel immediately.
While you may not face a criminal investigation currently, remember that a civil penalty for federal fraud can produce a significant impact. In addition, an improperly handled civil investigation may turn into a criminal case. A subpoena, criminal complaint, search warrant or frozen PPP loan account may alert you to an investigation for criminal fraud. Facing such a serious matter may lead you to seek defense counsel promptly.