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Businesses, Fraud, and the CARES Act: Insights on Government Enforcement Defense and Prevention

April 14, 2020Legal Alerts

Businesses, Fraud, and the CARES Act: Insights on Government Enforcement Defense and Prevention

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law March 27, 2020, provides $2 trillion in relief funds for individuals and businesses, including $500 billion in direct aid for large companies and more than $300 billion for small companies. Businesses applying for and receiving funds under the CARES Act should be mindful of risks associated with stringent government oversight and inevitable investigations targeting waste, fraud, and abuse.

The CARES Act establishes a tri-part oversight structure to ensure proper disbursement and use of stimulus funds: (1) the Pandemic Response Accountability Committee (PR Committee), (2) the Special Inspector General for Pandemic Recovery (SIGPR), and (3) the Congressional Oversight Commission (Commission). SIGPR and the Commission will specifically oversee loans made by the Treasury Secretary to large businesses. SIGPR is set to work closely with the Department of Justice (DOJ) and its network of 93 U.S. Attorneys’ offices to investigate and conduct enforcement actions related to disbursed funds. The Attorney General and Deputy Attorney General have already issued guidance to U.S. attorneys, instructing them to prioritize the investigation and prosecution of criminal conduct related to the pandemic.

Based on DOJ responses to past crises, investigations and prosecutions regarding CARES funds will be widespread and stretch into the next decade. The oversight structure of the CARES Act is reminiscent of the Emergency Economic Stabilization Act of 2008, an act which incorporated the Troubled Asset Relief Program (TARP). TARP provided $700 billion in stimulus funds in response to the recession of 2008. Similar to SIGPR, Congress established the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). Working closely with DOJ, SIGTARP investigations have resulted in more than 300 criminal convictions and more than $11 billion in forfeitures, seizures, and other recoveries. That SIGTARP remains active to this day hints strongly at the future and longevity of oversight and enforcement of the CARES program, which is roughly three times the size of TARP.

The coronavirus pandemic is a true national crisis that prompted an emergency government response nearly unprecedented in its size, scope, and speedy passage. Many businesses must now solve extreme and even existential challenges, and many will need to seek CARES assistance to overcome them. However, businesses must not lose sight of critical oversight and compliance in the rush to return to fiscal health. When the dust settles, and even before, DOJ and other government enforcement entities will be there to vigorously investigate and prosecute abuses and misuses of CARES funds. To mitigate exposure, businesses must: (1) make certain they are eligible for all CARES relief sought; (2) ensure all applications for assistance are complete and accurate; and (3) understand what is required of them in the future for record-keeping, oversight, and compliance. Businesses must also not lose sight of the effect of the crisis on employees and contractors. Pay cuts, furloughs, and layoffs will continue to create enormous stress on the workforce, potentially leading to an increase in whistleblowers. All businesses need a well-designed system to ensure employee concerns receive prompt and serious attention in order to maximize the chance of solving problems internally or avoiding them altogether. 

If you have any questions, please contact your Dinsmore attorney or the authors for assistance in employing best practices to mitigate potential fraud exposure. 

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