Four Key Takeaways From Our Compliance Considerations and Enforcement Trends Surrounding the CARES Act Webinar
1. With deteriorated economic conditions, high unemployment and a $2 trillion government stimulus, the current environment is ripe for fraud. The Department of Justice has prioritized swift action against those suspected of pandemic-related illegal activity. Multi-agency enforcement collaborations at the state and federal levels are already resulting in prosecutions on a variety of charges, including fraudulently obtaining CARES Act paycheck protection loans, falsely claiming drugs could prevent COVID-19 and the theft of COVID-19-related medical supplies and selling them on eBay .
2. Borrowers of the Small Business Administration’s Paycheck Protection Program bear the burden of establishing that there was a "good faith" certification of necessity for loan funding, which serves as a litmus test to any potential liability. Fraud risk for borrowers is also based upon the perception of a company’s access to other sources of liquidity.
3. Lessons learned from the 2008 financial crisis serve as a forecast for likely enforcement trends post-COVID-19. More than 440 individuals, both borrowers and lenders, were criminally charged for fraud in relation to the 2008 financial crisis relief packages, with more than 300 sentenced to prison. It is likely that CARES Act prosecutions will increase in time and may continue long after COVID-19, so borrowers and lenders should be forewarned and forearmed. In addition, the government’s tentacles may reach beyond the CARES Act and into other aspects of your company.
4. There are specific steps companies can take to help minimize their False Claims Act exposure. Work to understand the program rules, develop reasonable interpretations, communicate your understanding to the government and keep records of all your communications with the government. Developing an effective compliance program is paramount. It should be well-designed, applied earnestly and in good faith, and works in practice.