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Banks (Finance)

PPP Loan Forgiveness and Fraud Enforcement: Understanding the Consequences

Strategic Insights

— 2 min read

The PPP and Bank Fraud Enforcement Harmonization Act of 2022 was enacted on August 5, 2022, establishing a 10-year statute of limitations for the prosecution of fraud by borrowers under the Small Business Administration's Paycheck Protection Program (PPP). Almost $800 billion in loans was distributed under the PPP before it ended in June 2021. As businesses request loan forgiveness, the federal government is cracking down on PPP loan fraud, both criminally and civilly. Businesses must understand the consequences of the PPP loan in the event they are subject to a federal investigation.

Key Takeaways:

  • The PPP and Bank Fraud Enforcement Harmonization Act of 2022 established a 10-year statute of limitations for the prosecution of fraud by borrowers under the PPP.
  • Almost $800 billion in loans was distributed under the PPP before it ended in June 2021.
  • Businesses must retain loan and loan forgiveness records for six years for loans of $150,000 or more and four years for loans less than $150,000.
  • The SBA has denied approximately $1.5 billion in PPP loan forgiveness and is currently reviewing over 50,000 applications.
  • Borrowers may appeal a denied loan forgiveness by filing a notice of appeal with the SBA's Office of Hearings and Appeals (OHA) within 30 days of denial.
  • The U.S. Attorney General has appointed a Director for COVID-19 Fraud Enforcement to prosecute individuals and companies committing CARES Act-related crimes, including PPP fraud.
  • Over 500 individuals have been charged with federal crimes as a result of COVID-19 relief funds, with charges often involving falsified tax documents, fabricated employee information, or extravagant purchases with loan proceeds.
  • Federal civil actions have also been brought through the False Claims Act (FCA) and Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), with borrowers liable for "treble" damages, plus penalties and attorneys' fees.
  • Self-reporting may reduce punishment for fraudulent acts.
  • Businesses must seek legal guidance if loan forgiveness applications are denied or if there has been any misrepresentation on the PPP application.

Statistics:

  • Almost $800 billion in loans was distributed under the PPP before it ended in June 2021.
  • The SBA has denied approximately $1.5 billion in PPP loan forgiveness.
  • The SBA is currently reviewing over 50,000 loan forgiveness applications.
  • Over 500 individuals have been charged with federal crimes as a result of COVID-19 relief funds.
  • The average sentence for a federal criminal conviction for bank fraud or wire fraud is 10-20 years, with significant fines.
  • The maximum penalty for bank fraud or wire fraud is 30 years in prison and a fine of up to $1 million.

Sources:

  • PPP and Bank Fraud Enforcement Harmonization Act of 2022
  • Coronavirus Aid, Relief, and Economic Security (CARES) Act
  • U.S. Small Business Administration (SBA)
  • United States Department of Justice (DOJ)
  • False Claims Act (FCA)
  • Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)

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