Articles to Read
1. Justice Department charges 57 people attempting to steal $175 million in coronavirus relief funds (WaPo, September 2020) – If you cannot see the article, click HERE.
2. Tech Executive Pleads Guilty to Wire Fraud and Money Laundering in Connection with PPP Loans (DOJ, March 2021)
3. Texas Man Charged with COVID Relief Fraud (DOJ, July 2020)
As a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (effective March 29, 2020), Paycheck Protection Program (PPP) allowed small businesses to obtain loans with only 1% interest. The interest and principal are entirely forgiven if the business spends a substantial portion of the loan proceeds on payroll expense. While it is a good program that helped save a lot of small businesses and their employees, it is no surprise that some people have tried to take advantage of it and obtained the loan that they did not deserve. Read the above articles on some of the fraud cases related to PPP. In addition to the sources above, you are welcome to do your own research to learn more about this fraud.
Please respond to questions below:
The Washington Post article explains: “Officials said many of the fraud cases fall into one of two categories: people who illegally spent PPP loan funds on themselves, or groups of individuals who coordinated to defraud the program on a massive scale across numerous loan applications. Still others have been docked for bending the rules to get more money or to get loans for businesses that shouldn’t have been eligible.” The former category of fraud in the excerpt should involve some ‘money laundering’ activities (which you learned in Chapter 7) as the fraudsters had to disguise the real source of their spending so that it looked like they spent the PPP loans for the specific purposes eligible for loan forgiveness. Based on your understanding of the case and the money laundering schemes, come up with an example of money laundering that could have been conducted by those PPP loan fraudsters you read about (FYI, although the second article has ‘money laundering’ in the title, the article does not describe the money laundering scheme used by that tech executive).
Why do you think the Texas man (in the third article above) bought cryptocurrency with the PPP funds?
You might be thinking, ‘Why didn’t the banks (or the government) verify the applications more thoroughly?’ Because people needed money fast. We all remember how things were in March and April 2020. Due to the extraordinary circumstances, the U.S. Congress allowed lenders to bypass more practiced levels of diligence typically performed in the course of loan evaluation and funding in order to expedite the funding process. So instead of blaming the lenders for not doing due dilligence, let’s think about ways to detect fraud after the fact. Based on what you learned in Week 1~3 (and also your own research if needed), Discuss how DOJ/IRS/banks can detect PPP fraud.
As always, discuss anything else that surprised you or you noticed in particular while watching/reading about the scandal.