When CARES Act Aid Triggers Criminal Liability – Criminal Law

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The CARES Act is unprecedented in size and scope, providing over $ 2 trillion in economic aid. However, the state nature of the support provided by the CARES Act could trigger liability under a number of laws.

Government officials have sent strong signals that they will rigorously enforce aid requirements under the Coronavirus Relief, Relief and Economic Security Act. In late April, Treasury Secretary Steven Mnuchin promised that any company seeking to cancel loans in excess of $ 2 million would be scrutinized by the Small Business Administration, making any company that wrongly accepted the aid criminally liable will. And in early May, the Rhode Island federal prosecutor launched the first fraud prosecution for misconduct related to receiving government benefits under the CARES law. This prosecution is the first volley in an enforcement effort that is likely to take many years.

The CARES Act is unparalleled in size and scope, providing over $ 2 trillion in business promotion, assistance, credit, and relief to individuals, state and local governments, and businesses and corporations, large and small. However, this help is tied to many conditions – a complex web of requirements, conditions and prerequisites that regulate who can get help and what to do with the money.

Because the CARES Act is federal funds, prosecutors investigating misconduct have a wide range of legal tools that can be used to punish misconduct and fraud. Of course, the frequently raised postal and wire fraud laws may apply. However, the state nature of the support provided by the CARES Act could also trigger liability under a number of other laws.

Incorrect information and obfuscation: Favorite of the prosecutors, 18 USC §1001 knowingly and deliberately criminalizes false disclosure of material facts made in all matters within the jurisdiction of the executive branch. The withholding of an essential fact can also trigger a legal obligation to disclose the information that has not been disclosed. A recipient of assistance under the CARES Act could therefore violate Section 1001 if the information provided in their application for assistance is untrue.

The law on criminal misrepresentation: A person or company is violating the criminal law provisions of the False Claims Act by making or submitting a claim against the United States “knowing that the claim is false, fictional or fraudulent”. Significantly, a claim can be “false, fictitious, or fraudulent” if someone incorrectly certifies compliance with regulatory requirements or prerequisites. The CARES law requires many such certifications. For example, small businesses applying for loans under the law must, among other things, certify that the loans will be used to retain workers or to pay certain overheads.

Bank fraud: 18 USC § 1344 criminalizes fraud in a financial institution. Because many of the loans provided under the CARES Act are from a commercial lender and are only guaranteed by government agencies such as the SBA, fraud related to these loan applications can be prosecuted under the Bank Fraud Act. While garden variety postal and transfer fraud carries a punishment of 20 years in prison, charges of bank fraud carry a maximum penalty of 30 years. And even if bank fraud is not formally charged, the involvement of a financial institution in the criminal activity can result in an increase in the sentence when convicting other crimes.

Emergency services fraud: On March 13, President Donald Trump wrote a letter to the various cabinet departments declaring a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The CARES Act created a $ 45 billion Disaster Relief Fund to provide assistance under this statement. These measures create a clear opportunity for misconduct related to these funds to be prosecuted under 18 USC §1040, which criminalizes fraud and misrepresentation in connection with major disaster benefits. Section 1040 makes it illegal to forge, hide, or disguise any material fact by any trick, scheme, or device. It also criminalizes materially false, fictional or fraudulent statements or representations. Unlike generally applicable misrepresentation and fraud laws, conviction under Section 1040 requires that the fraudulent conduct or misrepresentation relates to a matter that includes benefits related to a national declaration of emergency. As with bank fraud, a conviction under section 1040 has a maximum prison sentence of 30 years and can result in a penalty increase even if other offenses are charged, but section 1040 is not.

The CARES Act gives American businesses much-needed relief as they face the economic challenges posed by the coronavirus. Because money is readily available and distributed over a very short period of time, the opportunities for fraud, waste, and abuse are numerous. And even well-meaning, well-meaning individuals can find themselves or their company in the crosshairs of a federal criminal police if they are not careful.

For many companies, the CARES Act may be the first time they accept federal funds. Even if assistance is urgently needed, companies should fully understand the regulatory requirements that accompany such assistance. Given the potential criminal consequences of misrepresentation and misrepresentation – under criminal fraud laws, the False Claims Act, and others – companies and individuals should carefully review the representations and attestations in their federal aid requests to ensure that all attestations are true and accurate . Although unintentional mistakes typically do not constitute a criminal offense, such mistakes can still attract the unwanted attention of federal regulators and investigators.

Originally published by The National Law Journal, June 2020.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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