The Scramble to Stop Pandemic Loan Fraud

Banks filed an abnormally high number of reports of suspected business loan fraud in July, according to government data analyzed by the Project On Government Oversight (POGO). The surge in these suspicious activity reports to the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, coincided with the banks’ widespread disbursement of hundreds of billions of dollars’ worth of taxpayer-backed small business loans.

There were 1,044 reports in July 2020—nearly seven times the average number of monthly reports of suspected business loan fraud. It is the highest monthly number of suspected business loan reports in FinCEN’s database, which stretches back to the beginning of 2014. The July 2020 number rivals the total for the whole of 2015 when banks filed 1,263 reports of suspected business loan fraud.

The $660 billion Paycheck Protection Program (PPP), administered by the Small Business Administration, launched in April and expired on August 8. The program provided loans to small businesses to help them keep employees on payroll during the coronavirus pandemic. Through its economic injury disaster loan program, SBA has also disbursed another nearly $190 billion to businesses as of late August.

While a suspicious activity report is not definitive evidence of fraud, the FinCEN data casts doubt that there has been minimal fraud in the Paycheck Protection Program. The extent will likely not be known for a while as it can take time for law enforcement to investigate sophisticated fraud cases.

The Department of Justice has charged 57 people in PPP fraud cases to date.  Those individuals accounted for about $175 million in fraud.  The department said they have identified another 500 individuals who may have defrauded the program.

Officials said that banks assisted in identifying potentially fraudulent loans.  According to acting Assistant Attorney General Brian Rabbitt, banks and credit unions have been “strong partners” in their fraud efforts.  Financial institutions have assisted in the detection and investigation of “potentially fraudulent activity in connection with the PPP and other government aid programs and safeguarding taxpayer dollars by spotting fraud and freezing funds or accounts.”

Source: POGO, Politico, CNBC