In this article, we'll discuss the following topics:
- Understanding the PPP Loan Program: A Look at the Intent and Use
- Conspiracy and Attempt to Defraud the United States
- Exploring 18 U.S.C. 371
- Understanding 18 U.S.C. 1349
- Arizona's Approach to Federal Fraud Cases: ARS and Its Application
- How a Conspiracy Charge is Proven in Federal Court: The Role of Evidence
- Consequences of PPP Loan Fraud: What's at Stake?
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Understanding the PPP Loan Program: A Look at the Intent and Use
When the COVID-19 pandemic resulted in a massive closure of businesses, the federal government swiftly introduced the Paycheck Protection Program (PPP). This program offered loans that could be forgiven if used to retain employees and avoid layoffs.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was tailored to assist individuals and businesses impacted by the COVID-19 pandemic. Despite its good intentions, the PPP depleted its funds rapidly, leaving numerous qualifying businesses without assistance.
Conspiracy & Attempt to Commit PPP Loan Fraud
This swift deployment resulted in a significant volume of fraudulent claims, with an estimated $76 billion reported in false PPP loans.
In response to this fraudulent activity, the federal government heightened its efforts to identify and penalize PPP loan fraudsters. This crackdown was so rigorous that individuals alleged to have tried to commit PPP loan fraud faced federal charges, regardless of whether their loan applications were successful.
To combat the risk of fraudulent actions associated with the PPP, the United States Department of Justice implemented an extensive federal investigation. The objective was to detect and prosecute anyone taking advantage of the program.
PPP loan fraud typically involves an individual or business providing incorrect information on their application for a PPP loan.
Those now facing federal charges for PPP loan fraud and other violations under the CARES Act are predominantly prosecuted under either or both of the following federal laws:
Exploring 18 U.S.C. 371
This statute concerns any conspiracy aiming at a federal offense against the United States or any form of fraud or deception perpetrated against it.
Federal officials and prosecutors may focus on an individual or business that breaches the stipulations of the PPP program through the following actions:
- Providing incorrect information on a PPP loan application
- Applying for a PPP loan from multiple lenders, a practice known as loan stacking
- Certifying a loan dishonestly
- Utilizing PPP funds for unauthorized purposes
- Giving false information to federal agents during a PPP loan fraud examination
For a conviction under this law, the government needs to provide evidence that you conspired with one or more individuals to carry out an illicit act and that you took some steps toward its execution.
Regarding PPP loan fraud, federal prosecutors must demonstrate that you and at least one other individual intentionally planned to either submit deceitful PPP loan applications or misuse the funds contrary to their designated purpose.
Businesses that falsify information on their loan applications to claim eligibility illegitimately may be subjected to criminal prosecution.
Misrepresentations on the application could include:
- Overstating the number of employees (many businesses need to have 500 or fewer employees to qualify)
- Mislabeling employees as independent contractors
- Falsely claiming that the business met the small business eligibility criteria
- Inflating the business's payroll costs to secure a larger loan
Moreover, making false statements to a financial institution, prohibited under 18 U.S.C. 1014, includes providing false information on a loan application or in the documents necessary for loan qualification.
Understanding 18 U.S.C. 1349
This statute pertains to any fraudulent activities under Chapter 63 of the Federal Criminal Code.
18 U.S.C. 1349: Attempt and Conspiracy, the law is straightforward: "Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy."
Federal law equates the attempt to commit fraud to successful fraud, carrying identical penalties. This law has a broader scope than 18 U.S.C. 371 as it encompasses conspiracies involving two or more individuals and solo fraud attempts.
Remember that these two federal laws work in tandem to deter and punish attempts to defraud government programs like the PPP.
Arizona's Approach to Federal Fraud Cases: ARS and Its Application
While fraud is generally prosecuted at the federal level, Arizona has its own laws and penalties for fraud. The Arizona Revised Statutes (ARS) outline different types of fraud, including fraudulent schemes (ARS 13-2310) and forgery (ARS 13-2002).
But, it's essential to remember that PPP loan fraud will primarily be prosecuted under federal law due to the nature of the program.
How a Conspiracy Charge is Proven in Federal Court: The Role of Evidence
In a federal court, proving a conspiracy charge requires presenting convincing evidence that demonstrates the existence of an agreement between two or more individuals to commit a crime.
To establish a conspiracy, the prosecution must introduce evidence that shows the defendant's intent to participate actively in the illegal activity. This can be achieved by presenting witness testimonies, surveillance recordings, wiretap transcripts, or any other documented communication indicating the defendants' involvement in planning or coordinating unlawful actions.
Additionally, the prosecution must demonstrate that the defendants took at least one overt act to further the conspiracy, evidence such as communications between conspirators, fraudulent loan applications, and false documents used to support these applications.
While direct evidence of an explicit agreement is not always required, circumstantial evidence like behavior patterns, financial transactions, or shared associations can also prove a conspiracy charge.
Ultimately, the jury assesses the weight and credibility of the evidence presented by the prosecution, determining the defendant's guilt or innocence. Remember that federal and Arizona state law requires a high standard of proof to convict a person of conspiracy.
Consequences of PPP Loan Fraud: What's at Stake?
Using the combination of the two statutes, the federal government can impose severe penalties on both those who have committed PPP loan fraud and those who have conspired or attempted to.
Penalties Tied to PPP Loan Fraud
A conviction for conspiracy under 18 U.S.C. 371 can lead to a maximum prison term of 5 years per count and fines that can reach up to $250,000, irrespective of the success or failure of the plot.
The repercussions for a conviction under 18 U.S.C. 1349 can vary extensively, depending on the crime you're accused of.
If the PPP loan fraud is categorized as 18 U.S.C. 1344 bank fraud, for instance, you could face up to 1 year behind bars. Conversely, if it's characterized as 18 U.S.C. 1343 wire fraud, your prison term could escalate to 20 years.
In both scenarios, 18 U.S.C. 1349 posits that the same penalty applies whether you attempted to commit PPP loan fraud or managed to execute it successfully. If you were successful, the money you fraudulently obtained would also need to be reimbursed.
The Kolsrud Law Office is Here to Build your Defense
If you are facing a PPP loan fraud charge, seek counsel immediately. The earlier an attorney gets involved, the more opportunities to shape the case's outcome. Don't let a charge of PPP loan fraud derail your life—seek expert legal help from the Kolsrud Law Office today.
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