April 1, 2022
Fraud Friday – PPP Lenders to be Investigated for Fraud Says DOJ
Nearly two years since the start of the Paycheck Protection Program, officials have been relentlessly pursuing fraud within the relief program, some studies indicating that around 15% of all the programs’ disbursements were fraudulently obtained or improperly made. While hundreds of borrowers have been charged with and prosecuted for PPP loans, the first criminal prosecution of a PPP lender occurred in March 2022.
The Department of Justice and the federal government have addressed the more flagrant cases of PPP fraud, but they are now shifting their focus to sophisticated cases of PPP fraud. Lender behavior throughout the program’s run is going to be under scrutiny, officials seeking to determine whether PPP lenders complied with all requirements.
One aspect of this new direction of investigation will involve reviewing PPP borrower fraud cases and evaluating whether lenders facilitated or assisted the fraud schemes. If any evidence of a lender supporting fraudulent activities is identified, the lender could face liabilities.
The government will continue examining PPP lenders’ compliance throughout the program to ensure the appropriate controls and procedures were followed. Lenders needed to prevent potential fraudulent borrowing, monitor borrower activity, and file suspicious activity reports when deemed necessary. Know-your-customer and anti-money laundering policies were to be enforced during PPP lending, and any compliance failures could lead to sanctions or liabilities.
Considering the higher rates of fraud seen within FinTech’s’ PPP loan portfolios, the government will closely inspect non-traditional lenders to confirm they met all program requirements necessary to participate in the Paycheck Protection Program.
Another aspect the government will assess is PPP lenders’ compliance with all applicable fair lending standards.
Although about 90% of PPP loans have applied for forgiveness, the conversation surrounding PPP is far from over as the Department of Justice opens the door to a new line of inquisition into PPP fraud. Now that the first PPP lender has been arrested and charged, there is potential for more to follow.
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