Congress Looks to Private Sector to Recover Pandemic Loans Lost to Fraud

WASHINGTON — Shocking new figures on how much of the COVID-19 pandemic relief bailout funds went to fraud prompted a U.S. House committee on Wednesday to consider private sector strategies to recover more of the money for the government.

The Small Business Administration recently estimated that about $200 billion, or 20% of its Paycheck Protection Program loans were paid to fraudsters who never should have received the money.

At the current pace, investigating all the 11.4 million loans intended to help businesses survive the economic downturn during the pandemic would take about 100 years, according to government estimates.

“It is clear that we cannot continue with business as usual,” said Rep. Roger Williams, R-Texas, chairman of the House Small Business Committee.

So far, about $30 billion has been recovered through Justice Department enforcement action.

Lawmakers at the hearing Wednesday made it clear they were not going to concede the rest of the money to swindlers who often used the money to fund lavish lifestyles. Some purchased luxury cars, vacations or second homes.

“We cannot allow the American taxpayer to be on the hook for $200 billion,” Williams said.

If law enforcement is too ponderous and ineffective, what’s better, Williams and other members of the House committee asked financial industry experts.

Dean Zerbe, managing director of the business consulting firm Alliantgroup, suggested wider use of whistleblowers.

Whistleblowers refer to persons, such as employees, who reveal information to government investigators about activity within an organization that is illegal, unsafe or fraudulent. Typically they receive rewards, either a fixed amount or a percentage of the money the government recovers from persons who committed the fraud.

So far, the Justice Department has relied mostly on traditional law enforcement tactics, such as FBI investigations.

“The whistleblowers give you the keys to the kingdom in terms of what’s going on,” Zerbe said.

He mentioned an example from the Internal Revenue Service, which did not realize the extent of tax fraud by persons shifting money to overseas accounts until the agency was informed by whistleblowers.

J.T. Taylor, director of fraud investigations for the identity theft protection firm ID.me, said much of the pandemic loan fraud could have been avoided with better verification of loan applicants.

Identity thieves would sometimes steal personal information of business owners who could rightfully qualify for the loans, then use the information to divert the government money to themselves. A better online method for identifying the thieves could have stopped them, Taylor said.

“It’s about ID verification at the front end,” Taylor told the committee.

By waiting to recover the money after it was paid out, the government might have lost its opportunity for compensation, said Linda Miller, chief executive officer of Audient Group, an anti-fraud and cybersecurity firm.

“It is water over the dam,” she said.

Some of it went to foreign countries that would be unwilling to cooperate with U.S. investigators.

When the Trump administration announced the Paycheck Protection Program loans, “Those of us in the fraud world saw this as a field day for bad actors,” Miller said.

She recommended an amnesty program that would allow persons suspected of fraud to return the money without risk of prosecution. If they refused, they could face criminal charges and be forced to pay back the original amount plus fines.

Congress already has taken some steps toward more aggressive prosecution, such as extending the statute of limitations from two years to 10 years from the time of the fraud.

Others are pending, such as a bill to require the Small Business Administration to set up an internet link for reporting suspected pandemic loan fraud. A second bill would ban anyone convicted of defrauding the government from receiving Small Business Administration assistance.

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