What is PPP Loan Fraud?

When the pandemic hit in 2020, our world became chaotic overnight. Throughout the nation, individuals were met with layoffs or stringent checks—pushing the financials of families to their breaking points. Simultaneously, business organizations faced similar issues; because fewer bodies were allowed in the same area, production trickled to a minimum, niche clients limited their spending, and small businesses counted the days until their doors closed. 

The second half of the pandemic was not as bleak as the preceding months; by then, our government had scrambled back to its feet. Individuals and their families applied for stimulus checks; government officials sent 476 million of these financial relief checks to those in need, totaling over $814 billion. However, these checks weren’t the only relief issued. Organizations nationwide applied for Paycheck Protection Program (PPP) loans to ease the pains; these loans saved an estimated 2 to 3 million job-years worth of employment and mitigated some of the financial damage caused by COVID-19. 

Although PPP loans and stimulus checks were financial relief alternatives during the latter portion of COVID-19, they subsequently had differing elements. For example, PPP loans were large sums of money meant to bolster a business; the funds could be for supporting wages, ongoing healthcare, or breaking even on production expenses. In comparison, stimulus checks allowed families to retain their homes, continue buying groceries, and, sometimes, grant hefty savings. The PPP closed at the end of May 2021; since then, officials have worked to identify and respond to the growing rash of PPP fraud incidents—many stemming from funds misappropriation and malicious events. 

What is PPP Loan Fraud?

Business owners and verified consumers may have obtained PPP loans to help mitigate the financial stress of COVID-19; they would have needed to confirm their identity and business obligations and pass a verification process that needed an outline explaining the disbursement of those potential funds. Additionally, because some PPP loans can be forgiven rather than repaid, many applicants may have relied upon forgiveness to settle the debt between their organization and the government.

PPP loan fraud happens when an individual or organization willingly submits false information when applying for a loan disbursement or asking for forgiveness for that loan. Authorities also consider the violation of one or more of the PPP requirements to be fraudulent. Some examples of these fraudulent PPP crimes include: 

• Making false statements during a subsequent PPP loan audit or investigation, including the forging of documents or the manipulation of those document files.
• Using the disbursement funds from the loan in an unapproved manner or for direct personal gain (this may be considered embezzlement in some circumstances). 
• Applying to multiple loan entities to “stack” the potential fund disbursements may be considered the misappropriation of government or organizational resources. 
• Submitting false documentation when requesting forgiveness from a PPP loan (this includes the authorization or goods/services not received and unearned wages.)

Criminals Can Use Your Identity for PPP Loan Fraud

In 2021, the US Department of Justice charged hundreds of people with fraudulent attempts to obtain over $569 million worth of loan funds. While some of these cases derived from the financial vampires of organizations, some of these schemes also came from cyber criminals. These online criminals took advantage of the pandemic response by misusing the stolen identity data of victims; criminals abused data elements like full names, residential and business addresses, dates of birth, and Social Security Numbers when applying for loans. Worse, many of these victims would not have known that criminals misused their data in a fraud event until later when the auditors came around.

Those with stolen identity elements may have become victims in various ways; cybercriminals may have put their information online for others to purchase; those criminals could have created fraudulent financial accounts using that data to siphon money out of the US; or the data could have been used in brute force attacks—bringing down government websites and their securities. No matter how the criminals misused the data, authorities may blame the victim for the fraudulent activity.

Who Investigates PPP Loan Fraud?

Four federal organizations are investigating PPP loan fraud; each has different abilities regarding the restriction of an organization’s financial entitlements and how they obtain evidence to build a case against a defendant. The four federal entities can work together to build compelling fraud cases, but they may alternatively choose to work independently—particularly in circumstances involving foreign accounts.

The lesser federal entities involved in bringing charges to fraudsters are the Small Business Administration Office (SBA) and the Department of Justice Criminal Division (DJCD) fraud sector. Both agencies prioritize auditing those who applied and received relief from the PPP; consequently, if one of these agencies deems an individual’s disbursements were ill-earned or fraudulent, the victim (or malicious actor) may find themselves in conversation with the two more significant federal entities.

The Federal Bureau of Investigation (FBI) is one of these more prominent entities; they conduct investigations into those suspected of committing fraud and build compelling cases to bring those bad actors to court. The other significant entity in these cases is the Internal Revenue Service (IRS) criminal division; as far as the IRS is concerned, PPP loan fraud is a classification of tax fraud—consequently, the crimes hold similar punishments. 

What are PPP Loan Fraud Charges? 

The four entities listed above often bring multiple charges to a defendant and ask for reparations regarding the most egregious crimes. Depending on how the bad actors obtained and used the funds determines the classifications of charges; so is PPP loan fraud a felony? It depends on many factors, including where the fraud took place and who was impacted by its consequences. Some of the most common criminal charges for PPP loan fraud include:

• Attempt: where a person has submitted a fraudulent PPP loan disbursement or forgiveness application to work around set entitlement policies. 
• Conspiracy: where a person has created or is involved with making or planning fraudulent activities involving another organization for typically monetary gains. 
• False Claims Act Violations: where a person submits false information to take advantage of disbursements or forgiveness programs associated with federal loans. 
• False Statements to the SBA: where a person submits false or misleading data to the SBA to wrongfully obtain PPP or Economic Injury Disaster Loans entitlements.
• False Statements to an FDIC Bank: where a person submits falsified data to obtain loan entitlements, regardless of whether they enter the data directly to the SBA.
• False Statements to Federal Agents: where a person facing federal audits makes false claims to those investigating agents, regardless of whether it was “accidental.”
• Bank Fraud: when an organization entity submits a false PPP application to obtain monetary entitlements or otherwise defraud the financial institution.
• Wire Fraud: when an individual or organization involves Internet communications to execute a scheme or fraudulent activities under pretenses or false promises. 
• Tax Evasion: where the PPP loan-receiving entity obtained the money under pretenses, then attempted to claim deductions on expenses paid with the funds.
• Aggravated Identity Theft: when a malicious actor uses information that is not theirs to fraudulently obtain PPP loan money or otherwise benefit from the program.

How to Safeguard Your Identity from PPP Loan Fraud

Unless the victim can prove they weren’t involved in a criminal’s activities—authorities may blame them and force them to face the consequences. These consequences can include thousands of dollars worth of fines and a few decades of imprisonment, depending on the charges and the issuing state. The increase in cybercriminals opting to sell data on the dark web exacerbates the issue, putting more individuals at risk of being falsely implicated in crimes they didn't commit due to their stolen identity information.

Victims of identity fraud may face the potential consequences of a criminal’s activity. They shouldn’t wait to find out if a criminal misuses their data—they should be actively avoiding the misuse of it. Potential victims must consider taking preventative steps before their identities can be misused, including:

• Adopting and maintaining strong passwords for all accounts is crucial, regardless of if they were directly involved in a data or security breach. Once the information is exposed, it could be misused to create more victims, especially if the credentials are the same between accounts or organizations.
• Banks and financial entities must be notified about the potential for fraud using your information; unless told, there is no way for them to determine if a request is from the account holder or a malicious actor. 
• Users must adequately enable antivirus and security software and configure it to stop malicious entries to an account; this includes using complex passwords for all applications and accounts and using one-time tokens wherever available. 
• In the past, two-factor authentications (2FA) were enough to deter some criminal activity, but that’s no longer true. Now, business leaders and users must enable multi-factor authentication with as many layers of protection as possible.
• They can file a report with authorities like the FTC and law enforcement agencies. These entities will also provide helpful plans and mitigation opportunities for victims. 

How Can You Report PPP Loan Fraud Anonymously? 

Anyone can make a PPP loan fraud report, but how they do this is determined by their ultimate goals in reporting the activity. Those who want to remain anonymous in their reporting can make anonymous tips to the Office of the Inspector General (OIG), which works closely with the SBA; however, the anonymity may make it difficult for them to investigate the complaint thoroughly. Additionally, the reporting individual may not receive updates on the investigation since officials cannot contact them. 

Alternatively, reporting individuals can choose to make their report and connect their name to it—this is a preference often chosen by victims of fraud. Since the investigating entity would know the necessary contact data of the victim, they subsequently would keep the victim up to date with the investigation.