If the Biden administration's early moves are any indicator, its Department of Justice (DOJ) is poised to devote more time and energy to the prosecution of white-collar crime than it did under the Trump administration, when such enforcement declined significantly. While it is still early, three focus areas have already emerged: fraud and abuse involving the Paycheck Protection Program included in the Coronavirus Aid, Relief and Economic Security (CARES) Act, health care fraud and public integrity and civil rights enforcement.
Paycheck Protection Program Fraud and Abuse
Fraud and abuse related to the Paycheck Protection Program (PPP) is expected to receive much attention from DOJ in the months and years to come. PPP was designed to help small businesses cover certain expenses such as payroll, rent, mortgage payments and — based upon more recent amendments to the enabling legislation — uninsured property damage caused by looting or vandalism during 2020, as well as certain supplier costs and expenses for operations. The intent was to assist small businesses that are essential to America’s economic rebound from the global COVID-19 pandemic. However, allegations of fraud and abuse in the PPP program have been rampant, as have allegations that unqualified borrowers were able to obtain these government funds.
The rapid and decisive manner in which DOJ began and continues to enforce alleged PPP fraud and abuse is virtually unprecedented. White-collar enforcement is usually a drawn-out process. However, as discussed in our previous alerts: “PPP Data Dump Places Loan Forgiveness Applications Under a Microscope” and “PPP Loan Fraud Enforcement 2.0: Preparing for the Next Round of Scrutiny,” studies of PPP released by Congress and other government watchdog groups in late 2020 pointed to higher than usual risk for fraud, waste and abuse in the program. This much-reported “smoke” ensures prosecutors will be looking for the fire as the Biden administration takes over DOJ.
The allegations of borrower abuse are relatively well known by this point: companies that impermissibly received more than one PPP loan; errors in maximum loan calculations resulting in millions more than borrowers were entitled to receive; disqualified borrowers entering the program notwithstanding their debarments; borrowers allegedly using PPP money for luxury items and other impermissible expenses; and in the most egregious cases, allegations of borrowers using fake business entities to fleece the government.
The Biden administration may also focus its attention on banks of all sizes that were the conduits through which the PPP was administered. Small Business Administration (SBA) guidance states that lenders could rely upon borrower representations made on PPP application forms. However, investigators appear to be honing in on whether lenders knew or should have known that certain information on borrowers’ applications was inaccurate or false. In December, the SBA appeared to blame lenders for missing and misleading information on borrowers’ applications, stating: “PPP loan data reflects the information submitted by lenders to the SBA for PPP loans. Approximately 75% of all PPP loans did not include any demographic information at the time of loan application. The loan forgiveness application expressly requests demographic information for borrowers so that SBA can better understand which small businesses are benefiting from PPP loans.” There is little doubt that DOJ’s scrutiny of PPP will not stop at borrowers.
In addition, the Biden administration has accused the Trump administration of allowing big banks to provide concierge treatment to their larger, existing customers related to PPP, while mom-and-pop small businesses struggled to obtain relief. That, coupled with the fact that lenders will inevitably receive subpoenas and other compulsory process for information associated with borrowers in DOJ’s crosshairs, means that America’s lending institutions are about to see a sizeable uptick in their level of contact with federal law enforcement.
In just a short time since PPP began, DOJ is has gone on the offense against PPP fraud and abuse, including during the final months of the Trump Administration. If the recent public statements from President Biden about the need to ensure PPP funds make it into the right hands are any measure of things to come, the trend is likely to accelerate dramatically. PPP fraud and abuse prosecutions may be the new kid on the block as we enter a new administration, but there is little question that they are here to stay for the foreseeable future.
Health Care Fraud
According to National Health Care Anti-Fraud Association data, health care fraud and abuse costs the United States between 3% and 10% of its total health care spending. For perspective, the U.S. spends an estimated $2.32 trillion a year on health care.
Health care fraud prosecutions provide a serious return on investment. A 2020 DOJ report found a total of $2.6 billion in total judgments and settlements entered in favor of the government for health care fraud in 2019, an increase of $300 million over 2018. The same DOJ report indicated that approximately $3.6 billion was actually recovered in 2019 through civil and criminal health care prosecutions including sums realized by the government for judgments entered in prior years and a sizeable amount for payments made to qui tam relators. The vast majority of funds realized by the government through health care enforcement actions is returned to the Medicare Trust Fund.
DOJ’s statistics estimate a total return of $4.20 for every $1 it spends on health care fraud enforcement. The S&P 500 averaged an annual return of 13.6% in the decade between 2010 and 2020, while the government realized an annual 420% return on its investment in health care prosecutions. Health care investigations are not going anywhere for the foreseeable future.
The government’s efforts are facilitated by a robust civil and criminal regulatory framework in which lines between parallel civil and criminal enforcement efforts are often blurred. The DOJ has separate civil and criminal divisions, but when it comes to health care investigations, they are difficult to immediately differentiate. Health care fraud task forces comprised of civil and criminal components are the norm, and civil information-gathering tools such as the Civil Investigative Demand are utilized by the government to gather information about investigative targets with ease due to the relatively permissive scope of civil discovery tools compared with their criminal counterparts. That information is readily shared between criminal and civil components at DOJ, and the result is a perilous minefield for those in the health care arena.
The COVID-19 pandemic’s ongoing toll on the health care industry is sure to contribute to a continued deluge of health care cases. The anxious public is at a heightened risk of being lured into health care schemes. The DOJ and federal partners such as the Department of Health and Human Services, Food and Drug Administration, and the Federal Trade Commission are all policing allegations of consumer-facing COVID-19 fraud and abuse. Similarly, the increased strain on the health care system brought about by the pandemic portends an increased focus on government reimbursement-related health care fraud as well. The prior administration relaxed a number of regulations associated with Medicare and Medicaid billing practices to accommodate the dramatically increased demand for health care services generated by COVID-19. These changes affect what the government calls “program integrity” because the regulations that were relaxed are designed to limit opportunities for fraud and abuse, for example, rules surrounding prior authorizations for referrals and the need to place certain physician orders in writing. With health care already making up a sizeable percentage of enforcement activity pre-pandemic, there is every reason to believe the trend will accelerate as a result of the pandemic.
Public Integrity and Civil Rights
The summer of 2020 was marked by widespread protests over the videotaped killing of George Floyd at the hands of Minneapolis police. The public outcry, an escalation of years of calls for more oversight of policing in America, has inspired Congressional legislation that proposes increased accountability for law enforcement. Among them is the federal George Floyd Justice in Policing Act, which seeks to address a range of policies and issues regarding policing practices and law enforcement accountability, including measures to increase accountability for misconduct, to enhance transparency and data collection, and to eliminate discriminatory practices. If enacted, this legislation will likely result in a significant uptick in federal cases against those in state and federal law enforcement around the country. On March 4, 2021, the House of Representatives passed the bill by a narrow margin, setting the stage for a showdown over its ultimate passage in the Senate. President Biden commended the House’s action on the legislation, signaling that he would sign the bill if it reaches his desk.
The bill facilitates federal enforcement of constitutional violations by state and local law enforcement. Among other things, the legislation lowers the criminal intent standard—from “willful” to “knowing or reckless”—to convict a law enforcement officer for misconduct in a federal prosecution; limits qualified immunity as a defense to liability in a private civil action against a law enforcement officer or state correctional officer; and authorizes DOJ to issue subpoenas in investigations of police departments for a pattern or practice of discrimination. The bill also creates a national registry to compile data on complaints and records of police misconduct and seeks to eliminate racial profiling with a uniform framework to prohibit the practice at all levels of law enforcement. If passed, it is expected that it would immediately be put to work by DOJ.
Remarks by recently confirmed Attorney General Merrick Garland also signal a renewed focus on issues of public integrity and civil rights. Indeed, at the press conference announcing his nomination, Garland invoked the historical context in which the DOJ itself was founded in 1870, as a means to enforce Reconstruction and ex-slaves rights, and of the formation of its Civil Rights Division 1957 as part of the Civil Rights Act.
While DOJ’s toolkit to ensure public integrity and civil rights is already vast, it is likely that the public outcry for a sweeping overhaul of our nation’s law enforcement system will result in some form of significant legislation. This will undoubtedly lead to a host of new prosecutorial activity in this arena
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