Notebook, IRS PPP Loan Application form and 100 dollar bill

What Is the Penalty for PPP Loan Fraud?

The penalty for PPP loan fraud can be 30 years of imprisonment or fines as high as $1 million dollars, and in some cases, both. While the federal government has long pursued financial crimes such as tax fraud evasion, now it’s putting serious resources into cracking down on PPP Loan fraud. The federal government may also elect to bring a civil enforcement case. In such noncriminal cases, the government typically seeks fines of $11,000 to $22,000 for each infraction.

Prosecution for Paycheck Protection Program Fraud

The Paycheck Protection Program, or PPP, was administered by the Federal Small Business Administration, which loaned billions of dollars to U.S. businesses during the recent pandemic. The program had specific requirements about the kinds of businesses that were eligible and relied on applicants’ truthfulness. Given the interstate nature of the program and the involvement of banks, when PPP loan fraud is detected, the federal government, through the Department of Justice (DOJ), has jurisdiction to prosecute such cases.

Federal Penalties for Fraud

The DOJ has in its arsenal numerous federal statutes to charge individuals when it uncovers PPP fraud. Federal laws typically carry hefty fines and prison terms. Statutes often used by DOJ in PPP loan fraud cases include:

  • Bank Fraud (18 U.S.C. §1344): Maximum prison term 30 years and/or maximum fine $1 million dollars
  • False Statement to SBA or Financial Institution (18 U.S.C. § 1014): maximum prison term 30 years and/or maximum fine $1 million dollars
  • Wire Fraud (18 U.S.C. §1345): Maximum prison term of 30 years (if victim is financial institution) and/or maximum fine of $1 million dollars
  • Mail Fraud (18 U.S.C. § 1341): Maximum prison term 30 years (if victim is financial institution) and/or maximum fine $1 million dollars

Why Are the Penalties for PPP Fraud So High?

The government may choose to charge a defendant in a PPP loan fraud case with violating more than one federal statute. Each of the laws poses a substantial risk of prison and fines. If a person participates in a PPP loan fraud, acts such as applying for the loan, depositing the money into a bank account, and communicating with others about setting up the fraudulent business, each run afoul of different federal laws. Those laws would include making false statements to the Small Business Administration, Bank Fraud, and Wire Fraud.

In addition, federal prosecutors may charge multiple counts under a single statute for each individual act that furthered the fraud. In a typical PPP Loan fraud case, the defendant could be charged with multiple statutory violations, and multiple counts of each particular statute.

Fines Add Up in a Scheme to Commit PPP Loan Fraud

The federal government considers many acts taken by the target of a PPP loan fraud investigation in determining what charges to bring. Some of these acts may seem brief, such as sending a text message or making a phone call. Yet, when they are done in furtherance of the fraud, each act may be charged, for example, as a separate count for wire fraud, carrying its own prison term and financial penalty.

As a further example, transactions at a bank made as part of a PPP loan fraud scheme might be charged as multiple counts of Bank Fraud indictment, adding to the severity of the case. Some of the business’s transactions possibly may be used to support a charge of money laundering, which carries a penalty of 20 years in prison and fine of $500,000 (or twice the value of the property involved). The government often looks for nonelectronic communication such as ordinary mail (including private means like FedEx).

Overall, each act furthering the fraud may become grounds for a count in the indictment.

Experienced Fraud Defense Attorneys Can Make a Huge Difference

The penalties for PPP loan fraud are serious. However, the penalties are not written in stone. Federal judges have discretion in sentencing; they use a complex set of rules called the Federal Sentencing Guidelines. At the end of the trial, the prosecutor and defense lawyer submit recommendations on what the sentence should be. Moreover, many cases don’t go to trial; they are resolved in negotiations between defense attorneys and DOJ prosecutors. Therefore, having experienced counsel with a solid reputation is very important.

Ayar Law attorneys are longtime practitioners in Michigan’s federal courts; our tax defense lawyers can represent you in such negotiations and at trial if the case proceeds. Our founding attorney Venar Ayar is a respected member of the federal bar, a Martindale-Hubbell AV Preeminent and AVVO 10.0 Top Tax lawyer. See how we can help – call today for a confidential consultation.