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10-Year Statute of Limitations Established for Paycheck Protection Program Loan Fraud

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

On August 5, 2022, President Biden signed the PPP and Bank Fraud Enforcement Harmonization Act of 2022 (HR7352) that establishes a 10-year statute of limitations for criminal charges and civil enforcement against a borrower who engages in fraud with respect to a Paycheck Protection Program loan.

Background.

The CARES Act established the Paycheck Protection Program (PPP) which permitted the SBA to provide loans to qualified businesses impacted by the coronavirus (COVID-19) pandemic. The 100% federally guaranteed loans must be used for payroll and certain non-payroll costs. The Consolidated Appropriations Act 2021 (CAA, 2021) included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) that authorizes additional funding to the program and extended the program until March 31, 2021. The Economic Aid Act also expanded access to First Draw PPP Loans to other entities, expanded additional eligible expenses, clarified terms, and authorized Second Draw PPP Loans for smaller borrowers. See Payroll Guide ¶20,913.

PPP fraud.

During the course of the program, over 8.5 million employers received PPP loans to cover payroll costs and nonpayroll costs during the COVID-19 pandemic. Despite helping many businesses, some bad actors took advantage of the program to claim funds fraudulently. The Office of the Inspector General (OIG) issued a report in May that identified more than 70,000 loans totaling over $4.6 billion in potentially fraudulent PPP loans. The OIG found that the SBA lacked the organizational structure to combat PPP fraud throughout the implementation of the program. Further, the OIG found that the SBA did not provide sufficient guidance to lenders on how to identify, track, address, and resolve potentially fraudulent PPP loans. During the OIG’s review, the SBA established the Fraud Risk Management Board tasked to coordinate fraud risk prevention, detection, and response activities.

The need for a 10-year statute of limitations.

Congresswoman Nydia M. Velazquez (D-NY-7), sponsor of the bill, stated the 10-year statute of limitations would provide the time needed to “bring fraudsters to justice.” The bill harmonizes the statute of limitations to address PPP fraud. The House Committee on Small Business noted that multiple reports have found that financial technology (fintech) companies and their lending partners handled as much as 75% of PPP loans connected to fraud by the Department of Justice, despite facilitating only 15% of the overall loans. While bank-related fraud has a statute of limitations of 10 years, fintech original loan fraud has a five-year statute of limitations. The Act addresses that discrepancy and affords agencies more time to pursue these fraudsters.

Continued PPP fraud investigation.

SBA Administrator Isabella Casillas Guzman stated that dedicated teams in the SBA are working with the OIG to “track down the people who abused these relief programs so they can be held accountable…[the] legislation extends the runway for those investigations and the prosecutions they support.”

 

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