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Novel Methods Used by Prosecutors to Combat Pandemic Fraud

Federal prosecutors are working relentlessly to recover billions of dollars in pandemic aid from individuals who fraudulently obtained funds from government programs meant to support the economy during Covid shutdowns.

To tackle the widespread fraud, prosecutors in different districts are adopting various strategies. Some are screening individuals suspected of violent crimes to identify potential involvement in pandemic fraud schemes. Others are assembling “strike force teams” to dismantle sophisticated fraud enterprises. There is also a collaboration with local officials to identify potential fraudsters in specific areas.

The federal government is exploring innovative approaches to uncover the magnitude of fraudulent claims made during the pandemic. Many relief programs were designed to provide funds quickly with minimal proof required, resulting in a significant number of fraudulent claims. The Small Business Administration’s inspector general estimates that more than $200 billion, approximately 17% of the $1.2 trillion in pandemic loans disbursed by the agency, went to “potentially fraudulent actors.” So far, nearly $30 billion has been seized or returned to the agency.

Thousands of investigations are still ongoing, with the Labor Department’s inspector general currently handling about 160,000 open investigations focused on unemployment-insurance fraud related to the pandemic.

However, detecting and prosecuting those who defrauded pandemic-relief programs pose significant challenges due to the vast scale of fraud. Despite the obstacles, over 2,230 defendants have been charged by the federal government for pandemic-related fraud schemes and offenses. More than 550 convictions have been secured, specifically for fraud connected to the Paycheck Protection Program and the Economic Injury Disaster Loan program.

According to Michael Galdo, the acting director of Covid-19 fraud enforcement at the Justice Department, U.S. attorney’s offices have been granted significant autonomy to determine the most effective strategies for catching fraudsters. As a result, a wide array of approaches is being employed across different districts.

In the Northern District of Mississippi, officials from the U.S. attorney’s office are visiting individual counties and asking local officials to review lists of people who received pandemic loans. This method has aided in uncovering numerous cases that the district lacked the resources to criminally prosecute. Consequently, civil cases are pursued in many investigations involving smaller loans.

Civil cases have become critical because the financial consequences can be severe. Under the federal False Claims Act, individuals involved in civil fraud cases may be required to repay three times the amount of the stolen loan, along with penalties and fees. Although the stolen money is often already spent, most fraudsters agree to return the full amount through a repayment plan.

In Maryland, officials at the U.S. attorney’s office are scrutinizing new suspects of violent crime and illegal possession of firearms for potential pandemic fraud. This method enables the pursuit of investigations that would otherwise be beyond their capacity.

Establishing “strike force teams” has been another significant approach taken by the Justice Department to combat pandemic fraud. These teams, operating in various U.S. attorney’s offices, use a data-driven approach to identify large-scale fraud schemes. They collaborate with the F.B.I. and other federal agencies to analyze databases for patterns of suspicious activity. This strategy helps reveal the broader scope of fraud schemes that may not be apparent when examining individual loan applications.

Investigations into pandemic fraud have involved multiple agencies, including hundreds of inspectors general offices and agents from the F.B.I., the Secret Service, the Postal Inspection Service, Homeland Security Investigations, and the Internal Revenue Service Criminal Investigation.

Brian Miller, the special inspector general for pandemic recovery, anticipates uncovering new leads in the coming years as more borrowers default on pandemic loans. He emphasizes the need for continued funding for his office beyond 2025, as default rates on interest payments for certain programs have been alarmingly high.

Michael Horowitz, the Justice Department’s inspector general and chairman of the Pandemic Response Accountability Committee, predicts a shift towards prosecuting lower-dollar fraud cases in the future. Despite being lower in value, these cases still account for substantial amounts compared to ordinary times.

As the fight against pandemic fraud continues, prosecutors are employing innovative methods to recover funds and bring perpetrators to justice.

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