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Apr 2020
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April 26, 2020

Out of the Frying Pan, Into the Fire? Potential Civil and Criminal Liability Related to CARES Act Financial Assistance

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides unprecedented economic relief to businesses, including many that never before received government support. However, those businesses may not appreciate that the benefits they receive are not risk-free. If enforcement efforts following the 2008 financial crisis are any guide, the government will aggressively enforce civil and criminal laws for years to come against those who commit fraud and abuse the CARES Act funds.

Potential Liability

CARES Act applicants are required to make various certifications regarding their eligibility for relief. These certifications subject the applicant to the civil False Claims Act (FCA). The FCA broadly targets those who submit or cause others to submit false claims to the government to obtain money or property.

The FCA allows the government and individual whistleblowers (called relators, who receive a portion of any recovered funds) to bring civil claims against alleged violators. The government may recover penalties of up to $23,331 for each false statement, plus damages equal to three times the amount of the false claim and the fees and costs of bringing the case. Violators also may be suspended or excluded from doing business with or receiving financial assistance from the government for a period of time.

Those who violate the civil FCA may also face criminal charges under one or more federal criminal statutes, including various statutes criminalizing fraudulent or false statements in connection with loan applications and federal programs, the mail or wire fraud statutes, and the general false statements statute. Defendants convicted under these statutes may be sentenced to prison and/or fines.

Mitigating Risk

To limit risk associated with receiving CARES Act funds, consider implementing the following best practices:
 
  • Consult legal counsel regarding the assistance for which you are applying.
  • Reiterate to your employees and representatives—especially those involved with your CARES Act funding request—the importance of complying with the law and acting with honesty and integrity.
  • Implement a reporting system for compliance-related concerns that encourages feedback and fosters an atmosphere of trust. Investigate reports promptly and implement effective remediation.
  • Truthfully and transparently complete all CARES Act-related documentation, including documentation necessary for loan forgiveness. Assume that third parties may obtain your submissions using the Freedom of Information Act.
  • Understand and implement controls to ensure that you follow all compliance requirements associated with the funds you receive. Monitor government guidance to ensure that you comply with any new compliance requirements. Do not use CARES Act funds for impermissible purposes.
  • Keep good records regarding the steps you take throughout the process, including the basis for your statements and certifications as well as your ongoing compliance efforts.
  • If you have any doubts about the propriety of your actions or if you are facing an audit or investigation, engage competent counsel.

Warner’s White Collar Criminal Defense and Investigations Practice Group is prepared to help you navigate these issues. If you have any questions, please contact Brian Lennon, Madelaine Lane, Charlie Quigg or Katelyn Crysler.

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