DOJ Announces Additional Steps to Combat COVID-19 Related Fraud

Download

Authors: Henry P. Van Dyck , Erica H. MacDonald , Joelle Groshek , Meaghan V. Geatens

In a press release issued on September 14, 2022, the U.S. Department of Justice (DOJ) announced additional enhancements to its initiative to combat COVID-19 related fraud. Expanding on Attorney General Merrick Garland’s existing COVID-19 Fraud Enforcement Task Force, which was established in May 2021, DOJ’s most recent addition to the initiative includes the introduction of three Strike Force teams, which have been established in several locations across the country. The Strike Force teams are based in U.S. Attorney’s Offices in the Southern District of Florida, the District of Maryland, and jointly between the Central and Eastern Districts of California.

The Strike Force teams will be led by Assistant U.S. Attorney Michael Galdo, DOJ’s Deputy Director for COVID-19 Fraud Enforcement. Galdo’s remarks share that the Strike Force teams will assemble “the fraud, cybercrime, and money laundering expertise of all [] agency partners” to combat pandemic fraud. The Strike Force teams are made up of prosecutors and agents from a wide variety of teams, including:

The Department of Labor Office of Inspector General
The Small Business Administration Office of Inspector General
The Department of Homeland Security Office of Inspector General
The FBI
The U.S. Secret Service
Homeland Security Investigations
Internal Revenue Service Criminal Investigations
The U.S. Postal Inspection Service
With assistance from the Pandemic Response Accountability Committee and the Special Inspector General for Pandemic Recovery

The press release emphasizes that the Strike Force teams are “designed to accelerate the process of turning data analytics into criminal investigations,” in an effort to bolster the COVID-19 Fraud Task Force’s efforts to analyze and act on data which has been the “key to identifying and prosecuting the organized criminal groups” responsible for stealing COVID-19 relief funds. To date, DOJ’s efforts to prosecute pandemic fraud have resulted in DOJ seizing over $1.2 billion in COVID-19 relief funds and pursuing over 1,500 prosecutions against defendants nationwide. DOJ has also conducted civil investigations into more than 1,800 entities and individuals in connection with relief loans worth more than $6 billion. Garland stated that DOJ’s “work is far from over.” The Justice Department has been reviewing COVID-19 fraud on multiple fronts including cases and investigations into the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program, Unemployment Insurance (UI) programs and COVID-19 health care fraud enforcement. Recent charges across seven indictments include those against 50 individuals (with three additional individuals proceeding by information) allegedly involved in a scheme implicating over $250 million in federal food aid. U.S. Attorney Andrew Luger has coined it the “largest pandemic fraud in the county.” In an indictment naming Feeding our Future’s founder and executive director Aimee Marie Bock (among others) filed on September 13, 2022, the government alleges that individuals operating several entities sponsored by Feeding Our Future, a now dissolved nonprofit that purportedly helped provide meals to youth, fraudulently sought and disbursed more than $240 million in funds from the Federal Child Nutrition Program, falsely claiming to have used those funds to feed millions of children during the pandemic. The government believes that the funds were to be used for 125 million meals, which were never served, and instead, the defendants used the funding for their own personal gain. Three of the defendants in the case have already pleaded guilty.

Targeting individuals, the indictment comes a week after DOJ’s Deputy Attorney General Lisa Monaco announced DOJ policy changes to target white collar crime and specifically the individuals behind the corporations.

Steps Companies can Take to Reduce Enforcement Risk

Companies operating in a variety of industries may face scrutiny related to COVID-19 enforcement. In particular, increased investigative activity into financial services and financial technology companies, banks, loan originators and loan servicers, hospitals, medical device and health care supply chain companies, air carriers, government contractors, and companies in the agriculture sector is likely on the horizon. For companies facing the potential of increased enforcement, there are a number of steps that can be taken to reduce risk.

Representations made to the federal government in loan applications or in connection with the receipt of federal funds are a primary area of enforcement. For this reason, companies should keep records detailing why they have satisfied the relevant eligibility criteria to receive funds and participate in federal programs, and carefully document their interactions with government representatives. Companies can also protect themselves by implementing a records management and compliance system that ensures funds are spent in a manner consistent with program requirements.

Another area of risk for companies will be increased scrutiny of their compliance with relevant government ethics rules. With such a large amount of federal funds at issue, companies who run afoul of even technical conflict-of-interest rules may find themselves in the uncomfortable position of having to explain those failures and suffer reputational damage as a result. Companies can mitigate that risk by carefully examining the relevant ethics and conflict of interest rules, creating or enhancing compliance programs that document adherence to the relevant standards, and ensuring that employees are trained appropriately. Just as importantly, when companies successfully detect a potential ethics or internal controls failure, remediation and compliance enhancements and, if necessary, an efficient and timely internal investigation can be the most successful defense to later allegations of improper conduct.

Finally, companies operating in industries likely to face increased scrutiny may engage in ongoing risk assessments of potential legal, business, and reputational vulnerabilities. Outside counsel working with a company’s compliance or internal audit function may be useful in spotting areas of risk relating to the receipt of government funds that can be addressed through compliance and internal control enhancements. In particular, companies receiving pandemic funding may have increased risk in their third-party contracts with distributors, resellers and subcontractors. An efficient and timely risk assessment can test whether a company’s third-party business relationships are adhering to contractual and compliance obligations, including gift, travel, and entertainment practices, and other areas involving government touchpoints.