Federal agents vow to 'aggressively pursue' scammers after watchdog says $200B in COVID-19 relief aid may have been stolen — here's why the programs became a 'perfect storm for fraud'

A whitepaper from the Office of Inspector General (OIG) details the potential fraud it uncovered. Over the pandemic, the SBA distributed around $1.2 trillion in funds through 22.1 million loans and grants.

Of that relief paid out, the OIG says 4.5 million are potentially fraudulent cases — totaling more than $136 billion in COVID-19 EIDLs and $64 billion in PPP funds.

How did this happen? The OIG points to the SBA’s “rush to swiftly disburse” funds as a major factor.

“The agency weakened or removed the controls necessary to prevent fraudsters from easily gaining access to these programs and provide assurance that only eligible entities received funds,” the OIG wrote in its report.

“However, the allure of ‘easy money’ in this pay and chase environment attracted an overwhelming number of fraudsters to the programs.”

Exploiting the SBA’s “weakened controls”

In that initial frenzy as the SBA was focused on getting out funds to struggling businesses, the OIG says scammers enjoyed a “perfect storm for fraud,” which they “egregiously exploited.”

However, these weren’t all simply run-of-the-mill con artists. According to the OIG, “organized criminal syndicates or transnational gangs” were running complex fraud schemes they found “challenging” to dissect.

To clamp down on fraud in these programs, the OIG created SBA-centric task forces to collaborate with the U.S. Department of Justice (DOJ) and other law enforcement agencies.

In the first week of July alone, The U.S. Department of Justice has released information on eight cases of COVID-19 fraud and suspected fraud that involve millions of dollars.

“Through our partnership with the U.S. Attorney’s Office and our federal law enforcement partners, IRS Criminal Investigation Special Agents will continue to aggressively pursue individuals who try to exploit federal relief programs for their personal gain," said IRS Special Agent Donald Eakins in a DOJ case release published yesterday.

Between May 2020 and May 2023, the task forces investigated more than 1,000 cases, resulting in 1,011 indictments, 803 arrests, and 529 convictions. They’ve also recovered $399 million in seized or forfeited assets and $509 million in restitution orders.

Two of those convictions were for a pair of scammers found guilty of using an elaborate telemarketing scheme in which they applied for over 400 fraudulent COVID-19 EIDLs. They managed to successfully obtain over $1.5 million in EIDL advances for ineligible applicants.

Their complicated ruse involved taking their victims’ personal information — for a fee — and promising to file applications for agricultural grants. Instead, they filed fraudulent COVID-19 relief claims with the SBA — which were eventually flagged by the SBA OIG and the U.S. Secret Service.

Fraudsters left ‘fingerprints’

Through these investigations, the OIG was able to identify 11 fraud indicators that are “almost like a fingerprint left behind at a crime scene.”

They include: dodgy internet protocol (IP) addresses and bank accounts; invalid or duplicate Employer Identification Numbers (EIN), suspicious physical addresses, email addresses and phone numbers; borrowers who received EIDL advances; borrowers in default who have not applied for loan forgiveness; and those issued a hold code by the SBA or a third-party lender.