The financial relief programs enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act stand ready to provide crucial financial support to people and businesses impacted by the novel coronavirus (COVID-19) pandemic and the resulting economic downturn.   These new federal programs recognize the scale of the challenges presented by the COVID-19 outbreak.

While decisions made by companies seeking CARES Act or similar relief may not be scrutinized today, we are likely to see a wave of COVD-19-related criminal and civil enforcement actions in the coming months and years.  Impacted individuals and businesses should remember that the urgent need for relief does not eliminate the importance of compliance or the likelihood of significant regulatory oversight in the future.

More specifically, applicants for CARES Act relief must certify or attest to certain facts relevant to their eligibility to participate in the CARES Act’s various programs.  Because false certifications or attestations potentially expose an applicant to liability under the federal False Claims Act (FCA), it is critical that impacted individuals and entities take reasonable steps to ensure the accuracy of information and certifications contained in any applications for federal aid.

As an example, this alert considers the $350 billion Paycheck Protection Program (PPP) established by the CARES Act, which is set to begin accepting loan applications Friday, April 3.  The PPP allows the Small Business Administration (SBA) guarantee (potentially forgivable) loans to help certain small businesses keep their workforces employed amid the ongoing crisis.

As discussed here, the PPP permits certain banks to issue SBA-guaranteed loans to small businesses that meet certain pre-established criteria.  Before a small business can obtain a loan under the PPP, it must submit an application to establish its eligibility for the PPP program.  In part, that application requires the business and any owner who holds 20% or more of the company to make several certifications “in good faith.”

For instance, PPP applicants must certify, attest, or affirm the following:

  • Current economic uncertainty makes this loan request necessary to support the applicant’s ongoing operations.
  • The loaned funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.
  • Documentation verifying the number of full-time equivalent employees on the payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks following this loan will be provided to the lender by the applicant.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the applicant has not and will not receive another loan under the PPP.
  • The information provided by the applicant in the application and the supporting documents and forms is true and accurate.
  • The tax documents submitted by the applicant in support of the application are identical to those submitted to the IRS.

While the PPP application expressly notes that provision of false information, certifications or attestations in connection with the application can subject the applicant to criminal liability, applicants should also consider the potential for FCA liability.

Since the U.S. Department of Justice (DOJ) has previously taken the position that false certifications made in connection with an application for an SBA-guaranteed loan can form the basis for liability under the FCA, failure to take reasonable efforts to ensure the accuracy of the certifications above may be a costly decision.  Specifically, applicants who submit false information or certifications can be liable for treble damages and civil monetary penalties under the FCA.

Although time is of the essence for many businesses applying for loans under the PPP and other CARES Act programs, the risk of FCA liability means that every applicant should take reasonable efforts to ensure that the information and certifications contained in their applications are accurate.

For a more general discussion of DOJ’s intent to use the FCA to police the submission of false claims in connection with the COVID-19 crisis, read our earlier alert COVID-19 and the False Claims Act.