Reported by Ben Penn

Below is a summary of the original article

The U.S. Department of Justice (DOJ) is shifting its focus to financial institutions in its efforts to hold lenders accountable for fraudulent loans made under federal COVID-19 relief programs. The DOJ’s COVID-19 fraud enforcement task force will undertake lengthy investigations involving document review and interviews with industry insiders to uncover evidence of banks ignoring red flags or colluding with customers. However, banks may use forgiving Trump-era guidance and the argument that they were operating under tight time frames and changing regulations as defenses. Regional banks, local institutions, and fintech companies are expected to face greater scrutiny than larger banks with more sophisticated prevention practices.

While the DOJ has achieved little success so far, a congressionally-extended 10-year statute of limitations allows investigators ample time to build cases in the finance sector. The DOJ’s acting COVID enforcement chief has indicated a focus on identifying lenders and financial institutions that enabled fraudulent activities through data analysis and cooperation with insiders. Most cases will likely seek civil liability against institutions, although criminal charges may be possible for deliberate and systemic offenders. Fintech companies, especially those that emerged in response to COVID-19 relief programs but lacked experience in anti-fraud controls, are expected to be among the primary targets.

The DOJ may leverage the False Claims Act, a civil statute commonly used to pursue companies for defrauding government agencies, to recover taxpayer funds from lenders involved in CARES Act programs. Another potential enforcement lever is the Bank Secrecy Act, which mandates that financial institutions prevent money laundering. The government may examine claims against financial institutions under this act, focusing on deficiencies in customer due diligence and failure to report fraud or suspicious activity. New entrants into the market, seeking to profit from processing fees for handling high volumes of loans, may be vulnerable due to a lack of pre-existing anti-money laundering programs.

Investigations may also target brick-and-mortar banks that had close relationships with borrowers, as banks may have had knowledge of fabricated information on loan applications. Defense lawyers anticipate DOJ advances and are preparing arguments that address issues arising from the rapid implementation of relief programs. The complexity and challenges involved in pursuing enforcement actions against financial institutions for COVID-19 relief fraud make it uncertain whether the DOJ will achieve outcomes similar to the post-housing crisis period, when significant penalties were obtained from

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