COVID-19: Financial Institutions and Loan Recipients to See Increase in Congressional and Inspector General Investigations into CARES Act Funding | K&L Gates LLP

The economic response to the pandemic will continue to attract close scrutiny from Congress, inspectors general and law enforcement – likely for years to come. The House Special Subcommittee on the Coronavirus Crisis (Special Subcommittee), chaired by Representative James Clyburn (D-SC), is set to expand its long-term inquiries into key aspects of the response to the pandemic, including participants in CARES Act stimulus programs such as the Paycheck Protection Program (PPP), health care providers participating in the Provider Relief Fund (PRF) and beneficiaries of support payments to the aviation industry under the Payroll Support Program (PSP).

Earlier this month, the Office of the Inspector General of Small Business Administration (SBA OIG) released a flash report identifying $ 692 million in duplicate loans issued by the Trump administration under the P3. .1 The report follows a June 2020 letter from the select subcommittee to the SBA OIG calling for an immediate review of the Trump administration’s handling of the PPP and pointing to the SBA’s mistakes that have allowed “ more than a thousand duplicate loans, creating significant opportunities for fraud and potentially waste. over $ 100 million in taxpayer dollars. “2 In a March 25 Special Subcommittee hearing, SBA Inspector General Hannibal Ware said it would take up to a decade to investigate potentially fraudulent P3 loans, even with the 40% increase in congressional staff recently provided to the SBA OIG. The memorandum of hearing of the staff of the Select Subcommittee refers to 212 investigations opened by the SBA OIG.3

The special subcommittee does not appear to be slowing down, announcing a hearing on eliminating fraud in small business relief programs.4

Some inquiries will be triggered by concerns about companies that have received stimulus funds; others may be triggered by questions about whether the program was properly implemented by the Trump administration. In either scenario, it is likely that a large part of the private sector will be affected by these surveys. Financial institutions, in particular, should expect to be the target of many of these investigations. Recent letters published by Representative Clyburn demonstrate this point. While the letters were addressed to the SBA and the US Treasury, the letters name several financial institutions, lenders and organizations, suggesting that more private actors will be trapped in this (and future) investigations. In addition, the SBA OIG report states that the agency’s management is committed to “taking action to recover any undue payments” by September 1, 2021.

An important consideration for financial institutions is the ability of Congress to demand customer data. As described above, Congress has demonstrated a willingness to request (and advocate) personalized customer information from financial institutions.5 These demands can put financial institutions in a difficult position – to navigate between congressional demands and the interests of clients and regulators. Sharing personalized customer information with Congressional investigators may also involve a number of federal and state laws, such as the Financial Privacy Right Act of 1978 (RFPA). The RFPA places restrictions on how financial institutions can share customer information with the government and also prescribes specific actions that the government authority must take when seeking customer information from an institution. financial. The Gramm-Leach-Bliley Act places additional restrictions on financial institutions and the sharing of customer information. Congress has long taken the position that the RFPA does not apply to congressional inquiries, a view shared by the United States Court of Appeals for the Second Circuit.6

The takeaway for businesses, especially financial institutions, is that the private sector has little refuge from the force and power of congressional investigations, even when making legitimate claims of customer privacy.

Businesses can face significant legal and reputational risks when responding to a request from Congress or the Inspector General. Responding even to friendly requests for basic information can create risk and lead to allegations of deception by Congress. The key to managing these risks is partnering with experienced Congressional investigative attorneys.

1 SBA OIG, Rep. 21-09, FLASH REPORT: DOUBLE LOANS MADE UNDER THE PAYCHECK PROTECTION PROGRAM (March 15, 2021).

2 Press release, Special subcommittee on coronavirus crisis, following referral from selected subcommittee, IG finds Trump administration issued duplicate $ 692 million in PPP loans (March 15, 2021).

3 See Memorandum of Hearing from the Selected Subcommittee, House Committee on Oversight and Reform, Majority Staff (March 25, 2021).

4 See Press release, House Committee on Oversight and Reform, Special Subcommittee to Hold Hearing on Eliminating Fraud in Small Business Relief Programs (March 22, 2021).

5 See Donald J. Trump et. al v Deutsche Bank AG, 943 F. 3d 627 (2d Cir. 2019).

6 See Donald J. Trump et. al v Deutsche Bank AG, 943 F. 3d 627, 677 (2d Cir. 2019). See also Letter from Jason A. Foster, US House of Representatives, Committee on Government Reform, to Richard A. Rosenzwqeig, Esq., Hall & Hall, LLP, (October 15, 2001).

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