In the early weeks of the COVID-19 public health crisis, the federal government prioritized a swift response to the economic impact of the novel coronavirus, including several pieces of legislation that sought to infuse cash into vulnerable businesses—including millions of small businesses. These laws—most notably the CARES Act—and actions by the Federal Reserve Board established substantial government programs and significantly enlarged or changed others. The possibility of additional legislative and executive action remains an option for additional economic relief. As the country continues to grapple with COVID-19, questions loom surrounding the efficacy of these programs, the impact of a ballooning public debt, future stability of the country’s economy and an ultimate prognosis for the public health crisis. While so much remains uncertain, one prediction is safe: Actions taken in 2020 will inevitably lead to a torrent of government investigations that will have potentially significant implications for individuals and businesses for years to come.
It is axiomatic that any government program invites some measure of waste, fraud and abuse. The programs related to the COVID-19 crisis response collectively involve trillions of dollars touching every sector of the economy. They were established and administered with a priority on getting dollars out the door as quickly as possible. This is a recipe for real or perceived malfeasance and will no doubt draw the close scrutiny of prosecutors, politicians and the public. We have already seen companies decide to return funds to the government, including some that likely faced no legal exposure but nonetheless concluded public scrutiny would cost them more than the federal dollars they had received. The potential targets of future inquiries include virtually everyone who benefited from, financed or administered these programs.
If you or your business falls into any of the above categories, it is important to educate yourself about the various risks and options that exist. Government investigations come in a variety of forms and pose risks ranging from criminal to reputational. Different types of investigations follow unique procedures and timelines. Savvy organizations and individuals who may face scrutiny should begin thinking today about how to avoid becoming a target of investigations and, failing that, how to navigate and survive a worst-case scenario of needing to defend themselves in multiple forums at once.
Here is a brief look at the potential sources of federal investigations that may follow the CARES Act and other legislation:
- The Justice Department. This is perhaps the most familiar category of federal investigations and includes both civil and criminal inquiries. These may be launched from Department of Justice headquarters in Washington or local U.S. Attorneys’ Offices. Among other things, the Justice Department will certainly be on the lookout for coronavirus-related fraud, including by those who fraudulently obtained coronavirus-related relief from the government as well as those who took advantage of the fear caused by the crisis to fraudulently exploit members of the public. As Attorney General William Barr wrote in a memo to U.S. Attorneys in the early days of the crisis, “The pandemic is dangerous enough without wrongdoers seeking to profit from public panic.” An additional area of focus for the Justice Department has been illegal hoarding and price gouging related to the public health emergency.
- Congressional Inquiries. The Supreme Court has long recognized that Congress has broad powers of oversight and investigation which are implicit to its powers to legislate and spend federal money. Congressional investigations can be launched by specialized investigatory committees, whether permanent (as in the case of the Senate Permanent Subcommittee on Investigations) or convened for a particular purpose. (The CARES Act, for example, established a House Select Subcommittee on the Coronavirus Crisis; see more below.) Any other committee can also generally investigate matters within its legislative jurisdiction. While congressional committees have limited power to directly impose sanctions on private parties, the reputational risks of a congressional investigation remain enormous, and evidence developed by such investigations can become the basis of litigation or prosecution. Congress also has the power to refer matters to the Justice Department.
- Inspectors General. The Inspectors General Act of 1978 established inspectors general positions throughout federal agencies. Appointed by the President but regularly making reports to Congress, these officials have traditionally been given great independence to inspect and audit the internal activities of their agencies.
- CARES Act-Specific Oversight Mechanisms. The CARES Act created three key oversight bodies to keep an eye on all lending and spending associated with CARES Act funding. These three bodies are:
- The Special Investigator General for Pandemic Recovery (SIGPR), which oversees the spending by the Department of the Treasury;
- The Pandemic Response Accountability Committee, which is a body of inspectors general from across the federal government to oversee CARES Act spending as a whole;
- The Congressional Oversight Commission, which oversees the Treasury’s and the Federal Reserve’s implementation of the law.
In addition to the oversight bodies created by the CARES Act, the House of Representatives established a Select Subcommittee on the Coronavirus Crisis, chaired by Rep. Jim Clyburn (D-S.C.), the third-ranking member of House leadership. This subcommittee has a dual mandate: “investigating the efficiency, effectiveness, equity and transparency of the use of taxpayer funds and relief programs to address the coronavirus crisis,” and “report[ing] waste, fraud, abuse, price gouging, profiteering, or other abusive practices related to the coronavirus crisis.” Much of the subcommittee’s early energy has focused on the federal response, but there are indications that it will pursue a wide swath of private behavior as well. A notable early target of the subcommittee: for-profit nursing homes. In June, the subcommittee sent letters to five companies seeking “documents and information regarding the deaths of men and women in your company’s nursing homes during the coronavirus outbreak, the conditions that may have contributed to these deaths, and any steps taken to protect residents from further tragedy.” Among other issues, the subcommittee is exploring these companies’ staffing levels and pay, virus testing, deployment of personal protective equipment, and use of government funds.
Looking to the recent past for a relevant example of how the investigations into emergency legislation could play out, oversight of the Troubled Asset Relief Program (TARP) of 2008 certainly fits the bill. This program, established with the goal of facilitating government purchases of toxic assets from financial institutions during the 2008 subprime mortgage crisis, was authorized at $700 billion, although actual expenditures were significantly lower. This single act spawned a Financial Stability Oversight Board, a dedicated congressional oversight panel, numerous Government Accountability Office reports and, most significantly, the Special Inspector General for TARP (SIGTARP). Essentially a law enforcement agency, SIGTARP has, for the past 12 years, investigated unlawful and fraudulent conduct by the 130 banks and financial institutions that received money from TARP. These investigations have resulted in more than 300 convictions and roughly $11 billion recovered. SIGTARP continues active operations to this day.
Similar to SIGTARP, the CARES Act created the SIGPR and imbued the position with independent authority to obtain and execute search and arrest warrants. Unlike TARP, however, the SIGPR’s authority runs out in 2025 (although this can certainly be extended in a future bill). On June 2, the Senate confirmed Brian D. Miller as the first SIGPR. Prior to this role, Miller was a member of the White House Counsel’s Office, which has raised concerns among Democrats as to his independence.
While here we focus on federal investigations, we must also note that federal investigations do not pose the sole risk. State attorneys general, state and local investigators, investigative journalists, and public watchdog organizations will also be active for years to come on COVID-19-related matters.
Why It Matters
After initially refusing to do so, earlier this month the Treasury and the Small Business Administration released most of the loan-level data, including borrower identity, for Paycheck Protection Program loans of more than $150,000. However, Democratic members of Congress and various inspectors general are continuing to criticize the administration’s transparency with respect to how large corporations may have benefited from CARES Act relief. This stance, combined with a potential change in administration after the election, could create a scenario where any corporation that avails itself of federal relief faces heightened and potentially hostile scrutiny in 2021.
As the nursing home industry is also seeing, any companies that operate on the front lines of public health should also expect to become the target of federal investigations. Employers that become the sites of outbreaks, those that operate critical links in the supply chain and those that garner notable profits during these times should also expect to have to account for their actions and decision making.
Organizations that have taken relief funds from the government, even one’s with established and well-functioning compliance programs, need to conduct a review of their programs to ensure that they have processes, procedures and protocols in place to ensure compliance with the terms and conditions of the programs.
Historical precedent has shown that organizations emerging from times of significant crisis, such as the economic downturns resulting from the 9/11 terrorist attacks and the 2008 financial crisis, have needed to ensure that appropriate corporate governance and compliance programs are established in order to affirmatively and systematically address potential compliance risks and satisfy any newly imposed governmental requirements.