Fraud: Some Business Owners Took Terrible Advantage of PPP Loans

Fraud: Some Business Owners Took Terrible Advantage of PPP Loans

Some small business owners have been less than honest.

Here's What You Need to Remember: One of the reasons that PPP fraud has been featured so prominently in the news has been that the perpetrators have been caught. Under both President Trump and President Biden, the Justice Department has aggressively pursued claims of PPP fraud, with many fraudsters receiving fines and prison terms. This has almost certainly had some deterrent effect, although, as the events of recent weeks have shown, further work is needed.

By now, it is a recurring news story. Each time the government offers businesses Paycheck Protection Program (PPP) loans, an unscrupulous boss will fraudulently claim benefits, then spend the money on personal goods.

PPP loans are loans intended as emergency relief for small business owners. Effectively, they are set up to ensure that these small businesses can continue to pay their workers, even during economic downturns. In theory, a business owner will borrow money for PPP loans from the government, use the loan to cover payroll expenses and continue operating during times of crisis, and then pay the money back at low interest rates once the crisis has been averted. It is believed that the benefits of these loans – which keep American workers employed, and should nominally be paid back in the future – outweigh the costs to U.S. taxpayers.

In practice, however, some small business owners have been less than honest. Throughout the pandemic, dozens of erstwhile employers have been arrested after using PPP loans to purchase cars, property, and luxury goods.

This pattern emerged when the first PPP loan payments began in March 2020, under the Trump administration. However, they have continued on a smaller scale throughout the pandemic, and there are widespread fears that a renewed burst of government spending – primarily from President Joe Biden’s March 2021 American Rescue Plan – will resuscitate the fraudulent claims.

For this reason, Biden administration officials have begun working to root out fraud in unemployment and PPP claims. Gene Sperling, President Biden’s American Rescue Plan Coordinator, spoke with House committee chairmen earlier this week about the government’s plans to combat fraud.

In addition to the obvious negative effect for taxpayers, there is a political dimension to PPP fraud. Fraudulent or wasteful spending makes the Biden administration appear incompetent, which could make it more difficult for Biden to pass the infrastructure and COVID-19 relief bills he has advocated for. Moreover, it gives credence to accusations from the Republican Party, which has contested many of Biden’s future COVID-19 relief plans, that the loans are too big to be managed effectively and are prone to abuse.

Fortunately, not all is lost. One of the reasons that PPP fraud has been featured so prominently in the news has been that the perpetrators have been caught. Under both President Trump and President Biden, the Justice Department has aggressively pursued claims of PPP fraud, with many fraudsters receiving fines and prison terms. This has almost certainly had some deterrent effect, although, as the events of recent weeks have shown, further work is needed.

Trevor Filseth is a news reporter and writer for the National Interest. This article first appeared earlier this year.

Image: Reuters.