Many aspects of the current COVID-19 crisis are unprecedented and, in many ways, the future is hard to predict. But two things are simple to predict—this crisis, like all crises, will be accompanied by a spike in fraud, and this crisis, like others, will be followed by a wave of enforcement actions.
Already, both the federal government and state governments have turned to preliminary fraud enforcement efforts. At the federal level, the U.S. Department of Justice and the Federal Trade Commission (FTC) have both prioritized COVID-19 related frauds. At the state level, the Office of the New York Attorney General has invited the public to report similar frauds. This is most likely just the beginning. After other crises in the past, enforcement agencies have prioritized crisis-related fraud, even frauds that would not otherwise merit enforcement resources.
Organizations and individuals should be careful now, not only to avoid becoming a victim of fraud, but also to avoid becoming the subject of a government investigation after this crisis passes.
Prior Crises Have Been Followed by Vigorous Enforcement Actions
Fraud often blossoms in a crisis. After Hurricane Katrina, the Justice Department charged over 1,300 disaster fraud cases in 49 different judicial districts and created the National Center for Disaster Fraud, in coordination with various other law enforcement agencies. The frauds included scams by bogus disaster-relief organizations and individuals passing themselves off as victims, as well as by legitimate businesses cutting corners to receive government funds.
Crisis-related frauds usually get top priority. Government enforcement agencies in the past have declared “zero tolerance” for such frauds. In practice, that has meant that government enforcement agencies have dedicated resources to investigating frauds, large and small alike, relating to crises. Task forces have been created. During the last major economic crisis in 2008, when Congress authorized $700 billion in spending through the Troubled Asset Relief Program (TARP), it also created the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). More than ten years later, SIGTARP continues to prosecute crisis-related cases.
Enforcement Agencies Have Already Prioritized COVID-19 Crisis-Related Enforcement
As expected, enforcement agencies have already begun prioritizing COVID-19 related fraud.
At the Justice Department, the Attorney General has directed government attorneys and agents to prioritize coronavirus-related schemes. On March 22, 2020, when the Department filed its first pandemic-related enforcement action, Assistant Attorney General Jody Hunt was clear: “The Department of Justice will not tolerate criminal exploitation of this national emergency for personal gain. We will use every resource at the government’s disposal to act quickly to shut down these most despicable of scammers, whether they are defrauding consumers, committing identity theft, or delivering malware.”
The FTC, for its part, has launched a dedicated website for Coronavirus scams. Already, the FTC has issued warning letters to seven sellers of unapproved and misbranded products—including teas and essential oils—which claim that they can treat or prevent COVID-19.
In New York, the Attorney General has warned about pandemic-related fraud. On March 24, 2020, the New York Attorney General announced that “[i]n times of anxiety and uncertainty, we often see predatory actors try to take advantage of people’s fears to line their own pockets, and this outbreak is no different.”
There are two lessons here. First, everyone should be careful about becoming the victim of scams or frauds during this crisis. They are likely to abound.
Second, individuals and organizations should also be careful in their own interactions with the government during this crisis. Many of the organizations that will accept public funds during this crisis may be unaccustomed to dealing with government funds. The public sector has different rules and expectations than the private sector. It is critical that before applying for government funds, organizations and individuals exercise diligence in understanding the terms that apply and be open and honest with the government. After this crisis passes, the Government will scrutinize organizations’ conduct during the crisis.
If you need assistance or if you have any questions about this LEGALcurrents®, please contact any member of our Government and Internal Investigations practice group at 585.232.6500 or 716.853.1616.