The Department of Justice, along with the Federal Bureau of Investigation and the Secret Service, appeared before a U.S. Senate Judiciary Committee hearing last week to discuss how they’re combating crimes resulting from the coronavirus pandemic. Their testimonies offer valuable insights for chief compliance officers and chief risk officers regarding where threats may lurk, especially in the financial services and healthcare sectors.
Collectively, the June 9 testimonies described several similar threats the agencies are observing, including hoarding and price-gouging of personal protective equipment; frauds related to the CARES Act’s Paycheck Protection Program (PPP); antitrust violations, like price-fixing and bid-rigging; and more.
In joint testimony, Associate Deputy Attorney General William Hughes and U.S. Attorney for the District of New Jersey Craig Carpenito discussed efforts underway by the DOJ’s newly formed Hoarding and Price Gouging Task Force, led by Carpenito. The task force’s primary mission is to identify, investigate, and prosecute instances of illegal hoarding of the critical medical supplies designated by the Department of Health and Human Services (HHS).
“We recognize that many established manufacturers and distributors of PPE have not meaningfully increased their prices since the start of the pandemic,” Hughes and Carpenito acknowledged in their testimony. “3M, for example, has published a price list for the many different models of N95 masks it manufactures. According to 3M, most of their N95 respirators should cost an end-user less than [two U.S. dollars].”
Some resellers are charging “substantially higher prices than these traditional market participants,” however, they said. And these are the resellers that enforcement agencies are targeting in their investigations.
The Justice Department’s task force, in coordination with the U.S. Food and Drug Administration and the Consumer Protection Branch of the Department’s Civil Division, is also focused on identifying counterfeit and misbranded PPE imports into the United States from abroad.
In testimony by Calvin Shivers, FBI Assistant Director of the Criminal Investigative Division, the FBI has “received numerous complaints from business owners unable to legitimately apply for a PPP loan because their Employer Identification Numbers were already used for fraudulent loan applications.” To target this growing threat, the FBI has formed a PPP Fraud Working Group in coordination with the Criminal Division’s Fraud Section and the Small Business Administration Office of Inspector General. To date, the PPP Fraud Working Group has initiated nearly 100 investigations with over $42 million in potential fraud identified and over $900,000 recovered, Shivers said.
Chief risk officers in the financial services industry should be particularly on high alert for increasing advance fee and business e-mail compromise (BEC) schemes. In one recent example, a financial institution received an e-mail, allegedly from the CEO of a company, who had previously scheduled a transfer of $1 million. In the e-mail scheme, the fraudsters requested the transfer date be moved up and the recipient account be changed “‘due to the coronavirus outbreak and quarantine processes and precautions,’” Shivers said. “The email address used by the fraudsters was almost identical to the CEO’s actual email address, with only one letter altered.”
In another instance, a fraudster spoofed the e-mail address of a CEO who had been approved for a PPP loan, contacted the financial institution facilitating the loan, and requested that the PPP funds be transferred to a new account at a different institution.
Chief risk officers should also be on the lookout for fraud related to PPP loan applications. According to Justice Department testimony, as of June 3, prosecutors have brought six cases of fraud charges related to PPP loan applications in which individuals fraudulently represented the number of employees and used the PPP funds for personal and non-business-related expenses. The states where these cases have been brought, to date, are Texas, Georgia, Oklahoma, Rhode Island, and California.
Healthcare fraud enforcement
The DOJ, FBI, HHS Office of Inspector General, and other law enforcement partners are also focused on identifying and combating emerging healthcare fraud trends related to the pandemic. As part of these efforts, the Fraud Section has “directed its Data Analytics Group to prioritize analysis of COVID-19-related billing schemes and retained forensic accounting and other experts that will assist in investigations and prosecutions,” Hughes and Carpenito said. These efforts are already bearing fruit.
“Since February, criminal and nation-state cyber actors have been increasingly targeting U.S. pharmaceutical, medical, and biological research facilities to acquire or manipulate sensitive information, to include COVID-19 vaccine and treatment research amid the evolving global pandemic,” Hughes and Carpenito said. Relevant to the healthcare sector, the Criminal Division’s Computer Crime and Intellectual Property Section and the National Security Division “are working with investigative agencies and U.S. Attorneys’ Offices to combat COVID-related cyber-crime and intellectual property violations,” they added.
Additionally, the Justice Department is working alongside the FBI and other investigative partners from a variety of federal, state, and local agencies to detect and combat fraud, price-fixing, bid-rigging, and other forms of market manipulation that constitute violations of antitrust law.
Among other enforcements efforts, the Procurement Collusion Strike Force (PCSF) is “an interagency partnership leading a coordinated national response to combat antitrust crimes and related fraudulent schemes in government procurement, grant, and program funding at all levels of government,” Hughes and Carpenito said. “Deterrence and early detection of misconduct will be the PCSF’s top priorities to help these agencies safeguard their procurement, grant, and program funding processes from collusion and corruption.”
The Antitrust Division, too, is closely monitoring anticompetitive conduct by employers. Specifically, they are focused on enforcing antitrust laws “against those who seek to exploit the pandemic to suppress or eliminate competition for compensation, benefits, hours worked, and other terms of employment,” Hughes and Carpenito said.
Secret Service enforcement
In his testimony, U.S. Secret Service Assistant Director Michael D’Ambrosio said the Office of Investigations has “numerous ongoing investigations” focusing on the following four broad categories of COVID-19-related crime:
- COVID-19-related scams, including the sale of fraudulent medical equipment and non-delivery scams;
- Risks of cyber-crime—such as BEC schemes—resulting from increased telework;
- Ransomware; and
- Defrauding of government and financial institutions associated with response and recovery efforts.
Thus far, the Secret Service has initiated over 100 criminal investigations, prevented approximately $1 billion in fraud losses, and successfully disrupted hundreds of online COVID-19-related scams, D’Ambrosio said.
The testimonies highlight the significant coordination and collaborative efforts between and among the respective agencies. The Secret Service, for example, partners with the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (IRS), and the various Offices of Inspectors General, including the Department of Labor.
To combat PPP-related fraud, the Secret Service has teamed with the SBA; Justice Department; FBI; Homeland Security Investigations; the Cybersecurity and Infrastructure Security Agency (CISA); and other law enforcement agencies at the state, local, and federal levels, both in the United States and abroad, D’Ambrosio said.
Importantly, it also has “dramatically expanded” its outreach to financial institutions. “With the financial institutions, we have expanded our information-sharing and other cooperation to rapidly detect fraud, freeze assets, and return money to government agencies and others who have been defrauded,” D’Ambrosio said. “This cooperation is absolutely essential, given the ability of the financial institutions to intercede quickly in the event of fraud.”