Fraud and COVID-19: Law Enforcement is Acting Now

By Brett W. Johnson and Vinnie Lichvar

The extent of the impact of the COVID-19 pandemic on the Government’s ability to consistently and aggressively regulate, enforce and prosecute violations of the law during this crisis remains to be seen. Thus far, the Department of Justice (“DOJ”) and other government law enforcement agencies have not backed down to the challenge. Agencies including the DOJ, the Federal Trade Commission (“FTC”) and law enforcements organizations are adapting rapidly to the changing environment and preparing solutions to the unique fraud and other unlawful activities presenting opportunities during a crisis. 

The agencies are being open with their concerns, including issuing daily guidance, creating task forces, and developing new protocols to maintain oversight over companies looking to corruptly or unlawfully take advantage of the pandemic. Companies should be aware of the government agencies’ guidance, review applicable policies and procedures to ensure compliance, and regularly advise employees and third-party agents to comply with applicable laws and company policies in undertaking business activities.

False Claims Act

The False Claims Act is a federal law that imposes liability on individuals and companies for knowingly defrauding the government by submitting false or fraudulent claims.  Most states do not have many False Claims Acts that apply to interactions with local government agencies.  These laws are highly effective tools utilized by the government to protect against fraud and abuse in government contracting and in Medicare and Medicaid billing.   

Companies intending to file claims or make other certifications related to government regulations (i.e., products and services comply with regulations) during this crisis should presume that the DOJ is increasing oversight and scrutinizing each claim and certification.  In a normal setting, navigating the complex set of policies and procedures involved in submitting claims for payment to the government can be onerous in itself.  However, government agencies at every level have or will inject trillions of dollars into the economy to combat the impact of this pandemic – much of which is destined for government contracting and the healthcare industry. 

However, in seeking these opportunities, companies must ensure that they actually qualify for the contract or program, properly complete the necessary certifications, not embellish as to abilities, and actually comply or perform as required under the government contract or program.  Now, more than ever, companies must maintain caution and ensure each claim or certification is submitted pursuant to the federal rules and regulations. Companies must reiterate to business development personnel, program managers, and contract specialists that they need to comply with company policies and laws in truthful communications with the government. This includes compliance with the Truth In Negotiations Act, the Procurement integrity Act, applicable state laws regarding corruption, and the ethics regulations from other agencies.  The violation of any of these and other laws can, in turn, lead to a False Claim Act or false certification violation. The consequences for violating the False Claims Act include paying back the government treble damages and can lead to debarment from other opportunities that may be necessary for full recovery.

Competition Laws

On March 9, the DOJ jumped ahead of fears that companies would take advantage of the crisis as it relates to the overwhelming need for public health products by issuing a press release titled: “Justice Department Cautions Business Community Against Violating Antitrust Laws in Manufacturing, Distribution, and Sale of Health Products.”¹ Moreover, the DOJ set up the “Procurement Collusion Strike Force” which was created to monitor “collusive practices in the sale of such products to federal, state, and local agencies.”²  

While there are no federal prohibitions against price gouging, most states have laws that forbid such practices.  Washington Attorney General Bob Ferguson issued a statement notifying the public that he was investigating a complaint of “price gouging in the COVID-19 public-heath crisis.”³   In addition, federal law enforcement can still enforce laws when illegal acts cross state lines.

There are also a host of other antitrust and anticompetition laws, including consumer protection laws, that the federal government can utilize to stop unfair trade practices.  The FTC developed a new consumer blog post dedicated solely to coronavirus scams and began targeting companies using the crisis to defraud consumers.⁴   The FTC, along with the U.S. Food and Drug Administration, issued warning letters to multiple companies claiming their products can treat or prevent the coronavirus.  FTC Chairman Joe Simons stated: “These warning letters are just the first step.  We’re prepared to take enforcement actions against companies that continue to market this type of scam.”  The FTC notes that it is constantly monitoring social media, online marketplaces, and complaints made related to the pandemic.

Cyber-Scams

As set forth in Sarah Anand and Aloke Chakravarty’s Legal Alert, “Cyber Criminals Using COVID-19 Fears to Increase Malicious Online Activity: What You Should Know”⁵ the number of fraudulent scams and websites created during the crisis is increasing – in some instances by the thousands each day.  The DOJ has taken notice of this increased activity and is beginning to position resources to target these cyber criminals.  Specifically, on March 16, AG Barr issued a memorandum to all U.S. Attorneys, stating:

In particular, there have been reports of individuals and businesses selling fake cures for COVID-19 online and engaging in other forms of fraud, reports of phishing emails from entities posing as the World Health Organization or Centers for Disease Control and Prevention, and reports of malware being inserted onto mobile apps designed to track the spread of the virus.

AG Barr encouraged each office to work with local officials in order to “detect, investigate, and prosecute these schemes.”  As a result, multiple U.S. Attorney’s Offices have begun to take action.  By way of example, offices in Pennsylvania, Nevada, Mississippi, Nevada, Virginia and the District of Columbia have now issued their own statements on this issue and instituted various measures to catch and prosecute scammers.  These offices have created hotlines and websites for victims of these scams, and are coordinating with other agencies such as the FBI and the Federal Trade Commission to identify the fraudsters.⁶  Moreover, the DOJ designated a number of litigation attorneys as COVID-19 Fraud Coordinators to provide oversight in these cases.

On March 16, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of Treasury charged with combatting international money laundering, terrorist financing, and other financial crimes, released a statement to all financial institutions warning them about illicit financial activity occurring during the pandemic.⁷   FinCEN specifically refenced the following emerging trends:  1) Imposter scams, 2) Investment scams, 3) Product scams, and 4) Insider trading.  FinCEN encouraged financial institutions and their functional regulators to stay informed and provided contact information for financial institutions who may have been impacted by these crimes.

The U.S. Securities and Exchange Commission (“SEC”) also issued a press release related to the pandemic stating that their Division of Enforcement and the Office of Compliance Inspections and Examinations “continue to execute on their mission of protecting investors and remain fully operational.”⁸ The SEC stated that they were actively monitoring the market for frauds and other misconduct, noting “as circumstances warrant, will issue trading suspensions and use enforcement tools as appropriate.”  Similar to other agencies, the SEC is continuing to issue alerts to educate investors and provided contacted information for COVID-19-related misconduct.⁹

Companies and individuals who suspect they have been defrauded by cyber criminals related to the COVID-19 pandemic should immediately report these incidents to law enforcement and utilize the above-described resources provided by the DOJ.  Everyone can do their part in this crisis by remaining vigilant in the face of these scams and by alerting the appropriate authorities when confronted with suspicious cyber activity.

Conclusion

Although business operations are naturally in flux during this crisis, companies should take pro-active steps to ensure that the aftermath of the crisis is not made worse due to violations of law. Companies should consider sending notices to employees about the need to comply with all company policies and procedures. Companies may want to notify employees and third-party agents not to cut corners, but instead comply with all anti-corruption and conflicts of interest requirements, including truthful correspondence with contracting officers and licensing authorities.

Many companies can expect visits from government law enforcement agents during and after the immediate crisis concerning business activities in compliance with governmental declarations and other existing laws. Companies should consider establishing a protocol for directing those inquiries to a centralized source for investigation and response. Companies should ensure its investigations maximize thoroughness, preservation of evidence and protection of applicable privileges. 

By addressing concerns immediately, companies may avoid unnecessary and unintended governmental investigations and potential penalties as the pandemic crisis is resolved.