Small Businesses Ensnared in Hunt for PPP Scammers
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What is the episode about and who is hosting this Money Briefing?
Here's your money briefing for Friday, August 14th. I'm J.R. Whelan for The Wall Street Journal. Federal relief programs have helped millions of small businesses stay afloat during the pandemic. They've also attracted fraudsters looking for quick money. And efforts to root out the bad guys have inadvertently swept up some legitimate businesses in the process.
We've talked to people who've been contacted by law enforcement. We talked to a guy who went into the bank branch to clear up what he thought was a small paperwork issue and ended up being interrogated by three Secret Service agents.
Our reporter Liz Hoffman will tell us how the process became so vulnerable to fraud and what's being done to help law-abiding businesses avoid unnecessary run-ins with law enforcement. That's after the break.
Millions of small businesses got some much-needed cash from the Paycheck Protection Program ahead of last weekend's application deadline. Officials are looking out for fraud, but their efforts have had an unintended consequence. Some legitimate business owners are getting swept up in the enforcement process. Our banking reporter Liz Hoffman joins us to discuss. So first of all, Liz, how much fraud are we talking about?
How significant is PPP fraud and who is most affected?
Estimates vary. It could be high single digit percentages of the money that was lent out. But in the effort to find those fraudsters, very legitimate borrowers are getting swept up in the process. And it's particularly problematic for sole proprietors, gig workers, freelancers who don't necessarily have the same business account set up that a big company would.
Now, you and reporter Peter Rudiger have spoken with several legitimate small business owners who got caught up in the roundup of fraudsters. What did they go through?
The first thing that happens is that their bank accounts get frozen. And in particular, these are small businesses who, for the most part, run their company finances through their personal bank accounts, which is not illegal, but which the Small Business Administration has flagged as a potential sign of something fishy going on. So the first thing that happens is that they can't access any of their money. We've talked to people who've been contacted by law enforcement. We talked to a guy who went into the bank branch to clear up what he thought was a small paperwork issue and ended up being interrogated by three Secret Service agents.
What kinds of encounters have legitimate small business owners had with law enforcement?
So, you know, it really runs the gamut, but the main thing is the personal inconvenience. People have missed car payments, they've missed home payments, they've missed tax payments, they've bounced checks, all because someone thought they were a criminal when they were not.
Secret Service? Why are they involved?
There are a lot of law enforcement agencies who've been pulled into the stimulus enforcement efforts. Secret Service historically was part of the Treasury Department, so they do have some oversight over, for example, the integrity of currency and that kind of thing. But we've talked to people who were contacted by the Department of Health and Human Services, the Small Business Administration, the IRS has gotten involved. The issue is that the Small Business Administration itself isn't a law enforcement agency. They don't really have the resources to audit, you know, 5 million loans. So they've pulled in other federal law enforcement agencies.
Now, you mentioned some things that the businesses are doing that are, you know, tripping off alarms. Why are some legitimate businesses being rounded up and others aren't?
The thing to know about bank compliance systems is that they're a pretty blunt instrument. Banks are, in a sense, they're sort of tools of the law, where it's their job to flag suspicious activity, and if they need to, to refer it to law enforcement. So banks have put in all of these systems that are designed through artificial intelligence, through manual processes, to flag things that have historically shown a pattern of being associated with fraud or crime, but it's a pretty blunt instrument.
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Chapters
5 chapters
1
What is the episode about and who is hosting this Money Briefing?
0:05–1:17
2
How significant is PPP fraud and who is most affected?
1:17–2:19
3
What kinds of encounters have legitimate small business owners had with law enforcement?
2:19–4:10
4
Why are agencies like the Secret Service and IRS getting involved in PPP enforcement?
4:10–6:26
5
What triggers bank compliance systems to flag legitimate businesses as suspicious?
6:26–6:34
Speakers
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