The COVID-19 crisis has triggered an unprecedented response of federal and state relief programs to provide health care resources and economic relief. Once the country moves past the immediate crisis, the government will take a hard look at emergency payments. Along with $2 trillion in relief, the CARES Act established a new law enforcement authority within the Treasury Department: the Special Inspector General for Pandemic Recovery (the SIGPR). The SIGPR will “conduct, supervise, and coordinate audits and investigations of the making, purchase, management and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury.” Congress conveyed broad authority to the SIGPR, including the power to administer oaths and take testimony without seeking approval from the Secretary of the Treasury; and to apply for arrest and search warrants without authorization from the Attorney General.

Contracting with Government Programs

As businesses consider opportunities to partner with the federal government in its relief efforts, they should be mindful of federal laws imposing serious consequences for making a false statement to obtain a government contract or to obtain payment under a federal program. The False Claims Act (FCA) prohibits, among other things, presenting a false claim for payment; using a false record in connection with a federal claim; and falsely certifying the type or amount of property provided to the federal government. The FCA also imposes anti-retaliation protection for employees who raise questions about the accuracy of information or quality of products provided in connection with a federal contract.

The maintenance of a vigorous compliance program is essential to address questions that arise about applications for federal programs, use of federal funds, or sale of products to the federal government. Likewise, if your operations involve the use of third-party suppliers, it is important to assess and upgrade your due diligence programs.

Companies should bear in mind that the COVID-19 crisis has not relaxed existing compliance obligations. While businesses may seek to contract with international vendors—either to meet higher increased market demand or to cut costs—companies should continue to perform risk-based due diligence to ensure that third-party vendors understand and comply with anti-fraud and anti-bribery laws.

Participating in Federal Assistance Programs

The federal response to the economic crisis includes making available emergency Small Business Administration loans. These loans are intended to prioritize immediacy of funds over in-depth due diligence: funds may be available in a matter of days after a “short form” application is submitted, with minimal up-front documentation required. Once the immediate crisis abates, the federal government will likely launch investigations to determine that information provided in applications was correct; and that the borrower business used the funds for the purpose stated in the loan documents.

Businesses should: (1) ensure that their compliance programs can effectively track the use of borrowed funds; and (2) document their due diligence and review auditing rights with third-party vendors to ensure their loan covenants are followed by those third parties.

Dykema attorneys are fully versed in the False Claims Act, and are prepared to advise clients about the FCA and practical ways to fulfill due diligence obligations and review compliance programs. If you have concerns about participating in federal programs, please contact Jason Ross (214-462-6417 or [email protected]), Jonathan Feld (312-627-5680 or [email protected]), Sean Griffin (202-906-8703 [email protected]), John Dulske (210-554-5505 or [email protected]), Eric Klein (248-203-0891 or [email protected]) or your Dykema relationship attorney.

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