The CARES Act, which sought to provide economic assistance during the global health pandemic, is exalted as an essential federal initiative. One of the most visible pieces of that Act is the PPP, which seeks to provide immediate financial assistance in the form of SBA-guaranteed loans to small and medium-sized businesses impacted by the economic uncertainties of the novel coronavirus. An important yet severe consequence is the rise of fraud in connection with misuse of PPP loan proceeds.
Such situations are not hard to conceive and are hardly innovative. Every federal government program that disburses a large amount of money in a short period of time is accompanied by the potential for fraud. Often, both individuals and companies will use overseas concealment methods to fraudulently hide assets from the U.S. government in an effort to avoid U.S. taxation or conceal some other fraudulent scheme.
The FBI recounted multiple scenarios of cyber-related COVID-19 frauds such as a fraudster who used an email address virtually identical to that of a CEO who was approved for a PPP loan in order to convince the financial institution facilitating the loan to transfer the funds to a new account, and individuals falsely claiming to be brokers and receiving the wired transferred funds before shipping the products. By the time any suspicious activity became apparent, much of the funds had been transferred outside the U.S.
What are current methods of hiding the fraudulently transferred funds?
- Bitcoin and Ethereum are the two cryptocurrencies that form 80% of the market value. The growing popularity and adoption of cryptocurrencies have also led to their increasing use in money laundering schemes. Use of cryptocurrencies due to their anonymity present significant obstacles in the identification of the beneficial owners of the funds. These growing number of online platforms and applications offer new ways of transferring money and are not always regulated to the same degree as traditional financial service providers.
- Trade-based money laundering is a highly effective way of concealing criminal funds by manipulating or forging purchases or sales using double invoicing, false invoicing, over- and under-invoicing by companies that are owned by the fraudster, their associates and relatives.
- Shell companies that possess no significant assets and do not perform any significant operations, only serving the purpose of laundering funds. The shell companies used to send and receive money transfers are typically embedded in complex corporate structures which conceal the links to account beneficiaries. Ownership is layered by naming nominees to act as directors and shareholders. And, fraudsters add to this complexity trusts, foundations, family members or colleagues into the ownership or director structure.
- Offshore bank and brokerage accounts usually not in the fraudster’s name, but in entity or trust names, are still used because of their relative ease to open and to transact further transfers.
Complex fraud often requires determining the methods and unraveling the layers used to conceal assets. This involves persistence, commitment and expertise. An experienced multi-disciplinary team is necessary who understands concealment methods, tactics to uncover the hidden assets, legal actions appropriate in worldwide jurisdictions to reveal and freeze those hidden assets and to maximize recovery.