We have begun to detect fraud related to the CARES Act stimulus programs. Often, these customers did not obtain their loans or stimulus through our bank. Apparently, fraudsters are approaching individuals and encouraging them to fraudulently apply for SBA loans, then taking a percentage of the funds. We have worked with the Secret Service and other law enforcement agencies and have been successful in recovering some of this fraud, but we are unsure what the extent of our responsibility is with respect to fraud detection. If we simply file a suspicious activity report (SAR), the fraudulently obtained funds likely will be long gone before the proper authorities have time to act. How should we balance policing these federal stimulus programs with the reputational risk of offending customers with legitimate transactions?

Your bank might consider reporting suspected fraud involving Paycheck Protection Program (PPP) loans and Economic Injury Disaster loans (EIDLs) to the Small Business Administration, in addition to your current efforts to file SARs and report fraud to law enforcement agencies. When you suspect fraud related to an EIDL, you may contact or submit a complaint to the National Center for Disaster Fraud. You also may contact or submit a complaint to the SBA’s Office of Inspector General when you suspect fraud related to any SBA program, including the PPP.

As to fraudulent EIDLs, the SBA’s Office of Inspector General recently published a Lender Alert listing eight warning signs of fraud, including applications from ineligible persons (such as nonbusiness entities) and borrowers working with third parties to obtain EIDL funds in exchange for keeping a percentage of the funds. The SBA directs lenders that suspect fraud to contact the National Center for Disaster Fraud Hotline or complete a web complaint form. Lenders also may report fraud involving SBA programs to the SBA’s Office of Inspector General Hotline or through a complaint form. The numbers for the hotlines and links to the complaint forms are included in the resources below.

We also recommend reviewing your account agreements to determine whether its terms allow you to freeze a customer’s account when investigating suspected fraud. If so, you may freeze an account when fraud is suspected to prevent the funds from being transferred while the relevant authorities investigate your complaint.

You also may wish to alert your customers of various CARES Act stimulus scams. The SBA’s Office of Inspector General has published a poster (linked below) warning the public of such scams, including those involving someone promising to help get approval of an SBA loan in exchange for payment above the broker fees provided in the CARES Act.

For resources related to our guidance, please see:

FDIC Suspicious Activity Report Rules, 12 CFR 353.3 (“A bank shall file a suspicious activity report with the appropriate federal law enforcement agencies and the Department of the Treasury, in accordance with the form’s instructions, by sending a completed suspicious activity report to FinCEN in the following circumstances . . . .”)

SBA Office of Inspector General, Lender Alert: Economic Injury Disaster Loans (July 14, 2020) (“Warning signs of fraud include:

Using stolen identities to qualify for funds

Applications from ineligible persons (nonbusiness entities, suspended or debarred individuals, etc.)

Fake businesses established specifically to apply for SBA assistance

Borrowers working with third parties to obtain Economic Injury Disaster Loan funds in exchange for keeping a percentage of the funds

Borrowers using economic injury loan money to start businesses

Misuse of loan funds

Reporting inflated business and financial information, etc.

Borrowers declining loans after advance funds have been deposited”)

SBA Office of Inspector General, Lender Alert: Economic Injury Disaster Loans (July 14, 2020) (“Lenders who suspect attempted fraud should contact the National Center for Disaster Fraud Hotline at 1-866-720-5721 or fill out the Web Complaint Form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form. Lenders may also report fraud, waste, abuse, or mismanagement of federal funds involving SBA programs, operations, or personnel to the SBA OIG Hotline at (800) 767-0385. You can also submit a complaint form at https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/officeinspector-general-hotline#section-header-0”)

SBA Office of Inspector General, Beware of Scams and Fraud Schemes (“The Office of Inspector General recognizes that we are facing unprecedented times and is alerting the public about potential fraud schemes related to economic stimulus programs offered by the U.S. Small Business Administration in response to the Novel Coronavirus Pandemic (COVID-19). The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the largest financial assistance bill to date, includes provisions to help small businesses. Fraudsters have already begun targeting small business owners during these economically difficult times. Be on the lookout for grant fraud, loan fraud, and phishing.”)

SBA Office of Inspector General, Beware of Scams and Fraud Schemes (“If you are contacted by someone promising to get approval of an SBA loan, but requires any payment up front or offers a high interest bridge loan in the interim, suspect fraud. SBA limits the fees a broker can charge a borrower to 3% for loans $50,000 or less and 2% for loans $50,000 to $1,000,000 with an additional ¼% on amounts over $1,000,000. Any attempt to charge more than these fees is inappropriate.”)