Sunday Read: Whistleblowers Fight PPP Fraud
While Former UK Prime Minister Winston Churchill helped form the United Nations after World War II, he famously said: “Never let a good crisis go to waste.” The phrase is meant to create opportunities for the betterment of society, and not to be exploited. But there will always be those who twist words of wisdom to fit their own purpose.
Financial aid programs were launched during the height of the COVID-19 pandemic in 2020 and 2021 to help organizations and their owners stay operational and keep their workers employed and customers serviced. However, many opportunistic individuals and entities emerged to take advantage. Some of these malicious actors targeted the Small Business Administration’s (SBA) loan initiatives, which resulted in $200 billion in fraud.
In this week’s Sunday Read, National Whistleblower Center (NWC) explores how the U.S. House Committee on Small Business is investigating these claims, and how NWC Senior Policy Analyst Dean Zerbe offers solutions modeled after whistleblower programs.
‘Action’ On The Hill
On Sept. 27, 2023 the U.S. House Committee on Small Business gaveled in a full committee hearing titled, “Action Through Innovation: Private Sector Solutions to Recouping Stolen Pandemic Loan Funds.” The hearing touched on different solutions the SBA could take to recoup fraudulent loans issued as part of pandemic lending programs, such as its Paycheck Protection Program (PPP) and Covid-19 Economic Injury Disaster Loan (EIDL).
“When the pandemic started, the SBA took on an outsized role in restarting our nation’s economy. The PPP and EIDL programs were vital to saving small businesses, but that fact does not excuse $200 billion in fraud,” noted Chairman Roger Williams (R-TX). “It’s a top priority of this Committee to recoup these stolen funds, and yesterday’s hearing looked at new, innovative private sector solutions to do just that.”
One of the four private sector witnesses called to offer unique insight into how to create and execute these solutions was whistleblower attorney and NWC Senior Policy Analyst Dean A. Zerbe. Zerbe’s attendance was noteworthy — in addition to his role at NWC, Zerbe is the National Managing Director for Alliant Group, a consulting and management engineering firm. Prior to joining Alliant Group, Mr. Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance and is widely recognized for his collaboration with then-Chairman and current Ranking Member of the Finance Committee, Senator Charles Grassley (R-IA), on tax legislation.
Williams noted that one idea being explored is a self-sustaining program which will allow citizens to collect a commission if they report COVID fraud that results in money returned to the U.S. Treasury. He asked Zerbe on the possibility and feasibility of creating such a whistleblower program in the SBA.
“I’ve seen it in a number of government agencies, [which] have created these whistleblower award programs,” Zerbe replied. “And so I think they’re very much the SBA is a good possibility in terms of also looking at creating a whistleblower reward program. You already have the False Claims Act, where they’re bringing in a few cases in right now from out from attorneys, from whistleblowers, and that’s had some success. But I think … parallel with that, an in-house whistleblower award program will very much be a way to, as you say, to bring in the energy of the whistleblowers, their attorneys, their advisors to help the SBA move forward.”
Zerbe also noted that in addition to recovering funds, a whistleblower award program would benefit taxpayers, save time and resources and help deter future fraud.
“When I served as senior counsel and tax counsel for the Senate Finance Committee,” Zerbe noted in a prepared statement, “I was the lead staffer for then-Chairman Grassley to pass the 2006 amendments that modernized the IRS whistleblower statute — that has brought in over $6 billion dollars (a number I believe is markedly underestimated). We worked very closely with then-Ranking Member Max Baucus (D-MT) and his staff on passing these important reforms for the IRS whistleblower program.
Similarly, the SEC and CFTC whistleblower award programs — modeled after the IRS program — all enjoyed bipartisan support.
More recently, Congresswoman Alma Adams (D-NC) and Congressman Anthony Gonzalez (R-OH) successfully sponsored the Anti Money Laundering (AML) Whistleblower Program HR 7195 — which has provided much-needed reform of that whistleblower program.
“Bipartisan support for whistleblower award programs has a long tradition — and my hope would be that the Committee would continue that good tradition as it considers similar legislation to create a whistleblower award program for the SBA.”
Full video of the House Committee’s session can be found here.
Breaking the Cycle and Deterrence
Chairman Williams noted more than once during his statements that the federal government “cannot continue with business as usual” in the way of inadequate oversight and accountability.
The testimony from Zerbe as well as the other experts who appeared on the Hill can be supported by the results of some of the aforementioned whistleblower programs, such as the False Claim Act (FCA).
In Rules For Whistleblowers: A Handbook For Doing What’s Right[MOU1] , author Stephen M. Kohn, Esq., who is also NWC Chairman of the Board, noted an increase in whistleblower participation levels following a major a major tax fraud case involving UBS bank and offshore tax evasion.
Citing a report from the Government Accountability Office, which chronicled pre-and post-whistleblower voluntary compliance programs:
Pre-Whistleblower 2003 Program
Total amount collected: $200 million
Total number of participants: 1,321
Post-Whistleblower 2009 Program
Total amount collected: $4.1 billion
Total number of participants: 19,337
The impact was astounding — an increase of nearly 20:1 was noted in voluntary compliance after the enactment of the IRS whistleblower law in 2006, “and one extremely successful high-profile case against a major bank [UBS],” Kohn wrote. “The results confirmed what common sense dictated: Fear of detection is a strong stimulus for deterring crime. Fear of detection can and will dramatically increase voluntary compliance with the law.”
Should the SBA heed the lessons detailed by Kohn, a whistleblower program mirroring that of the IRS or FCA can help recoup losses, leverage fear, and prevent future fraudulent acts. This would properly realize Churchill’s sentiments of making the most of a crisis situation.
Support NWC
NWC fights to bolster whistleblower programs and inform the public about whistleblower laws. As a 501(c)(3) non-profit our awareness building work is made possible with the support of our generous donors. Please consider donating $50 today to help us continue to educate about critical whistleblower laws and their impact on taxpayers.
This story was written by Justin Smulison, a professional writer, podcaster and event host based in New York.
