Federal loans obtained fraudulently during a major disaster or declared national emergency may bring severe penalties. As described on the Federal Deposit Insurance Corporation website, punishments may include a $1 million fine and up to 30 years of imprisonment if convicted.
A prosecutor may not, however, always obtain a conviction for an alleged offense. Law enforcement must first provide ample proof that a loan applicant submitted false statements or modified documents.
Due diligence regarding an applicant is generally required
Banks and financial institutions generally owe a duty of care to exercise due diligence and perform a background check on their loan applicants. Verifying applicants’ information, income and expenses typically requires time to review the submitted documents.
As reported by the Tampa Bay Times, when approving the CARES Act to provide small businesses with forgivable loans, Congress authorized bank officers to forego many background and credit checks. Only those loan applicants who sought $2 million or more in federal disaster funding would require an audit.
Issues may occur when a bank fails to verify documents
With some financial institutions bypassing full verification, law enforcement officials may have received an applicant’s documents as part of a wider process of due diligence. If an investigator discovers a potential issue, he or she may refer the application to a prosecutor for possible criminal charges.
Although banks and lenders may have neglected to always perform their due diligence, an individual charged with providing false statements or documents to obtain a loan may require a strong defense. A fraud conviction could bring much higher penalties when connected to applying for a loan during a declared national emergency.