On Mar. 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act—the CARES Act—was signed into law in response to the challenges facing the US economy due to the Covid pandemic. Nearly three years later, IRS Criminal Investigation (IRS-CI) reports that it has investigated 975 tax and money laundering cases related to Covid fraud, with alleged fraud in these cases totaling $3.2 billion.
As a result of the IRS-CI investigations, 458 individuals have been indicted for their alleged Covid fraud-related crimes, and 236 individuals have been sentenced to an average of 37 months in federal prison. Over that same time period, CI has a nearly 100% conviction rate in prosecuted cases.
“IRS-CI is proud to lead the fight against COVID-related fraud. While COVID illnesses no longer lead the nightly news, the effects from the disease and the fraud perpetrated on the various COVID-related relief programs have not left our sights. Any criminal looking to exploit the CARES Act should know that there are serious consequences for stealing from hardworking Americans, and it’s only a matter of time before they are held to account,” said IRS-CI Chief Jim Lee.
The kinds of fraud cases have varied but typically fall into these categories:
- Paycheck Protection Program (PPP) fraud. Nearly 12 million loans totaling $800 billion were approved while PPP funding was available—the average loan was $42,000. These loans were intended to help small businesses financially survive the pandemic. However, fraudsters saw it as an opportunity to collect—by inflating their payroll expenses, they were able to obtain larger loans than they otherwise would have qualified, while others revived dormant corporations and purchased shell companies with no actual operations to apply for multiple loans.
- Economic Injury Disaster Loans (EIDL) fraud. EIDL loans weren’t quite as popular as PPP loans—just under four million loans totaling more than $378 billion were doled out during the pandemic. An additional 601,058 loans provided over $5 billion in advance funding. Covid EIDL loan funds, which must be repaid, were intended to be used for working capital and other ordinary operating expenses for businesses. EIDL Advance funds were awarded to existing COVID-19 EIDL applicants who meet specific criteria and do not need to be repaid. As with PPP loans, IRS-CI has found that scammers have targeted the EIDL program by applying for advances and loans for ineligible, newly-created shell or non-existent businesses and diverting the funds for illegal purposes.
- Unemployment Insurance (UI) fraud. As of October 2021, more than $653 billion was paid out to programs were intended to provide relief for those who were unable to work because of shutdowns and related activities during the pandemic. Scammers exploited unemployment benefits during the pandemic by submitting false information to government agencies, collecting benefits while ineligible, and using stolen identities to fraudulently file for UI benefits—the Department of Labor has estimated the total amount of improper UI payments, including fraud, was at least $39.2 billion. Fraudsters also created websites mimicking unemployment benefit websites used to steal taxpayer information. Individuals were lured with text messages and emails purporting to be from a legitimate state agency and tricked into thinking they are applying for benefits, but fraudsters were stealing their information to commit identity theft. Not only did the swell of false claims slow the delivery of benefits to those who needed it (hundreds of thousands of claimants waited more than 21 days to receive their benefits), but a flurry of incorrect Forms 1099-G in the names of honest taxpayers whose identities were stolen were issued causing headaches and financial problems for many. The IRS eventually set up a page on its website to assist victims of these crimes.
IRS-CI has been investigating these crimes with success.
Last month, Mustafa Qadiri, of Irvine, California, was sentenced to 54 months in federal prison in February 2023 for fraudulently obtaining $5 million in Covid-relief loans, which he used to buy Ferrari, Bentley, and Lamborghini cars. He was also fined $20,000 and ordered to pay $2.86 million in restitution. Qadiri claimed to have operated four Newport Beach-based companies, none of which were in operation, and submitted false and fraudulent PPP loan applications to three banks on behalf of those companies. Qadiri falsified the number of employees to whom the companies paid wages, altered bank account records to include inflated balances, and provided fictitious quarterly federal tax return forms—he also used someone else’s name, Social Security number, and signature to fraudulently apply for one of the loans.
Also in February of 2023, Thanh Ngoc Rudin of Rosemead, was sentenced to 34 months in prison, and his co-conspirator, Seir Havana of North Hollywood, was sentenced to 42 months in prison in a fraud conspiracy. You can read more about that story here.
About IRS-CI
IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money laundering, public corruption, healthcare fraud, identity theft, and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, boasting a more than 90% conviction rate.
Resources
If you receive calls, emails, or other communications claiming to be from the Treasury Department and offering Covid-related grants or stimulus payments in exchange for personal financial information, an advance fee, or charge of any kind, including the purchase of gift cards, please do not respond. These are scams—please contact the FBI at www.ic3.gov.
To report allegations of attempted fraud involving COVID-19, call the Department of Justice’s National Center for Disaster Fraud Hotline at (866) 720-5721 or use the NCDF Web Complaint Form.