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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

CARES Act Funding comes with Enforcement Risk

CARES Act funding from the US government aims to help businesses weather the COVID-19 storm, but companies will need effective compliance measures to mitigate the risk of government enforcement.

While authorizing over $2 trillion in funding through the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")—roughly $500 billion to support large corporations—the US government created oversight and accountability mechanisms to address the potential for fraud and abuse. Companies that access CARES Act funding must manage the risk of enforcement scrutiny arising out of requirements for the eligibility and use of those funds.

The CARES Act creates three new oversight and accountability bodies:

  • Special Inspector General for Pandemic Recovery (the "SIGPR"), which has audit and subpoena power, and can refer misconduct to US prosecutors;
  • Pandemic Response Accountability Committee, which is authorized to conduct investigations, audits, and reviews on its own or in conjunction with any Inspector General to "detect and prevent fraud, waste, abuse, and mismanagement"; and
  • Congressional Oversight Commission, which may hold hearings, take testimony, and receive evidence to conduct oversight.

To better understand how these newly created enforcement agencies may approach their role, we look at the oversight mechanisms coming out of the 2008 Great Recession, on which the CARES Act mechanisms are modeled.

In particular, the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP"), which has obtained hundreds of criminal convictions and recovered over $11 billion of government-related funding, including nearly $1 billion in the past fiscal year.

We expect that the SIGPR created under the CARES Act will follow SIGTARP's example, and the decade-long tenure of SIGTARP serves as a warning of the extended enforcement overhang associated with government stimulus funds.

Companies should also be mindful of DOJ's existing enforcement mechanisms, including the False Claims Act—through which the government recovered over $3 billion in the past fiscal year in connection with a variety of government-funded programs—as well as a litany of fraud-related criminal statutes.

To mitigate these risks, companies should review their systems, procedures, and controls to ensure eligibility and compliance with government funding programs.