40,000 Corporations Receiving CARES Act Assistance Have a History of Misconduct
By Philip Mattera
for the Dirtdiggers
Digest
In implementing the CARES Act passed by Congress to rescue the economy from the effects of the pandemic, the Trump Administration has directed tens of billions of dollars in aid to companies with a track record of misconduct.
This transfer of public
wealth to private bad actors will likely turn out to be more expensive than the
TARP bailout of the banks a decade ago, given that much of the new aid will not
be repaid.
My colleagues and I at Good Jobs First have found that more than 43,000 regulatory violators and other business miscreants have so far received $57 billion in grants and $91 billion in loans, including many that are forgivable.
Over the past decade, the
penalties paid by these companies for their misdeeds amounted to more than $13
billion. Our findings are summarized in a new report titled The Corporate Culprits Receiving COVID Bailouts.
We derived these
numbers through a careful comparison of the CARES Act data we have compiled for
our Covid
Stimulus Watch website and the entries covering the past decade
in Violation Tracker.
More than 87 percent
of the CARES Act recipients with a record of misconduct are small businesses,
while the other 13 percent are units and subsidiaries of larger companies. The
latter received $55 billion in grants and $53 billion in loans, while the
smaller companies received $2 billion in grants and $38 billion in loans. The
large companies account for 90 percent of the penalty dollars.
The largest violation
category among all 43,000 companies is government contracting at $5.6 billion,
or 42 percent of the total. Employment-related penalties and consumer
protection penalties each add up to about $3 billion (23 percent), while
environmental and safety penalties total $1.6 billion (12 percent).
Hospitals (both for-profit and non-profit) and other providers that received funding from healthcare-related CARES Act programs account for $9 billion of the penalties, or 68 percent of the total. More than half of these penalties derive from Medicare and Medicaid billing fraud.
Recipients of
small-business loans account for $3 billion of the penalties (23 percent), with
the largest portions coming from wage theft and workplace safety and health
violations.
There are two other
groups of CARES Act recipients with a significant history of misconduct:
colleges and universities getting aid through the Higher Education Emergency
Relief Fund and airlines receiving massive levels of assistance through the
Payroll Support Program. They paid $900 million and $600 million in penalties,
respectively.
Seventy CARES Act
recipients had been involved in cases that included criminal charges. Of these,
33 of the defendants were large companies, which paid total penalties of $3
billion. The 37 smaller defendants paid $47 million.
While the bulk of CARES Act spending comes in the form of grants and loans, the Federal Reserve is also seeking to prop up the commercial credit market by purchasing corporate bonds, especially those issued by Fortune 500 and Global 500 corporations.
The
corporations whose bonds have been purchased by the Fed account for more than
$100 billion in penalties over the past decade. Because the purchases, which
averaged about $3 million per company, are small in comparison to the size of
these corporations, we decided not to include the associated penalties in the
main analysis of the report.
The revelation that
tens of thousands of CARES Act recipients have records of misconduct—including
some cases of a criminal nature—raises serious questions about how the aid was
distributed. It appears that little screening was done by federal agencies
before awarding grants and loans, partly because there were no strict
eligibility requirements written into the CARES Act. In some programs the money
was apportioned by formula rather than choosing some recipients over others.
In the Paycheck
Protection Program there was an application process, but it was handled by
banks – which received commissions for their efforts – rather than the Small
Business Administration. The application form required business owners to state
whether they personally had been convicted or pled guilty to felonies such as
fraud and bribery, while for the companies themselves the only issue seemed to
be whether they had been debarred by a federal agency.
While little can be done
about aid awards that were technically legal, there are steps the federal
government could take with regard with two categories of recipients. The first
consists of those companies and non-profits which were accused of defrauding
the federal government and which paid civil penalties (usually through a
settlement) for False Claims Act violations. The other category consists of
those involved in cases that were serious enough to be brought with criminal
charges.
Given that companies
involved in FCA cases are usually allowed to continue doing business with the
federal government after paying their penalty, it would be difficult to debar
them from future covid stimulus programs. These companies should, however, be
subject to additional scrutiny to ensure they do not resume their fraudulent
behavior while receiving grants and loans.