PPP Fraud Enforcement Policies Should Not Result in Disproportionate Sentences

The Biden Administration has announced that it will take tough measures against those accused of PPP fraud.  President Biden announced a plan to name a Chief for Pandemic Relief Fraud, and called on Congress to provide enhanced resources and penalties.  More recently, the DOJ announced that it has established a COVID 19 Strike Force to investigate and prosecute cases of PPP fraud.

There is no dispute that the Department of Justice should take pandemic fraud seriously.  However, the prospect of “enhanced penalties” raises serious questions about the likely effectiveness of such measures as a means to deter PPP fraud.  Far from being helpful, such measures are likely to promote unfair sentences and to harm the taxpayers that they were intended to protect through the increased costs of long sentences.

First, consider deterrence. It is questionable at best to assume that imposing harsher penalties for this specific type of fraud will have any added deterrent effect at all.  Such penalties would likely be built into the already-convoluted, hyper technical, and deeply flawed fraud guideline.  Setting aside the problems with the fraud guideline as a whole, increased punishments could only deter potential offenders if those offenders first decide to investigate the penalties at all.  Are would-be offenders in the general public really going to stop and research the penalties before deciding to commit fraud?  Will a potential sentence of, say, 12 years, as opposed to 9 years marginally deter a person already inclined to risk committing large-scale fraud? This seems absurd.  And while federal prosecutors claim to have evidence to the contrary, prior research on deterrence shows that harsh sentences are not effective in deterring white collar offenders.  See, e.g., Zvi D. Gabbay, Exploring the Limits of the Restorative Justice Paradigm: Restorative Justice and White Collar Crime, 8 Cardozo J. Conflict Resol. 421, 448-49 (2007) (“[T]here is no decisive evidence to support the conclusion that harsh sentences actually have a general and specific deterrent effect on potential white-collar offenders.”).

Second, if deterrence is unachievable, does retribution justify using enhanced penalties?  This would be true if fraud involving PPP funds is inherently more serious than other types of fraud.  But that notion does not hold up either.  If anything, there is an argument that this crime—which involves theft from government programs funded by taxpayer money—causes less serious harm than frauds that directly affect individual victims.  There is no doubt harm to taxpayers and government programs, but the nature of that harm is diffuse.  Assuming that the amounts involved in the fraud are comparable, is there a serious argument that PPP fraud is deserving of harsher punishment than fraud involving theft of money from individual victims, including senior citizens, veterans, schools, churches, charitable organizations, etc.

Certainly, those who are proven to have committed PPP fraud should face punishment commensurate with their crime, and the fraud sentencing guideline—whatever its problems—already provides for increased punishment for frauds involving major disaster or emergency benefits.  USSG § 2B1.1(b)(12); 18 U.S.C. 1040.  This provision applies in PPP fraud cases and increases the advisory sentencing range beyond what is already recommended based on the monetary harm of the fraud alone.  In other words, the fact that pandemic relief funds are part of the fraud is already accounted for in the current fraud guideline.  Adding enhanced penalties implies that PPP fraud offenses are somehow inherently worse than others.

Ratcheting up the guidelines for PPP fraud with no basis will harm the sentencing process because the sentencing guidelines have an anchoring effect that significantly influences sentencing decisions.  See Hon. Mark W. Bennett, Confronting Cognitive “Anchoring Effect” and “Blind Spot” Biases in Federal Sentencing: A Modest Solution for Reforming a Fundamental Flaw, 104 J. Crim. L. & Criminology 489, 492 (2014). This is true even where the sentence imposed is ultimately outside of the guidelines range.  Thus, unduly harsh advisory guidelines will almost certainly result in unduly harsh sentences in a significant percentage of cases.

The prospect that sentences for PPP fraud in particular will be increased should concern all who care about fairness, proportionality, and consistency in the sentencing process.  Singling out particular crimes for increased punishment, with no rational basis, imposes a real cost on justice.

Fortunately, federal judges retain broad authority to apply their independent judgment when imposing criminal sentences.  Judges have the authority to reject the sentencing guidelines where they result in excessive sentences.  Unless the plan is to create a scheme of mandatory minimums—which have been shown time and again to create serious injustices—judges will retain the ability to use their independent judgment, experience, and common sense in PPP fraud cases.  Of course, it will fall to practitioners to remind judges that the increased penalties in PPP cases, whatever they ultimately are, are not helpful to reaching a fair and just outcome.

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