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The bigger the bazooka the better. But what if it misses the target? 

To fight the effects of the coronavirus pandemic, the US tried to get forgivable government loans to businesses before they went under. Banks were the conduit and in May, JPMorgan’s head of business banking Jennifer Roberts trumpeted the initial success.

Her team “focused all our efforts on securing and expediently deploying” funds from the $349bn Paycheck Protection Program, she wrote in an “insider account” for American Banker magazine.

She proudly noted that JPMorgan had distributed more than $30bn to 250,000 businesses within weeks of the programme’s launch, “more than any other participating lender”. And gave credit to the Treasury and Small Business Administration, who “in less than two months [had] done two decades’ worth of their normal dollar volume of loans (or 75 years’ worth of loan applications) — a Herculean task, only made possible through a great partnership with banks”. 

But when you are shifting so much money so fast, some will go astray. This week, officials said they had charged 57 people with stealing $175m from the PPP. Recipients are alleged to have spent ill-gotten gains on sports cars, casinos and jewellery. JPMorgan is no longer celebrating. It said this week that customers and employees were suspected of abusing government support programmes and may have broken the law. Some of the bank’s staff have been fired.

The need for speed meant checks on applications were minimal. As an official acknowledged, the suspicious activity detected so far is just “the smallest, tiniest piece of the tip of the iceberg”.

There could have been a more powerful deterrence, says Neil Barofsky, who during the last global financial emergency in 2008 was appointed as special inspector general to oversee disbursed funds. He had a small team but it made a big noise. “You need to at least give the illusion, if not the reality, that if you try to steal from this programme you have a reasonable chance of getting caught,” says Mr Barofsky, now a partner at law firm Jenner & Block.

Mr Barofsky is also critical of a lack of transparency, saying such programmes should publish all the recipients: “The great thing about transparency is it deputises every journalist and non-profit and good-government group.” 

What may tilt the playing field in favour of law enforcement is individuals reporting abuse in their communities. The company that claimed to have preserved jobs and applied for a bigger loan on that basis is vulnerable to laid-off employees and disgruntled competitors tipping off authorities.

“In addition to the various government systems that have been put in place to detect fraud, I expect that there will be a lot of individuals notifying the government of potential fraud,” says Ellen London, a former government attorney and now partner at San Francisco-based Alto Litigation. “The relevant civil statutes which the government will be using have provisions and protections for whistleblowers who are raising these claims.”

Which is another way of saying fat rewards. Under one statute, whistleblowers can be awarded up to $1.6m. Under another, they can claim up to 25 per cent of the amount recovered by the government, which can be up to three times the amount stolen, potentially running into the millions.

To police the government payouts: more government payouts.

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