Highlights
- The Department of Justice (DOJ) has increased scrutiny of foreign-affiliated companies that obtained Paycheck Protection Program (PPP) loans without properly accounting for global employee counts.
- Recent settlements show DOJ applying penalties of 1.5–2x the loan amount, reflecting heightened False Claims Act (FCA) enforcement risk.
- Qui tam whistleblower suits, fueled by public PPP data, are driving many of these cases and compounding exposure.
The U.S. DOJ has escalated its scrutiny of foreign-affiliated companies that received PPP loans by certifying compliance with employee count requirements, while neglecting to account for affiliation rules and their global workforce. This enforcement trend has emerged as a significant focus for the DOJ, with recent settlements underscoring the agency's commitment to addressing these compliance failures.
Affiliation Rules
Under the Small Business Administration (SBA) affiliation rules, businesses must have included all employees of its affiliates, both domestic and foreign, when it determined its eligibility for a PPP loan. This meant that foreign-affiliated companies were required to aggregate the employee counts of their U.S. operations with those of their foreign affiliates to assess whether they met the employee threshold for loan eligibility as a small business. A business' failure to include those employees allegedly results in misrepresentation about the company's size and, consequently, its eligibility for the loan. The DOJ's enforcement actions are based on the theory that foreign-affiliated companies knowingly submitted false certifications regarding their employee counts, thereby violating the FCA.
First and Second PPP Loans
For the first PPP loan, offered from April 3 – August 8, 2020, eligibility generally required companies to have 500 or fewer employees or meet SBA industry-specific size standards. Importantly, the SBA issued guidance clarifying that, for loans applied for between April 8 and May 5, 2020, companies could rely on U.S.-based employee counts only and exclude employees of global affiliates. This safe harbor was intended to address early miscommunications regarding the treatment of foreign affiliates.
For the second PPP loan, offered from January 11 – May 31, 2021, the SBA clarified that companies must include all employees of foreign and domestic affiliates when determining eligibility. Companies were generally limited to 300 or fewer employees but could also be eligible under industry-specific thresholds. Failure to account for global affiliates in these calculations exposes companies to FCA risk.
Settlement Trends
In cases where the DOJ determines the company did not meet the relevant criteria, the DOJ's settlement approach appears to involve a multiplier of 1.5-2x the single damages amount, which is the value of the PPP loan forgiven. In a recent case, the DOJ settled for $2.3 million, which was approximately 1.8x the loan value. This pattern suggests that the DOJ is not inclined to accept settlements below a 1.5x multiplier, emphasizing the seriousness of these violations.
Qui Tam Risks
In some instances, these cases arise from qui tam lawsuits filed by whistleblower firms, leveraging publicly available PPP data to identify potential violations. These firms scour public filings, loan data, and corporate disclosures to identify discrepancies between companies' PPP certifications and their actual workforce size. This has made foreign-affiliated companies particularly vulnerable to scrutiny.
As a result, a company may face not only a DOJ investigation, but also a parallel qui tam lawsuit filed by a whistleblower. This dual exposure often increases both the complexity of the case and the potential settlement value, since DOJ settlements typically address both government claims and the underlying whistleblower action. Companies may also need to resolve additional claims related to the whistleblower's attorneys' fees and costs.
Implications for Foreign-Affiliated Companies
Foreign-affiliated companies that received PPP loans should carefully review their past eligibility certifications, particularly regarding SBA affiliation rules and the inclusion of global employees. While the PPP itself is no longer active, potential FCA liability remains. Companies may consider consulting experienced counsel to assess exposure and determine whether voluntary self-disclosure to the DOJ may be appropriate. Proactively addressing potential misrepresentations can help mitigate financial and reputational risks and improve the prospects of a favorable resolution.
Conclusion
The DOJ's intensified enforcement against foreign-affiliated companies over PPP loan certifications underscores the critical importance of compliance with SBA affiliation rules. Companies should prioritize reviewing their past certifications, maintain transparent records, and seek legal guidance to mitigate potential legal and financial repercussions.
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