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Quarterly Report to the United States
Congress
July to September 2021
OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR
PANDEMIC RECOVERY
i
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVERY
MESSAGE FROM THE SPECIAL INSPECTOR GENERAL
FOR PANDEMIC RECOVERY
When the COVID-19 pandemic threatened to wreak havoc on the health and
economic well-being of the American people, Congress passed the
Coronavirus Aid, Relief, and Economic Security (CARES) Act to invest trillions
of dollars to address these extraordinary challenges. Unfortunately, this vital
investment of taxpayer dollars has been put at risk of fraud, waste, and abuse
by bad actors, who seek to gain at the expense of those most in need. We at
the Office of the Special Inspector General for Pandemic Recovery (SIGPR)
have pursued our mission aggressively and proactively to detect and
investigate such wrongdoing.
Starting from scratch just over a year ago, we have built sustainable
programs and an exceptional organization, including some of the country’s
finest and most accomplished attorneys, auditors, investigators, and other
professionals, to relentlessly pursue fraud, waste, and abuse in pandemic
relief monies. SIGPR stands ready at a critical juncture. Now that interest
payments on relevant loans are becoming due, fraud and other abuses are
becoming more evident.
Our audit team continued looking at the investment of the Treasury in the
Main Street Lending Program (MSLP) and the Treasury Department’s Direct
Loan Program, issued two alert memorandums, published its Direct Loan
Program survey results, and released its Fiscal Year 2022 audit plan. Our
investigative team vetted 242 hotline complaints and initiated 13 new
preliminary inquiries and full investigations, bringing the total number of
open investigative matters to 27 – an increase in our investigatory casework of
approximately 35 percent from the previous quarter. We built more than 80
REPORT TO CONGRESS | APRIL–JUNE 2021
ii
percent of SIGPR’s investigations internally through our proactive initiatives,
which we continue to develop and refine.
The pace of our audit work has been particularly brisk. SIGPR held entrance
conferences with Treasury officials on July 1, 2021, and with Federal Reserve
officials on August 31, 2021, to discuss our audit of Treasury’s investment in
the MSLP. In August 2021, we distributed a survey to the program’s 319
lenders and the borrowers of 1,830 loans. The feedback we receive will allow
us to assess the program and guide future audit work. On September 23,
2021, we published the results of our survey sent to Direct Loan Program
applicants. We will use these results to identify relevant trends and identify
program areas requiring additional oversight. Finally, we issued our Fiscal
Year 2022 audit plan on September 29, 2021, and we will scope any audit we
announce within the jurisdictional bounds authorized by the CARES Act.
SIGPR has jurisdiction over the Treasury Department’s investment into the
MSLP, which was designed to provide financial support to small and medium-
sized businesses and their employees during the worst of the pandemic.
Among the many terms unique to the MSLP due to its emergency nature is
that principal and interest payments were deferred. As a result, many Main
Street borrowers have only recently had to make their first interest payment.
Many more borrowers will have to make their first interest payment in the
coming months, even as principal will not become due. Unfortunately, the
program has already suffered its first losses – and may soon suffer far more.
In fact, an evaluation of loan participations purchased by MS Facilities LLC –
the special purpose vehicle in which Treasury has a remaining investment of
approximately $16.5 billion – has resulted in it recording a loan loss allowance
of $2.5 billion as of June 30, 2021, and, as of September 30, 2021,
approximately $12 million in actual loan losses. These losses make the work
that we do more urgent.
SIGPR continues to work through issues uniquely inherent to the position of a
new office that parachutes into existing agency constructs. We appreciate the
professionalism of our colleagues in working through these issues. In
particular, last quarter we worked with Treasury’s Office of General Counsel
to adjust certain protocols in accessing information during an audit.
Treasury’s Acting General Counsel circulated a memorandum to relevant
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVERY
officials highlighting their responsibility to cooperate fully with SIGPR,
emphasizing the need for timely access to all information, and advising
employees that they are entitled to communicate directly with SIGPR without
permission from any Treasury official to do so.
Finally, our experience in combatting fraud, not only as part of SIGPR, but also
as former prosecutors, inspired us to submit another legislative proposal for
Congress’s consideration.1 SIGPR is responsible not only for identifying and
bringing cases against entities that steal CARES Act funds, but also for
recovering the stolen money. Accordingly, SIGPR proposes new legislation
that will enhance the ability of the government – and not just SIGPR – to
recover stolen CARES Act and other federal funds for victims, including the
U.S. government and private lenders.
I remain grateful to the professional and hardworking team at SIGPR and our
partners at offices of inspectors general, law enforcement, and other
agencies for their dedication to working on behalf of the American taxpayer.
We will continue our unremitting fight for the American people and to protect
tax dollars from fraud, waste, and abuse.
Respectfully,
Brian D. Miller
October 29, 2021
1 In addition to legislative proposals directly related to SIGPR and the CARES Act, we have
previously recommended statutory updates that we believe would aid federal efforts to detect
and prosecute fraud. Our quarterly report dated April 30, 2021, included proposals to expand
access to information for inspectors general, to amend the venue requirements of the federal
wire fraud statute, and to amend the notice provisions of the Right to Financial Privacy Act of
1978. See Special Inspector General for Pandemic Recovery, Quarterly Report to the United
States Congress 37–46 (Apr. 30, 2021).
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
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PROFILE
ABOUT
SIGPR is an independent organization within the U.S. Department of the Treasury
whose mission is to promote the economy, efficiency, effectiveness, and integrity of
CARES Act funds and programs. SIGPR was established by Section 4018 of the
CARES Act with duties, responsibilities, and authority under the Inspector General
Act of 1978.
STAFFING AND BUDGET
Congress appropriated $25 million to SIGPR for the entirety of its five-year term, or
about $5 million per year. SIGPR requested $25 million in its Fiscal Year 2022
budget request, which was included in the President’s Budget. The receipt of
additional funding is critical to SIGPR’s success.
As of September 30, SIGPR had 55 full-time employees onboard.
CONTENTS
SIGPR OVERSIGHT
Audits
2
Investigations
4
FINDINGS AND DEVELOPMENTS
Direct Loans and Other Investments
9
CHALLENGES AND PROPOSALS
Access to Information
18
Restitution
18
SECTION 1
SIGPR OVERSIGHT
SIGPR OVERSIGHT
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
2
SIGPR employs proactive efforts to prevent, detect, and investigate fraud,
waste, and abuse involving CARES Act funds and programs within SIGPR’s
jurisdiction.
Below is a summary of SIGPR’s activities during the reporting period.
•
The Office of Audits continued its audits of the Direct Loan
Program and Main Street Lending Program, issued two alert
memorandums, published its Direct Loan Program survey results,
and released its Fiscal Year 2022 audit plan.
•
The Office of Investigations vetted 242 hotline complaints, and
initiated 13 new preliminary and full investigations, bringing the
total number of open investigative matters to 27 — an increase in
casework of approximately 35 percent from the previous quarter.
SIGPR developed more than 80 percent of its investigations
internally through proactive initiatives, which it continues to
develop and refine.
Audits
The Office of Audits conducts audits and evaluations of loans, loan
guarantees, and other investments made by the U.S. Department of the
Treasury under programs within SIGPR’s jurisdiction.2
Engagements
During this quarter, the Office of Audits worked on the following projects:
Audit of the Direct Loan Program. The Office of Audits continued its review
of the Direct Loan Program. This program was established under the CARES
Act and authorized Treasury to provide loans, loan guarantees, and other
investments to passenger air carriers and related businesses, cargo air
carriers, and businesses critical to maintaining national security.
On August 2, 2021, the Office of Audits issued an Alert Memorandum for a
Direct Loan Program recipient that failed to provide responses to information
requested by SIGPR. Treasury’s Office of Recovery Programs issued a Notice
of Non-Compliance on August 3, 2021, demanding that the loan recipient
provide the requested information within 30 days.
On September 8, 2021, the Office of Audits issued another Alert
Memorandum, stating that the loan recipient had failed to comply with
Treasury’s Notice of Non-Compliance. Treasury contacted the loan recipient,
and SIGPR received the information on September 13, 2021.
2 See CARES Act § 4018(c)(1).
SIGPR OVERSIGHT
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
On September 23, 2021, the Office of Audits published its survey results for
both approved and non-approved Direct Loan Program applicants. The survey
results are a compilation and summary of Direct Loan Program feedback that
SIGPR requested from air passenger carriers and related businesses, air
cargo carriers, and businesses critical to maintaining national security. The
Office of Audits is using the survey responses to identify trends, both
positive and negative, associated with the Direct Loan Program and identify
program areas requiring additional oversight.
SIGPR continues to partner with the Department of Defense Office of
Inspector General in its audit of national security designations for
businesses. This joint effort is evaluating how the Department of Defense
determined that businesses were critical to maintaining national security for
loans under Section 4003 of the CARES Act.
Audit of the Main Street Lending Program. The MSLP was established to
support lending to small and mid-sized businesses and nonprofit
organizations, with Treasury investing more than $16.5 billion to support
MSLP loans. The Office of Audits held entrance conferences with Treasury
officials on July 1, 2021, and with Federal Reserve officials on August 31,
2021, to discuss audit objectives and establish points of contact for the audit.
In late August 2021, the audit team distributed a survey to the program’s 319
lenders and the borrowers of the 1,830 loans. Responses will be used to
assess (1) the overall ease and efficiency that lenders and borrowers
experienced with the administration of the MSLP and (2) compliance with the
requirements set forth in the CARES Act. The Office of Audits expects to
receive feedback that will allow it to assess the program and guide future
audit work.
Data Analysis
The Office of Audits continues to work on data analytics concerning
programs within SIGPR’s oversight jurisdiction. In its analytical work, the
Office of Audits:
•
creates robust risk assessment metrics by identifying, cleansing,
normalizing, and joining relevant data to determine areas of program
weakness;
•
maintains a growing library of relevant data tables to accommodate
emerging needs for analytic support to identify anomalies;
•
creates interactive dashboards and visualizations to assist users in
determining program areas for audits, investigations, and evaluations;
SIGPR OVERSIGHT
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
4
•
shares analytic methodologies and processes with various other
government agencies, including the Department of Homeland
Security, Department of Defense, Department of State, and others;
and
•
collaborates with various inter-governmental agencies, committees,
and third-party vendors to stay informed about emerging analytic
technologies, tools, techniques, and methodologies.
The current supporting informational datasets, as compiled and developed
by the Office of Audits, has expanded to nearly 72 million rows of data,
covering billions of dollars in CARES Act funding. The Office of Audits
continues to develop risk assessment models to identify areas of potential
vulnerabilities and financial risk in CARES Act programs under its purview.
The Office of Audits has developed a suite of custom proactive analysis and
technical support tools to address the needs of SIGPR in combating abuse,
fraud schemes, and waste of taxpayer funds.
Fiscal Year 2022 Audit Plan
The Office of Audits issued its Fiscal Year 2022 audit plan on September 29,
2021. To identify potential areas for audit in the next fiscal year, the Office of
Audits met with the Department of the Treasury’s Chief Recovery Officer and
the White House’s team responsible for overseeing the implementation of
the American Rescue Plan Act of 2021. SIGPR will of course scope any audit
it announces within its jurisdictional authority under the CARES Act.
Specifically, Section 4018 of the CARES Act sets forth that in addition to the
duties and responsibilities of inspectors general under the Inspector General
Act of 1978, SIGPR shall “conduct, supervise, and coordinate audits and
investigations of the making, purchase, management, and sale of loans, loan
guarantees, and other investments made by the Secretary of the Treasury
under any program established by the Secretary under this Act, and the
management by the Secretary of any program established under this Act.”
SIGPR will also deconflict and coordinate with the Office of Inspector
General for the Board of Governors of the Federal Reserve System and other
interested parties, as it refines the focus of its audits.
Investigations
The Office of Investigations conducts criminal and civil investigations
regarding allegations of fraud, waste, abuse, or misconduct involving CARES
Act funds and programs within SIGPR’s jurisdiction. In addition, the office
SIGPR OVERSIGHT
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
manages SIGPR’s hotline, which serves as a primary avenue for reporting
fraud, waste, abuse, or misconduct.
Investigative Activities
The Office of Investigations routinely collaborates with the rest of the SIGPR
team, including auditors, analysts, and attorneys, to vet complaints, develop
proactive initiatives, and pursue investigations.
In addition, SIGPR’s investigations are conducted in partnership with various
U.S. Attorneys’ Offices, the U.S. Department of Justice (DOJ), and other federal
law enforcement partners.
During this reporting period, the office continued its investigative and
proactive efforts to uncover and vigorously pursue fraud and wrongdoing
related to CARES Act funding under title IV, subtitle A. The following table
highlights SIGPR’s investigative activities for the period.
SIGPR Investigative Activity – July through September 2021
Hotline Complaints
Hotline Complaints Received
242
Referrals to Other Agencies
42
Preliminary Inquiries
Opened
8
Closed (or Converted to Full Investigation)
4
Ongoing
12
Investigations
Opened
5
Closed
2
Ongoing*
15
* SIGPR Program-related cases including PRAC Fraud Task Force investigations
Throughout the quarter, the Office of Investigations continued to expand its
investigative oversight work through SIGPR’s collaborative and proactive
efforts. As of September 30, SIGPR’s casework, involving both preliminary
inquiries and full investigations, had increased by approximately 35 percent
from the previous quarter.
SIGPR OVERSIGHT
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
6
Pandemic Response Accountability Committee Fraud Task Force
In January 2021, the Pandemic Response Accountability Committee (PRAC)
established a Fraud Task Force to serve as a resource for the Inspector
General (IG) community by surging investigative resources into the areas of
greatest need. Currently, the area of greatest need is pandemic loan fraud.
Agents from Offices of Inspectors General across the government are
detailed to work on Task Force cases. These agents have partnered with
prosecutors at DOJ’s Fraud Section and at U.S. Attorneys’ Offices across the
country.
The PRAC extended its authority to investigate pandemic-related fraud to
SIGPR through a Memorandum of Understanding. As of September 30,
SIGPR has four agents assigned to the PRAC Fraud Task Force on a part-time
basis. These agents are assigned Paycheck Protection Program cases while
continuing to work their SIGPR investigative caseload. This initiative allows
SIGPR to make a broader contribution to the IG community by assisting with
a range of critical investigations that might otherwise remain unstaffed.
SIGPR Hotline Activity
The SIGPR hotline accepts reports of potential fraud, waste, abuse, and
mismanagement related to CARES Act funding, programs, and personnel. The
hotline also accepts whistleblower complaints from federal employees,
former federal employees, employment applicants, employees of contractors,
subcontractors, grantees and subgrantees, and personal service contractors,
all of whom wish to report fraud, waste, abuse, mismanagement, or reprisal
actions under the jurisdiction of SIGPR.
SIGPR OVERSIGHT
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
During this reporting period, SIGPR received 242 hotline complaints, of which
all but two pertained to matters outside SIGPR’s jurisdiction, as indicated in
the table below.
Complaints by Category
Received July through September 2021
Category
Total
Title I – Paycheck Protection Program
23
Title IV, Subtitle A – Direct Loans and Investments
2
Title IV, Subtitle B – Payroll Support Program
1
Title V – Coronavirus Relief Fund
13
Other
Economic Impact Payments
16
Emergency Income Disaster Loans
4
Income Tax Related
8
Non-Program Related
124
Rental and Housing Assistance Programs
28
Unemployment Insurance Programs
23
Grand Total
242
More than half of the complaints received were determined to be non-
program related, as indicated in the chart below.
SECTION 2
FINDINGS AND
DEVELOPMENTS
FINDINGS AND DEVELOPMENTS
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
The CARES Act requires SIGPR to regularly report “a detailed statement of all
loans, loan guarantees, other transactions, obligations, expenditures, and
revenues associated with any program established by the Secretary under
section 4003, as well as the information collected under subsection (c)(1).”3
Accordingly, below are the categories of loans and other investments made
by the Treasury under CARES Act section 4003,4 including, where applicable
and known, a list of the loans and investments made under each category and
the eligible businesses to which loans were made.
Direct Loans and Other Investments
Introduction
CARES Act section 4003(a) authorized the Secretary “to make loans, loan
guarantees, and other investments in support of eligible businesses, States,
and municipalities that do not, in the aggregate, exceed $500,000,000,000.”
The CARES Act further divided these loans and investments into four
categories. The first three, described in sections 4003(b)(1)–(3), cover loans
and loan guarantees to passenger air carriers and related businesses ($25
billion), cargo air carriers ($4 billion), and businesses critical to maintaining
national security ($17 billion).5 The fourth category, described in section
4003(b)(4), authorized the Secretary to invest in various liquidity programs
established by the Federal Reserve under section 13(3) of the Federal
Reserve Act ($454 billion).
The Consolidated Appropriations Act, 2021, amended the CARES Act to
rescind unobligated balances of funds ($429 billion) in these programs.6 It
also specified that after December 31, 2020, the Federal Reserve “shall not
make any loan, purchase any obligation, asset, security, or other interest, or
make any extension of credit” through the liquidity programs or facilities in
which Treasury had invested CARES Act funds, except for facilities in the
Main Street Lending Program, that were authorized to purchase loans until
3 CARES Act § 4018(f)(1)(B).
4 Treasury did not establish a program for “loan guarantees” under CARES Act section 4003.
5 Treasury has posted on its website the contracts it has entered in connection with the
administration of loans under section 4003(b)(1), (2), and (3). See U.S. Dep’t Treasury, Other
Programs.
6 See Consolidated Appropriations Act, 2021, Pub. L. 116-260, div. N §§ 1003, 1005.
FINDINGS AND DEVELOPMENTS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
10
January 8, 2021, for applications submitted by December 14, 2020.7
An overview of the relevant categories and amounts of Treasury’s investments
remaining under CARES Act section 4003(b)(1)–(4) through September 30 is
reflected in the following table:
Funding Program
Outstanding Amount as of September 30,
2021
Direct Loans to Passenger Air Carriers
and Related Businesses
$400,334,324
Direct Loans to Cargo Air Carriers
$2,277,180
Direct Loans to Businesses Critical to
Maintaining National Security
$744,096,711
Funding Program
Treasury Investment Remaining as of
September 30, 2021
Main Street Lending Program (MS
Facilities, LLC)
$16,585,741,118
Term Asset-Backed Securities Loan
Facility (TALF II, LLC)
$3,500,000,000 (plus interest)
Primary and Secondary Market
Corporate Credit Facility (Corporate
Credit Facilities, LLC)
$0
Municipal Liquidity Facility (Municipal
Liquidity Facility, LLC)
$6,300,000,000 (plus interest)
Direct Loans
On March 30, 2020, Treasury first announced guidelines for businesses
interested in applying for loans under CARES Act section 4003(b)(1)–(3).8
Those guidelines incorporated several mandatory loan terms and conditions,
with many designed to protect American taxpayers. A summary of these
terms and conditions can be accessed in SIGPR’s previous quarterly reports.
Air Carrier Loan Program
CARES Act section 4003(b)(1)–(2) allocated $25 billion for loans and loan
7 Id. § 1005.
8 U.S. Dep’t Treasury, Procedures and Minimum Requirements for Loans to Air Carriers and
Eligible Businesses and National Security Businesses under Division A, Title IV, Subtitle A of
the Coronavirus Aid, Relief, and Economic Security Act (Mar. 30, 2020).
FINDINGS AND DEVELOPMENTS
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
guarantees to passenger air carriers, aviation-maintenance facilities certified
under 14 C.F.R. Part 145, and air-transportation ticket agents, as well as $4
billion for cargo air carriers.
The following table summarizes the section 4003(b)(1)–(2) loans current
through this quarter.9 Of note, Alaska Airlines Inc., American Airlines Inc.,
Hawaiian Airlines Inc., JetBlue Airways Corporation, Ovation Travel Group Inc.,
Republic Airways, Inc., SkyWest Airlines Inc., Sun Country Inc., and United
Airlines Inc. paid in full all outstanding principal and interest.
Recipient
Loan Date
Maturity
Date
Total Loan
Amount
Disbursements
10
Total
Outstanding
Loan
Amount11
Cash
Interest
Receipts
Aero
Hydraulics,
Inc.
10/26/2020
10/24/2025
$450,000
$450,000
$486,502
$0
Alaska
Airlines, Inc.
9/28/2020
(amended
10/30/2020
and 1/15/2021)
9/26/2025
$1,928,000,000
$135,000,000
$0
$2,538,900
Allflight
Corporation
11/5/2020
11/5/2025
$4,721,260
$4,721,260
$4,721,260
$262,736
American
Airlines, Inc.
9/26/2020
(amended
10/21/2020
and 1/15/2021)
6/30/2025
$7,500,000,000
$550,000,000
$0
$10,257,500
American Jet
International
Corp
11/5/2020
11/5/2025
$1,162,124
$1,162,124
$1,162,124
$65,328
Aviation
Management
& Repairs, Inc.
11/5/2020
11/5/2025
$4,026,705
$4,026,705
$4,154,550
$0
9 U.S. Dep’t Treasury, Loans to Air Carriers, Eligible Businesses, and National Security
Businesses https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
10 “Disbursements” includes all loan disbursements.
11 “Total Outstanding Loan Amount” includes all loan disbursements and increases of loan
principal amount arising from payment-in-kind (PIK) interest, less any repayments of principal.
FINDINGS AND DEVELOPMENTS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
12
Recipient
Loan Date
Maturity
Date
Total Loan
Amount
Disbursements
10
Total
Outstanding
Loan
Amount11
Cash
Interest
Receipts
Bristin Travel,
LLC
10/26/2020
10/24/2025
$549,651
$549,651
$573,790
$9,320
Caribbean
Sun Airlines,
Inc.
11/5/2020
(amended
12/7/2020)
11/5/2025
$6,768,749
$6,768,749
$7,129,025
$0
Eastern
Airlines, LLC
10/28/2020
10/28/2025
$15,000,000
$15,000,000
$15,916,146
$0
Elite Airways,
LLC
11/9/2020
(amended
12/1/2020)
11/7/2025
$2,630,274
$2,630,274
$2,773,377
$0
Frontier
Airlines, Inc.
9/28/2020
(amended
1/15/2021)
9/26/2025
$574,000,000
$150,000,000
$150,000,000
$4,004,000
Hawaiian
Airlines, Inc.
9/25/2020
(amended
10/23/2020
and 1/15/2021)
6/28/2024
$622,000,000
$45,000,000
$0
$450,450
Island Wings,
Inc.
11/5/2020
11/5/2025
$294,350
$294,350
$311,059
$0
JetBlue
Airways
Corporation
9/29/2020
(amended
11/3/2020 and
1/15/2021)
11/29/2025
$1,948,000,000
$115,000,000
$0
$3,330,113
Legacy
Airways, LLC
10/20/2020
10/25/2025
$1,817,306
$1,817,306
$1,966,121
$0
Mesa Airlines,
Inc.
10/30/2020
10/30/2025
$195,000,000
$195,000,000
$201,227,290
$0
Ovation Travel
Group, Inc.
10/15/2020
10/15/2025
$20,000,000
$20,000,000
$0
$181,881
Republic
Airways, Inc.
11/6/2020
11/6/2025
$58,000,000
$58,000,000
$0
$1,622,308
SkyWest
Airlines, Inc.
9/29/2020
(amended
10/28/2020
and 1/15/2021)
9/29/2025
$725,000,000
$60,000,000
$0
$1,196,767
FINDINGS AND DEVELOPMENTS
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SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
Recipient
Loan Date
Maturity
Date
Total Loan
Amount
Disbursements
10
Total
Outstanding
Loan
Amount11
Cash
Interest
Receipts
Southern
Airways
Express, LLC
10/28/2020
10/28/2025
$1,838,501
$1,838,501
$1,838,501
$109,848
Sun Country,
Inc.
10/26/2020
10/24/2025
$45,000,000
$45,000,000
$0
$77,125
Thomas
Global
Systems, LLC
11/9/2020
11/7/2025
$1,400,000
$1,400,000
$1,480,297
$0
Timco Engine
Center, Inc.
11/5/2020
11/5/2025
$8,390,240
$8,390,240
$8,871,462
$0
United
Airlines, Inc.
9/28/2020
(amended
11/6/2020,
12/8/2020,
and 1/15/2021)
9/26/2025
$7,491,000,000
$520,000,000
$0
$9,517,733
Businesses Critical to National Security
CARES Act section 4003(b)(3) allocated $17 billion for loans and loan
guarantees to “businesses critical to maintaining national security.” The
following table summarizes the section 4003(b)(3) loans current through this
quarter.12 Of note, Semahtronix, LLC, paid in full all outstanding principal and
interest.
Recipient
Loan Date
Maturity
Date
Total Loan
Amount
Disbursements13
Total
Outstanding
Loan
Amount14
Cash
Interest
Receipts
Channel
Logistics,
LLC
11/12/2020
11/12/2025
$2,500,000
$2,500,000
$2,500,000
$142,372
Core
Avionics &
Industrial,
Inc.
11/5/2020
11/5/2025
$6,000,000
$6,000,000
$5,449,195
$188,933
12 YRC Worldwide changed its name to Yellow Corporation.
13 “Disbursements” includes all loan disbursements.
14 “Total Outstanding Loan Amount” includes all loan disbursements and increases of loan
principal amount arising from payment-in-kind (PIK) interest, less any repayments of principal.
FINDINGS AND DEVELOPMENTS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
14
Recipient
Loan Date
Maturity
Date
Total Loan
Amount
Disbursements13
Total
Outstanding
Loan
Amount14
Cash
Interest
Receipts
Map Large,
Inc.
11/2/2020
10/31/2025
$10,000,000
$10,000,000
$10,785,798
$0
Meridian
Rapid
Defense
Group, LLC
10/30/2020
10/30/2025
$7,100,000
$7,100,000
$7,579,067
$79,019
Ovio
Technologies
, Inc.
11/2/2020
10/31/2025
$1,186,900
$1,186,900
$1,280,166
$0
Semahtronix
, LLC
11/13/2020
11/13/2025
$1,999,100
$1,999,100
$0
$777
Semantic AI,
Inc.
11/13/2020
11/13/2025
$506,300
$506,300
$535,633
$0
SpinLaunch,
Inc.
11/13/2020
11/13/2025
$2,519,200
$2,519,200
$2,519,200
$140,644
Visual
Semantics,
Inc.
10/30/2020
10/30/2025
$1,053,200
$1,053,200
$1,124,264
$11,722
Wiser
Imagery
Services,
LLC
10/30/2020
10/30/2025
$3,069,700
$3,069,700
$3,313,295
$0
Yellow
Corporation
7/8/2020
9/30/2024
$700,000,000
$700,000,000
$709,010,093
$13,538,685
Other Investments
CARES Act section 4003(b)(4) allocated at least $454 billion for “loans and
loan guarantees to, and other investments in, programs or facilities
established by the Board of Governors of the Federal Reserve System for the
purpose of providing liquidity to the financial system that supports lending to
eligible businesses, States, or municipalities” by “purchasing obligations or
other interests” directly from the issuer or through secondary markets, and
“making loans, including loans or other advances secured by collateral.”
Several liquidity programs (Federal Reserve facilities) were established
pursuant to section 13(3) of the Federal Reserve Act.15 That provision, used
extensively during the 2008 financial crisis and amended by the Dodd-Frank
15 See 12 U.S.C. § 343(3).
FINDINGS AND DEVELOPMENTS
15
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
Wall Street Reform and Consumer Protection Act,16 allows the Federal
Reserve to lend money in “unusual and exigent circumstances” to participants
in “any program or facility with broad-based eligibility” who are “unable to
secure adequate credit accommodations from other banking institutions.”17
The Federal Reserve, however, may not lend to insolvent entities, and its
programs must be approved by the Secretary of the Treasury.
The following table summarizes the total amount of remaining CARES Act
funds that Treasury invested in each Special Purpose Vehicle (SPV) as of
September 30, 2021.18
Recipient
Treasury Investment Remaining as
of September 30, 2021
Corporate Credit Facilities, LLC
$0
Municipal Liquidity Facility, LLC
$6,300,000,000 (plus interest)
TALF II, LLC
$3,500,000,000 (plus interest)
MS Facilities, LLC
$16,585,741,118
On September 24, 2021, in connection with the wind down of Corporate Credit
Facilities operations, the SPV distributed to the Department of the Treasury
the preferred equity account balance of $13,898,155,655. This represents the
value of the SPV’s associated investment in nonmarketable Treasury
securities (and interest thereon) and cash.
An evaluation of loan participations purchased by the Main Street Facilities,
LLC, resulted in it recording, in July 2021, a loan loss allowance in the amount
of $2.5 billion as of June 30, 2021. This allowance for loan losses is estimated
based upon its holdings as of June 30, 2021, and does not indicate actual
losses experienced by the program. As of September 30, 2021, Main Street
Facilities, LLC, has recognized approximately $12 million in actual loan
losses.
These facilities have stopped extending loans or purchasing obligations.
Transaction-specific details for the facilities are available on the Federal
Reserve’s website. The Federal Reserve has indicated that because the Main
16 Pub. L. 111-203, 124 Stat. 1375.
17 See 12 U.S.C. § 343(3); 12 C.F.R. § 201.4(d).
18 See Periodic Report: Update on Outstanding Lending Facilities Authorized by the Board
under Section 13(3) of the Federal Reserve Act (October Periodic Report) (Oct. 13, 2021).
FINDINGS AND DEVELOPMENTS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
16
Street Lending Program ceased purchasing participations on January 8, 2021,
it will not provide additional transaction-specific disclosures about the Main
Street Lending Program on a periodic basis going forward.
SECTION 3
CHALLENGES AND
PROPOSALS
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
18
Access to Information
Treasury’s Office of General Counsel (OGC) has generally served as a liaison
with oversight bodies. On May 6, 2021, SIGPR’s Office of Audits held an
entrance conference with Treasury officials, including Treasury’s OGC,
regarding SIGPR’s audit of Treasury’s Direct Loan programs under the CARES
Act. In learning that this was also Treasury’s practice with respect to follow-
up audit requests, SIGPR reached out to Treasury to find out what that meant
in practice for activities like audits, where timely direct access to program
officials is essential and professionally required. Following multiple
discussions with Treasury OGC that began in June 2021, SIGPR reports the
following resolution to its questions about OGC’s involvement in SIGPR
audits.
First, Treasury’s Acting General Counsel circulated a memorandum to remind
relevant officials of Treasury’s responsibility to cooperate fully with SIGPR
and emphasized SIGPR’s need for timely access to all information, including
information that is privileged, confidential, or otherwise exempt from
disclosure. The memorandum advised employees that they are entitled to
communicate directly with SIGPR, do not need permission from anyone to do
so, and that employees always have a right to communicate directly with
SIGPR. Previously, Treasury had circulated similar memoranda with respect to
cooperating with other Inspectors General, and here, Treasury not only
considered an example and draft that SIGPR provided but also incorporated
SIGPR’s input into its memorandum.
Second, Treasury and SIGPR established that SIGPR would send requests for
information, documents, or interviews to individual Treasury program staff
members via email, copying OGC staff, in keeping with current practice.
Treasury also informed SIGPR that it expects that Treasury program staff
members will send substantive responses to information requests directly
back to SIGPR via email, copying OGC staff. OGC will also be present for
interviews of Treasury staff when appropriate, including when requested by
the interviewee. OGC will also assist with coordinating the logistics of
requests from SIGPR.
Restitution
SIGPR is responsible not only for identifying and bringing cases against
entities that steal CARES Act funds, but also for recovering the stolen money.
Identifying crooks and bringing them to justice is important, but recovering
CHALLENGES AND PROPOSALS
19
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
the money that they have stolen and returning it to their victims – i.e.,
providing restitution to victims – is equally important. Unfortunately, in a
criminal case, law enforcement and other agencies of the government often
lack sufficiently effective tools to preserve assets for restitution. Accordingly,
SIGPR proposes new legislation that will enhance the ability of the
government – and not just SIGPR – to recover stolen CARES Act and other
federal funds for victims, including the U.S. government and private lenders.
In a civil case, such as a defaulted student loan or a contract dispute, where
there is evidence that the defendant is concealing or dissipating assets or
taking similar action, the United States may obtain a prejudgment remedy
against the defendant. Remedies available include attachment, receivership,
garnishment, or sequestration. These prejudgment remedies exist as part of
the Federal Debt Collections Procedures Act of 1990,19 but do not apply to
criminal cases.
The full or partial compensation for loss paid by a criminal to a victim that is
ordered as part of a criminal sentence or as a condition of probation is
generally referred to as “restitution.” Since the 1996 enactment of the
Mandatory Victims Restitution Act,20 the imposition of restitution has been
required for many types of crimes, including fraud. Courts must impose
restitution in the full amount of the victim’s loss.21 However, the government’s
ability to actually collect restitution once a defendant has been convicted and
sentenced remains elusive. The uncollected restitution debt balance
continues to grow and now exceeds $110,000,000,000.22
In order to preserve assets for restitution directly to victims, changes to the
U.S. Code are required. Indeed, in the context of criminal prosecutions for
theft of CARES Act or other federal funds, defendants can dissipate their
assets because the United States does not obtain any enforcement right
for restitution until after the defendant has been sentenced and judgment
has been entered. Upon the entry of judgment, the United States is not
authorized even to seek a writ of garnishment - the most common method of
19 28 U.S.C. § 3001 et seq.
20 18 U.S.C. § 3663A.
21 18 U.S.C. § 3664(f)(1)(A).
22 See Federal Criminal Restitution - Most Debt is Outstanding and Oversight of Collections
Could Be Improved - GAO-18-203 (Feb. 2018); Review of the Debt Collection Program of the
United States Attorneys’ Offices – Office of the Inspector General – Department of Justice
(June 2015).
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
20
securing assets in restitution cases - until more than 30 days after the entry
of judgment.23 Accordingly, it long has been recognized that the lack of
mechanisms available to ensure that assets are preserved for restitution is a
major impediment to the effective collection of restitution.24
The current law that attempts to address this problem is ineffective. Under
the Anti-Fraud Injunction Act, the United States may file in connection with a
fraud offense a separate civil action to obtain an order preventing the
defendant from dissipating assets if the defendant "is alienating or disposing
of property, or intends to alienate or dispose of property."25
This law has several shortcomings. First, Section 1345 requires proof that the
defendant “is alienating . . . or intends to alienate” property. This limitation
undercuts the viability of the remedy because by the time investigators find
that a defendant is or intends to alienate his property, it usually is too late to
preserve it. No preservation order is available if the offender has already
alienated the property, absent some proof that he intends to further alienate.
Second, the preservation authorized under § 1345 occurs only after the court
“proceed[s] as soon as practicable to the hearing and determination of such
action.” Providing notice to a thief of a pending hearing in a new civil action to
preserve his stolen property is likely to expedite the dissipation or hiding of
the assets, or their transfer beyond the jurisdiction of the court, the very
conduct that § 1345 seeks to prevent. Indeed, the filing of a lawsuit under the
Anti-Fraud Injunction statute is the equivalent of a warning to an offender to
dispose of or secrete assets as quickly as possible, before the court can act
on the government’s request to preserve assets. Third, § 1345 requires the
filing of a separate civil action. That creates delay by triggering discovery
obligations and forcing the criminal prosecutor to seek assistance from civil
colleagues who are unfamiliar with the case.
In light of these problems, this law is rarely used. SIGPR staff includes
present and former prosecutors as skilled and experienced as any in the
country, and they have never used it. An informal survey of Assistant U.S.
Attorneys who work on debt collection for the Department of Justice has
23 28 U.S.C. § 3205(b)(1)(B).
24 See Federal Criminal Restitution - Most Debt is Outstanding and Oversight of Collections
Could Be Improved - GAO-18-203 (Feb. 2018); Review of the Debt Collection Program of the
United States Attorneys’ Offices – Office of the Inspector General – Department of Justice
(June 2015).
25 18 U.S.C. § 1345(a)(2).
CHALLENGES AND PROPOSALS
21
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
confirmed the impracticalities of the current Anti-Fraud Injunction statute.
Consequently, prosecutors usually have no way to preserve assets for the
purpose of fulfilling a restitution order, even if those assets are the proceeds
of the offense charged and traceable to stolen CARES Act or other federal
funds, short of resorting to asset forfeiture tools.26
Preservation of assets often is possible in criminal forfeiture cases. The U.S.
Code provides:
Upon application of the United States, the court may enter a restraining order
or injunction, require the execution of a satisfactory performance bond, or
take any other action necessary to preserve the availability of property
described in subsection (a) of this section for forfeiture ...
21 U.S.C. § 853(e)(l). The Supreme Court has found such prejudgment
restraints to be constitutional - and indeed mandatory - when a court finds the
government has satisfied the requisite threshold.27
However, while most frauds investigated by SIGPR will likely trigger criminal
forfeiture, this procedure is likewise insufficient to ensure restitution. Though
criminal forfeiture procedures, including the use of prejudgment restraints,
have been used widely to seize and preserve assets and to return assets to
crime victims, such forfeiture procedures cannot be used in every case for
which restitution may be imposed. That is because forfeiture tools cannot be
used to preserve assets for restitution until after conviction, unless the
government can prove before trial that the assets are directly traceable to the
offense. However, in many fraud cases the assets that are directly traceable
to the offense have been dissipated or hidden or otherwise used in such a way
that they cannot be readily identified by the government before trial as
directly traceable to the fraud. If assets are not restrained prior to trial, a
defendant facing criminal forfeiture is likely to dissipate or hide those assets
26 Pursuant to Luis v. United States, 136 S.Ct. 1083 (2016), a court may be barred from
restraining for restitution assets that are not directly traceable to stolen funds but that are
needed for retention of counsel of choice. The CARES Act funds particularly within SIGPR’s
jurisdiction, however, are likely to be funds obtained by corporations participating in loan
programs authorized under Section 4018 of the CARES Act. SIGPR expects that, at least with
respect to defendants in this context, assets are likely to exist in the control of the corporate
borrowers in amounts that exceed the funds needed to retain counsel of choice. Nothing in
this proposal would contravene the holding in Luis.
27 United States v. Monsanto, 491 U.S. 600 (1989).
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
22
before trial starts.
In addition, forfeited assets legally belong to the United States, rather than to
victims themselves.28 The Department of Justice often grants petitions of
private lenders for recovery of stolen funds, but those grants are by grace,
not by law.29
Thus, under current law, there is no effective statutory provision that requires
a defendant charged with an offense for which restitution is likely to be
ordered to preserve his assets for restitution. The legislative changes
contained in this proposal will further the government’s ability actually to
recover stolen CARES Act funds for victims.
SIGPR proposes a new section 18 U.S.C. § 3664A, which would provide that a
district court "shall enter a restraining order or injunction, require the
execution of a satisfactory performance bond or take any other action
necessary to preserve the availability of any property traceable to the
commission of the offense(s) charged." Additionally, under our proposal, the
court "may issue any order necessary" to preserve assets that are not
traceable to the offense charged. An order entered pursuant to this section
would remain in effect through the conclusion of the criminal case, including
sentencing, unless modified by the court. However, defendants' rights are
also assured. The section provides that a defendant can challenge the
restraint if 1) the assets are not directly traceable to stolen property and he
has no other assets to retain defense counsel or necessary living expenses
and 2) the defendant makes a prima facie showing that there is no probable
cause to justify the restraint. Furthermore, third parties who have a legal
interest in the restrained property may move to modify or vacate the
restraining order on the ground that the order causes a substantial hardship
to them and that less intrusive means exist to preserve property for
28 One of the main CARES Act programs overseen by SIGPR is the Main Street Lending
Program. Pursuant to that program, losses from loan fraud are mostly borne by the U.S.
Treasury, but small portions of the losses on bad loans are still borne by the private banks that
made the loans (and then sold 95 percent of such loans to a special purpose vehicle set up by
the Federal Reserve Bank of Boston). Regardless of whether the Treasury or a private bank
suffers a loss as a result of a crime, there is always a victim who suffers a financial loss.
29 See, e.g., United States v. Sanjar, 876 F.3d 725 (5th Cir. 2017) (applying forfeited funds to
restitution may be “sensible policy,” but Congress left it to the Attorney General to decide
whether to implement it); United States v. Joseph, 743 F.3d 1350, 1354-55 (11th Cir. 2014) (once
property has been ordered forfeited, “the Attorney General alone has discretion to determine
whether to retain forfeited property or apply it toward the restitution owed to the victims of a
defendant’s offense”); United States v. Pescatore, 637 F.3d 128, 131 (2d Cir. 2011); United States
v. Gonzalez-Torres, 656 Fed. Appx. 844 (9th Cir. 2016) (only the Attorney General – not the
courts – can apply forfeited funds to restitution).
CHALLENGES AND PROPOSALS
23
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
restitution.
This new section provides the authority to preserve assets specifically to
satisfy a restitution order similar to the authority that already exists in asset
forfeiture cases. At the same time, by permitting defendants to challenge the
restraint, it balances the rights of defendants who have not yet been
convicted of a crime with the needs of crime victims, including the United
States.
Proposed 18 U.S.C. § 3664A(a)(l) provides that upon a finding of probable
cause that a defendant, if convicted, would have to satisfy an order of
restitution, a district court shall "enter a restraining order or injunction,
require the execution of a satisfactory performance bond, or take any other
action necessary to preserve the availability of any property traceable to the
commission of the offense(s) charged.” The quoted language is drawn from
Section 413(e) of the Controlled Substances Act, 21 U.S.C. § 853(e)(l), which
provides that a court in a criminal case may restrain property prior to trial to
ensure that it is available to satisfy an order of forfeiture to the United States
in the event the defendant is convicted. Subsection (a)(l) makes explicit, as
the courts have correctly held in construing section 853(e)(1), that such
orders may be entered by the court ex parte, and that entry of such orders as
to traceable assets upon proper application by the government is intended by
Congress to be mandatory.30 In addition, subsection (a)(l) provides that the
court, if it determines that it is in the interests of justice to do so, must issue
any order necessary to preserve any assets that may be used to satisfy such
restitution order even if those assets are not traceable to the offenses
charged. This is consistent with the collection of civil debt, which is not limited
to assets traceable to the civil wrongdoing.
Proposed 18 U.S.C. § 3664A(a)(2) applies to Section 3664A(a)(l) the asset
forfeiture pretrial restraint procedures in Section 853(e).
Proposed 18 U.S.C. § 3664A(a)(3) provides that instead of issuing a restraining
order, a court may authorize the United States to seize monetary instruments
or other property.
Proposed 18 U.S.C. § 3664A(b) codifies the protections for defendants
required by United States v. Jones, 160 F.3d 641 (10th Cir. 1998), and United
States v. Farmer, 274 F.3d 800 (4th Cir. 2001). A defendant has a right to a
post-restraint hearing if he (a) establishes by a preponderance of the
30 See United States v. Monsanto, 491 U.S. 600, 612-13 (1989).
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
24
evidence that there are no assets, other than the restrained property,
available to him to retain counsel or to provide for a reasonable living
allowance and (b) makes a prima facie showing that there is bona fide reason
to believe that the court's ex parte finding of probable cause to restrain the
property was in error. At all stages of this post-restraint hearing process, the
government has the right to rebut the defendant's evidence and to cross-
examine any witness.
If the court determines that the defendant has established that he has no
other assets available to retain counsel or provide for reasonable living
expenses and that there is a prima facie reason to doubt the court's ex parte
finding of probable cause, the court may hold a hearing to reexamine whether
there is probable cause for an asset preservation order. If the court again
finds probable cause, the protective order must remain in effect. If the court
finds that no probable cause exists as to some or all of the property, or
determines that more property has been seized and restrained than may be
needed to satisfy a restitution order, it must modify the protective order to
the extent necessary to release the property that should not have been
restrained.
While providing these protections for defendants, the subsection also
ensures that these hearings cannot be used to undermine the government's
case. First, the court may not entertain challenges to the grand jury's finding
of probable cause regarding the criminal offense giving rise to a potential
restitution order. Second, the court must also take whatever steps may be
necessary to prevent the use of such hearings to obtain disclosure of
evidence or the identities of witnesses earlier than required by the Federal
Rules of Criminal Procedure and other applicable law. This provision is
consistent with the decision in Kaley v. United States, 571 U.S. 320 (2014).
Proposed 18 U.S.C. § 3664A(c) provides that a third party who has a legal
interest in restrained property may move to modify or vacate the restraining
order on the grounds that the order causes a substantial hardship to the party
and less intrusive means exist to preserve property for restitution. In such a
case, the court must modify the order to the extent that it is possible to do so
while still preserving the asset.
Proposed 18 U.S.C. § 3664A(d) provides that district courts have jurisdiction to
enter orders for preservation of assets for restitution without regard to the
location of any property that may be subject to restitution under this section.
This proposed subsection is drawn from Section 853(l) and is necessary to
CHALLENGES AND PROPOSALS
25
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
ensure that the court has the power to effectuate its orders.
Proposed 18 U.S.C. § 3664A(e) provides that nothing in the section shall be
construed to preclude the government from seeking the restraint, seizure, or
forfeiture of property, real or personal. This proposed subsection is necessary
to ensure that the addition of this new restraint provision for restitution does
not diminish the government's ability to seek the forfeiture of property, and to
preserve and seize property alleged to be forfeitable, as permitted by law.
Proposed 18 U.S.C. § 3664A(f) provides that nothing in this new section of
the U.S. Code creates an enforceable right of a party to force the government
to seek seizure or restraint of property for restitution. This subsection makes
clear that prosecutors retain discretion to seek the preservation of assets for
restitution only in those cases where they determine that it is appropriate to
do so.
Proposed 18 U.S.C. § 3664A(g) authorizes a court to appoint a receiver to
locate, take custody of, and, after entry of a restitution order, distribute assets
of the defendant. In some cases, such as those involving offenses with
exceedingly numerous victims or defendants with numerous or especially
difficult assets to manage and liquidate, specialized assistance may be
needed to assist with asset preservation for restitution.
SIGPR proposes amendment of the Anti-Fraud Injunction Act to permit the
Attorney General to commence a civil action to enjoin a person who "has
committed, is committing or about to commit a federal offense that may
result in an order of restitution"; and to permit the court to prevent the
dissipation of assets in any case where it has the power to enjoin the
commission of an offense—not just, as current law authorizes, in banking or
health care fraud cases.
18 U.S.C. § 1345 would be amended to permit the Attorney General to
commence a civil action to enjoin a person who “has alienated or disposed of
property, is alienating or disposing of property, or intends to alienate or
dispose of property which may result in an order of restitution.” Additionally,
18 U.S.C. § 1345(a)(2) would be amended to permit the court to restrain the
dissipation of assets in any case where it has the power to enjoin the
commission of an offense—not just, as current law authorizes, in banking or
health care fraud cases.
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
26
SIGPR proposes amendments to the Mandatory Victims Restitution Act
(MVRA) to improve collection procedures, with the major changes proposed
to 18 U.S.C. § 3664(f). Most importantly, revised paragraph 3664(f)(2) would
address long-standing problems with restitution enforcement identified in the
Government Accountability Office and Department of Justice Inspector
General reports above, to clarify that the Attorney General may enforce
restitution judgments immediately upon imposition. Although various statutes
provide the Attorney General with this authority, some circuit courts of appeal
have interpreted one clause within 18 U.S.C. § 3664(f)(2), providing that "the
court shall ... specify in the restitution order the manner in which, and the
schedule according to which, the restitution is to be paid," to require that a
mandatory payment schedule be set at the time of sentencing. Moreover, in
some instances, courts have declined to permit the government to enforce a
restitution order as long as a defendant was making the nominal monthly
payment ordered at sentencing. Therefore, the current legislative scheme
impedes the effective enforcement of restitution. The enforcement of
restitution would be enhanced substantially if Congress were to amend 18
U.S.C. § 3664(f)(2) to clarify that restitution is due immediately upon the
imposition of a restitution order,31 notwithstanding any directive as to periodic
payments, as is the case with an ordinary civil judgment. In other words, a
directive as to periodic restitution payments should be a floor rather than a
ceiling on how much a convicted defendant must pay toward a restitution
obligation. Proposed § 3664(f)(6) therefore deletes from the statute the
requirement that the district court "shall ... specify in the restitution order ...
the schedule according to which, the restitution is to be paid ... " while still
permitting a court to order a minimum periodic payment, while making it clear
that any such directive shall not limit the government’s ability to utilize the
existing restitution collection procedures in the Federal Debt Collection
Procedure Act, 28 U.S.C. § 3001, et seq.
This section makes several changes to 18 U.S.C. § 3664(f), one of the central
provisions establishing the procedures for collection of restitution.
Revised section 3664(f)(2) clarifies that the Attorney General may enforce
31 A provision that restitution is due and payable immediately does not set up a defendant for
some sanction if he fails to pay the full amount of restitution immediately. It simply means that
a defendant make his best effort to pay restitution beginning immediately. United States v.
Khan, 550 Fed. Appx. 2, 4 (D.C. Cir. 2013) (“order that the restitution is ‘immediately payable . . .
has been construed to mean ‘payment to the extent that the defendant can make in good faith,
beginning immediately.’”) (citations omitted) (collecting cases); United States v. Sensmeier, 361
F.3rd 982, 991 (7th Cir. 2004) (immediate payment does not mean immediate payment in full,
but rather payment to the extent that the defendant can make in good faith, beginning
immediately).
CHALLENGES AND PROPOSALS
27
SPECIAL INSPECTOR GENERAL | PANDEMIC RECOVER Y
restitution judgments immediately upon imposition. As explained above, the
current legislative scheme, as interpreted by the courts over time, impedes
the effective enforcement of criminal restitution. The enforcement of
restitution on behalf of victims would be substantially enhanced if Congress
were to amend 18 U.S.C. § 3664(f)(2) to clarify that restitution is due
immediately upon the imposition of a restitution order, as is the case with an
ordinary civil judgment.
Revised section 3664(f)(3) presents a checklist of what the court must order
from the defendant (e.g., a good faith effort to pay restitution and notice of
any change in residence or financial circumstances) in order to improve
collection procedures.
Proposed section 3664(f)(4) allows federal prosecutors access to financial
information about the defendant. It provides that "for the purposes of
enforcing the restitution order, the United States Attorney may receive,
without the need for a court order, any financial information concerning the
defendant obtained by a grand jury, United States Probation Office, or the
Bureau of Prisons...." This provision is necessary because in some districts,
Probation Officers must seek permission from a judge in individual cases to
share financial information from defendants who are required to provide the
information to the court as part of the presentence report preparation
process. While the court properly should restrict access to financial
information to third parties, i.e., other litigants or private parties, the U.S.
Attorney's Office is not a third party. It is the entity charged with collecting
restitution. 18 U.S.C. § 3664(m)(1)(A). This sharing of financial information only
occurs after a conviction and is essential to assisting the government in the
collection of restitution. A statute expressly providing access, to the U.S.
Attorney's Office only, to financial information concerning the defendant
obtained by the Probation Office, without the need for a specific court order,
would expedite the response process of the federal judiciary on an issue that
is directly related to its mission. Information sought under this new provision
would include such items as the affidavit the defendant is required to submit
to the court under 18 U.S.C. § 3664(d)(3), the Probation Office's Form 48A
(Personal Financial Statement), and the defendant's monthly reports showing
employment and income. It would not include the Probation Officer's analysis
of the financial information or any of the Probation Officer's
recommendations to the court.
Proposed section 3664(f)(5) provides, inter alia, that the court may "at any
time prior to the termination of the restitution obligation under section 3613
CHALLENGES AND PROPOSALS
REPORT TO CONGRESS | JULY - SEPTEMBER 2021
28
of this title, impose or modify special payment directions upon the
defendant." This change is necessary to clarify the powers of the district
court. A district court clearly has the statutory power to enforce the other
nonsupervisory terms of its sentence, including terms imposing a fine or
restitution, notwithstanding the fact that a term of probation or supervised
release has expired. For example, current 18 U.S.C. § 3664(k) (permitting an
adjustment in payment schedules when there is a change in a defendant's
economic circumstances), 18 U.S.C. § 3613A (permitting an adjustment in
payment schedules when the defendant is in default), and 28 U.S.C. § 3204
(permitting an installment payment order when a defendant receives income
not subject to garnishment, or is diverting or concealing earnings) are not
limited to the period of probation or supervised release, except for those
relatively few cases where restitution is imposed solely as a condition of
probation of supervised release.
Proposed subparagraph 3664(f)(6) is drawn from current subparagraph
3664(f)(2), with some important modifications. Current 18 U.S.C. §
3664(f)(2) has undermined the efforts of the United States to enforce
restitution because it provides that "the court shall ... specify in the
restitution order the manner in which, and the schedule according to
which, the restitution is to be paid ... " Courts of appeal have interpreted
this provision as requiring the imposition, at every sentencing, of an
exclusive court-imposed payment plan that limits the ability of the United
States to enforce restitution using other available civil and administrative
enforcement methods. As a result, district courts generally impose
minimal payment plans upon the defendant that thereafter cannot be
changed except by the court and upon a showing of a substantial change
in the defendant's economic circumstances. Therefore, proposed
subparagraph 3664(f)(6) deletes from the statute the requirement that
the district court "shall...specify in the restitution order... the schedule
according to which, the restitution is to be paid... "
Nevertheless, district courts have an inherent responsibility to ensure that
their own judgments are enforced, especially in criminal cases. Thus,
proposed 18 U.S.C. § 3664(f)(6) permits - but does not require - district
courts to enter payment directions. The term "payment directions" is used
instead of "the schedule" to clarify that the courts' orders with regard to
payments are merely a supplemental tool that may be used to assist in
the enforcement of the restitution judgment. The term "the schedule"
suggests exclusiveness; it is that suggestion of exclusiveness that has
deprived the Attorney General of the ability to enforce restitution using
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otherwise available and reasonable means, effectively shielding criminal
debtors from the same debt collection mechanisms that routinely apply to
civil debtors.
Proposed 18 U.S.C. § 3664(f)(6) also substitutes the word "may" for "shall"
before the criteria to be considered in imposing payment directions.
Numerous courts of appeal have remanded for resentencing payment
schedules that, in the view of the court, the district court failed to
establish with sufficient detail for the defendant to actually meet the
payment schedule. However, requiring district judges to make express
written findings inevitably results in payment schedules for minimal
amounts or no payment directions at all. Before a district court imposes a
payment directive, the court should consider the economic circumstances
of the defendant, including circumstances described in the Presentence
Report (PSR). However, there is no need to require specific fact finding
before imposing reasonable payment directions upon a defendant who
has already been convicted of a federal offense and ordered to pay
restitution. Indeed, many courts of appeal have recognized that the
adoption of a PSR, after the parties have been permitted to file objections,
satisfies the requirement in current law for the court to make findings
regarding a defendant’s needs and ability to pay. Under the proposed
provision, defendants would still have the right to object to PSR findings,
but the proposal would avoid what has essentially become a trap for an
unwary district judge who fails to make specific factual findings resulting
in re-sentencings.
Finally, language from current 18 U.S.C. § 3664(n) is moved into proposed
18 U.S.C. § 3664(f)(6). Current subsection 3664(n) relates to defendants who
receive substantial resources from any source, such as an inheritance or
settlement. It requires that such a person "shall be required to apply the value
of such resources to any restitution or fine still owed." However, it is limited to
defendants who are incarcerated. The proposed revision, in the last sentence
of proposed 18 U.S.C. § 3664(f)(6), would require all defendants who have an
outstanding restitution obligation, regardless of whether they are
incarcerated or on supervised release, to apply windfall income to their
restitution debt.
Proposed 18 U.S.C. § 3664(f)(7) states that the ability of the Attorney General
to maintain an Inmate Financial Responsibility Program (IFRP) through the
Bureau of Prisons (BOP) is not limited. Some appeals courts have held, as a
result of current subsection 3664(f)(2) described above, that district courts
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have the exclusive power to require payment. This effectively prohibits the
BOP from enforcing final restitution orders through its long-established
IFRPs, on the theory that an IFRP trespasses upon the district court's sole
power to enforce restitution obligations. The proposal would affirm the IFRP
program.
Proposed 18 U.S.C. § 3664(f)(8) requires that if the court imposes some
limitation on the ability of the United States to enforce a judgment, such as a
stay of enforcement when the defendant pursues an appeal, it must do so
expressly, for good cause stated on the record.
Absent exceptional circumstances, as determined by the court, the court
must require a deposit with the clerk's registry, the posting of a bond, or
"impose some additional restraints upon the defendant to prevent the
defendant from dissipating assets." As with other proposed revisions, this
provision is to better align the enforcement of criminal restitution with civil
debt collection, rather than limiting the government’s ability to collect
restitution to a greater degree than exists with civil debt collection.
The following section sets forth SIGPR’s recommended statutory
amendments:
Legislative Proposal on Improving Restitution for Victims of Crimes
Bill Text
A bill to improve the collection of restitution for victims of crime.
SECTION 101: CREATION OF 18 U.S.C. § 3664A
(a) IN GENERAL.- Chapter 232 of title 18, United States Code, is amended by
inserting the following section after section 3664:
"3664A. Preservation of Assets for Restitution.
"(a) Protective orders to preserve assets.
"(1) Upon the Government's ex parte application and a finding of probable
cause to believe that a defendant, if convicted, will be ordered to satisfy an
order of restitution for an offense punishable by imprisonment for more than
one year, the court shall enter a restraining order or injunction, require the
execution of a satisfactory performance bond or take any other action
necessary to preserve the availability of any property traceable to the
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commission of the offense(s) charged. Additionally, the court, if it determines
that it is in the interests of justice to do so, shall issue any order necessary to
preserve any non-exempt assets (as defined in 18 U.S.C. § 3613) of the
defendant which may be used to satisfy such restitution order. Applications
and orders under this section shall issue—
“(A) upon the filing of an indictment or information charging a violation of this
subchapter or subchapter II for which criminal restitution may be ordered
under this section and alleging that the property with respect to which the
order is sought would, in the event of conviction, be subject to restitution
under this section; or
“(B) prior to the filing of such an indictment or information, if, after notice to
persons appearing to have an interest in the property and opportunity for a
hearing, the court determines that—
“(i) there is a substantial probability that the United States will prevail on the
issue of restitution and that failure to enter the order will result in the
property being destroyed, removed from the jurisdiction of the court, or
otherwise made unavailable for restitution; and
“(ii) the need to preserve the availability of the property through the entry of
the requested order outweighs the hardship on any party against whom the
order is to be entered:
“Provided, however, That an order entered pursuant to subparagraph (B) shall
be effective for not more than ninety days, unless extended by the court for
good cause shown or unless an indictment or information described in
subparagraph (A) has been filed.
“(2) A temporary restraining order under this subsection may be entered upon
application of the United States without notice or opportunity for a hearing
when an information or indictment has not yet been filed with respect to the
property, if the United States demonstrates that there is probable cause to
believe that the property with respect to which the order is sought would, in
the event of conviction, be subject to restitution under this section and that
provision of notice will jeopardize the availability of the property for
restitution. Such a temporary order shall expire not more than fourteen days
after the date on which it is entered, unless extended for good cause shown or
unless the party against whom it is entered consents to an extension for a
longer period. A hearing requested concerning an order entered under this
paragraph shall be held at the earliest possible time and prior to the
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expiration of the temporary order.
“(3) The court may receive and consider, at a hearing held pursuant to this
subsection, evidence and information that would be inadmissible under the
Federal Rules of Evidence.
“(4) Order to repatriate and deposit.—
“(A) In general.—
“Pursuant to its authority to enter a pretrial restraining order under this
section, the court may order a defendant to repatriate any property that may
be seized and subject to restitution, and to deposit that property pending trial
in the registry of the court, or with the United States Marshals Service or the
Secretary of the Treasury, in an interest-bearing account, if appropriate.
“(B) Failure to comply.—
“Failure to comply with an order under this subsection, or an order to
repatriate property under subsection (p), shall be punishable as a civil or
criminal contempt of court, and may also result in an enhancement of the
sentence of the defendant under the obstruction of justice provision of the
Federal Sentencing Guidelines.
"(5) If the property in question is a monetary instrument (as defined in Section
1956(c)(5) of this title) or funds in electronic form, the protective order issued
pursuant to (1) may take the form of a warrant authorizing the Government to
seize the property and to deposit it into an interest-bearing account in the
Registry of the Court in the district in which the warrant was issued, or into
another such account maintained by a substitute property custodian, as the
court may direct.
"(6) A post-indictment protective order entered pursuant to (1) shall remain in
effect through the conclusion of the criminal case, including sentencing and
any post-sentencing proceedings, and until seizure or other disposition of the
subject property, unless modified by the court upon a motion by the
Government or pursuant to subsections (b) or (c).
"(b) Defendant's right to a hearing.
"(1) In the case of a pre-indictment protective order entered pursuant to (a)(l),
the defendant's right to a post-restraint hearing shall be governed by
Sections 413(e)(l)(B) and (2) of the Controlled Substances Act (21 U.S.C. §
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853(e)(l)(B) and (2)).
"(2) In the case of a post-indictment protective order entered pursuant to
(a)(1), the defendant shall have a right to a post-restraint hearing regarding
the continuation or modification of the order if the defendant -
"(A) establishes by a preponderance of the evidence that there are no assets,
other than the restrained property not directly traceable to the funds
allegedly stolen, available to the defendant to retain counsel in the criminal
case or to provide for a reasonable living allowance for the necessary
expenses of the defendant; and
"(B) makes a prima facie showing that there is bona fide reason to believe that
the court's ex parte finding of probable cause under (a)(l) was in error.
"(3) If the court determines that the defendant has satisfied the requirements
of (2)(A) and (B), it may hold a hearing to determine whether there is probable
cause to believe that the defendant, if convicted, will be ordered to satisfy an
order of restitution for an offense punishable by imprisonment for more than
one year, and that the seized or restrained property may be needed to satisfy
such restitution order. If the court finds probable cause that the funds are
directly traceable to stolen funds, the protective order must remain in effect.
If the court finds that no probable cause exists as to some or all of the
property, or determines that more property has been seized and restrained
than may be needed to satisfy a restitution order, it must modify the
protective order to the extent necessary to release the property that should
not have been restrained.
"(4) The court must afford the Government an opportunity to present rebuttal
evidence and to cross-examine any witness that the defendant may present if
the court conducts an evidentiary hearing on these issues.
"(5) In any pre-trial hearing on protective orders issued under (a)(l), the court
may not entertain challenges to the grand jury's finding of probable cause
regarding the criminal offense giving rise to a potential restitution order. The
court must take whatever steps may be necessary to prevent the use of such
hearings to obtain disclosure of evidence or the identities of witnesses earlier
than required by the Federal Rules of Criminal Procedure and other
applicable law.
"(c) Third party's right to post-restraint hearing.
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(1) A person other than the defendant who has a legal interest in property
affected by a protective order issued under (a)(l) may move to modify the
order on the grounds that-
"(A) the order causes an immediate and irreparable hardship to the moving
party; and
"(B) less intrusive means exist to preserve the property for the purpose of
restitution.
"If, after considering any rebuttal evidence offered by the Government, the
court determines that the moving party has made the required showings, the
court may modify the order to mitigate the hardship to the extent that it is
possible to do so while preserving the asset for restitution.
"(2) Except as provided in (1) and (3), a person other than a defendant has no
right to intervene in the criminal case to object to the entry of any order
issued under this section or otherwise to object to an order directing a
defendant to pay restitution.
"(3) If, at the conclusion of the criminal case, the court orders the defendant
to use particular assets to satisfy an order of restitution, including assets that
have been seized or restrained pursuant to this section, the court must give
persons other than the defendant the opportunity to object to the order on
the ground that the property belonged in whole or in part to the third party
and not to the defendant, as provided in Section 413(n) of the Controlled
Substances Act (21 U.S.C. § 853(n)).
"(d) Geographic scope of order.
"(1) The district courts of the United States shall have jurisdiction to enter
orders as provided in this section without regard to the location of the
property subject to the order.
"(2) If the property subject to an order issued under this section is located
outside of the United States, the order may be transmitted to the central
authority of any foreign state for service in accordance with any treaty or
other international agreement.
"(e) No effect on forfeiture.
Nothing in this section shall be construed to preclude the Government from
seeking the seizure, restraint or forfeiture of assets under the asset forfeiture
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laws of the United States.
"(f) Limitation on rights conferred.
Nothing in this section shall be construed to create any enforceable right to
have the Government seek the seizure or restraint of property for restitution.
"(g) Receivers.
"(l) A court issuing an order under this section may appoint a receiver as
provided for in section 1956(b)(4) to collect, marshal, and take custody,
control, and possession of all assets of the defendant, wherever located, that
have been restrained in accordance with this section.
"(2) The receiver shall have the power to distribute property in its control
under subparagraph (1) to each victim identified in an order of restitution at
such time, and in such manner, as the court may authorize.
"(h) CONFORMING AMENDMENT - The section analysis for chapter 232 of
title 18, United States Code, is amended by inserting the following after the
entry for Section 3664:
'3664A. Preservation of Assets for Restitution."'
SECTION 102: AMENDMENTS TO THE ANTI-FRAUD INJUNCTION STATUTE
Title 18 U.S.C. § 1345(a)(2) of the Anti-Fraud Injunction Statute would be
amended to read as follows:
If a person has alienated or disposed of property, is alienating or disposing of
property, or intends to alienate or dispose of property which may result in an
order of restitution, the Attorney General may commence a civil action in any
Federal court—
to enjoin such alienation or disposition of property; or
(B) for an order to—
(i) prohibit any person from withdrawing, transferring, removing, dissipating,
or disposing of any such property or property of equivalent value; and
(ii) appoint a temporary receiver to administer such restraining order.
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SECTION 103. AMENDMENTS TO 18 U.S.C. § 3664(f)
Subsection 3664(f) of title 18 of the United States Code is amended by
striking current subparagraph 3664(f)(2) and all of the succeeding text and
inserting, after"... in determining the amount of restitution" the following:
"(C) Each restitution order shall a) contain information sufficient to identify
each victim to whom restitution is owed, b) require that a copy of the court
order be sent to each such victim, and c) inform the same of his obligations to
notify the appropriate entities of any change in his address. It shall be the
responsibility of each victim to notify the Attorney General, or the appropriate
entity of the court, by means of a form to be provided by the Attorney General
or the court, of any change in the victim's mailing address while restitution is
still owed the victim.
The confidentiality of any information relating to a victim shall be maintained.
"(f)(2) The court shall order that the restitution imposed is due in full
immediately upon imposition. Notwithstanding any other provision of law, any
schedule of payments directed by the court shall not preclude the United
States from enforcing the collection of restitution by any other provision of
law.
"(f)(3) The court shall direct the defendant -
"(A) to make a good-faith effort to satisfy the restitution order in the shortest
time in which full restitution can be reasonably made and to refrain from
taking any action that conceals or dissipates the defendant's assets or
income. Compliance with all payment directions imposed as provided by
subparagraphs (f)(4) and (f)(5) shall be prima facie evidence of a good faith
effort, unless it is shown that the defendant has concealed or dissipated
assets;
"(B) to notify the court of any change in residence; and,
"(C) to notify the United States Attorney for the district in which the
defendant was sentenced of any change in residence, and of any material
change in economic circumstances that might affect the defendant's ability to
pay restitution.
"(f)(4) For the purpose of enforcing the restitution order, the United States
Attorney may receive, without the need for a court order, any financial
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information concerning the defendant obtained by the grand jury that
indicted the defendant for the crime for which restitution has been awarded,
the United States Probation Office, or the Bureau of Prisons. A victim may
also provide financial information concerning the defendant to the United
States Attorney.
"(f)(5) At sentencing or at any time prior to the termination of the restitution
obligation under section 3613 of this title, the court may impose special
payment directions upon the defendant or modify such directions. The court
may direct the defendant to make a single, lump sum payment, partial
payments at specified intervals, in-kind payments, or a combination of
payments at specified intervals and in-kind payments. The length of time over
which scheduled payments are established shall be the shortest time in which
full payment reasonably can be made. In-kind payments may be in the form of
the return of property, replacement of property, or, if the victim agrees,
services rendered to the victim or a person or organization other than the
victim. The court may direct the defendant to repatriate any property that
constitutes proceeds of the offense of conviction, or property traceable to
such proceeds. The court may direct the defendant to surrender to the United
States, or to the victim(s) named in the restitution order, any interest of the
defendant in any non-exempt asset. The court may enter a restraining order
or injunction, require the execution of a satisfactory performance bond, or
take any other action to preserve the availability of property for restitution.
”(f)(6) In determining whether to impose or modify specific payment
directions, the court may consider the need to provide restitution to the
victims of the offense; the financial ability of the defendant; the economic
circumstances of the defendant, including the financial resources and other
assets of the defendant and whether any of those assets are jointly
controlled; projected earnings and other income of the defendant; any
financial obligations of the defendant, including obligations to dependents;
whether the defendant has concealed or dissipated assets or income; and any
other appropriate circumstances. Any substantial resources from any source,
including inheritance, settlement, or other judgment, shall be applied to any
outstanding restitution obligation.
"(f)(7) Court-imposed special payment directions shall not limit the ability of
the Attorney General to maintain an Inmate Financial Responsibility Program
through the Bureau of Prisons which encourages sentenced inmates to meet
their financial obligations.
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"(f)(8) The ability of the Attorney General to enforce restitution obligations as
provided in subsection 3664(f)(2) shall not be limited by an appeal, or the
possibility of a correction, modification, amendment, adjustment, or re-
imposition, unless the court expressly so orders for good cause shown and
stated on the record. Absent exceptional circumstances as determined by the
court, the court's order limiting enforcement shall - (i) require the defendant to
deposit, in the registry of the district court, any amount of the restitution that
is due; (ii) require the defendant to post a bond or other security to ensure
payment of the restitution that is due; or (iii) impose additional restraints upon
the defendant to prevent the defendant from transferring or dissipating
assets. No such order shall restrain the ability of the United States to
continue its investigation of the defendant's financial circumstances, conduct
discovery, record a lien, or seek any injunction or other relief from the court."
HELP FIGHT
FRAUD,
WASTE, AND
ABUSE.
BY EMAIL: hotline@sigpr.gov
BY PHONE: 202-927-7899
www.sigpr.gov