Money Laundering Charges for Misusing PPP Funds

Money Laundering Charges for Misusing PPP Funds

The fraud charge is not the one that determines the sentence. In case after case, federal prosecutors have demonstrated that the act of spending misappropriated PPP funds, not the act of obtaining them, produces the counts that carry the most severe exposure. A defendant who submitted a single fraudulent application may face one or two counts of wire fraud or bank fraud. The subsequent use of those funds, every deposit into a new account, every purchase of real estate under a fictitious name, every conversion of cash into a vehicle or a brokerage position, can generate its own separate charge under the federal money laundering statutes. The multiplier effect is not incidental to the prosecution’s strategy. It is the strategy.

The Department of Justice’s Fraud Section has, since the enactment of the CARES Act, prosecuted over two hundred defendants in more than one hundred thirty criminal cases involving PPP fraud. The forfeiture figures tell the story of how those funds were used: tens of millions in seized cash, residential properties across multiple states, and luxury items that have become, in the government’s filing language, evidence. What follows is an examination of how money laundering charges attach to PPP fraud, what distinguishes a laundering prosecution from the underlying fraud, and where the lines of defense remain.

Spending Patterns and Prosecution

Before the statutory elements, the cases themselves. The prosecutions that have generated money laundering charges alongside PPP fraud share a set of recognizable features, though the government does not require all of them to proceed.

Real estate is the most common vehicle. A defendant in Henderson, Nevada, purchased approximately twenty-five properties using aliases and a fictitious entity he called “Holdings Trust.” He continued acquiring and selling those properties even after his indictment, which is an uncommon choice. The jury convicted him of bank fraud, money laundering, and conducting transactions using criminally derived property, and the court imposed over fifteen years of imprisonment. Five homes were seized. The restitution order exceeded eleven million dollars.

A defendant in Marietta, Georgia, obtained a PPP loan by claiming to operate a business with hundreds of employees. The proceeds funded a Lamborghini, a BMW, a Range Rover, a yacht, and cosmetic surgery. A woman in Roanoke, Virginia (who had recruited dozens of ineligible applicants through social media and word of mouth, collecting commissions on each fraudulent application she facilitated) used a relative’s name to purchase a new-construction home with PPP proceeds because she was already concerned that federal investigators were observing her financial activity.

Luxury goods are the second category. Vehicles, jewelry, designer merchandise. In the Atlanta prosecution, the defendant’s spending after receiving the PPP deposit resembled a liquidation conducted in reverse: instead of converting assets into cash, he converted cash into a fleet of depreciating objects, each one a line item in a future forfeiture order. Prosecutors have treated each conversion as a separate transaction for charging purposes.

The third pattern involves shell entities or nominee ownership. A defendant who transfers PPP funds through a limited liability company formed after the loan disbursement, or who places assets in the name of a family member, has constructed the kind of transaction that satisfies the concealment element of § 1956. The structure of the transfer is itself the evidence. Courts have not required the concealment to be sophisticated. They have required it to be intentional.

Before the Charges Arrive

If you are reading this because you have received a target letter, a grand jury subpoena, or a visit from federal agents concerning your use of PPP funds, the period for the most consequential decisions has not closed.

The government’s investigation will have been underway for months, and in most cases for years, before any contact with the subject. In the winter of 2021, less than a year after the first PPP disbursements, the earliest fraud indictments had already appeared, and money laundering charges followed close behind. IRS Criminal Investigation, the FBI, the SBA Office of Inspector General, and the Special Inspector General for Pandemic Recovery have all conducted PPP fraud investigations in coordination with one another. Bank records, property records, and SBA loan data are accessible to investigators without the subject’s knowledge. By the time a defendant learns of the investigation, the government’s theory is in its mature form.

What remains within the defendant’s control is the response. Counsel retained during the investigation, before an indictment, can engage with the government, assess the strength of the evidence, and in some cases negotiate the scope of potential charges. The distinction between a § 1957 charge and a § 1956 charge is a distinction that defense counsel can sometimes influence through early engagement. I am less certain that this window remains open in every district, but where it exists, it narrows with each passing month.

A first consultation costs nothing and assumes nothing. It is the beginning of an assessment, not a commitment.

The Statutory Framework

Two federal statutes govern money laundering in PPP fraud cases, and they operate without reference to each other.

Section 1956 of Title 18 addresses transactions involving the proceeds of specified unlawful activity. It prohibits four categories of laundering: promotional (transactions intended to promote further unlawful activity), concealment (transactions designed to disguise the nature, source, ownership, or control of proceeds), structuring (transactions designed to evade reporting requirements), and tax evasion (transactions intended to violate the Internal Revenue Code). Each violation carries a maximum of twenty years of imprisonment.

Section 1957 is broader in one respect and narrower in another. It prohibits any monetary transaction exceeding ten thousand dollars involving criminally derived property, conducted through a financial institution. The mens rea requirement is lower: the government need only prove that the defendant knew the funds were derived from criminal activity, not that the transaction was designed to conceal anything. The maximum sentence is ten years per count, and the definition of financial institution extends well beyond banks to include car dealerships, jewelers, and casinos, among others. The statute is not entirely clear on how commingled accounts are treated when the tainted portion falls below the threshold, which is part of the problem.

In a typical PPP fraud prosecution, the government charges both the underlying fraud (wire fraud under § 1343, bank fraud under § 1344, or false statements under § 1014) and one or both money laundering statutes depending on the defendant’s conduct after receiving the funds. Conspiracy to commit money laundering under § 1956(h) subjects a co-conspirator to the same penalties as the substantive offense, which means that a participant in a coordinated PPP fraud ring who never touched the laundered funds may still face twenty years on the laundering count alone.

Concealment and the Fallon Distinction

The distinction that matters most in these prosecutions, and the one that few defendants perceive until preparation for trial, is the boundary between the concealment inherent in fraud and the separate act of concealment that constitutes money laundering. The Third Circuit’s decision in United States v. Fallon, 61 F.4th 95 (3d Cir. 2023), drew this line with more clarity than any prior opinion in the circuit, and its reasoning has implications that extend beyond the Third Circuit’s jurisdiction.

The court held that concealment money laundering requires financial transactions involving proceeds of the fraud, and that ill-gotten funds do not become proceeds until after the defendant receives them. Transactions that occur before a defendant obtains the fruits of the scheme fall outside § 1956(a)’s reach. The court drew what it described as a fine line between the concealment inherent in fraud offenses and concealment money laundering.

The practical consequence: depositing PPP funds into a bank account that also holds legitimate income does not, standing alone, constitute money laundering. The government must demonstrate that the transaction was designed to conceal, and that the design was separate from the intent to commit the underlying fraud. Routine movement of funds between accounts, absent evidence that the transfers were outside normal business operations or were structured to obscure the funds’ origin, does not satisfy the statute. The Fallon court was explicit about why this matters. An expansive reading of the commingling theory could, at best, subject companies to enormous forfeiture obligations based on minor fraud schemes. At worst, it could motivate prosecutors to bring money laundering charges in almost every fraud case.

But the PPP prosecutions that have produced money laundering convictions are not close calls on this point. When a defendant purchases real estate under a fictitious name, or routes funds through a newly formed LLC with no business purpose, or places a down payment on a house through a relative to avoid federal scrutiny, the concealment element is not a matter of legal inference. It is documented in the transaction itself.

Most people who received PPP funds and spent them on unauthorized expenses did not regard themselves as money launderers. The statute does not require that self-perception. It requires a transaction, proceeds, and a design to conceal. The rest is sentencing.

Whether Fallon‘s reasoning will constrain prosecutors in circuits that have not yet adopted it is a question worth considering. The Third Circuit’s concern about prosecutorial overreach resonates, though resonance and binding authority are, in practice, different instruments. Three cases in the Southern District of New York in the past year alone proceeded on concealment theories that Fallon might have foreclosed, and the defendants in those cases did not prevail on the argument. The circuit split, if one is forming, has not produced a resolution.

The question of what constitutes concealment in the PPP context is, if we are being precise, a question about what prosecutors must prove beyond the fraud itself. The answer varies by jurisdiction, by the facts, and by the sophistication of the defendant’s conduct after receiving the funds. I do not think any court has suggested that purchasing a yacht with fabricated loan proceeds falls outside the statute’s reach.

Sentencing and Forfeiture

The sentencing exposure is severe enough that the money laundering counts often represent the most consequential portion of a defendant’s potential imprisonment. Section 1956 carries twenty years per count. Section 1957 carries ten. These can run alongside the underlying fraud charges, and federal judges retain discretion to impose consecutive sentences. The statutory maximums are ceilings, not typical outcomes, though the guidelines calculations driven by loss amount produce ranges that are, by any standard, serious. There is no parole in the federal system. A defendant serves a minimum of eighty-five percent of the sentence imposed.

Forfeiture operates on a different logic. Under § 982, property involved in a money laundering offense is subject to confiscation under either civil or criminal procedures. The word “involved” is broader than “proceeds.” If a commingled bank account facilitated the laundering, even one containing legitimate funds, the entire account may be forfeitable. If a property was purchased in part with fraud proceeds, the property itself can be seized. The Fallon court identified this consequence as one reason to resist an expansive reading of the concealment statute.

Restitution orders in recent cases reflect the scale. A co-founder of Blueacorn, a lender service provider that processed over five hundred fraudulent PPP applications, received a ten-year sentence and a restitution order exceeding sixty-three million dollars. An Illinois businessman convicted of bank fraud and money laundering in connection with PPP applications was ordered to pay over twenty-three million. These figures do not account for the forfeiture of seized assets, which is calculated separately.

The penalties exist on paper, and they exist in practice. That is worth knowing before any further decisions are made.

A conversation about the specific circumstances of a case is the only way to assess exposure with any precision. Our firm represents individuals and businesses under investigation or facing charges for PPP fraud and related money laundering offenses. A consultation is where that conversation begins, and the federal system does not reward the passage of time.