[House Report 118-219]
[From the U.S. Government Publishing Office]


118th Congress    }                                    {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                    {       118-219

======================================================================


 
  TO PROHIBIT INDIVIDUALS CONVICTED OF DEFRAUDING THE GOVERNMENT FROM 
 RECEIVING ANY ASSISTANCE FROM THE SMALL BUSINESS ADMINISTRATION, AND 
                           FOR OTHER PURPOSES

                                _______
                                

 September 26, 2023.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Williams of Texas, from the Committee on Small Business, submitted 
                             the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 5427]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 5427) to prohibit individuals convicted of 
defrauding the Government from receiving any assistance from 
the Small Business Administration, and for other purposes, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                     Page
   I.  Purpose and Bill Summary........................................  2
  II.  Need for Legislation............................................  2
 III.  Hearings........................................................  2
  IV.  Committee Consideration.........................................  2
   V.  Committee Votes.................................................  2
  VI.  Section-by-Section of H.R. 5427.................................  5
 VII.  Congressional Budget Office Cost Estimate.......................  5
VIII.  New Budget Authority, Entitlement Authority, and Tax Expenditure  5
  IX.  Oversight Findings & Recommendations............................  5
   X.  Performance Goals and Objectives................................  5
  XI.  Statement of Duplication of Federal Programs....................  6
 XII.  Congressional Earmarks, Limited Tax Benefits, and Limited Tariff   
       Benefits........................................................  6
XIII.  Federal Mandates Statement......................................  6
 XIV.  Federal Advisory Committee Statement............................  6
  XV.  Applicability to Legislative Branch.............................  6
 XVI.  Statement of Constitutional Authority...........................  6
XVII.  Changes in Existing Law, Made by the Bill, As Reported..........  6
XVIII. Minority Views.................................................  11


                      I. Purpose and Bill Summary

    On September 13, 2023, Rep. Williams and Rep. Mfume 
introduced H.R. 5427. The purpose of H.R. 5427 is to prohibit 
anyone convicted of defrauding the government during the COVID-
19 pandemic from ever receiving a loan through the Small 
Business Administration.

                        II. Need for Legislation

    A report released by the U.S. Small Business 
Administration's (SBA) Office of Inspector General (OIG) in 
June 2023 concluded that the SBA disbursed more than $200 
billion in potentially fraudulent loans in the pandemic relief 
programs. In order to provide accountability, this legislation 
will prohibit anyone convicted of defrauding the government 
during the COVID-19 pandemic from ever getting another SBA 
loan.

                             III. Hearings

    In the 118th Congress, the Committee held one hearing 
examining the issues covered in H.R. 5427. On July 13, 2023, 
the Committee held a hearing titled ``Reviewing the SBA and OIG 
Reports of Fraud in Pandemic Lending Programs.'' Inspector 
General Hannibal ``Mike'' Ware testified on the Office of 
Inspector General findings. Administrator Isabella Guzman was 
invited to testify but did not attend.

                      IV. Committee Consideration

    The Committee on Small Business met in open session, with a 
quorum being present, on September 14, 2023 and ordered H.R. 
5427 reported favorably to the House of Representatives. During 
the markup no amendments were offered.

                           V. Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. The Committee voted to favorably report H.R. 5427 to 
the House of Representatives at 11:49 AM.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                  VI. Section-by-Section of H.R. 5427


Section 1. Assistance prohibited after fraud conviction

    This section debars anyone finally convicted of a crime 
related to financial misconduct or making a false statement 
with regards to COVID-19 assistance from the federal government 
from receiving a business loan from the SBA for the remainder 
of their lifetime.
    Debarment is an action that excludes an individual from 
future eligibility for certain government benefits or 
opportunities.
    Finally convicted means that an individual has exhausted 
all opportunities to appeal a conviction or that a conviction 
can otherwise no longer be appealed because the time for 
appealing a conviction has expired.

             VII. Congressional Budget Office Cost Estimate

    Pursuant to clause 3(d)(1) of House rule XIII, the 
Committee adopts as its own the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974. The Committee has 
requested but not received from the Director of the 
Congressional Budget Office a cost estimate for the Committee's 
provisions. Once available, the cost estimate will be published 
in the Congressional Record.

        VIII. New Budget Authority, Entitlement Authority, and 
                            Tax Expenditures

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives and section 308(a)(I) of the 
Congressional Budget Act of 1974, the Committee provides the 
following opinion and estimate with respect to new budget 
authority, entitlement authority, and tax expenditures. While 
the Committee has not received an estimate of new budget 
authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to Sec. 
402 of the Congressional Budget Act of 1974, the Committee does 
not believe that there will be any additional costs 
attributable to this legislation. H.R. 5427 does not direct new 
spending, but instead reallocates funding independently 
authorized and appropriated.

                IX. Oversight Findings & Recommendations

    In accordance with clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the oversight findings and recommendations of the Committee on 
Small Business with respect to the subject matter contained in 
H.R. 5427 are incorporated into the descriptive portions of 
this report.

                  X. Performance Goals and Objectives

    With respect to the requirements of clause 3(c)(1) of rule 
XIII of the Rules of the House of Representatives, the 
performance goals and objectives of H.R. 5427 are to prohibit 
individuals convicted of defrauding the federal government from 
receiving financial assistance from the SBA.

            XI. Statement of Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, no provision of H.R. 5427 is known to 
be duplicative of another Federal program, including any 
program that was included in a report to Congress pursuant to 
section 21 of Public Law 111-139 or the most recent Catalog of 
Federal Domestic Assistance.

 XII. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee finds that the bill 
does not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits as defined in clause 9(e), 
9(f), or 9(g) of rule XXI of the Rules of the House of 
Representatives.

                    XIII. Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

               XIV. Federal Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                XV. Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

               XVI. Statement of Constitutional Authority

    Pursuant to clause 7 of rule XII of the Rules of the House, 
the Committee finds that the authority for this legislation in 
Art. I, Sec. 8, cl.1 of the Constitution of the United States.

      XVII. Changes in Existing Law, Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

                           SMALL BUSINESS ACT




           *       *       *       *       *       *       *
  Sec. 16. (a) Whoever makes any statement knowing it to be 
false, or whoever willfully overvalues any security, for the 
purpose of obtaining for himself or for any applicant any loan, 
or extension thereof by renewal, deferment of action, or 
otherwise, or the acceptance, release, or substitution of 
security therefor, or for the purpose of influencing in any way 
the action of the Administration, or for the purpose of 
obtaining money, property, or anything of value, under this 
Act, shall be punished by a fine of not more than $5,000 or by 
imprisonment for not more than two years, or both.
  (b) Whoever, being connected in any capacity with the 
Administration, (1) embezzles, abstracts, purloins, or 
willfully misapplies any moneys, funds, securities, or other 
things of value, whether belonging to it or pledged or 
otherwise entrusted to it, or (2) with intent to defrand the 
Administration or any other body politic or corporate, or any 
individual, or to deceive any officer, auditor, or examiner of 
the Administration, makes any false entry in any book, report, 
or statement of or to the Administration, or, without being 
duly authorized, draws any order or issues, puts forth, or 
assigns any note, debenture, bond, or other obligation, or 
draft, bill of exchange, mortgage, judgment, or decree thereof, 
or (3) with intent to defraud participates or shares in or 
receives directly or indirectly any money, profit, property, or 
benefit through any transaction, loan, commission, contract, or 
any other part of the Administration, or (4) gives any 
unauthorized information concerning any future action or plan 
of the Administration which might affect the value of 
securities, or, having such knowledge, invests or speculates, 
directly or indirectly, in the securities or property of any 
company or corporation receiving loans or other assistance from 
the Administration, shall be punished by a fine of not more 
than $10,000 or by imprisonment for not more than five years, 
or both.
  (c) Whoever, with intent to defraud, knowingly conceals, 
removes, disposes of, or converts to his own use or that of 
another, any property mortgaged or pledged to, or held by, the 
Administration, shall be fined not more than $5,000 or 
imprisoned not more than five years, or both; but if the value 
of such property does not exceed $100, he shall be fined not 
more than $1,000 or imprisoned not more than one year, or both.
  (d)(1) Whoever misrepresents the status of any concern or 
person as a ``small business concern'', a ``qualified HUBZone 
small business concern'', a ``small business concern owned and 
controlled by service-disabled veterans'', a ``small business 
concern owned and controlled by veterans'', a ``small business 
concern owned and controlled by socially and economically 
disadvantaged individuals'', or a ``small business concern 
owned and controlled by women'', in order to obtain for oneself 
or another any--
          (A) prime contract to be awarded pursuant to section 
        8, 9, 15, 31, 36, or 36A;
          (B) subcontract to be awarded pursuant to section 
        8(a);
          (C) subcontract that is to be included as part or all 
        of a goal contained in a subcontracting plan required 
        pursuant to section 8(d); or
          (D) prime or subcontract to be awarded as a result, 
        or in furtherance, of any other provision of Federal 
        law that specifically references section 8(d) for a 
        definition of program eligibility, shall be subject to 
        the penalties and remedies described in paragraph (2).
  (2) Any person who violates paragraph (1) shall--
          (A) be punished by a fine of not more than $500,000 
        or by imprisonment for not more than 10 years, or both;
          (B) be subject to the administrative remedies 
        prescribed by the Program Fraud Civil Remedies Act of 
        1986 (31 U.S.C. 3801-3812);
          (C) be subject to suspension and debarment as 
        specified in subpart 9.4 of title 48, Code of Federal 
        Regulations (or any successor regulation); and
          (D) be ineligible for participation in any program or 
        activity conducted under the authority of this Act or 
        the Small Business Investment Act of 1958 (15 U.S.C. 
        661 et seq.) for a period not to exceed 3 years.
          (3) Limitation on liability.--This subsection shall 
        not apply to any conduct in violation of subsection (a) 
        if the defendant acted in good faith reliance on a 
        written advisory opinion from a Small Business 
        Development Center (as defined in this Act), or an 
        entity participating in the Procurement Technical 
        Assistance Cooperative Agreement Program defined in 
        chapter 388 of title 10, United States Code; however 
        nothing in this Act shall obligate either entity to 
        provide such a letter nor shall the provision of such a 
        letter in any way render the providing entity liable to 
        the business concern should the Administrator later 
        determine that the concern is not a small business 
        concern. Upon issuance of an advisory opinion under 
        this paragraph, the entity issuing the advisory opinion 
        shall remit a copy of the opinion to the General 
        Counsel of the Administration, who may reject the 
        advisory opinion. If the General Counsel of the 
        Administration rejects the advisory opinion, the 
        Administration shall notify the entity issuing the 
        advisory opinion and the recipient of the opinion, 
        after which time the business concern may not rely upon 
        the opinion.
  (e) Any representation of the status of any concern or person 
as a ``small business concern'', a ``HUBZone small business 
concern'', a ``small business concern owned and controlled by 
service-disabled veterans'', a ``small business concern owned 
and controlled by veterans'', a ``small business concern owned 
and controlled by socially and economically disadvantaged 
individuals'', or a ``small business concern owned and 
controlled by women'' in order to obtain any prime contract or 
subcontract enumerated in subsection (d) of this section shall 
be in writing.
  (f) Whoever falsely certifies past compliance with the 
requirements of section 7(j)(10)(I) of this Act shall be 
subject to the penalties prescribed in subsection (d).
  (g) Subcontracting Limitations.--
          (1) In general.--Whoever violates a requirement 
        established under section 46 shall be subject to the 
        penalties prescribed in subsection (d), except that, 
        for an entity that exceeded a limitation on 
        subcontracting under such section, the fine described 
        in subsection (d)(2)(A) shall be treated as the greater 
        of--
                  (A) $500,000; or
                  (B) the dollar amount expended, in excess of 
                permitted levels, by the entity on 
                subcontractors.
          (2) Monitoring.--Not later than 1 year after the date 
        of enactment of this subsection, the Administrator 
        shall take such actions as are necessary to ensure that 
        an existing Federal subcontracting reporting system is 
        modified to notify the Administrator, the appropriate 
        Director of the Office of Small and Disadvantaged 
        Business Utilization, and the appropriate contracting 
        officer if a requirement established under section 46 
        is violated.
  (h) Financial Assistance Prohibition.--
          (1) In general.--An associate of a small business 
        concern who is finally convicted of any crime involving 
        or relating to financial misconduct or a false 
        statement with respect to a covered loan or grant shall 
        be ineligible to receive any financial assistance from 
        the Administrator, other than financial assistance 
        under section 7(b).
          (2) Business concerns.--A small business concern that 
        has as an associate an individual subject to paragraph 
        (1) shall be ineligible to receive any financial 
        assistance from the Administrator, other than financial 
        assistance under section 7(b).
          (3) Definitions.--In this subsection:
                  (A) Associate.--The term ``associate'' means, 
                with respect to a small business concern--
                          (i) an officer, director, or owner of 
                        more than 20 percent of the equity of, 
                        or a key employee of, such small 
                        business concern;
                          (ii) any entity not less than 20 
                        percent owned or controlled by one or 
                        more individuals referred to in clause 
                        (i); and
                          (iii) any other individual or entity 
                        in control of or controlled by such 
                        small business concern, except for a 
                        licensed small business investment 
                        company (as defined in section 103(3) 
                        of the Small Business Investment Act of 
                        1958 (15 U.S.C. 662(3)).
                  (B) Covered loan or grant.--The term 
                ``covered loan or grant'' means--
                          (i) a loan made under--
                                  (I) paragraph (36) or (37) of 
                                subsection (a) of section 7 of 
                                the Small Business Act (15 
                                U.S.C. 636); or
                                  (II) subsection (b) of such 
                                section in response to the 
                                COVID-19 pandemic; or
                          (ii) a grant made under--
                                  (I) section 5003 of the 
                                American Rescue Plan Act of 
                                2021 (15 U.S.C. 9009c); or
                                  (II) section 324 of the 
                                Economic Aid to Hard-Hit Small 
                                Businesses, Nonprofits, and 
                                Venues Act (15 U.S.C. 9009a).
                  (C) Finally convicted.--The term ``finally 
                convicted'' means, with respect to an 
                individual or entity, that such individual or 
                entity has been convicted of an offense and 
                such conviction--
                          (i) has not been appealed and is no 
                        longer appealable because the time for 
                        taking an appeal has expired; or
                          (ii) has been appealed and the 
                        appeals process for such conviction is 
                        completed.

           *       *       *       *       *       *       *


                         XVIII. MINORITY VIEWS

    Over the course of the COVID-19 pandemic, the Small 
Business Administration (SBA) disbursed approximately $1.2 
trillion of economic aid through the Paycheck Protection 
Program (PPP) ($792 billion), Economic Injury Disaster Loan 
Program (EIDL) ($405.2 billion), Restaurant Revitalization Fund 
(RRF) ($28.6 billion), and the Shuttered Venue Operators Grant 
Program (SVOG) ($14.6 billion) to help small businesses 
adversely impacted by the crisis.
    In an effort to disburse PPP and COVID-19 funds swiftly, 
the SBA weakened and removed internal controls. The Office of 
the Inspector General (OIG) issued a number of reports early on 
warning of the importance of strong internal controls to 
mitigate risk, and a total of 22 reports to identify weaknesses 
in SBA's control environment throughout the pandemic. Beginning 
in early 2021, long-standing anti-fraud controls were 
reinstituted, and new safeguards were put into place by the 
Biden-Harris Administration to reduce the potential for fraud.
    On June 27, 2023, the OIG issued a white paper to provide a 
comprehensive review reporting that SBA disbursed more than 
$200 billion in potentially fraudulent COVID-19 EIDLs, EIDL 
Targeted Advances, Supplemental Targeted Advances, and PPP 
loans. SBA also issued a report, entitled ``Protecting the 
Integrity of the Pandemic Relief Programs,'' which estimates 
that $36 billion of the $1.2 trillion in pandemic relief 
emergency funds was obtained fraudulently. Moreover, the agency 
asserts that 86% of the likely fraud originated in the first 
nine months of the pandemic, under the Trump Administration. As 
of August 15, 2023, there have been 1,081 indictments. 884 
arrests, 574 convictions related to PPP or EIDL, and 579 
ongoing investigations.
    The bill is aligned with recent actions taken by the Biden 
Administration to ensure that SBA loans are not approved for 
those who defrauded the government during the pandemic or any 
other time. Beginning on August 1, 2023, SBA began proactively 
screening for prior government loss and connection to fraud for 
all business loans. This screening includes utilizing the 
Treasury Do Not Pay system (DNP). The DNP includes a dataset 
called CAIVRS, which indicates whether an individual or entity 
has a delinquent federal debt. The screening also includes a 
check across SBA's internal databases for any business 
connected to pandemic program fraud (e.g., PPP). If a borrower 
is flagged through these checks, they have an opportunity to 
clear the hold by resolving the issue, demonstrating that it 
does not apply, or proving it incorrect. SBA does not move 
forward with an applicant's loan unless the hold is cleared.
    Given that the SBA already has protocols in place to 
prevent fraud, Committee Democrats believe the single most 
important action Congress can take to support the OIG in their 
efforts to combat fraud is to advocate for their Fiscal Year 
2024 (FY 2024) budget request. The Administration's FY 2024 
budget plan proposed $47.704 million of discretionary funding, 
plus a $1.6 million transfer from SBA's Disaster Loans Program, 
and an additional $14 million transfer to OIG from a mandatory 
funding source. The proposed mandatory funding source for the 
$14 million transfer is no longer available following enactment 
of the Fiscal Responsibility Act of 2023 (P.L. 118-5), which 
rescinded the unobligated balances in the SBA Disaster Loan 
Program account.
    The OIG budget request would enable OIG to build on its 
existing oversight capacity as COVID EIDL loans enter into 
repayment with additional criminal investigators, data 
scientists, auditors, and professional staff. These investments 
in data analytics capabilities, auditors, and investigative 
coverage will enable OIG to analyze more data, conduct more 
audits and reviews, and investigate more cases, promoting 
public trust and integrity within SBA's programs and 
operations.
    Unfortunately, the House FSGG appropriations bill provides 
$32.02 million, which would cripple the OIG, providing budget 
authority for approximately 130 positions, and bringing 
operations back to pre-pandemic levels. The Administration's FY 
2024 budget provides the necessary funding to enable the OIG to 
sustain existing oversight capacity and invest in additional 
necessary staffing. Absent the total budgetary resources 
requested in the FY 2024 budget, the OIG will not have 
sufficient funding to combat fraud within SBA programs or to 
provide effective oversight over the agency's programs. 
Critically, OIG will not have a sufficient operating budget to 
capitalize on the new laws (P.L. 117-165 and P.L. 117-166), 
which extended the statute of limitations for fraud in the PPP 
and EIDL programs to 10 years.
            Sincerely,
                                        Nydia M. Velazquez,
                                                    Ranking Member.

                                  [all]