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Employees and customers broke law on Covid-19 loan, says JPMorgan

The bank said it had discovered "conduct that does not live up to our business and ethical principles - and may even be illegal"

JP Morgan | Coronavirus

Agencies  |  New York 

jp morgan, J P
It is the latest controversy to hit the $670bn programme, which was designed to blunt the Main Street toll of the coronavirus pandemic

JPMorgan Chase is investigating whether its staff helped customers to gain funds illegally from the US government’s small business bailout programme.

The largest US bank, which arranged $29 bn of forgivable loans under the Paycheck Protection Program (PPP) by the end of June, said it had discovered “conduct that does not live up to our business and ethical principles — and may even be illegal”. “This includes instances of customers misusing Paycheck Protection Program loans, unemployment benefits and other government programmes. Some employees have fallen short, too,” the bank’s operating committee wrote in a memo to all employees. “We are doing all we can to identify those instances, and co-operate with law enforcement where appropriate.”

The bank confirmed the contents of the memo, which was first reported by Bloomberg, but declined to comment further. It is the latest controversy to hit the $670bn programme, which was designed to blunt the Main Street toll of the pandemic. US President Donald Trump and his administration have defended the fund on the basis that it saved 51m jobs. However, some experts dispute that figure.

The PPP has been dogged by problems since its April inception, including early technical glitches that left struggling businesses fearing the funds would run dry before their applications were processed and outrage over publicly listed such as Shake Shack successfully securing funds.

The programme was ultimately given more money, the technical hitches were resolved and several high-profile returned their funds when it emerged that their names would be published and that larger loans would face special scrutiny. Still, even before its August 8 closure, several states filed criminal investigations into allegedly fraudulent PPP applications, including claims for businesses that did not exist or did not operate when applications were made.

Bankers have privately said that the sheer volume of PPP loans processed — which totalled 4.9m by the end of June — meant there would inevitably be some issues with fraud in a scheme that promised free money, provided it was spent on expenses such as wage bills and rent. More issues may come to light over the coming months, as borrowers apply for their loans to be forgiven on the basis that they were used for allowable expenses.

While the PPP scheme originally dangled tens of billions in fees for zero risk, it turned out to be a bruising affair for banks, with several executives privately admitting that reputations and relationships with customers had suffered amid broader frustrations with the programme. Several banks, including JPMorgan and Citigroup have promised to donate profits made from the PPP scheme to charities and non profit organisations. Wells Fargo, which was allowed to breach a regulatory limit on the size of its balance sheet to participate in the programme, went further, vowing to donate the $400m in gross fees it received from arranging the loans.

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First Published: Thu, September 10 2020. 01:56 IST