SBA Finalizes New Rule to Protect Fraudulent Firms from Prosecution

ASBL opposes SBA safe harbor from fraud penalties policy

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Feb 12, 2015, 07:18 ET

PETALUMA, Calif., Feb. 12, 2015 /PRNewswire-USNewswire/ -- The Small Business Administration (SBA) has finalized a new rule that Congress included in the 2013 National Defense Authorization Act titled, "safe harbor from fraud penalties." The new rule will allow large businesses that misrepresent themselves as small businesses to illegally receive federal small business contracts to avoid all prosecution and penalties by simply claiming they "acted in good faith."

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Prior to the implementation of the "safe harbor from fraud penalties" policy, large businesses that misrepresented their subsidiaries as small businesses to hijack federal small business contracts could face severe penalties.

Under Section 16(d) of the Small Business Act, any firm that misrepresents itself as a small business to receive federal small business contracts could face up to 10 years in prison or fines of up to $500,000 per occurrence.

The new "safe harbor from fraud penalties" essentially repeals any penalties for small business contracting fraud.

Every year since 2005, the SBA Office of inspector General has reported the diversion of federal small business contracts to large businesses as the number one problem at the SBA.

In 2005, the SBA Inspector General released Report 5-15 that stated, "One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards."

President Obama recognized the magnitude of the fraud in federal small business contracting programs during his first campaign for the White House. In 2008, he released the statement, "It is time to end the diversion of federal small business contracts to corporate giants."

The American Small Business League (ASBL) has been the only national small business advocacy organization to publicly oppose the diversion of federal small business contracts to large businesses and the "safe harbor from fraud penalties" policy.

The ASBL launched a national campaign to oppose the "safe harbor from fraud penalties" rule that included a barrage of blogs and press releases. The ASBL also conducted a survey of 2000 Chambers of Commerce across the country that found over 97 percent of the respondents opposed the policy.

Because of the overwhelming national opposition to the SBA's "safe harbor from fraud penalties" policy, the SBA's Final Rule has changed the text from when it was first proposed in June of 2014 to now say "limitations of liability from fraud penalties."

"The fact that Congress has refused to pass any legislation to stop the rampant fraud that has been uncovered in federal small business programs, but instead, adopt legislation to protect fraudulent companies is a prime example of everything that is foul and corrupt in the federal government," stated Chapman.

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SOURCE American Small Business League