The Justice Department has spent the pandemic years handily securing guilty pleas from small-time scammers who’d purchased luxury items using emergency relief loans.

Now comes the hard part: Finding lenders liable for rubber stamping fake loans made available under the more than $1 trillion in federal spending intended for struggling businesses.

DOJ’s Covid-19 fraud enforcement task force is shifting its focus to financial institutions in cases that will involve years of document-intensive review and interviews with industry insiders to uncover evidence that banks ignored obvious red flags, bypassed fraud-detection measures, or colluded with customers, attorneys say.

The government will have to overcome forgiving Trump-era guidance that banks stand ready to cite in defense, and it might not be enough to prove a bank negligently failed to spot false applications.

“In many cases, ‘should’ve known’ is enough to prove fraud, but I’m not sure that ‘should’ve known’ is enough in a case under the CARES Act, unless the lender itself is the one that caused the problem,” said Gregg Shapiro, a former DOJ civil enforcement chief who investigated Covid-19 fraud at the pandemic’s outset.

Larger banks with more sophisticated prevention practices are less vulnerable, but regional and local institutions and fintechs—or web-based financial services providers—face greater scrutiny.

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