Major Fraud Against the United States

Three federal criminal statutes define the scope of fraud against the U.S. government and its programs: 18 U.S.C. § 1031 targets knowing attempts to defraud the government out of $1,000,000 or more through contracts, grants, or any federal benefit program; 18 U.S.C. § 1040 targets fraud involving FEMA and other disaster assistance programs; and 18 U.S.C. § 1038 criminalizes spreading false information about terrorist attacks, weapons incidents, and other public emergencies. Together, these statutes cover the full arc of fraud against federal resources — from defense contractor overbilling schemes and emergency benefit fraud to fake bomb threats. The penalties are severe: § 1031 allows fines of up to $5,000,000 per count and aggregated fines up to $10,000,000, with a 7-year statute of limitations. The Attorney General can pay up to $250,000 to informants who provide information leading to prosecution, and employees who blow the whistle on major fraud against the U.S. government have explicit retaliation protections.

Current Law (2026)

Legal Authority

• 18 U.S.C. § 1031 — Major fraud against the United States: makes it a crime to knowingly defraud the government or obtain government money or property through deception; sets enhanced fines for losses of $1,000,000 or more; establishes a 7-year limitations period; authorizes whistleblower payments and employee anti-retaliation protections.
• 18 U.S.C. § 1040 — Fraud in connection with major disaster or emergency benefits: criminalizes intentional misrepresentation, concealment, or false documentation to obtain any benefit that moves in interstate commerce, is mailed at any point, or involves U.S. government money or property.
• 18 U.S.C. § 1038 — False information and hoaxes: makes it a crime to intentionally spread false or misleading information that could reasonably be believed and purports to describe a violent crime, weapons offense, nuclear incident, or aviation threat; also criminalizes false reports about U.S. service members' deaths or captures during wartime; requires mandatory restitution to government and nonprofit responders.

How It Works

Major Fraud Against the Government (18 U.S.C. § 1031)

What the Statute Covers

Section 1031 targets knowing schemes to defraud the United States — including its departments, agencies, and programs — or to obtain money, property, or "anything of value" from the government through false or fraudulent representations, promises, or documents.

The statute has its roots in government contracting fraud, where overbilling, bid rigging, defective pricing, and false certification schemes can cost the government tens of millions of dollars. It also applies to grant fraud, program fraud, and any other scheme where someone uses lies or deception to obtain government resources.

The threshold for enhanced penalties is a loss (or intended loss) to the government of $1,000,000 or more, or any scheme that put any person at serious risk of physical injury. Below that threshold, ordinary fraud and false statements statutes (18 U.S.C. §§ 1001–1010) continue to apply, but their fine limits may be lower.

Penalties and Fines

The penalty structure for § 1031 is deliberately more aggressive than the general fraud statutes:

Per-count fines: Up to $5,000,000 per count. The court may also impose a fine equal to up to twice the government's actual loss or twice the defendant's gain from the fraud — whichever is greater. This "double the harm" alternative can exceed even the $5,000,000 maximum in cases where the government's loss is very large.

Aggregate cap: Even across multiple counts in a single case, total fines cannot exceed $10,000,000. This cap prevents the penalty from becoming effectively unlimited in complex multi-count indictments while still allowing substantial punishment.

Limitations period: Seven years from the date of the offense, plus any time added by other statutes (for example, the wartime tolling provisions of 18 U.S.C. § 3287 that can extend limitations periods for fraud on the government during periods of war or national emergency).

Fine determination factors: When setting fines, courts must consider the seriousness of the offense, harm to victims, any previous fines for similar violations, and any other factors the court finds fair. The statute explicitly calls for individualized assessment rather than formulaic application.

The Whistleblower Incentive and Protection Provisions

Section 1031 contains its own whistleblower mechanisms, separate from the False Claims Act's qui tam provisions:

Informant payments: The Attorney General may pay up to $250,000 from Department of Justice funds to anyone who provides information that leads to a criminal prosecution under § 1031. Several categories of people are ineligible: government employees who learned of the fraud through their official duties (unless they separately reported it and were retaliated against), people who had a legal obligation to report to their employer and failed to do so without reasonable justification, people who only share information already in public reports or news accounts, and anyone who participated in the fraud itself.

The Attorney General's decision about whether to pay is entirely discretionary and is not subject to judicial review — a court cannot order the government to pay a reward even if the information directly led to prosecution.

Employee anti-retaliation: Any employee who lawfully assists in the prosecution of a § 1031 case — and who did not participate in the fraudulent scheme — has explicit protection against workplace retaliation. If an employer fires, demotes, harasses, or otherwise punishes an employee for cooperating in a major fraud prosecution, that employee can sue for reinstatement, twice the amount of back pay owed (with interest), attorney fees, and other damages. This protection is particularly important in defense contractor environments where employees may face significant pressure not to cooperate with government investigators.

Disaster and Emergency Benefit Fraud (18 U.S.C. § 1040)

Section 1040, enacted after Hurricane Katrina exposed massive weaknesses in FEMA benefit distribution (see also FEMA Disaster Fraud, Contracting, and Accountability Controls), targets fraud involving any "benefit" connected to a presidentially declared major disaster or emergency.

What Counts as a Benefit

The statute defines "benefit" broadly: any record, voucher, payment, money, or thing of value, as well as any good, service, right, or privilege, provided by the United States, a state or local government, or any other entity. This definition is broad enough to cover:

• FEMA Individual Assistance grants and housing assistance
• SBA disaster loans
• Unemployment insurance extensions during federal emergencies
• COVID-era relief programs including PPP loans and EIDL grants
• Supplemental nutrition assistance after disasters
• Federal employee disaster pay

Federal Jurisdiction

Three independent hooks create federal jurisdiction over disaster benefit fraud:

1. Interstate commerce: The benefit's approval, transfer, or payment crosses state lines or affects foreign commerce (which is nearly always true for any federal program)
2. Mail: The benefit is mailed at any point during the transaction (applications mailed to state agencies, checks mailed to recipients, etc.)
3. Federal money or property: The benefit is a record, voucher, payment, money, or thing of value belonging to the United States or any of its departments or agencies

Any one of these hooks is sufficient. As a practical matter, any benefit from a federally declared disaster program satisfies all three.

The Fraud Element

The crime requires intentional conduct: the person must knowingly provide false or misleading statements, conceal material facts, or use false documentation to obtain the benefit. Mistakes, errors, or misunderstandings about eligibility criteria do not satisfy the statute. The government must prove the defendant knew the representations were false.

The most common prosecuted schemes include:

• Filing FEMA applications for properties that did not exist or were not damaged
• Using deceased relatives' information to claim disaster assistance
• Filing for disaster-related unemployment when employed
• Obtaining SBA disaster loans using fabricated business financials
• Fraudulent PPP applications claiming false employee counts or payrolls

Penalties

Section 1040 incorporates the penalty ranges from other fraud statutes by reference, typically resulting in maximum sentences of 10 to 30 years depending on the dollar amounts involved and other factors. Disaster fraud cases frequently involve additional charges — wire fraud (18 U.S.C. § 1343), mail fraud (18 U.S.C. § 1341), bank fraud (18 U.S.C. § 1344), or identity theft (18 U.S.C. § 1028A) — which can produce significantly higher total sentencing exposure.

The Justice Department operates a National Center for Disaster Fraud (NCDF) that receives reports and coordinates prosecutions across U.S. Attorney's Offices nationwide. After COVID-19, the NCDF expanded significantly to handle the volume of pandemic relief fraud cases.

False Emergency Reports and Hoaxes (18 U.S.C. § 1038)

What the Statute Covers

Section 1038 targets a different kind of fraud: fake emergency alerts that cause real government resources to be wasted and real public panic. The statute criminalizes intentionally conveying false or misleading information when someone could reasonably believe it is true and when the false claim purports to describe:

• A violent crime
• An attack using chemical, biological, radiological, nuclear, or explosive weapons
• A nuclear incident
• An aviation crime or attack
• Any other category listed in a specific set of federal statutes

The statute also separately covers false reports about the death, capture, injury, or disappearance of U.S. military members during wartime — a provision designed to address misinformation that could devastate military families or disrupt operations.

"Swatting" and Similar Hoaxes

Section 1038 is the primary federal statute used to prosecute "swatting" — making a fake emergency call to trigger an armed law enforcement response to a victim's location. Swatting incidents have resulted in deaths (including at least one case where police fatally shot an innocent homeowner responding to a SWAT team), and prosecutors have increasingly pursued felony charges under § 1038 in addition to any state charges.

The statute's structure creates escalating penalties that track actual harm:

• False report, no injury to anyone: up to 5 years
• False report causing serious bodily injury: up to 20 years
• False report resulting in death: up to life imprisonment, plus possible death penalty

Mandatory Restitution

Section 1038 includes a mandatory restitution provision that is unusual in its scope: any person convicted must repay the costs incurred by state and local governments and by nonprofit fire, rescue, and emergency medical organizations that responded to the hoax. This includes overtime pay for law enforcement officers, cost of specialized equipment deployed, and any other reasonable emergency response expenses. The restitution order is enforceable as a civil judgment, and multiple defendants can be held jointly responsible.

How These Statutes Interact

In federal fraud prosecutions, § 1031, § 1040, and § 1038 rarely stand alone. Prosecutors typically charge them alongside:

• 18 U.S.C. § 1001 (false statements to federal agencies) — covers the individual lies told to government officials
• 18 U.S.C. § 1341 / § 1343 (mail and wire fraud) — provides additional counts for each use of the mail or electronic communications
• 18 U.S.C. § 1028A (aggravated identity theft) — mandatory 2-year consecutive sentence if another person's identity was used
• 31 U.S.C. § 3729 (False Claims Act) — parallel civil liability with treble damages and qui tam whistleblower suits

The combination of criminal and civil exposure means that a major government contractor fraud case can result simultaneously in a criminal prosecution under § 1031 (with fines up to $10 million), a False Claims Act civil settlement (often multiples of the actual loss), debarment from future government contracting, and restitution orders.

How It Affects You

If you work for a government contractor: Any knowing scheme to overbill the government, submit false compliance certifications, inflate labor costs, or rig bids on contracts involving $1,000,000 or more in losses to the government is § 1031 territory. The 7-year statute of limitations means conduct going back to 2019 remains prosecutable in 2026. If you discover fraud internally, report it in writing — to your supervisor, ethics hotline, or General Counsel — and preserve a copy. If those channels are blocked or you face retaliation, report directly to the relevant agency Inspector General or the DOJ. Section 1031 gives you explicit whistleblower protection: reinstatement, 2× back pay with interest, attorney fees, and other damages if your employer retaliates for cooperating with investigators. Parallel risk: the False Claims Act's qui tam mechanism allows employees to file sealed lawsuits on the government's behalf and receive 15-25% of the government's recovery, which can be enormous in large contracting cases — FCA treble damages on a $10M fraud equal $30M in civil exposure before criminal fines.

If you received disaster relief benefits: Honest mistakes in applications are not crimes under § 1040 — the statute requires intentional conduct, and the government must prove you knew the statements were false. If you received FEMA, SBA, or other disaster assistance based on a mistake you've since discovered, contact the agency directly and offer to repay the overpayment before it becomes an enforcement referral; agencies generally have repayment programs with no criminal consequences for voluntary returns. If you receive a law enforcement inquiry about disaster benefits, consult a criminal defense attorney before saying anything. To report suspected fraud by others, contact the DOJ's National Center for Disaster Fraud (NCDF) at 1-844-872-4332 or submit a complaint online at justice.gov/disaster-fraud — the NCDF coordinates investigations across all U.S. Attorney's Offices nationally.

If you applied for COVID-era relief programs: PPP loans, EIDL grants, and pandemic unemployment insurance extensions are squarely within § 1040's scope, and the DOJ treats pandemic fraud prosecution as a sustained priority — not a past-tense effort. The DOJ's COVID-19 Fraud Enforcement Strike Force has obtained hundreds of convictions and is still pursuing cases. The statute of limitations for § 1040 fraud (5 years) and related wire/mail fraud charges (5 years) means applications filed in 2020-2021 potentially remain within the prosecutable window. If you received a PPP loan based on inaccurate data — overstated payroll, incorrect employee counts, or other errors — the SBA's Loan Review and Forgiveness process is the administrative path for resolving discrepancies before they become enforcement matters. Borrowers who proactively return incorrectly received funds and document the error have significantly better outcomes than those who wait for a DOJ contact.

If you are a government contractor compliance officer: The combination of § 1031 criminal liability and FCA civil liability makes government contracting fraud among the most aggressively policed areas of federal law. Effective protection requires: (1) accurate cost accounting under DCAA-compliant systems (the Defense Contract Audit Agency audits costs on most defense contracts); (2) current and enforced Code of Business Ethics (required by FAR 52.203-13 for contracts over $5.5M lasting more than 120 days); (3) a functional internal reporting mechanism with documented escalation; and (4) mandatory disclosure of discovered violations to the agency's contracting officer under FAR 52.203-13(b)(3) — failure to disclose known violations within a reasonable time is itself a basis for suspension or debarment. Self-disclosure done promptly and in good faith protects against debarment; voluntary disclosure is a well-established mitigating factor in DOJ charging decisions. Document all compliance actions in writing.

State Variations

All states have fraud statutes that may apply to schemes involving state-administered federal programs (such as Medicaid, state disaster relief programs, or unemployment insurance). Federal-state jurisdiction in these cases is concurrent. Federal prosecution is more likely in larger-dollar cases, cases with national scope, or cases involving pure federal programs. State prosecution is more common in smaller-dollar disaster fraud and local contractor fraud cases.

Implementing Regulations

These statutes are enforced primarily through criminal investigation and prosecution rather than through a dedicated CFR scheme. The practical implementation layer comes from DOJ charging policy, FEMA and SBA program rules, federal procurement requirements, and criminal procedure rules that determine how fraud investigations are built and prosecuted. In other words, the statutes define the offense, while the surrounding agency programs define the documents, certifications, and benefit systems that defendants are alleged to have abused.

Pending Legislation

No major standalone amendment to the core § 1031, § 1040, or § 1038 offense structure is moving as a headline bill in the 119th Congress. Congress is more likely to affect this area indirectly through annual defense authorization, disaster-relief oversight, procurement-integrity, emergency-management, or anti-fraud enforcement legislation.

Recent Developments

Federal fraud enforcement has stayed especially active in two lanes: government-program fraud and procurement fraud. Pandemic-era cases are still moving through the courts, while procurement, grant, and disaster-benefit cases continue to generate parallel criminal and civil exposure under criminal fraud statutes and the False Claims Act.

Another notable shift is evidentiary rather than statutory: investigators increasingly confront synthetic documents, AI-assisted application packages, and digitally coordinated fraud rings. That trend has not changed the basic elements of §§ 1031, 1040, or 1038, but it has changed how prosecutors prove knowledge, materiality, and loss in modern fraud cases.