18 U.S.C. § 1031 – Major Fraud Against the United States

18 U.S.C. § 1031 makes it a federal crime to knowingly execute, or attempt to execute, a scheme to defraud the United States government or obtain government money or property through false pretenses when the value of the underlying federal contract, grant, loan, or assistance program exceeds $1 million.

Commonly known as the Major Fraud Act, this statute carries severe penalties, including up to 10 years in federal prison per count and fines up to $10 million.

Statutory Breakdown

Governing Law: 18 U.S.C. § 1031 (Major Fraud Act)
Valuation Threshold: Contract or grant value must exceed $1,000,000 (actual loss does not need to equal $1 million)
Maximum Prison Sentence: 10 years per count
Maximum Fines: $1 million per count; up to $10 million in total aggregate fines
Commonly Charged With: Wire fraud (18 U.S.C. § 1343), Mail fraud (18 U.S.C. § 1341), False statements (18 U.S.C. § 1001), Disaster benefit fraud (18 U.S.C. § 1040)

What Constitutes Major Fraud Against the United States?

Under 18 U.S.C. § 1031, federal prosecutors prosecute individuals and corporations accused of targeting high-value federal funding streams. The statute applies to fraudulent schemes involving:

Defense Contracts: Misrepresentations, false billing, or substandard deliverables under Department of Defense contracts.
Government Procurement Contracts: Submitting inflated invoices, falsifying bids, or violating contract specifications on federal infrastructure or agency projects.
Emergency Relief & Stimulus Funds: Fraud involving FEMA disaster relief, CARES Act allocations, Paycheck Protection Program (PPP) loans, or Economic Injury Disaster Loans (EIDL).
Federal Healthcare Grants: Schemes targeting Medicare, Medicaid, or federal research grants where contract totals exceed the $1 million threshold.
Loans & Subsidies: Fraudulent procurement of federal guarantees, TARP funds, or Small Business Administration (SBA) loans.

What Prosecutors Must Prove to Secure a Conviction

To establish a violation of 18 U.S.C. § 1031, federal prosecutors must prove four specific legal elements beyond a reasonable doubt:

Knowingly Executed a Scheme: The defendant knowingly executed or attempted to execute a scheme to defraud the U.S. or obtain money under false pretenses.
Intent to Defraud: The defendant acted with specific intent to defraud—not out of negligence, accounting errors, or honest contract disputes.
Covered Program: The fraud directly involved a federal contract, subcontract, grant, loan, subsidy, or government assistance program.
Statutory Threshold: The prime contract, subcontract, or federal assistance program had a total value of more than $1,000,000.

Penalties and Aggravating Sentencing Factors

A conviction under the Major Fraud Act carries severe criminal and administrative consequences:

Penalty Category	Statutory Maximum / Mandatory Remedy
Federal Imprisonment	Up to 10 years per count
Individual Fines	Up to $1,000,000 per count
Aggregate Fine Cap	Up to $10,000,000 (if gross loss/gain thresholds apply)
Restitution	Mandatory full restitution of government losses
Administrative / Civil	Debarment from federal contracting, asset forfeiture, civil False Claims Act liability

Under the U.S. Sentencing Guidelines, penalties increase significantly based on specific offense characteristics:

Total Financial Loss: Higher intended or actual loss leads to longer prison sentences.
Sophisticated Means: Use of shell companies, offshore accounts, or complex foreign transactions.
Role in the Offense: Serving as an organizer, manager, or leader of the fraudulent scheme.
Abuse of Trust: Exploiting a position of public trust or professional authority to carry out the fraud.

Related Federal Crimes and Stacked Charges

Federal prosecutors rarely charge 18 U.S.C. § 1031 in isolation. In large-scale government fraud investigations, the Department of Justice frequently stacks multiple related offenses to maximize sentencing exposure and financial penalties:

18 U.S.C. § 1343 – Wire Fraud: Prohibits using interstate electronic communications (emails, wire transfers, phone calls) to carry out a fraudulent scheme. Carries up to 20 years in prison per count.
18 U.S.C. § 1341 – Mail Fraud: Prohibits using the U.S. Postal Service or private commercial carriers to execute a scheme to defraud. Carries up to 20 years in prison per count.
18 U.S.C. § 1001 – False Statements: Criminalizes making knowingly false, fictitious, or fraudulent statements or concealing material facts in any matter within federal agency jurisdiction. Carries up to 5 years in prison per count.
18 U.S.C. § 371 – Conspiracy to Defraud the United States: Targets agreements between two or more people to commit federal fraud or impair government agency operations. Carries up to 5 years in prison.
18 U.S.C. § 1040 – Disaster & Emergency Benefit Fraud: Applies specifically to false claims involving federal disaster or emergency relief funds (e.g., FEMA, emergency procurement). Carries up to 30 years in prison.
31 U.S.C. §§ 3729–3733 – The Civil False Claims Act (FCA): Allows the federal government—or private whistleblower "relators" (Qui Tam lawsuits)—to recover treble damages (3x actual loss) and statutory civil monetary penalties per false invoice or claim.

Comprehensive Defense Strategies Against § 1031 Charges

Successfully countering an 18 U.S.C. § 1031 prosecution requires targeted, evidence-backed strategies aimed at weakening the government's case before or after an indictment:

Negating Intent & Demonstrating Good Faith: The government must prove specific intent to defraud beyond a reasonable doubt. Defense counsel can establish that irregularities stemmed from complex regulatory ambiguities, honest accounting errors, or contractual misunderstandings rather than deliberate deceit. Showing documented reliance on advice from qualified lawyers, certified accountants, or compliance consultants reinforces a good-faith defense.
Challenging the $1 Million Statutory Threshold: Section 1031 applies exclusively to underlying contracts, subcontracts, or assistance programs valued at over $1,000,000. By auditing contract structures, task orders, or grant allocations, the defense may demonstrate that individual prime contracts or subcontracts fell below this statutory limit, forcing the government to dismiss or reduce the charge.
Lack of Materiality: Fraud charges require that alleged false statements or representations were material—meaning they were capable of influencing government decisions. If the alleged discrepancy had no bearing on contract performance, qualification, or funding approval, the charge lacks a legal foundation.
Attacking Government & Whistleblower Evidence: Many § 1031 cases originate from whistleblower complaints or internal agency audits. Defense counsel can challenge the credibility of disgruntled informants, point out flaws in forensic accounting models, and highlight gaps in documentary evidence.
Suppressing Unconstitutionally Obtained Evidence: Federal investigations frequently involve grand jury subpoenas, search warrants, and wiretaps. If federal agents violated Fourth Amendment rights during searches or failed to follow statutory protocols, defense counsel can file motions to suppress key evidence.

Frequently Asked Questions

What is the $1 million requirement under 18 U.S.C. § 1031?

The statutory threshold requires that the total value of the underlying federal contract, grant, loan, or assistance program exceeds $1,000,000.

Does the government have to suffer an actual loss of $1 million to charge major fraud?

No. The statute requires only that the underlying contract or assistance program be valued at over $1 million, even if the government's actual financial loss was much lower or zero.

Can PPP loan or disaster relief fraud be charged under 18 U.S.C. § 1031?

Yes. If the total value of the PPP loans, EIDL assistance, or disaster relief grants involved in the alleged scheme exceeds $1 million, prosecutors routinely bring charges under § 1031.

Is major fraud typically charged on its own?

Rarely. Prosecutors frequently stack 18 U.S.C. § 1031 alongside wire fraud (18 U.S.C. § 1343), mail fraud (18 U.S.C. § 1341), false statements (18 U.S.C. § 1001), and conspiracy charges.

Can a major fraud case be resolved without going to trial?

Yes. Early intervention by experienced defense counsel can lead to pre-indictment resolutions, civil settlements, dismissal of charges, or favorable negotiated plea agreements.

Legal Defense Support for Federal Fraud Investigations

If you or your business face an Inspector General audit, grand jury subpoena, or federal indictment under 18 U.S.C. § 1031, immediate defense counsel is essential to protect your rights and mitigate exposure.

Eisner Gorin LLP

Los Angeles Federal White Collar Defense Attorneys

Direct Line: (818) 781-1570

Major Fraud