Tencent’s Involvement in Startup Linked to Fraudulent COVID Relief Program Loans
Tencent CEO Pony Ma (REUTERS/Bobby Yip/Files)
According to court records reviewed by the Washington Free Beacon, China’s Tencent has been implicated in profiting from fraudulent federal COVID relief program loans.
The records reveal that Tencent co-owned one of the main investors in Womply, a San Francisco startup that generated $2 billion in 2021 by facilitating expedited Paycheck Protection Program (PPP) loans. Womply was accused of benefiting from widespread fraud in the loan application process.
Tencent, known for owning WeChat and having a significant stake in the parent company of TikTok, has faced scrutiny from the U.S. government due to national security concerns. In 2021, the Trump administration issued an executive order banning transactions with Tencent, citing its connections to the Chinese government. President Joe Biden later rescinded the ban but ordered a security review of the company’s apps.
Tencent’s financial ties to Womply raise new questions about potential abuse of the PPP program, despite efforts by lawmakers to prevent foreign entities from profiting. The Small Business Administration, responsible for distributing nearly $800 billion in taxpayer funds during the pandemic, estimates that over $200 billion went to “potentially fraudulent actors,” according to a June inspector general report.
“Congress approved Paycheck Protection Program loans to prevent a recession caused by massive layoffs—not to send taxpayer dollars to China,” said Gabriel Noronha, executive director of the Polaris National Security think tank and former State Department official. “It’s unacceptable that the parent company of TikTok is profiting from government fraud, especially during a time of increasing debt and national security crises.”
This news comes less than a year after the House Select Subcommittee on the Coronavirus Crisis released a report exposing Womply’s failure to identify blatantly fraudulent loan applications. Another investigation revealed that the company expedited loans for fraudsters who used fake documentation, including photos of Barbie dolls, to apply for federal relief funds.
As a result, the Small Business Administration suspended its collaboration with Womply earlier this year.
Womply, founded by Toby Scammell, who was convicted of insider trading in 2014, handled eligibility and fraud verification for over a million PPP loans, earning over $2 billion in fees. However, Womply’s lending partners informed congressional investigators that the company’s fraud prevention practices seemed inadequate, allowing rampant fraud to occur within the PPP program.
Furthermore, intercepted messages between gang members in Florida revealed their use of Womply to obtain PPP loans for funding their drug trafficking operations.
Tencent, partially owned by the Chinese government, had a financial stake in Womply through Japanese e-commerce giant Rakuten. In April 2021, Tencent acquired a 3.4 percent stake in Rakuten, making it the fourth-largest co-owner and raising concerns among Japanese and U.S. officials regarding Chinese espionage.
Rakuten, one of Womply’s major investors, along with Maris Capital and Sageview Capital, invested $15 million in the company. Rakuten executive Naseer Mandozai served on the Womply board at the time. According to court records, Rakuten received profits from Womply during a liquidity event in late 2021.
Requests for comment from Womply, Tencent, and Rakuten went unanswered.
What measures are being taken to improve the oversight and effectiveness of the program to prevent abuse by fraudulent actors like Womply?
Ment official. “It’s deeply concerning that Tencent, a company with known ties to the Chinese government, was able to profit from this program.”
The involvement of Tencent in a startup linked to fraudulent COVID relief program loans raises serious concerns about the effectiveness and oversight of the program. The PPP was established to provide financial support to small businesses struggling during the pandemic. However, the lack of proper checks and balances allowed fraudulent actors, like Womply, to exploit the system and profit from taxpayer funds.
This case also highlights the ongoing national security concerns surrounding Tencent. The company’s close ties to the Chinese government have raised alarm bells in the U.S., prompting the previous administration to impose restrictions on transactions with Tencent. While the ban was lifted by the Biden administration, the security review ordered by President Biden acknowledges the need for a closer examination of Tencent’s operations.
The fact that Tencent co-owned one of the main investors in Womply raises questions about the due diligence conducted by both companies. It is crucial for financial institutions and investors to thoroughly vet their partners and ensure they are not involved in any fraudulent activities. Failure to do so not only tarnishes their reputation but also undermines the integrity of the financial system.
The Small Business Administration’s inspector general report indicating potentially fraudulent actors receiving billions of dollars in taxpayer funds is deeply troubling. It is imperative that stronger measures are implemented to prevent such abuse in the future. The security review of Tencent’s apps is a step in the right direction, but more comprehensive oversight and regulation of the PPP program is needed to protect taxpayer funds and ensure they are allocated to those who truly need them.
The involvement of Tencent in the Womply case serves as a stark reminder of the risks associated with foreign entities’ participation in critical programs. It underscores the importance of robust screening processes and ongoing monitoring to safeguard against fraud and abuse. The U.S. government and regulatory bodies must work together to strengthen the safeguards and accountability mechanisms to prevent similar incidents in the future.
As investigations into the fraudulent COVID relief program loans continue, it is crucial for all parties involved to cooperate fully and transparently. Accountability is essential to restore trust in the financial system and ensure that taxpayer funds are utilized for their intended purpose of supporting struggling businesses and individuals.
In conclusion, the involvement of Tencent in a startup linked to fraudulent COVID relief program loans raises serious concerns about the oversight and effectiveness of the program. It highlights the need for stronger measures to prevent abuse and ensure taxpayer funds are allocated appropriately. Additionally, it underscores the importance of thorough due diligence and ongoing monitoring to mitigate risks associated with foreign entities’ participation in critical programs. Moving forward, it is imperative that the U.S. government and regulatory bodies work together to strengthen safeguards and accountability mechanisms to protect against fraud and abuse.
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