PETALUMA, CA--(Marketwired - Jul 8,2014) - According to the American Small Business League, the Small BusinessAdministration (SBA) has proposed a new policythat would create a "safe harbor" from penalties for large businessesthat have fraudulently misrepresented themselves to receive federal smallbusiness contracts.

Current federal lawmandates a penalty of up to 10 years in prison, a fine of up to $500,000 peroccurrence, or both, for firms that misrepresent themselves to receive federalsmall business contracts.

Under the new policy, large businessesthat were discovered committing contracting fraud could avoid any jail time orfines by simply claiming they "acted in good faith."

Although a series of federal investigations and investigative reports in the media have allfound rampant fraud in SBAmanaged programs, the SBA has consistently denied there was any fraud intheir programs. The new "safe harbor" policy is significant since itsignals the SBA's acknowledgement that a large number of firms currentlyclaiming to be small businesses to receive federal contracts may be doing so fraudulently.

Some law firms have alreadybegun issuing instructions to their clients on how to use the "safe harbor"loophole to avoid facing severe penalties for contracting fraud.

Every year since 2005 the SBA Inspector General has reportedthe diversion of federal small business contracts to large businesses as the number one problem at the agency. The SBA hasrefused to adopt policies to halt the fraud. In addition to attempting toprotect fraudulent firms that SBA has continued to increase size standards toallow larger and larger firms to quality as smallbusinesses.

The Government Accountability Office(GAO) investigated the SBA and released Report 10-108 that essentially accusedthe SBA of encouraging fraud among government contractors.

Report 10-108 stated, "By failing to hold firmsaccountable, SBA and contracting agencies have sent a message to thecontracting community that there is no punishment or consequences forcommitting fraud."

Critics of the "safe harbor"policy believe the GAO was correct and the SBA is attempting to create a majorloophole in federal law that will ultimately encourage fraud. In doing so theSBA can continue to misrepresent the percentage of federal contracts awarded tosmall businesses by continuing to include thousands of large businesses intheir small business contracting statistics.

The American Small Business League (ASBL)has launched a national campaign to block the new "safe harbor" policy from takingeffect and has pledged to seek an injunction in Federal District Court in SanFrancisco if the SBA does adopt the policy protecting fraudulent firms.

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