Investigations into coronavirus loan fraud begins, with 11 cases reported to Action Fraud
Investigations into suspected fraud targeting the Government’s coronavirus emergency loan schemes have begun, with 11 reports of fraud to the City of London Police via Action Fraud says RPC, the City-headquartered law firm.
Of the fraud reports filed with Action Fraud, the UK’s national reporting centre for fraud, 9 relate to suspected fraud targeting the Bounce-back Loan Scheme (BBLS), whilst 2 relate to the Coronavirus Business Interruption Loan Scheme (CBILS). Under BBLS, small business owners can apply for 100% Government-backed loans of up to £50,000.
Due to pressure to get money to struggling businesses as quickly as possible, lenders, who were also experiencing pressure to keep their clients afloat, were instructed and perhaps even incentivised to carry out only light checks on borrowers. RPC says that banks should be mindful of potential questions of corporate liability that may arise from their facilitation of stolen funds by companies who were forced to take loans to sure up their balance sheets.
It is believed that organised crime gangs may have claimed Bounce Back Loans on behalf of bogus companies, whereas other individuals have channelled funds into cryptocurrencies. BBLS is believed to have been targeted the most by fraudsters due to its reliance on businesses self-certification to determine eligibility.
Authorities have already been active in pursuing suspected fraudsters. Two men in North London were arrested in July for fraudulent applications made under BBLS. The police have also obtained 10 Account Freezing Orders to prevent suspects from accessing accounts that have funds in excess of £550,000.
Despite the lower controls in place for BBLS making it a prime target for fraudsters, due to the relatively low value of loans, it is expected that many fraud cases will go undetected. This gives rise to questions about the potential abuse of larger bounce back schemes, some of which offered support of up to £1bn to big business and were not subject to any controls regarding the transfer of funds to overseas entities.
The National Audit Office estimates that UK taxpayers will lose out on between £15bn to £26bn paid out through BBLS, as a result of fraud and businesses defaulting on loans. This accounts for 60% of the total amount of money paid out through the scheme.
Emily Pica, Associate at RPC says: “Due to the extraordinary circumstances of the pandemic, Bounce Back Loans, in particular, have been wide open to fraud. Opportunistic fraudsters have apparently found it fairly easy to abuse the scheme.”
Sam Tate, Partner at RPC says: “The Serious Fraud Office and HMRC will be determined to crack down on large-scale fraud involving millions of pounds, but many cases of BBLS fraud will likely slip through the net.”
“Even with the value of each loan capped at £50,000, the widespread abuse of bounce-back loans means the losses will be substantial. This will come at the taxpayers’ expense and larger loans are even more worrying.”