Earlier this year, the British Insolvency Service banned a businessman from becoming a company manager after he overestimated the income of a car recovery company to take out a 50 50,000 loan from Covid’s government “rebound” lending program. Spend half the loan on a truck and the rest on Class A drugs.
He was not the only one who found it easy to take advantage of the Covid government’s flagship loan program. Others included a student at Scunthorpe who applied for a 50 50,000 loan for a used car dealership that did not exist, and a Bolton restaurant that secured a 50 50,000 loan even though his business had stopped trading several months earlier, had no facilities and was already .000 96,000.
The recovery plan was created to help businesses survive the pandemic, with the government guaranteeing loans of up to 50 50,000. However, up to 9 4.9 billion of the 47 47 billion δ banks lent to 1.1 million companies between May 2020 and March 2021 were lost to fraudsters, according to government estimates.
The program was created by the British Business Bank, which reports to the business department, with minimal checks on borrowers, as employees were pressured to help businesses as soon as possible.
“Borrow hastily, repent freely,” a government official said in the aftermath of a series of hearings in which lawmakers sought answers from officials, bankers and regulators about how so much could have been lost so easily.
Earlier this year, Chancellor Risi Sunak promised that the government “will do everything it can to get this money back and prosecute those who took advantage of the pandemic.”
However, experts warn that the sheer scale of the scam makes it difficult. “The scale of the crime is so great that the authorities do not have the capacity to investigate it,” said David Clark, a former head of the London City Police Fraud Team and an anti-fraud expert.
High-profile cases have focused on recovering money from organized criminals who have assets that can be seized by the courts. But many of the scammers are either business owners or landlords who have greatly inflated their business income to claim the 50 50,000 maximum loan from their banks.
Instead of being prosecuted by the courts, they are simply excluded and banned as company directors, with the government relying on the Insolvency Service to prosecute them.
Members of the Commons Public Accounts Committee warned in December that the government’s focus on pursuing large-scale and organized crime was in danger of leaving the youngest swindlers unpunished.
The National Audit Office said the scale of the scam and the government’s limited capacity meant that officials decided not to focus “investigative resources” on smaller borrowers who had overestimated their turnover by less than 25%.
The NAO also found that the National Bureau of Investigation, a research unit that protects the public sector from organized crime, had the capacity to track only 50 cases a year and its operations department aimed to recover just 6 6m from fraudulent loans. for three years – a fraction of the estimated losses.
Michael Levy, a fraud expert and professor of criminology at Cardiff University, warned that incompetence meant many scammers would avoid prosecution. “Just think what increase in fraud investigators and prosecutors and the availability of courts would be needed to bring about a significant change in that,” he said.
Lord Theodore Agnew, who resigned as anti-fraud minister in January in protest of the system’s losses, has spearheaded efforts to encourage banks, officials and the British Business Bank to do more to get money back.
Bank officials told lawmakers at a recent hearing that hundreds more people were being recruited in fraud prevention and recovery teams, but the NAO said that “commercial incentives for [investigate] are “limited” for “middle tier” and “lower tier” fraud, as banks can claim back loans through the state guarantee.
Lord Agniu also questioned the banks’ incentive to expose fraudulent payments. “There is absolutely no alignment of interests,” he said. “Once the bail is paid, they are expected to continue hunting for another year. So why bother doing that? “
Lenders claim to have prevented more than Fraudulent applications of 2 2 billion and had identified fraudulent loans of ,3 5.3 million, according to the NAO.
Executives at five banks – NatWest, Barclays, Lloyds, Santander and HSBC – told lawmakers last month that fraud rates on their loan portfolios were much lower than government estimates suggest. They said they had done everything they could to prevent fraud in the short time given to them to set up the program by officials under pressure to help businesses start the pandemic.
“In the first four weeks, we borrowed for six years,” Hannah Bernard, head of business banking at Barclays UK, told lawmakers. “The upside-down loan was a lifeline for huge business groups.”
The business department said: “Covid support programs have been implemented with unprecedented speed to protect millions of jobs and businesses at a time when families needed it most. Last year, lenders said they had prevented a possible 2, 2.2 billion fraud from the loan bounce program.
“We continue to work to combat fraud and we will not tolerate those who seek to deceive consumers and taxpayers.”
However, bank executives are worried that they will be brought under increasing control as more cases of fraud occur. Guarantees are being delayed as British Business Bank and government officials scrutinize banks’ claims, industry officials say. RSM and KPMG have been appointed to oversee the way in which banks make their claims.
“It’s such a sensitive issue now. We just do not yet know the true level of fraud. “It’s day by day,” said one.
Banks had asked for 70 70m in government guarantees for unpaid loans by the end of December and say they have already withdrawn thousands of 240 240m worth of collateral claims due to mistakes they made and allowed fraud and error.
Lenders argue that the government should be careful to throw them “under the bus.” “At the beginning of Covid we all went to a meeting with the chancellor in his office, he took a group photo of us,” said a bank manager.
“The game of responsibility will begin now. Remember our MPs begged us to save businesses in their communities. It’s very frustrating. . . Of course we knew that there would be fraud, but he answered the call of the deputies who asked us to borrow “.