News |Investigations

14th October 2021

Bounce Back Loan fraud

The Bounce Back Loan Scheme (BBLS) has helped businesses access financial aid in order to stay afloat during the Covid-19 pandemic.

During the height of the pandemic, specifically from May 2020 to March 2021, the UK government offered businesses loans worth up to £50,000. The loans were capped at 25% turnover, with a 2.5% interest rate, but with the first 12 months interest-free.

More than 1.5 million businesses have made use of the BBLS from claims that operations were at risk as a result of lockdown measures. The government scheme intended to keep companies profitable, as well as saving employee jobs during a difficult pandemic period.

The loans came with a 100% government guarantee; although banks issued the capital, any losses would be repaid by taxpayer money.

The loans being government-backed meant that some people thought their personal risk exposure was low and that there wouldn’t be direct consequences to taking out a fraudulent loan, so many individuals sought to claim money from the scheme under false application.

Although the scheme has rejected thousands of fraudulent claims, banks were not able to always confirm if applicants qualified for the level of loan applied for. Many individuals have improperly obtained funds by carrying out Bounce Back Loan fraud, contributing to an estimate that nearly half of the £46.5 billion borrowed during the pandemic will not be repaid.

A parliamentary report, published by the Public Accounts Committee, commented that the scheme prioritised speed rather than precision, resulting in higher risk of fraud and error.

When making an application, companies had to self-declare their earnings and turnover, making room for dishonesty and fraud. The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, if passed, will allow HMRC to chase up on directors who improperly dissolved their companies, leaving debts behind, such as those from Bounce Back Loans.

The potential consequences of Bounce Back Loan Scheme fraud

Directors will be disqualified if they are found to have committed acts of misfeasance or breached their duties as a director, and will be liable to prosecution. In some cases, company employees might have made fraudulent applications on behalf of senior staff, which would require further investigation as the consequences could be prison time. In other cases, individuals set up fake businesses in order to obtain a Bounce Back Loan, with the money then being used to make a high-value purchase unrelated to the business.

The National Crime Agency (NCA) has reported numerous arrests for Bounce Back Loan fraud. One instance is in the case of Mafuwer Logistics Ltd. The company received a £50,000 Bounce Back Loan in May 2020, despite their turnover being below the£200,000 necessary to qualify. Their bank statements showed a personal use of funds by the director, so their licence was revoked immediately.

The NCA has also said that it intends to aid the banking sector in detecting fraudulent applications. Individual banks need to tackle the problem so that each individual loan has been monitored and approved, to avoid bad actors receiving the loan.

The 5 types of fraudulent activity are:

  1. When borrowers exaggerate otherwise legitimate claims, for instance by exaggerating their turnover to receive a larger loan.
  2. The impersonation of a legitimate business to receive a loan.
  3. Using ‘money mules’ to take out loans and then file for bankruptcy.
  4. Making multiple applications via various lenders.
  5. Filing under a false company to receive the loan.

To address BBL fraud, investigators may seek warrants to search buildings to aid their investigation. They may also interview suspects that have been linked to the situation. Anyone found guilty of this type of fraud may receive orders including fines, compensation and confiscation orders, director’s disqualification, Serious Crime Prevent Orders (SCPO) or imprisonment.

Fraud investigations by ESA Risk

If you suspect that a fraud has occurred within your business and need advice or support on the next steps, we’re here to help.

Contact Mike Wright, Risk Management & Investigations Consultant, at mike.wright@esarisk.com, on +44 (0)843 515 8686 or via our contact form, to find out more.

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