Bounce Back Loan Fraud: A snapshot
There has been widespread speculation regarding the level of fraud arising from the government’s COVID Bounce Back Loan Scheme and the projected statistics make for grim reading.
What began as an effort to help small and medium sized businesses survive the pandemic, and ultimately led to £47bn of loans being issued, resulted according to some estimates in around 11% (£4.9bn) being potentially fraudulently obtained.
The post-mortem has become an unavoidably political issue, with questions being raised including the adequacy of the KYC undertaken by government backed banks, the role of organised crime in taking advantage of the nascent system, and the practical ability of counter-fraud agencies to pursue the missing monies.
From a legal perspective, there are various routes that may be open to enforcement agencies, in both the criminal and civil spheres. Although some of these are not without complication, it will be interesting to see - in a context where there is a reported disparity between the resources available to pursue these cases and the number of cases which require pursuing - which methods ultimately prove the most utilised and also the most effective. For example, when considering the criminal aspect there seems obvious potential for charges under s.2 of the Fraud Act 2006. In those circumstances, an offence will be committed where a person dishonestly makes a false representation, and intended, by making the representation to make a gain for themselves or another (or to cause loss to another or to expose another to a risk of loss).
This, or other similar offences, might be relevant in various circumstances, for example: (i) in cases of identity theft – where the identities of real people were stolen, fake companies set up in their name, and the maximum amount available (£50,000) claimed, (ii) where a legitimate company inflated their turnover in order to obtain a higher loan than they were entitled to (where loans were capped at 25% of turnover), and (iii) where companies who were not in fact adversely affected by the pandemic made a claim (where adverse impact was a pre-requisite for entitlement).
The first option - though clearly a fraud and likely to have been used by organised criminals - illustrates one of the difficulties of the pursuit. In order to charge the relevant parties to that crime, skilled (and potentially expensive) investigation may be required to ascertain the true perpetrators. The other two examples, though they would of course turn on specific facts, might present challenges to prosecutors in the context of a jury trial, where technical or factually complex defences arising from the world of accounting may be raised, and potentially be combined with equally intricate arguments seeking to counter the accusation of a dishonest mens rea.
At the time of writing there are examples of Account Freezing Orders under the Criminal Finance Act 2017 being obtained, and there are also reports of multiple arrests and a slew of imminent cases which are likely to be brought to court. These include a matter already in the system where an individual is accused of sending the proceeds of a bounce back loan to fund a terrorist group.
Moving away from the criminal sphere, significant progress appears to have been made already by another government arm through director disqualifications, bankruptcy restrictions, and winding up petitions.
Director disqualifications are useful tools as they prevent people from directly, or indirectly, becoming involved in the promotion, formation or management of a company, without the permission of the court (and so they can be used to target unsuitable directors). To date, the Insolvency Service has successfully achieved 106 director disqualifications and 48 bankruptcy restrictions. 13 companies have also been wound up in the public interest.
Overall, given the breadth of the apparent misconduct, the amount of public money involved, and the combination of various agencies and legal avenues which they might seek to take, it will be fascinating to see what lies ahead in a counter fraud landscape which is already highly political.
This article was originally published in the 4-5 Investigations and Resolutions e-brochure. The content is reflective of the landscape as at July 2022
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