It has been widely reported that numerous regulatory agencies are investigating potential fraudulent claims arising out of Government funding during the pandemic. One loan scheme which is attracting particular focus from the agencies is the Bounce Back Loan Scheme.
What is the Bounce Bank Loan Scheme?
In April 2020, the Government set up the Bounce Bank Loan Scheme (‘Scheme’), a fund to assist small and medium sized businesses access finance more quickly during the Covid-19 pandemic. The loans, of up to £50,000, were 100% State backed and had no interest charged or repayment required within the first twelve months. The Scheme was particularly enticing as, following the initial 12 month period interest free period, the interest rate remains at 2.5% for the life of the loan and the borrower has 6 years to repay the loan, extendable to 10 years.
There were 29 lenders participating in the Scheme, including many of the main retail lenders. The application process was designed to be quick and could be applied for online. The main criteria for a business to be eligible were:
- the business must be based in the UK;
- it had to have been established before March 2020; and
- it must have been adversely affected by pandemic.
The uptake for these loans was substantial. According to HM Treasury, as of May 2021, over 2 million loans under the Scheme had been applied for. Of these, 1,560,309 were approved. This gave a total of the Government-backed loans approved and paid out as being £47.36 billion.
Why is the Scheme being investigated?
When the Scheme was first launched, the primary purpose was to give small businesses rapid access to finance to help them survive the economic impact of the pandemic. The need for speedy delivery perhaps resulted in applications not being as closely scrutinised as they could have been, and this has left the Scheme open to abuse. The Department of Business, Energy and Industrial Standards estimates it could lose up to £27 billion through fraud or poor credit issues on the Bounce Back Loan Scheme. This is a massive loss to the public purse.
Who is investigating suspicions of fraud?
At the end of 2020, the National Crime Agency had commenced investigations into suspected fraud of the Scheme. Their first arrests came in October 2020. They have continued in their quest to pick out suspected fraudsters, and in their 2020/2021 accounts, published in July, the NCA confirmed that they had increased intelligence and investigative capability which allowed the Agency to pivot resources to focus on fraud targeting the Scheme, leading to 13 arrests, as of 31 March 2021.
In March 2021, Chancellor Rishi Sunak announced the creation of a HMRC taskforce to crack down on those defrauding the Covid support schemes. It was reported that the taskforce would be staffed by more than 1,250 employees.
In addition, the Insolvency Service will be granted powers to investigate Bounce Back Loan fraud in cases where the company has been dissolved: and the City of London Police open investigations are growing month on month.
It was recently reported that the Government had retained the services of a company, Quantexa, who specialise in developing network analytics tools for the detection and prevention of financial crime to assist in tracking down those who have used the Scheme for fraudulent purposes.
The penalty if convicted of fraud
The consequences for you if you are convicted of fraud are very severe. Not only will you have a criminal record: but the sentencing options available range from a fine, to a lengthy custodial sentence. Confiscation proceedings are likely to follow any conviction and the courts also has the power to disqualify you as a director. There is, of course, massive reputational damage to you as an individual, and to your business.
How can we help?
There is going to be a lot of scrutiny over the applications submitted for loans under the Scheme and it is clear that various investigating agencies are investing substantial time and money into interrogating the application process for these loans. It is important to bear in mind that simply being investigated does not mean that you have acted dishonestly in obtaining funds, and are guilty of an offence. There will be applications involving innocent errors which can be explained, and other applications which, on review, were completely legitimate.
If you have any concern that your application may have been made in error, now is the time to act to protect your position. We are able to assist in reviewing your application and advise you on any possible next steps that you need to take. Bear in mind that your communications with a solicitor are legally privileged – we are unique amongst other professionals in that the Courts (and the regulatory agencies) are not entitled to see our advice to you, so you can have an open discussion with us without any reservations.
If you are under investigation, or believe that you may be under investigation, it is important that you are legally represented to ensure that you receive the right advice, at an early stage, so that the best possible outcome is achieved for you and your business. Don’t wait for the knock on the door: if you are in any doubt, we can provide advice prior to your being contacted by an investigator, to ensure that you are prepared for what may come next. Our experience is that early engagement will pay dividends for you.
For more information please see our Fraud and Financial Crime services page