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Banks and the NCA warn about the fraudulent abuse of the COVID-19 bounce back loan scheme

Posted on 14 December 2020

Recent data from the British Business Bank has shown that lenders have blocked nearly 27,000 suspicious loan requests under the Bounce Bank Loan Scheme ("BBLS"). In connection with this, recent banking sector data suggests that that up to 55% of applications for business accounts are potentially fraudulent. This has prompted increased scrutiny from the NCA and forced lenders to shut up shop and start turning away new applicants for business accounts. 

Bounce Bank Loan Scheme

The BBLS was established in April 2020 to enable small and medium UK businesses adversely affected by the impact of COVID-19 to have easier access to finance in order to help them survive the pandemic.  Under the scheme, UK businesses set up before1 March 2020 have until 31 January 2021 to apply to borrow between £2,000 and up to 25% of their turnover (to a maximum of £50,000).  These loans are ordinarily granted within 24 to 72 hours, no repayments are due in the first 12 months and the loans are 100% guaranteed by the Government. To date approximately 1.4 million loans have been granted, totalling over £42 billion. The BBLS is operated by the British Business Bank.

Risk of fraud

Prior to the implementation of the BBLS the British Business Bank commissioned PwC to review the scheme. PwC described the risk of fraud as "very high", prompting the CEO of the British Business Bank to write to the Business Secretary, Alok Sharma, to highlight the vulnerability of the scheme to fraud and organised crime. Former SFO director Rosalind Wright and groups such as the Fraud Advisory Panel, Spotlight on Corruption and Transparency International raised similar concerns about the BBLS in a letter. Last month, the British Business Bank wrote to the House of Commons Public Accounts Committee, to reiterate their concerns.

Recent data suggests that these concerns were well-founded. As previously mentioned, lenders have blocked 26,933 suspicious loan requests, with a total value exceeding £1.1 billion.. The National Audit Office have reported that up to £26 billion of the bounce back loans may have to be written off due to frauds and defaults, and as they are guaranteed by the Government this bill will be footed by the taxpayer.

The response by banks and law enforcement

As a result of these concerns a number of banks (including HSBC, NatWest, Lloyds Banking Group, Virgin Money and Metro Bank) have confirmed that they are no longer accepting  applications from new business customers. Barclays is not offering any appointments for new business accounts until February due to high demand. Only NatWest, which is 62% owned by the Government, will be open for applications before Christmas. The banking sector is so concerned by BBLS fraud that they are also asking those applying for buy-to-let mortgages whether they have taken out a bounce bank loan. 

The National Crime Agency ("NCA") have said that they are working with the banking sector and other agencies to try to crack down on BBLS fraud. An NCA representative stated: "Our intelligence suggests that the bounceback loan scheme is being exploited, including by organised criminals. On the basis of our assessments, we have provided red flag indicators to the banking sector to aid their detection of fraudulent applications. We are providing intelligence to assist partner investigations, and we will investigate cases ourselves where there is a serious and organised crime element."

Potential offences

The eligibility of applicants for the BBLS are assessed by lenders based on a short online form, which applicants are asked to self-certify. Providing misleading information or failing to provide information may give rise to a potential offence of fraud.

It has been reported that organised crime groups have been incorporating fake companies, solely for the purpose of obtaining loans under the BBLS. In July, two men were arrested in respect of such a scam, worth approximately £500,000.  The number of new companies incorporated with Companies House doubled in the early months of the BBLS, suggesting that this issue may be widespread. Any companies or individuals involved in such conduct may have committed criminal offences under the Fraud Act 2006, the Proceeds of Crime Act 2002 and the Money Laundering Regulations.

Next Steps

It is apparent that banks are increasingly wary of the BBLS and that companies and individuals who have made use of the scheme may end up on the radar of the NCA and/or other agencies.

Businesses who have made use of the BBLS should ensure that accurate information was provided and, if necessary, legal advice should be sought. The level of scrutiny over the scheme is likely to be very high, in circumstances where any fraudulently obtained funds came from the public purse. The potential legal and reputational ramifications arising from such conduct seem likely to be severe. 

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