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Tackling COVID-19 fraud – an opportunity for public and private sector collaboration

Posted on 8 June 2022

All medicines can cause unwanted side effects. The same can be said of the UK Government's remedies to combat the economic effects of COVID-19, which have given rise to a secondary infection: COVID-19 fraud. While an estimated £75 billion in financial support was given to around a quarter of all businesses across the UK through the Government's support schemes, fraudsters took advantage of this stimulus funding for their own gain.

The package of support developed under Chancellor Rishi Sunak included, for example, the Bounceback Loan Scheme (BBLS), which made 1.6 million loans to small businesses, of up to £50,000 or 25% of annual turnover. The loans were given by banks but guaranteed by the Government and implemented with Ministerial direction to override the usual due diligence requirements. This lack of due diligence made it easy for the loans to be fraudulently claimed. Loans were obtained by over 1,000 companies that had already been dissolved and by 1,500 companies incorporated after the pandemic began, presumably to take advantage of the scheme. In other instances, fraudsters were able to claim multiple loans. Out of the £10.8 billion that Barclays lent under BBLS, comprising 347,414 approved loans, 1,500 loans were found to be duplicates.

As a result, despite the relatively small value of the individual loans advanced further to the BBLS, fraudulent claims under the scheme have astonishingly left the taxpayer with an estimated bill of £4.9 billion. The most recent report from the Public Accounts Committee published this month suggests that fraud and error resulted in losses of between £12.4 billion and £20.1 billion across the COVID-19 support schemes, yet it is still too soon to see the true extent of loss "as assessments catch up with payments made".

To fight fraud, it is necessary to identify the fraudsters and track down the funds that they have stolen. The sooner this is done, the higher the prospects of making recoveries. Following sharp criticism of the Government's effort to recover the billions lost to fraud under the schemes, the Treasury has announced that it will spend £25 million on recruiting a counter-fraud taskforce to focus on this recovery effort, to be named the Public Sector Fraud Authority. Rishi Sunak revealed that the new taskforce will be up and running by July 2022. It will include leading data analytics experts and economic crime investigators, using the latest counter-fraud techniques to track down fraudsters and their ill-gotten gains. Details of the team recruited is to follow in the coming weeks. Is this, however, too little, too late? In many cases, the money will already be gone.

The taskforce signals a reversal in the Government's approach, having previously said that it intended to write off £4.3 billion fraudulently stolen under a number of the Government's COVID-19 support schemes. This reversal reflects the growing public outcry and dissent among Government MPs. This includes Lord Theodore Agnew, the former Treasury minister, resigning over the Government's handling of COVID-19 fraud in January 2022. In the face of mounting pressure on the Government, a renewed political will has clearly emerged to tackle fraud head on.

However, scepticism remains as to whether the taskforce will be the antidote required. While combatting fraud has always been part of the UK Government's policies, the differing political agendas of consecutive governments and the interplay between various government departments has meant that it has not been prioritised. In part, this has often been down to the limitations that are inherent within the public sector.

First, the costs involved in recovery can be disproportionate to the value of a particular claim. This is certainly true in the case of BBLS loans, where recovery costs are likely to exceed the £50,000 value of any single fraudulent loan. Secondly, the recovery of funds which have been spent or moved out of the country will make the asset recovery process more complex and expensive. Given that two years have now passed since the schemes were first implemented, it is likely that the taskforce will face extra costs pursuing individuals and assets across international borders and will find it much harder to recover assets. Thirdly, the Government has thus far lacked the resources to tackle high volumes of fraud. For example, it was found that the National Investigation Service (NATIS), an existing investigative unit that protects the public sector from organised crime, only had the capacity to pursue 50 cases a year. The sheer scale of fraud under the Government support schemes must therefore call into question whether the taskforce alone is likely to have the capacity or resources required to be effective and deliver meaningful progress.

An answer to these limitations may therefore lie in the potential for collaboration between the public and private sectors. The taskforce and the Government's Economic Crime Plan 2019-2022 are clear signals of the Government's recognition of this. The plan outlines the Government's objectives, which include a focus on information sharing between public and private sector organisations. However, arguably the plan takes a high-level approach to public-private collaboration and fails to address the practicalities of how the private sector's key attributes can be used advantageously to tackle public sector fraud in a way that does not expose the Government to the criticism that it is not up to task or has lost control of this key policy imperative.

So what exactly can the private sector bring to the table?

When facing such a high volume of multi-jurisdictional fraud cases, the Government alone does not have enough of the relevant expertise, resource or the risk appetite to identify, trace and recover assets across so many cases, particularly when there is a need to engage in multiple jurisdictions. Yet collaboration is already an entrenched feature of the private sector's approach to combatting fraud and recovering misappropriated assets, with data routinely shared between organisations to enhance detection and tracing strategies. The private ecosystem that collaborates to combat international fraud includes specialist international lawyers, forensic accountants, investigators, insurers and litigation funders. All know the value that each other brings to the table and are adept at working together to maximise the prospects of success.

The private sector is also more experienced in deploying different technologies, such as AI and digital investigative capabilities, to speed up investigative processes and reduce costs. This is particularly helpful in complex fraud cases, where rapid action is required to unpick the sophisticated infrastructure used by fraudsters to defraud their victims and obscure the location of stolen assets. Notably, in October 2021 the Government selected Quantexa, a network analytics provider, to help detect fraud in the COVID-19 loan schemes, which is unquestionably a positive step towards cross-sector collaboration. However, it is unclear whether the Government has made sufficient use of Quantexa's capabilities or plans to expand the scope to involve other partnerships. 

There will inevitably be cases where the public interest is clearly in favour of prosecution through the criminal justice system, with confiscation and compensation orders hopefully following a successful outcome. That approach is not, however, without its risks, given the higher standard of proof, coupled with the fact that asset recovery is not the primary object of a criminal case. For those reasons and more, the potential scope for utilising the civil courts to tackle public sector fraud has been explored by Professor Jason Sharman of the University of Cambridge in a report due to be published in June 2022. Advantages include the lower standard of proof required by civil law, as well as expanding the pool of potential targets to include professional intermediaries who facilitate fraudulent activity, thereby increasing the scope for financial recovery, as well as for deterrence. Indeed, almost all successful cases of recovering proceeds from fraudsters residing abroad have occurred through civil law actions. This is likely a result of the range of tools available in civil law matters to seize and freeze assets and secure evidence whilst the case is prepared for trial. A number of private sector entities are also suited to operating international investigations with their own overseas network of offices, and international staff members with necessary language skills. In addition, whilst public bodies are often reluctant to pursue civil law cases due to the potential costs and associated risks, law firms in particular are not deterred by the financing of such claims and are able to call upon litigation financing facilities. These enable a 'claim rich, cash poor' victim to pursue its legal rights. Collaboration would enable the public sector to take advantage of the opportunities available within the network of private sector anti-fraud specialists.

Attitudes are clearly changing and the UK is strengthening its rhetoric on economic crime, with the creation of the taskforce a potentially positive signal. Additionally, according to the Government the impending second Economic Crime Bill will "crack down on illicit finance and strengthen the UK's reputation as a place where legitimate businesses can grow". Importantly, this includes a focus on information sharing measures to enable "businesses in the financial sector to share information more effectively".

Fraud is complex, widespread and inherently difficult to tackle in practice. The scope for collaboration should be widened even further, including through greater engagement with all areas of the private anti-fraud and asset recovery sector. By working together to tackle fraud carried out against the Government COVID-19 support schemes, the sum of those efforts will unquestionably have an even greater impact on the recovery of losses. These efforts would also serve as a strong deterrent against future wrongdoing and help restore public confidence in the UK's counter-fraud strategies.

Professor Jason Sharman's report "Time for Change? The Practicalities of Public-Private Collaboration Against Financial Crime", was produced as part of Mishcon de Reya's "Dishonesty Uncovered" thought leadership campaign.

Professor Sharman and a panel of fraud experts and investigators will explore this topic at an event on Thursday 16 June 2022.

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