Prosecutions of company directors who fraudulently took out Government-backed loans offered as financial support during the pandemic have surged by 205%.
By 30 September, the number of company directors convicted of criminal activity was 122, whereas, for the same period a year ago, it was just 40. It is expected the numbers will rise yet further as the Insolvency Service and National Crime Agency continue to step up investigations.
Businesses across the UK and of all sizes benefited from the low-interest loan facilities, which were offered by a range of accredited lenders, and aimed at helping firms survive lockdowns and the economic shock. Because there were government guarantees, lenders were far more willing to lend than on normal commercial terms.
These included the Coronavirus Business Interruption Loan Scheme which allowed firms to borrow up to £5 million if their business had been affected by Covid-19. There was a limited form of personal guarantee that could only be included in terms of facilities above £250,000 but capped at a maximum of 20% and the main residence could not be used as security.
The Bounce Back Loan scheme was aimed at small businesses, allowing them to borrow between £25,000 and £50,000 depending on turnover. These loans had no interest payable for the first 12 months, followed by a 2.5% interest rate.
Was fraud allowed to happen?
To avoid widespread business failure during the start of the pandemic, the government sought to act swiftly to ensure there was access to finance. Although lenders did implement a range of checks on customers’ identities and used some anti-money laundering controls, it is believed these were insufficient and fraudulent activity was widespread. Customers were allowed to borrow from lenders they had no prior relationship with and business information was largely given on a self-certification basis.
There is now growing evidence that some directors used the funds for personal use, which was explicitly forbidden in the terms of the loans. Reports have said this included buying luxury items, while others paid off personal creditors.
The National Audit Office has estimated that up to 60% off bounce back loan claims could be fraudulent and it is understood that banks are also looking into cases more carefully. HSBC, NatWest, Barclays and Lloyds are among those which have started freezing accounts and asking for loans to be repaid immediately if they suspect fraud.
The Office for Budget Responsibility has said there could be a £29.5 billion bill caused by defaults and because the government promised to meet the cost of bad debts, the final bill will end up being met by the taxpayer.