COVID-19 Loans – Business Under Scrutiny

Syed Rahman, partner at financial crime specialists Rahman Ravelli, outlines why he expects more investigations into wrongdoing relating to COVID-19 loans – and the responsibilities facing businesses.

COVID-19 has now been the main news item for a solid year. So it was perhaps inevitable that the arrest of three financiers as part of an investigation into fraudulent coronavirus loans totalling £6 million would generate its own headlines.

Officers from the National Crime Agency’s (NCA’s) Complex Financial Crime Team apprehended the three men, then released them after searches and interviews and enquiries are continuing. While nothing has yet been proved, the NCA is believed to be looking into allegations relating to the use of false data and documents and trying to determine who – and how many – were actually involved in what went on.

At the time of writing, nobody has been charged with any offence in relation to the allegations. Decisions on whether to charge anybody will depend on how the NCA investigation progresses. But while we wait to see how this most newsworthy of NCA cases is concluded, it would be a huge surprise if we do not see many other similar ones commenced.

Even a senior NCA officer who was involved in the arrest of the three men has warned that the emergency COVID-19 schemes are being subjected to an “eye-watering” level of fraud. Coming from someone who is familiar with financial crime on a large scale, that is quite a comment. But even the briefest of glances at the statistics tends to back up the possibility that the assessment may be worryingly accurate.

Lending under the Bounce Back Loan (BBL) Scheme for small businesses rose to £44.74 billion as of January 24, from £43.54 billion in mid-December. Those who have had the time and opportunity to assess the movements of money involved have predicted that up to £26 billion could be lost, due to either defaults on the loans or through fraud.

Introduced in May 2020, the government’s loan scheme was devised to give small and medium-sized firms swift access to low-interest finance:

The conditions of a BBL scheme application are:

• One application per group. If a business owner has applied for loans for more than one business under common ownership or control, this would render the loan fraudulent.
• The business cannot have already received a loan under the Coronavirus Business Interruption Loan Scheme, or similar loan, unless the BBL is being used to refinance the initial loan.
• The BBL must not be used for personal use.
• The business must not be in default in relation to any other loan.

Given the immense sums of money involved, there will be many who saw the potential to make fraudulent gains, just as there is now an appetite among the authorities to investigate potential abuses of the scheme. It is a set of circumstances that makes it extremely likely that we will be reading about more arrests. The situation that has prompted the large-scale government lending is certainly unique. But the offences that those suspected of coronavirus loan fraud could be charged with were on the statute books long before any of us had ever heard of COVID-19. The Fraud Act 2006 contains a number of offences that may be relevant in relation to fraudulent applications for BBL. Section 2, which creates an offence of making false representations, and section 3, which creates an offence of fraud by abuse of position, are the most likely contenders.

Yet even if fraud was not the intention of businesses that have made a genuine mistake in making an incorrect claim, they may still face investigation. The UK government introduced the Finance Act 2020 in a bid to define the schemes and the support available to businesses during the pandemic. Schedule 16 of this act imposes a burden on businesses to notify HM Revenue and Customs (HMRC) of any awards that have been wrongly claimed. It is important to note that these wrongly-awarded sums do not have to be fraudulent. Any business, therefore, that may have made a claim for a BBL in error could still face the full force of the law if HMRC is not notified of the wrongly-made claim.

The offences that those suspected of coronavirus loan fraud could be charged with were on the statute books long before any of us had ever heard of COVID-19.

It is vitally important that all businesses understand that if they have made applications under any of the schemes then there is the strong possibility that they could come under an unprecedented amount of scrutiny. Businesses have to review all their applications and ensure that any mistakes are rectified. If concerns are raised as a result of such reviews – or an investigation is commenced – those involved have to seek immediate legal advice from those with the relevant expertise.