A few weeks ago we wrote about the increase in furlough fraud investigations. In tandem with investigating and prosecuting businesses that wrongly claimed funds from the Coronavirus Job Retention Scheme, Bounce Back Loans Fraud is also receiving significant attention and often fraud is uncovered via a probe by another regulator or government body.
In October 2021, the Traffic Commissioner for the West Midlands held a public inquiry into Mafuwer Logistics Ltd which was granted a standard international licence for three vehicles in December 2020. The Commissioner discovered that almost all the company’s capital came from a Bounce Back Loan, released in May 2020 even though the business’s turnover fell well short of the required threshold for applying for such assistance. Furthermore, the company’s bank statements showed that much of the Bounce Back Loan money had been used by the director for personal use.
Revoking the company’s licence, the Commissioner stated:
“This is not the first case I have come across where a bounce back loan appears to have been improperly obtained. I know that at the height of the pandemic banks did not always have the opportunity to check whether applicants qualified for the level of loan applied for. Nevertheless, if I find that companies or individuals have been untruthful about their turnover when applying for a loan, I will draw adverse conclusions about good repute.”
“I also warn against the tendency I have seen in some companies to fund personal expenditure from the company’s accounts. Directors may withdraw money from the company in only three ways: salary, dividends or a properly documented director’s loan (which must be repaid). They can’t just use the company debit card to fund personal shopping, holidays etc. This is tax evasion and will harm good repute.”
What is the extent of the Bounce Back Loan fraud?
The figures surrounding the extent of Bounce Back Loan fraud are astonishing. Launched in March 2020, the scheme was designed to provide businesses with capital to get them through the Coronavirus lockdown. The take-up was incredibly swift, with 860,000 loans being approved within the first six weeks.
Like any other finance, Bounce Back Loans were granted with certain conditions, including:
- A ‘group’ can only apply for one loan. If a director/s has control of several companies, applying for separate Bounce Back Loans can be deemed fraudulent.
- You must not have already received a loan under the Coronavirus Business Interruption Loan Scheme (‘CBILS’), the Coronavirus Large Business Interruption Loan Scheme (CLBILS’) or the COVID-19 Corporate Financing Facility (‘CCFF’) unless you are refinancing in full with a Bounce Back Loan.
- The funds from a Bounce Back Loan must be used to support trade and commercial activity. Using the money for personal use may be deemed fraudulent.
- If the business defaults on another loan, whether it is with the same lender or not, it will be deemed to have also defaulted on the Bounce Back Loan.
- Some alternative forms of funding such as mortgages, liens, or encumbrances over assets may be prohibited under the terms and conditions of the Bounce Back Loan.
The Department for Business, Energy, and Industrial Strategy (BEIS) estimates the Bounce Back Loan Scheme could cost the taxpayer £27 billion in fraud or credit losses, with the 100% taxpayer guarantee leaving the Department “reliant on banks that it admits lack incentives given it is not their money on the line”.
What are the types of fraud with Bounce Back Loans?
Two types of Bounce Back Loan Fraud have been identified by the Cabinet Office:
- Hard fraud – large scale fraud, often committed by organised criminal gangs. Examples include the impersonation of a legitimate business or person, submitting multiple fraudulent applications with different lenders, and using money mules to accept the loans and then filing for bankruptcy.
- Soft fraud – where an organisation exaggerated an aspect of their business to acquire a Bounce Back Loan, normally by way of inflating annual turnover figures.
Providing false information to obtain a loan may result in you being charged with:
- Fraud by false representation.
- Fraud by abuse of position.
- Conspiracy to defraud.
- False accounting.
- Money laundering.
Before pressing charges, the National Crime Agency (NCA), police, and/or HMRC will investigate your business and may search the premises and related documents such as bank accounts to see how the money was spent. You may also be asked to attend an interview under caution.
How can a Criminal Law Solicitor help me?
If you are being investigated on suspicion of Bounce Back Loans fraud it is imperative to contact a Criminal Fraud Solicitor. Not only will they ensure that the investigating body acts within their lawful boundaries, but they can also attend interviews under caution with you to ensure you do not inadvertently say something to incriminate yourself. Furthermore, they can start building a defence proactively so if prosecution proves inevitable, you are fully prepared and confident in your legal representation.
By engaging specialist fraud lawyers at an early stage of an investigation, or even before an investigation is commenced where there are concerns over potential liability, it is possible that it may result in a favourable settlement being reached with authorities without a prosecution being brought.