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Impact of ‘Bounce-Back’ loan fraud

Author: Daniel White
Date: November 2020

The introduction of the UK’s bounce-back loan system, created in the wake of the Covid-19 pandemic, was welcomed for many smaller-to-medium sized businesses struggling with the impact of lost trade.

Through the scheme, launched in April 2020, businesses are being offered up to £50,000 in the government-backed financial package, with demand massively outstripping expectations.

Original estimates expected the total value of the bounce-back loan scheme to be around £18-26bn, however the total value of the loans is now anticipated to be £38-48bn, which could help up to 830,000 SMEs.

The danger of such a wide-reaching and popular system, created in a short time, is the possibility of it being taken advantage of by fraudsters.

The impact of fraud on the scheme was quickly obvious, with an assessment from the National Audit Office (NAO) revealing that taxpayers could lose up to £26bn due to fraud, organised crime or non-payment.

Losses are anticipated to be “significantly above” what would be expected for public sector fraud (around 0.5-5%), which does not include some government estimates that almost 60% of the loans could be defaulted.

Figures released by The Treasury in early October revealed that 1.26 million of the 1.55 million applications had been accepted.

Numerous examples of small companies and individuals being targeted have highlighted the fragility of the scheme, placing many in further danger of financial jeopardy in an already uncertain time.

An investigation by the BBC uncovered a string of sham companies set up by fraudsters, with more than 100 receiving the full £50,000 pay out.

Personal details of victims were stolen in order to set up phoney firms, with many targets totally unaware and would not have been informed until they were expected to begin repaying the loans in the summer of 2021.

How criminals have taken advantage:

  • Organised crime syndicates use stolen personal details, buying them on criminal forums or using phishing emails
  • a bogus business is then created in that name.
  • Bounce Back Loan is requested after the opening of a business account through the same bank.

Although arrests are beginning to be made, many charged through The Fraud Act 2006, better security measures at the beginning could have circumvented the problem, with automation alleviating many of the thousands of manual checks that needed to be done in such a short space of time.

Scout™ is producing profiles on individuals and businesses in 60 seconds, with the ability to run thousands of reports concurrently, alleviating backlogs in workload or improving the processes of companies in a range of verticals.

References

https://www.nao.org.uk/press-release/investigation-into-the-bounce-back-loan-scheme/

https://www.bbc.co.uk/news/uk-54187581

https://www.gov.uk/government/collections/hm-treasury-coronavirus-covid-19-business-loan-scheme-statistics#Bounce-Back-Loan-Scheme

Daniel White
Daniel Co-Founded Synalogik Innovative Solutions in 2018 with individuals who came from intelligence, policing and military (UKSF) backgrounds. Daniel has practised for 18 years as a barrister in Citadel Chambers, after studying law at Birmingham University. He specialises in sports and criminal law; in particular the prosecution of serious and grave offences. Daniel is also a Judicial Officer for the RFU, Six Nations and World Rugby.