Fraudsters stole £4.9bn from Bounce Back Loan scheme, watchdog finds

Covid fraudsters stole £4.9bn from Bounce Back Loan scheme after government took a month to put in basic checks once £28bn had already been paid out, watchdog report finds

  • Fraudsters have stolen nearly £5billion from the Government’s Covid Bounce Back Loan scheme 
  • Spending watchdog said basic anti-fraud measures were ‘inadequate’ and implemented ‘too slowly’
  • Checks to stop firms applying for more than one loan were put in place a month after scheme was launched
  • By then, more than £28billion had already been paid out and estimated fraud levels were ‘high’ 
  • MPs heard Ministers knew six in ten bounce-back loans might never be repaid but was ‘risk worth taking’

What was the Bounce Back Loan scheme? And what did the spending watchdog find?

What was the Government’s coronavirus Bounce Back Loan scheme?

As well as furlough support, companies were able to claim money from the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), which was aimed at small companies.

The pressures the Government faced to rapidly hand out Covid loans meant that banks did not carry out some standard checks before they granted the loans. 

BBLS provided up to £50,000 to small firms, with most cash going to companies with fewer than ten employees. 

The Government has underwritten 80 per cent of all CBILS loans and 100 per cent of BBLS lending – though banks will probably need to exhaust all their options before asking the taxpayer.

Some lenders have already started paying to have companies reinstated on Companies House in an attempt to recover the debt.

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes. 

What did the National Audit Office find?

The spending watchdog found that fraudsters stole billions through the scheme.

The NAO found that the Government had acted too slowly to implement basic anti-fraud measures and that these checks were ‘inadequate’.

The Government knew the risks as it launched the scheme, but had to weigh them against the consequences of not getting money to businesses rapidly, the spending watchdog added.

Checks to ensure that a company was not applying for more than one bounce back loan were not put in place until June 2020, a month after the scheme was launched, according to a report by the National Audit Office.

By then, 61 per cent of the money that was to be lent under the scheme had already been paid out to businesses.

Other counter-fraud activities did not begin until September 2020 as the Government focused on getting out the loans to support struggling companies.

Auditing giant PwC, which has been hired by the Government, has estimated 7.5 per cent of loans might be lost to fraud, at a potential £3.5billion cost to the taxpayer. However, the report notes that the Government estimated fraudulent loans were worth £4.9billion, 11 per cent of the total, as of March.

Fraudsters have stolen nearly £5billion from the Government’s Covid Bounce Back Loan scheme because basic anti-fraud measures were ‘inadequate’ and were only put in place once more than £28billion had already been paid out, the spending watchdog has said.

Checks to ensure that companies were not applying for more than one bounce back loan were not put in place until June 2020, a month after Chancellor Rishi Sunak launched the scheme, according to a damning report by the National Audit Office. 

By then, 61 per cent of the money that was to be lent out in total under the Covid programme had already been paid out to businesses. 

Other counter-fraud activities did not begin until September 2020 as the Government focused on getting out the loans to support businesses that were struggling during the pandemic. 

Under Mr Sunak’s scheme, firms can borrow up to £50,000 interest-free for 12 months, with the loan guaranteed by the Government. It has been a lifeline for small firms, but has also provided rich pickings for fraudsters who disappear, leaving the taxpayer to reimburse banks.

Con artists set up dormant companies and use them as a front to claim money under the Bounce Back Loan Scheme, then close the firms and vanish. 

To make a successful application under the scheme, fraudsters have to convince a lender that their company was registered before April 2020 and is still operating. That has created a lucrative market in dormant firms.

In its report, the NAO said the Government estimated that more than a third of loans, worth £17billion, may never be repaid due to both fraudulent activity and legitimate borrowers defaulting. 

Auditing giant PwC, which has been hired by the Government, has estimated 7.5 per cent of loans might be lost to fraud, at a potential £3.5billion cost to the taxpayer. However, the report notes that the Government estimated fraudulent loans were worth £4.9billion as of March.

The Government knew the risks as it launched the scheme, but had to weigh them against the consequences of not getting money to businesses rapidly, the spending watchdog added. 

‘Government prioritised getting bounce back loans to small businesses quickly but failed to put adequate fraud prevention measures in place. One impact of these decisions is apparent in the high levels of estimated fraud,’ said NAO boss Gareth Davies. 

In the March Budget, the Chancellor announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes. 

A Department of Business spokesman said: ‘The Government support schemes have provided a lifeline to millions of businesses across the UK – helping them survive the pandemic and protecting millions of jobs.

‘We are continuing to crack down on Covid-19 fraud and will not tolerate those that seek to defraud the British taxpayer. 

‘We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences.’

MPs in November last year heard that Ministers knew six in ten bounce-back loans might never be repaid but ruled it was a ‘risk worth taking’.

Sarah Munby, permanent secretary at the Department for Business, Energy and Industrial Strategy, said the Government was ‘absolutely concerned about fraud’ when the scheme launched in May.

She told the public accounts committee that ministers took the view that ‘to act was better than not to act’, adding: ‘Those estimates we used at the time around the potential loss rising up to 60 per cent…that was a risk that people were prepared to take.’  

Sir Tom Scholar, permanent secretary at the Treasury, said Mr Sunak approved the riskier loan scheme because he was worried that without it hundreds of thousands of businesses might ‘go bust’.   

The Government only put in some basic anti-fraud checks on the small Covid loans it was providing to businesses once more than £28 billion had already been paid out, the spending watchdog has said

The ‘Covid fraudsters stealing from the Government’s bounce back loan scheme’ 

SHEHROZ MUKHTIAR

Shehroz Mukhtiar, who runs a printing business in Luton, told how dormant firms could claim loans

Posing as a potential buyer, a Mail on Sunday undercover reporter contacted a trader on eBay who was offering two companies, each with ‘No debs/no loans/no BBLS’. 

The seller gave his name as Shehroz Mukhtiar and when asked if he would sell one of the firms, he breezily replied: ‘Is it for bounce back purposes?’

Told that it was, he explained that he had a dormant company called Bexetex Ltd which was set up in 2014 and available for a cut-price £1,000 because it didn’t have a business bank account.

Despite it being obvious to him that any BBLS claim using the firm would be fraudulent, he offered advice on how to apply. ‘Make the accounts for dormant companies and then apply… That’s the only option left, otherwise it’s hard, if you don’t have the bank account.’

The 30-year-old had advertised another company, Healthenviro Ltd, which did have a business bank account, for £9,000. But he said he had sold it two days earlier.

Mr Mukhtiar agreed he would make the buyer a director of the firm as soon as he was paid. He also offered to backdate the appointment to last March. By doing so, he said there would be less chance of the bank suspecting fraud. ‘If you are looking for bounce back, you have to backdate it. If it’s not backdated, the banks will decline it… I’ve done that for a few customers.’

He claimed to have sold several firms to people intending to submit loan claims. According to Companies House, he has resigned as a director of ten firms since September.

Once we agreed a deal, Mr Mukhtiar, who runs a printing business in Luton, sent his bank details and a contract. But instead of a deal, Mr Mukhtiar received a call from The Mail on Sunday asking him to explain his conduct.

He hung up but later sent a message on WhatsApp, stating: ‘I am not involved in BBLS fraud. I have not applied for BBLS on your behalf. What you do after the purchase of the company only you are liable for, per the contract. Dormant companies were being sold prior to BBLS in good faith. Should you have applied for BBLS, it would be for you to honour the terms.’

ZOHAIB BUTT AND IMRAN KHAN 

Fraudsters Zohaib Butt (pictured) and Imran Khan, operating out of a south London office block, have been swindling the taxpayer by arranging fake bounce back loans worth tens of thousands of pounds a time

Fraudsters Zohaib Butt and Imran Khan, operating out of a south London office block, have been swindling the taxpayer by arranging fake bounce back loans worth tens of thousands of pounds a time.

Reporters, posing as businessmen facing financial difficulties, were offered fake tax returns so that they could show they had a turnover of £200,000 – meaning they could apply for the maximum £50,000 Government-backed bounce back loan available.

Two consultants demanded £6,000 in cash to submit these false accounts to HMRC so the loan could be processed.

The scammers then promised to ‘eliminate’ the paperwork as soon as the £50,000 loan was handed over – to avoid the client becoming liable for tax on the figures stated on the bogus return.

An undercover reporter approached the firm, saying that he had applied for a bounce back loan for his business but had been told by his bank he required a tax return for the previous year, which he did not have.

A man calling himself Imran Khan said he could arrange a tax return and explained that under the scheme the loan amount would be for a quarter of the client’s stated turnover.

Without taking any details about the proposed client’s genuine turn­over or identity – other than looking at two bank cards, one a business account – he said: ‘We will prepare accounts for £200,000, and on that basis you would get a £50,000 loan.’

At a second meeting, held just outside the office for secrecy, Khan assured the undercover reporter he had done it before and there would be ‘no problem’.

He added: ‘You do not mention our name or who helped you to sort this out, who filled this tax return and who got it cancelled.

Fraudsters Zohaib Butt and Imran Khan (pictured), operating out of a south London office block, have been swindling the taxpayer by arranging fake bounce back loans worth tens of thousands of pounds a time

‘Do not even mention this to anybody.’ He reassured the reporter that his fee included reversing any tax liability. It is believed he does this by withdrawing the tax return from HMRC after the loan is processed, saying the return had been filed by mistake.

He said: ‘[That’s] why we are charging £6,000…..our fee is for this job [so] that you do not get a letter. It’s all professional.’

Once the loan form was submitted, he said, the cash should be in his account in between seven and ten days. Asked about payment, he replied that once the loan had been processed, ‘I will come to you. We will go to the bank and withdraw the money.’

To maintain secrecy, he said, all future communication should be by phone. Khan called a few days later saying the fake returns were ready and asking for our reporter’s taxpayer reference so he could submit them to HM Revenue & Customs.

Businesses can apply for a bounce back loan only if they are based in the UK and were a registered company before March 1 this year. But the fraudsters offered another way to get a bounce back loan – by selling pre-registered shell companies for clients with no business account.

They also arranged business bank accounts for clients and used these to make loan applications. When a second undercover reporter asked about doing this for his wife, another consultant – who was using the name Zohaib Butt – confirmed it could be done. Khan later explained he could sell the reporters a company for £5,000 to £7,000.

Later that evening, Khan called one of the reporters, confirming that he could set up a company and business account for the reporter’s wife and apply for a bounce back loan in her name at a cost of £6,000.

When the Mail confronted Imran Khan, he said he had not made the fake accounts himself and did not know how to so. He just provided the information to others who would do the work, he said, insisting he had done nothing wrong himself.

Zohaib Butt did not respond to requests for comment.

The bounce back loans propped up 1.5 million businesses, potentially saving many from bankruptcy. Many businesses were also paid within 24 to 48 hours of submitting an application (stock image)

The Government has underwritten 80 per cent of all CBILS loans and 100 per cent of BBLS lending – though banks will probably need to exhaust all their options before asking the taxpayer.

Some lenders have already started paying to have companies reinstated on Companies House in an attempt to recover the debt.

How it works in five easy steps

1 Fake a tax return to show turnover of over £200,000 in client’s name – meaning they can claim the maximum £50,000. 

2 Link this either to the name of the client’s ailing business – or to an off-the-shelf shell company registered before March 1, 2020. 

3 For those clients without one, set up a business bank account in their name.

4 Submit the bounce back loan application – and collect a £6,000 fee from the client in cash as soon as the money is paid. 

5 After the £50,000 loan is banked, tell Treasury the tax return was a mistake – to avoid any tax liability on the fake turnover. 

The bounce back loans propped up 1.5 million businesses, potentially saving many from bankruptcy. 

Many businesses were also paid within 24 to 48 hours of submitting an application.

Instead, the Government has focused on detecting problems after the loans have been paid out. But the NAO criticised some of the approach to this.

The business department has used the National Investigation Service (Natis), a law enforcement body, to track down major fraud in the scheme.

But Natis only has the capacity to pursue at most 50 cases per year. It received more than 2,100 intelligence reports by October this year.

Meanwhile, the Government is relying on banks to police midsize and small fraud. 

Banks provided the loans to businesses, but Ministers have promised to fully reimburse the lenders if loans are not repaid. 

By April, lenders claimed to have stopped nearly £2billion in fraudulent loans from going out, and discovered £5.3million that had been paid.

The scheme was administered by the British Business Bank on behalf of the Government.

The bank’s chief executive Catherine Lewis La Torre said: ‘The bank welcomes the NAO’s findings that ”most of the loans – over 90 per cent, or £39.7billion – went to micro-businesses” and that ”businesses have found the loans useful to address cashflow shortages during the pandemic”. 

‘This is supported by the bank’s own research which finds ”that about 70 per cent used the funds for working capital and day-to-day expenses”.

‘The bank also welcomes the finding that ”most businesses have started to repay loans”, evidenced by recent data published by the Department for Business, Energy & Industrial Strategy (BEIS) and the bank, showing the overwhelming majority of businesses are meeting their monthly repayments.

‘From the launch of the scheme, the British Business Bank has worked with lenders and across government to prevent, detect and counter fraud and put in place as quickly as possible additional measures to further mitigate fraud risks.’ 

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes. 

Federation of Small Businesses national vice chair Martin McTague said: ‘When they created Bounce Back Loans last summer, the Government and British Business Bank were faced with an extremely difficult task: getting cash into as many of these small firms as possible, as quickly as possible, whilst rightly doing all they could to shut out fraudsters in a fast-moving situation.

‘After weeks of the original interruption loan scheme simply not working for the smallest firms most in need, hold ups with the bounce back programme would have been catastrophic.’

David Clarke, chairman of the Fraud Advisory Panel charity and the former head of the police’s National Fraud Intelligence Bureau, said: ‘We forecast that crooks would use middle men to help them commit fraud to get their hands on taxpayer-backed loans. ‘

Being transparent and publishing who received these loans as we called for is crucial.’

He added: ‘My plea to whistleblowers is report anything that looks dodgy.’

Liberal Democrat Treasury spokesman Christine Jardine said: ‘People will be horrified to learn that the system many have relied on may have been abused by fraudsters.

‘The Government must ensure that people are not able to profit from abuse of the system.

‘We need to ensure checks and balances are proportionate and manageable for businesses, without being an open door for criminals. This is yet another reason why we need an urgent inquiry into the Government’s handing off every aspect of this crisis. Otherwise we risk seeing mistakes repeated time and again.’  

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