Three arrested over Bounce Back Loan Scheme fraud with 60% expected to remain unpaid

Three people were arrested in Birmingham last month for fraudulently claiming £145,000 from the UK government’s Bounce Back Loan Scheme.

Officers from the National Investigation Service (NATIS) and the National Crime Agency (NCA) carried out the raids in Birmingham on 30 October.

The arrests were said to be the ‘first of many’ against those who abused the government loan scheme put in place to help small businesses survive the COVID-19 pandemic.

Michael Dineen, Deputy Director of NATIS, said of the arrests: “This is the first of many operations planned by my officers to target the abuse of the Bounce Back Loan Scheme. We will continue the great work seen here, alongside our colleagues from other Law Enforcement agencies, to catch and prosecute these criminals”.

Estimates from the NCA and others have suggested that 60% of these loan schemes could go unpaid if something isn’t done to crack down on fraudsters. But what is the Buy Back Loan Scheme and how is it abused?

What is the Bounce Back Loan Scheme?

For those of you who don’t know, the Bounce Back Loan Scheme (BBLS) was put in place by the UK government to help small and medium-sized businesses survive the pandemic.

Businesses are able to borrow between £2,000 and up to 25% of their turnover as long as it stays under the maximum limit of £50,000. These loans come with no fees or interest to pay for 12 months, which rises to 2.5% interest the following year.

The government also guarantees 100% of the loan which means that if your business goes under and can no longer pay the lender back, the government will step in and pay it for you.

These loans are still available until 31 January 2021 to any business based in the UK that was established before 1 March 2020 and has been adversely affected by the COVID-19 pandemic.

How has the BBLS been abused?

In order to get these loans out as quickly as possible, the UK government put pressure on lenders to approve them within 48 hours. This didn’t give the lenders enough time to conduct the level of Know Your Customer (KYC) checks needed to identify risks or fraudulent activity.

There were no controls in place to restrict a business to a single BBLS application, allowing some to apply for the scheme multiple times and exceed the £50,000 limit.

On top of this, businesses who weren’t financially stable were given loans, so, if these companies fail, the 100% payback guarantee from the government will see the taxpayer refunding the loans to lenders in their place.

How many loans are expected to remain unpaid?

The National Audit Office has said between £15bn and £26bn could be lost through fraud and businesses’ inability to repay their loans. With £36.9bn delivered from the BBLS already, this means that up to 60% of loans could go unpaid.

The chances of prosecuting companies that have abused the scheme appears to be low, as false applications in the UK have gone almost entirely unreported with less than 0.5% of the expected cases being identified to the police.

What does this mean for businesses that used the BBLS?

With the government expected to miss most cases of BBLS fraud, they are likely to scrutinise the businesses that used the scheme to see if they can weed out the fraudsters. The government might refuse to pay back any loans they consider fraudulent, and businesses who took out loans will have to prove their innocence.

We are only a matter of weeks away from businesses needing to repay banks and a particular concern is that some of the money used to pay them back could be the proceeds of crime and banks need to try to identify this risk.

In order to do this, businesses might have to undergo a more rigorous KYC check than they went through to get the loan the first time. This could take valuable time away from businesses and add stress to what has already been a stressful year.

Get advice on Bounce Back Loan fraud from specialist serious fraud defence solicitors in Bournemouth

If you have taken out a Buy Back Loan Scheme for your business, believe you may have made an error when making a claim or you are facing investigation for Bounce Back Loan fraud, get in touch.

Our expert serious fraud defence solicitors are here to help you with any enquiry you have on the BBLS, all you need to do is give us a call at our offices in Bournemouth, email or fill out our online enquiry form.