The Financial Times has called it a “bonfire of taxpayers’ money”. All over the UK, businesses, including law firms, architects, and surveyors have been or are at risk of being exploited by criminals to defraud the Government’s Job Retention Scheme (Furlough Scheme) and Bounce Back Loans Scheme.
In July 2020, two people were arrested on suspicion of creating a scam to defraud the Treasury of £500,000. According to the Independent , the main suspect had been recruiting people to set up fake companies and launder money, which was to come from the Bounce Back Loan Scheme. And in October, three people were arrested in Birmingham on suspicion of involvement in a £145,000 fraud involving bounce back loans. Separately, a human resources manager in Essex has been accused of trying to steal £240,000 in bounce back loans, using claims from oblivious employees on the payroll.
Loopholes provide a goldmine for criminal gangs
In the first two months of the Bounce Back Loan Scheme, high street banks rejected hundreds of fraudulent applications . In a letter published by the British Business Bank to the House of Commons’ public accounts committee (PAC), chief executive Catherine Lewis La Torre said that 26,933 loans had been rejected by banks as fraudulent since the Scheme’s May launch. Based on bank data, the British Business Bank calculated the fraudulent loans would have resulted in £1.1bn of lost money — had they not been stopped.
To access the Bounce Back Loan Scheme, criminals used common tactics such as identity fraud and stolen credit card details. Mules have also been employed – people in financial difficulty recruited to borrow money on behalf of criminals and then declare themselves bankrupt.
“This is basically [a criminal’s] dream scenario ,” a person familiar with the banks’ internal reviews told the FT. “An incredibly lucrative fraud that requires very little work and has almost no chance of law enforcement action.”
Protecting your business from fraudulent activity
There are several steps you can take to protect your business from becoming victim to fraudulent activity. All regulated professions, especially those connected with real estate such as architects, surveyors, and solicitors must have strict anti-money laundering policies and procedures in place. However, if staff are not trained, or systems prove lax, money laundering can go undetected. This was seen in the results from the SRA’s Anti-Money Laundering Visits 2019/20 Report which was published on 25 November 2020.
When it comes to preventing fraud, the following practices, amongst others, should be in place in all businesses:
- Know your suppliers, customers, employees, and assets. The best way to protect yourself is to conduct suitable due diligence on anyone who comes into contact with your organisation. At a minimum, this will involve checking proof of identity and address. However, when it comes to clients, more in-depth checks will be required if the instruction comes from abroad and/or they are paying in cash. Regarding employees, background and reference checks are essential to ensure they are who they say they are and have not been suspected of any fraudulent behaviour in the past.
- Watch out for attempts to steal your organisation’s corporate identity. As well as shredding confidential documents, make sure that sensitive data is stored securely and tightly encrypted. Also, check your company’s registered details and sign up for any services offered by government agencies to protect your business information (such as the PROtected Online Filing or ‘PROOF’ scheme offered by UK Companies House).
- Regularly monitor your business’s finances and be on the alert for any loan applications that you have not authorised. Only provide your bank details to clients/suppliers you know and avoid doing so by email.
The true extent of the fraud surrounding the Bounce Back Loan Scheme and Job Retention Scheme will not be known for many months. However, some unsuspecting businesses will likely come under investigation following the uncovering of fraudulent activity connected to them. If HMRC show any indication that your organisation is being scrutinised, seek expert legal advice immediately. Early guidance from someone who understands regulatory investigations can drastically mitigate the risk of further action being taken.
We have been helping solicitors and other legal professionals with disciplinary and regulatory advice for 25 years. If you have any questions relating to an SRA investigation or an SDT appearance, please call us on 0151 909 2380 or complete our Free Online Enquiry.